REPUBLIC OF THE MARSHALL ISLANDS ___________________________________________ BASIC FINANCIAL STATEMENTS, ADDITIONAL INFORMATION AND INDEPENDENT AUDITORS' REPORT ___________________________________________ YEAR ENDED SEPTEMBER 30, 2020 REPUBLIC OF THE MARSHALL ISLANDS FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2020 TABLE OF CONTENTS Page No. I. Independent Auditors' Report 1 II. Management’s Discussion and Analysis 4 III. Basic Financial Statements Government-Wide Financial Statements: Statement of Net Position 18 Statement of Activities 19 Governmental Fund Financial Statements: Balance Sheet 20 Statement of Revenues, Expenditures, and Changes in Fund Balances 21 Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 22 Fiduciary Fund Financial Statements: Statement of Fiduciary Net Position 23 Statement of Changes in Fiduciary Net Position 24 Discretely Presented Component Unit Financial Statements: Combining Statement of Net Position 25 Combining Statement of Revenues, Expenses and Changes in Net Position 26 Notes to the Basic Financial Statements 27 IV. Required Supplementary Information - Other than Management’s Discussion and Analysis 70 Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund 71 Notes to Required Supplementary Information - Budgetary Reporting 72 V. Other Supplementary Information 73 Combining Schedule of Expenditures by Account - Governmental Funds 74 General Fund: 75 Statement of Revenues, Expenditures by Function, and Changes in Fund Balance (Fund 100100) 76 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual (Fund 100100) 78 REPUBLIC OF THE MARSHALL ISLANDS FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2020 TABLE OF CONTENTS, CONTINUED Page No. V. Other Supplementary Information, Continued Nonmajor Governmental Funds - Special Revenue Funds: 81 Combining Balance Sheet 84 Combining Statement of Revenues, Expenditures by Function, and Changes in Fund Balances (Deficits) 86 Combining Statement of Revenues, Expenditures by Account, and Changes in Fund Balances (Deficits) 88 Fiduciary Funds - Private Purpose Trusts: 90 Combining Statement of Fiduciary Net Position 91 Combining Statement of Changes in Fiduciary Net Position 92 Fiduciary Funds - Agency: 93 Statement of Changes in Assets and Liabilities 94 Nonmajor Component Units: 95 Combining Statement of Net Position 97 Combining Statement of Revenues, Expenses, and Changes in Net Position 98 Grants Assistance Fund: 99 Combining Balance Sheet 101 Combining Statement of Revenues, Expenditures by Functions, and Changes in Fund Balances (Deficits) 102 Combining Statement of Revenues, Expenditures by Account, and Changes in Fund Balances (Deficits) 103 Compact of Free Association Sector Grants: 104 Combining Balance Sheet 106 Combining Statement of Revenues, Expenditures by Function, and Changes in Fund Balances (Deficits) 107 Combining Statement of Revenues, Expenditures by Account, and Changes in Fund Balances (Deficits) 108 General Fund: 109 Combining Balance Sheet 111 Combining Statement of Revenues, Expenditures by Function, and Changes in Fund Balances (Deficits) 112 Combining Schedule of Expenditures by Account 113 Deloitte & Touche LLP 361 South Marine Corps Drive Tamuning, GU 96913-3973 USA Tel: +1 (671) 646-3884 Fax: +1 (671) 649-4265 www.deloitte.com INDEPENDENT AUDITORS' REPORT His Excellency David Kabua President Republic of the Marshall Islands: Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Republic of the Marshall Islands (RepMar) as of and for the year ended September 30, 2020, and the related notes to the financial statements, which collectively comprise RepMar’s basic financial statements as set forth in Section III of the foregoing table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements 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 entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. -1- Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the Republic of the Marshall Islands as of September 30, 2020, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis-of-Matters Federal Grants Receivable As discussed in Note 3 to the financial statements, RepMar is currently negotiating with federal grantor agencies to determine the ultimate collectability of certain receivables from federal agencies. Social Security Obligations As discussed in Note 13 to the financial statements, the Marshall Islands Social Security Administration may be unable to meet its future benefit obligations. COVID-19 As discussed in Note 14 to the financial statements, RepMar determined that the COVID-19 pandemic may negatively impact its financial position. Our opinion is not modified with respect to these matters. Other Matters Required Supplementary Information: Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, as set forth in Section II of the foregoing table of contents, as well as the Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - General Fund, as set forth in Section IV of the foregoing table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. -2- Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise RepMar’s basic financial statements. The supplementary information, as set forth in Section V of the foregoing table of contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 13, 2022 on our consideration of RepMar’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of RepMar’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering RepMar’s internal control over financial reporting and compliance. May 13, 2022 -3- REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 As management of the Government of the Republic of the Marshall Islands (RepMar), we offer readers of RepMar’s financial statements this narrative overview and analysis of the financial activities of RepMar for the fiscal year ended September 30, 2020. We encourage readers to consider the information presented here in conjunction with RepMar’s basic financial statements, which follow this section. Fiscal year 2019 comparative information has been included, where appropriate. FINANCIAL HIGHLIGHTS · The assets of RepMar exceeded its liabilities at the close of the most recent fiscal year by $168.2 million (net position), increasing by $18.6 million (or 12%) from $149.6 million in the prior year. Of this amount, $69.7 million represents RepMar’s investment in capital assets; $103.3 million represents amounts restricted for various purposes, with the remaining deficiency of $4.8 million to be funded from future governmental activities. · During the current fiscal year, RepMar’s expenses for governmental activities were $169.3 million, including special appropriations made to State-Owned Enterprises, and were funded in part by $89.3 million in program revenues and $85.8 million in taxes and other general revenues. Program revenues increased by $16.3 million (or 22%) from $73 million in the prior year to $89.3 million, which was attributable primarily to the increase in operating grants and contributions. Taxes and other general revenues increased by $0.5 million (or 1%) from $85.3 million in the prior year to $85.8 million, which was attributable primarily to the increase in contributions from component units offset by the decrease in ship registry and tax receipts. Expenses increased by $6.8 million (or 4%) from $162.5 million in the prior year to $169.3 million, which was attributable primarily to an increase in mitigation expenses associated with the COVID-19 pandemic. · The Compact Trust Fund experienced an increase in fund balance of $11.5 million in the current fiscal year ending with a trust fund balance of $86.1 million, up from $74.6 million in the prior year. This increase included a $5 million deposit from the General Fund. · For the current fiscal year, General Fund revenues (and other financing sources) of $99.8 million exceeded General Fund expenditures (and other financing uses) of $93.6 million by $6.2 million. General fund revenues (and other financing sources) were up $14.2 million (or 17%) from prior year primarily due to an increase in grant receipts of $13.3 million (or 273%), which included grant receipts of $6 million and $1 million, respectively, from the World Bank and Republic of China to fund COVID-19 pandemic mitigation costs and $5 million under the Compact of Free Association for deposit into the Compact Trust Fund. Concurrently, General Fund expenditures (and other financing uses) were up $7.9 million (or 9%) from prior year primarily due to an increase in ministry expenditures of $2 million (or 3%), debt service costs of $3.5 million (or 91%), and other uses of $2.4 million (or 49%). OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to RepMar’s basic financial statements, which comprise of the following three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains additional required supplementary information in the form of a budgetary schedule, which is prepared on the budgetary basis of accounting, and other supplementary information, in addition to the basic financial statements themselves, which includes combining statements for governmental funds, fiduciary funds and component units. Government-wide Financial Statements The government-wide financial statements are designed to provide readers with a broad overview of RepMar’s finances, in a manner similar to a private-sector business. The statement of net position presents information on all of RepMar’s assets and liabilities, with the difference between the two reported as net position. All of the current year’s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. These two government-wide financial statements report RepMar’s net position and how such has changed. Net position, being the difference between RepMar’s assets and liabilities, is one way to measure RepMar’s financial health or position. Over time, increases or decreases in RepMar’s net position is an indicator of whether its financial health is improving or deteriorating, respectively. To assess the overall health of RepMar, additional non-financial factors such as changes in RepMar’s tax base, the condition of RepMar’s roads and infrastructure, and the quality of services needs to be considered. -4- REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 The government-wide financial statements of RepMar are divided into two categories: · Primary government - this grouping comprises governmental activities, which includes most of RepMar’s basic services such as education, health, special appropriations, finance, judiciary, and general administration. Compact and other federal grants finance most activities of the primary government. · Discretely presented component units - RepMar includes numerous other entities in its report. Although legally separate, these “component units” are important because RepMar is financially accountable for them. The government-wide financial statements can be found on pages 18 and 19 of this report. Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. RepMar, like other governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal matters. · Some funds are required by Nitijela legislation. · RepMar establishes other funds to control and manage money for particular purposes (like the Republic of China Projects Fund) or to show that it is properly using certain grants (like federal grants reported in the U.S. Federal Grants Fund). All of the funds of RepMar can be divided into two categories - governmental and fiduciary. Governmental funds - These are used to account for essentially the same functions reported as government activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund financial statements provide a detailed short-term view of RepMar’s general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance RepMar’s programs. The basic governmental fund financial statements can be found on pages 20 and 21 of this report. Fiduciary funds - These are used to account for resources held for the benefit of parties outside of the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support RepMar’s own programs. RepMar is the trustee, or fiduciary, for other assets that because of trust arrangements, can be used only for the trust beneficiaries. RepMar is responsible for ensuring that the assets reported in these funds are used for their intended purposes. All of RepMar’s fiduciary activities are reported in a separate statement of fiduciary net position and a statement of changes in fiduciary net position. The basic fiduciary fund financial statements can be found on pages 23 and 24 of this report. Discretely presented component unit financial statements are presented for entities where RepMar has financial accountability but are independent of the core RepMar operations. Most operate similar to private-sector businesses. The discretely presented component unit financial statements can be found on pages 25 and 26 of this report. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 27 through 69 of this report. -5- REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 Other Information In addition to the basic financial statements and accompanying notes, this report also presents certain required supplementary information concerning budgetary comparisons. Required supplementary information can be found on pages 70 through 72 of this report. The other supplementary information referred to earlier is presented immediately following the required supplementary information on budgetary comparisons and can be found on pages 73 through 113 of this report. A FINANCIAL ANALYSIS OF REPMAR AS A WHOLE Net Position As noted earlier, net position may serve over time as a useful indicator of a government’s financial position. In the case of RepMar, assets exceeded liabilities by $168.2 million at the close of the most recent fiscal year; however, such is either restricted as to the purpose it can be used for or is invested in capital assets. RepMar uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although RepMar’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate the liabilities. The majority of RepMar’s net position is comprised of its capital assets and long-term liabilities. Current assets and liabilities are amounts that are available in the current period and obligations that will be paid within one year, respectively. RepMar’s current assets amounted to $63.6 million (up from $51.8 million in the prior year) while current liabilities were $28.4 million (up from $25.8 million in the prior year). Restricted net position represents resources that are subject to external constraints. The table below summarizes RepMar’s net position at the close of the current year compared with prior year. RepMar’s Net Position As of September 30 Governmental Governmental Total $ Total % Activities Activities Change Change 2020 2019 2020-2019 2020-2019 Current and other assets $ 159,412,670 $ 137,327,866 $ 22,084,804 16% Capital assets 86,341,081 86,788,350 (447,269) (1)% Total assets 245,753,751 224,116,216 21,637,535 10% Long-term debt outstanding 50,141,875 49,204,411 937,464 2% Current and other liabilities 27,437,691 25,340,553 2,097,138 8% Total liabilities 77,579,566 74,544,964 3,034,602 4% Net position: Net investment in capital assets 69,645,290 73,402,887 (3,757,597) (5)% Restricted 103,343,761 90,560,229 12,783,532 14% Unrestricted (4,814,866) (14,391,864) 9,576,998 (67)% Total net position $ 168,174,185 $ 149,571,252 $ 18,602,933 12% At the end of the current fiscal year, RepMar’s unrestricted net position deficiency was $4.8 million, a decrease in the prior year amount by $9.6 million (or 67%). This deficiency is the result of having long-term commitments that are greater than currently available resources. Specifically, RepMar did not include in past annual budgets the full amounts needed to finance future liabilities arising from ADB loans as well as to pay for unused employee annual leave balances. RepMar will include these amounts in future years’ budgets as they become due. Total liabilities increased by $3 million (or 4%) from the prior year amount of $74.5 million to $77.5 million, which was primarily attributable to an increase in current liabilities of $2.6 million (or 49%) due primarily to an increase in accounts payable of $2.5 million. -6- REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 Changes in Net Position As discussed earlier, net position of the primary government increased by $18.6 million, which represents an increase of 12% from the prior year’s amount of $149.6 million. This result indicates that RepMar’s financial condition, as a whole, improved from the prior year. The table below summarizes RepMar’s change in net position for the current fiscal year as compared with prior year. RepMar’s Changes in Net Position For the Years Ended September 30 Governmental Governmental Total $ Total % Activities Activities Change Change 2020 2019 2020-2019 2020-2019 Revenues: Program revenues: Charges for services $ 12,973,991 $ 13,359,165 $ (385,174) (3)% Operating grants and contributions 69,719,490 52,661,103 17,058,387 32% Capital grants and contributions 6,712,433 7,046,145 (333,712) (5)% 89,405,914 73,066,413 16,339,501 22% General revenues: Taxes 33,537,102 34,188,126 (651,024) (2)% Grants and contributions 44,303,658 41,737,941 2,565,717 6% Ship registry 7,386,364 8,426,462 (1,040,098) (12)% Other general revenues 553,326 922,251 (368,925) (40)% 85,780,450 85,274,780 505,670 1% Total revenues 175,186,364 158,341,193 16,845,171 11% Expenses: Education, sports and training 35,500,180 37,486,365 (1,986,185) (5)% Health and human services 31,825,346 33,164,824 (1,339,478) (4)% Finance, banking and postal services 17,129,431 13,659,273 3,470,158 25% Special appropriations 11,434,928 14,024,652 (2,589,724) (18)% Foreign affairs and trade 4,939,332 4,984,833 (45,501) (1)% Works, infrastructure and utilities 7,404,422 10,071,915 (2,667,493) (26)% Justice, immigration and labor 4,640,671 4,536,466 104,205 2% Culture and internal affairs 6,439,682 5,333,601 1,106,081 21% Capital projects 7,461,664 5,883,065 1,578,599 27% Natural resources and commerce 10,278,185 10,238,980 39,205 0% Transportation, communication and information technology 6,280,728 5,796,938 483,790 8% President and cabinet 2,229,914 2,565,944 (336,030) (13)% Nitijela 2,200,120 2,568,976 (368,856) (14)% Nuclear claims related 1,680,238 1,583,812 96,426 6% Interest 715,604 613,574 102,030 17% Other 19,186,767 9,968,791 9,217,976 92% Total expenses 169,347,212 162,482,009 6,865,203 4% 5,839,152 (4,140,816) 9,979,968 (241)% Special item - loss on SDR revaluation (1,227,718) - (1,227,718) Contributions to permanent funds 13,991,499 389,147 13,602,352 3495% Change in net position 18,602,933 (3,751,669) 22,354,602 (596)% Net position, beginning of year 149,571,252 153,322,921 (3,751,669) (2)% Net position, end of year $ 168,174,185 $ 149,571,252 $ 18,602,933 12% -7- REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 Key elements of the change in net position are as follows: · Total revenues increased by $16.8 million (or 11%) compared with prior year. Program revenues increased by $16.3 million (or 22%) as compared with prior year while general revenues increased by $0.5 million (or 1%) as compared with prior year. The increase in program revenues reflects a $17 million (or 32%) increase in operating grants and contributions offset by a $0.4 million (or 3%) decrease in charges for services and a $0.3 million (or 5%) decrease in capital grants and contributions. The increase in operating grants and contributions reflects the receipt of donor grant funds from the World Bank ($7.6 million), the U.S. Department of the Interior ($3 million), and the Republic of China ($1 million) to fund COVID-19 pandemic mitigation costs. · At the same time, cost of governmental activities increased in the current year by $6.8 million (or 4%) as compared with prior year, which was attributable primarily to an increase in mitigation expenses associated with the COVID-19 pandemic. · The Compact Trust Fund experienced an increase in fund balance of $11.5 million in the current fiscal year, increasing RepMar’s trust fund balance to $86.1 million from $74.6 million in the prior year (up 15%). The increase was primarily the result of investment earnings of $9 million, which substantially increased from the earnings experienced in prior year of $0.4 million due to external global financial market forces, as well as a $5 million deposit from the General Fund funded by a Section 216 Compact grant. A significant portion of RepMar’s program revenues involve contributions from the Government of the United States under the Compact of Free Association. Overall funding from Compact sector grant revenues increased by $0.4 million (or 1%) from prior year primarily due to an increase in education and health sectors offset by a decrease in public infrastructure sector activities. A graphic summary of overall Compact sector grant revenues received by RepMar for the current year compared with the prior year follows: Graph 1 RepMar’s Compact Revenues For the Years Ended September 30 Public Infrastructure Sector Education Sector 2020 Health Sector 2019 Landowner Special Needs Other 0 5 10 15 20 25 Dollars ($ millions) A significant portion of RepMar’s general revenues involves tax revenue collections. At $33.5 million in the current year, tax revenues decreased marginally by $0.7 million (or 2%) compared with $34.2 million collected in the prior year. -8- REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 A graphic summary of RepMar’s tax revenue collections for the current year compared with the prior year follows: Graph 2 RepMar’s Tax Revenues For the Years Ended September 30 Income taxes Import taxes 2020 Gross revenue taxes 2019 Immovable property Other 0 2 4 6 8 10 12 14 16 18 Dollars ($ millions) Graphs 3 and 4 below indicate the major components of revenues and cost of governmental activities. Graph 3 RepMar’s Revenue Sources For the Year Ended September 30, 2020 Compact funding 0% Taxes 18% 24% Federal & other grants 8% Ship registry 19% 27% Charges for services 4% Contributions from component units Other Compact funding, local taxes and federal and other grants are the major sources of revenue for RepMar, which comprise 70% of total revenues for the current year. The remaining 30% is primarily comprised of ship registry fees, fishing revenue contributions from MIMRA, and various fees and service charges. -9- REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 Graph 4 RepMar’s Cost of Governmental Activities For the Year Ended September 30, 2020 Other expenses that make up a portion of the costs of governmental activities include ministerial expenses within the Ministry of Transportation, Communication and Information Technology ($6.3 million), the Ministry of Culture and Internal Affairs ($6.4 million), the Ministry of Foreign Affairs and Trade ($4.9 million), and the Ministry of Justice, Immigration and Labor ($4.6 million); legislative expenses within the Nitijela ($2.2 million); and executive expenses within the Office of Chief Secretary ($11.6 million) and the President’s Office and Cabinet ($2.2 million). Graphs 5 and 6 below show a comparison of the major components of revenues and cost of governmental activities for the current year compared with the prior year follows: Graph 5 RepMar’s Revenue Sources For the Years Ended September 30 Compact funding Revenue Type Federal & other grants Taxes 2020 Charges for services 2019 Contributions from component units Other 0 5 10 15 20 25 30 35 40 45 50 Dollars ($ millions) - 10 - REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 Graph 6 RepMar’s Cost of Governmental Activities For the Years Ended September 30 Education Health Expense Category Finance Special appropriations Transportation 2020 Public works 2019 Natural resources Capital projects Other 0 5 10 15 20 25 30 35 40 45 Dollars ($ millions) Other expenses in the current year includes ministerial expenses within the Ministry of Foreign Affairs and Trade of $4.9 million, down from $5 million in the prior year; the Ministry of Justice, Immigration and Labor of $4.6 million, up from $4.5 million in the prior year; the Ministry of Culture and Internal Affairs of $6.4 million, up from $5.3 million in the prior year; legislative expenses within the Nitijela of $2.2 million, down from $2.6 million in the prior year; and executive expenses within the Office of the Chief Secretary of $11.6 million, up from $2.4 million in the prior year, and the President’s Office and Cabinet of $2.2 million, down from $2.6 million in the prior year. Analysis of Changes in Net Position During the current fiscal year, RepMar’s total net position increased by $18.6 million compared with a decrease in the prior fiscal year of $3.7 million. This represents an increase year-on-year in the change in net position of $22.3 million (or 596%). The key elements of this year-on-year increase are: (1) an increase in Compact Trust contributions and earnings of $13.6 million; (2) and a decrease in expenses, net of program revenues, of $9.5 million. Compact Trust contributions and earnings increased by $10.8 million (or 1,698%) from the previous year. The increase was primarily due to an increase in investment earnings of $8.6 million (or 2,211%) and a net increase in contributions of $2.2 million (or 900%). Expenses, net of program revenues, decreased by $9.5 million (or 11%) from the previous fiscal year. The decrease was primarily attributable to a decrease in the office of chief secretary of $3.7 million, environmental protection authority of $3.4 million, education, sport and training of $2.8 million, works, infrastructure and utilities of $2.1 million, and health and human services of $2 million offset by an increase in finance, banking and postal services of $3.7 million, and culture and internal affairs of $1 million compared with prior year. - 11 - REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 The elements of these changes are reflected below: RepMar’s Changes in Net Position For the Years Ended September 30 Governmental Governmental Total $ Total % Activities Activities Change Change 2020 2019 2020-2019 2020-2019 General revenues: Taxes $ 33,537,102 $ 34,188,126 $ (651,024) (2)% Grants and contributions 12,975,705 12,485,000 490,705 4% Contributions from component units 31,327,953 29,252,941 2,075,012 7% Ship registry 7,386,364 8,426,462 (1,040,098) (12)% Other general revenues 553,326 922,251 (368,925) (40)% Total general revenues 85,780,450 85,274,780 505,670 1% Expenses, net of program revenues: Education, sports and training 13,506,333 16,301,403 (2,795,070) (17)% Health and human services 6,013,868 7,987,487 (1,973,619) (25)% Special appropriations 11,434,928 11,953,845 (518,917) (4)% Finance, banking and postal services 6,795,558 3,062,873 3,732,685 122% Works, infrastructure and utilities 7,235,321 9,286,400 (2,051,079) (22)% Natural resources and commerce 10,235,942 10,203,170 32,772 0% Justice, immigration and labor 3,547,424 3,165,379 382,045 12% Culture and internal affairs 6,118,828 5,121,661 997,167 19% Foreign affairs and trade 4,846,972 4,884,768 (37,796) (1)% President and cabinet 2,229,914 2,565,944 (336,030) (13)% Capital projects (927,968) (778,024) (149,944) 19% Nitijela 2,200,120 2,568,976 (368,856) (14)% Transportation, communication and information technology 6,278,103 5,790,583 487,520 8% Nuclear claims related 24,233 (307,052) 331,285 (108)% Interest 715,604 613,574 102,030 17% Other (313,882) 6,994,609 (7,308,491) (104)% Total expenses 79,941,298 89,415,596 (9,474,298) (11)% 5,839,152 (4,140,816) 9,979,968 (241)% Special item - loss on SDR revaluation (1,227,718) - (1,227,718) Contributions to permanent fund 13,991,499 389,147 13,602,352 3495% Change in net position $ 18,602,933 $ (3,751,669) $ 22,354,602 (596)% - 12 - REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 FINANCIAL ANALYSIS OF REPMAR’S FUNDS As noted earlier, RepMar uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. Governmental Funds The focus of RepMar’s governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing RepMar’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, RepMar’s governmental funds reported combined ending fund balances of $138.8 million, which represents a net increase of $19.1 million (or 16%) in comparison with the prior year. This net increase is primarily attributable to an increase in the fair value of RepMar’s investments in the Compact Trust Fund of $9 million, loan proceeds of $3 million and $2 million, respectively, to fund the track and field Micronesian Games project and outer island copra price subsidy, a $5 million grant under the Compact of Free Association for deposit into the Compact Trust Fund, and Compact revenues in excess of grant expenditures of $1.5 million. The General Fund is the chief operating fund of RepMar. At the end of the current fiscal year, the unassigned fund balance of the General Fund was $10.3 million, an increase of $1 million from the prior year $9.3 million. Total fund balance was $29.7 million compared with a total fund balance of $23.5 million at the end of the prior fiscal year, an increase of $6.2 million. The Grants Assistance Fund has a total fund balance of $14.5 million, which primarily represents unexpended European Union, World Bank, Republic of China (ROC) and Compact Sector grants at year end. The net increase in fund balance during the current year in the Grants Assistance Fund was $1.1 million (or 8%). The Compact Trust Fund has a total fund balance of $86.1 million, all of which is reserved for the funding of future operations of the primary government commencing in fiscal year 2023. The net increase in fund balance during the current year in the Compact Trust Fund was $11.5 million (or 15%), which reflects a net increase in the value of trust fund investments of $9 million and a net transfer in of $2.5 million from the General Fund. GENERAL FUND BUDGETARY HIGHLIGHTS During the course of the fiscal year, budget revisions of $18.8 million were made by management and elected officials of RepMar to the General Fund budget. Revenues collected (including other financing sources) of $92.8 million were lower than budgeted amounts of $98.1 million (or $5.3 million) due primarily to lower than anticipated tax receipts, and interest and investment earnings, which fell short of budgeted amounts by $2.7 million and $2.4 million, respectively. In addition, charges to appropriations (including other financing uses) of $97.2 million were lower than budgeted amounts of $105.4 million due primarily to lower actual ministerial expenditures. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets RepMar’s investment in capital assets for its governmental activities as of September 30, 2020 amounted to $180.6 million, net of accumulated depreciation of $94.3 million, leaving a net book value of $86.3 million. This represents a decrease of $.5 million (or .6%) from the $86.8 million reported in the prior year. RepMar’s capital assets include electrical and water infrastructure, roads and bridges, heavy equipment, ships, buildings, and various projects under construction. - 13 - REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 The table below summarizes RepMar’s capital assets at the close of the current year compared with prior year. RepMar’s Capital Assets September 30, (Net of depreciation) Governmental Governmental Total $ Total % Activities Activities Change Change 2020 2019 2020-2019 2020-2019 Electrical distribution $ - $ 884,600 $ (884,600) (100)% Buildings 60,615,146 59,193,023 1,422,123 2% Water infrastructure system 364,420 728,839 (364,419) (50)% Docks, roads and bridges 5,281,936 6,030,878 (748,942) (12)% Ships 2,957,120 3,909,680 (952,560) (24)% Software 1,624,842 1,520,033 104,809 7% Heavy equipment 3,954,541 4,689,150 (734,609) (16)% Construction in progress 11,543,076 9,832,147 1,710,929 17% Total $ 86,341,081 $ 86,788,350 $ (447,269) (1)% Major capital asset additions during the current year were as follows: · Ongoing construction in progress of the following infrastructure projects: Current Year Estimated Completed Infrastructure Project Additions ($ millions) Cost ($ millions) KAJUR Gensets & Diesel Engines $ 2.34 $ 2.60 Track and Field 2022 Micronesian Games $ 2.51 $ 5.95 Ebeye Public School Classrooms (P1 & P2) $ 1.05 $ 6.59 Ebeye Hospital Isolation Ward $ 0.69 $ 0.75 Mid-Corridor Housing State $ 0.64 $ 1.92 Ebeye Beach Park $ 0.44 $ 0.75 Majuro Hospital Isolation Ward $ 0.67 $ 0.67 Border Management System $ 0.33 $ 0.77 · Acquisition of a new 100T air-cooled chiller in the amount of $0.3 million for the Ebeye Hospital. Additional information on RepMar’s capital assets can be found in note 5 to the financial statements. Long-term Debt The Government Borrowing Act of 1985 authorizes RepMar to borrow for such purposes as approved by the Nitijela. Since 1991, RepMar has entered into thirteen separate loans with the ADB (See table below). Long- term debt obligations increased by $1.7 million (or 3%) in the current fiscal year. - 14 - REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 The table below summarizes RepMar’s long-term debt at the close of the current year compared with prior year. RepMar’s Outstanding Debt Asian Development Bank September 30, Governmental Governmental Total $ Total % Activities Activities Change Change 2020 2019 2020-2019 2020-2019 Asian Development Bank: Fisheries Development Project $ 1,420,721 $ 1,692,380 $ (271,659) (16)% Typhoon Rehabilitation 256,555 274,992 (18,437) (7)% Basic Education Project 4,365,508 4,524,863 (159,355) (4)% Majuro Water Supply Project No. 1 329,321 403,408 (74,087) (18)% Health and Population Project 3,342,466 3,133,039 209,427 7% Majuro Water Supply Project No. 2 5,620,910 5,312,860 308,050 6% Public Sector Reform Program 8,083,290 7,903,538 179,752 2% Ebeye Health and Infrastructure Project 4,667,854 4,476,827 191,027 4% Skills Training and Vocational Education Project 2,702,058 2,769,385 (67,327) (2)% Fiscal and Financial Management Program No. 2 2,621,552 3,145,862 (524,310) (17)% Outer Island Transport Infrastructure Project 272,461 317,189 (44,728) (14)% Public Sector Program Loan 7,896,777 9,356,107 (1,459,330) (16)% Fiscal Reform and Debt Management Project 4,562,402 4,893,961 (331,559) (7)% International Cooperation Development Fund 4,000,000 1,000,000 3,000,000 300% Total $ 50,141,875 $ 49,204,411 $ 937,464 2% As mentioned above, total long-term debt increased by $0.9 million (or 2%) during the current year, which represent long-term debt additions of $4.2 million offset by declining principal balances associated with ADB debt service payments of $3.3 million. The long-term debt additions entered into during the current year were associated with: 1) the International Cooperation Development Fund in the original amount of $6 million, of which $3 million has been drawn down for the Track and Field 2022 Micronesian Games Project; and 2) the foreign currency loss of $1.2 million associated with the SDR revaluation of the ADB loan portfolio. Additional information on RepMar’s long-term debt can be found in notes 7 and 8 to the financial statements. ECONOMIC FACTORS AND NEXT YEAR’S BUDGET AND RATES Overview The economy was performing well prior to the COVID-19 outbreak, but the pandemic and containment measures have strained the economy. Real GDP is estimated to have increased by around 6.5 percent in FY2019 (October 1-September 30), driven by strong fishery and construction activities. The COVID-19 travel restrictions have significantly impacted fisheries, construction, transportation, and tourism related activities. As a result, GDP is expected to have contracted by 3.3 percent in FY20201. Economic activity is expected to continue declining in FY2021 and rebound only in FY2022. RMI is leading in the vaccine roll-out in the Pacific Island region but faces challenges in inoculating the outer island population. As a result, containment measures are expected to be in place through end-FY2021 (and now into 2022), weighing on economic activity. 1 IMF Staff Report for the 2021 Article IV Consultation May 2021 - 15 - REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 COVID-19 RMI has taken comprehensive fiscal measures to mitigate the economic impact of the COVID-19 pandemic2. The size of the COVID-19 Response Plan for FY2020-21 has been increased several times, from USD 42.3 million (18 percent of GDP) in June 2020 to about USD 63 million (27 percent of GDP) in early 2021. The response plan aimed to strengthen health preparedness and support vulnerable groups. Development partners have so far provided grant financing of USD 50 million (21 percent of GDP). Total implementation of the package reached USD 21 million (9 percent of GDP) as of March 20213. The COVID-19 containment measures impacted economic activity through disruptions to transshipment, restaurant, and hotel services, transportation, and other business activities. Planned large investment projects continue to be delayed because of restrictions on the movement of personnel and materials. Real GDP is expected to have contracted by 3.3 percent in FY2020, and by another 1.5 percent in FY2021, as the continued border closure is expected through at least the end of 2021 (and into 20224). Inflation is estimated to have remained under control in FY2020 and is projected to rise slightly in FY2021, with higher fuel prices leading this increase. In the medium term, economic growth is projected to moderate to around 1.6 percent, given low labor force growth with continued emigration, while inflation is estimated to converge to U.S. levels around 2 percent. Budget and Debt Unaudited estimates indicate a balanced budget in FY2020 despite the weaker economy, reflecting higher grants, stable fishing license fees, and improved revenue collection from better compliance and enforcement. A small surplus of 0.6 percent of GDP is projected for FY2021, as an increase in the copra subsidies will be offset by a small surplus from pandemic-related programs. The current account (CA) is projected to reach a surplus of 2.2 percent of GDP in FY2020 and 2.6 percent of GDP in FY2021. The surplus was due to increased budget support from development partners and declining imports due to the domestic demand contraction. The fiscal position is projected to deteriorate sharply from FY2024 without adjustment measures. Recurrent spending is mainly financed by unpredictable fishing revenues and budget grants, with project grants used for development financing and no access to capital market. If the Compact Grants set to expire in FY2023 (about 13.4 percent off GDP) are not renewed5, disbursements from the CTF (about 10 percent of GDP in FY2024) are not expected to fully compensate for these revenue losses. As per the recently approved Fiscal Responsibility and Debt Management Act, the key assumptions regarding debt levels, ratio of operating expenses and revenues, net worth, risk management and compliance will be considered when preparing the annual budget and medium-term budget and investment framework moving forward. It will be prudent to undertake a gradual fiscal consolidation to reduce the fiscal risk. Given the ongoing negotiation on the Compact financial assistance, there is uncertainty about the magnitude of the needed adjustment. Even if the expiring Compact grants are renewed, some adjustment will likely still be needed to preserve the real value of the CTF for future generations and to build buffers for rising financing needs and reduce the dependency on external grants. 2 IMF Article IV Mission Findings March 2021 3 Nitijela approved in March a supplementary budget that added about 7 percent of GDP to the initial budget, including further support to relevant line ministries to cope with the COVID-19 pandemic, financed by additional donor grants. 4 IMF Staff Report for the 2021 Article IV Consultation May 2021 5 Grants that are expected to expire include: the supplementary education grants, the sectoral grants, and the contribution to the CTF (managed by the Trust Fund of RMI). - 16 - REPUBLIC OF THE MARSHALL ISLANDS Management’s Discussion and Analysis Year Ended September 30, 2020 Public Financial Management Reform Implementation of reforms continued in FY2020. In addition to revising and adopting the updated Fiscal Responsibility and Debt Management Act, there was continued implementation of the Public Financial Management (PFM) reforms including: • Continued implementation of the PFM Roadmap and PFM reforms in priority areas; • Improved accounting for fiscal risks; • Continued strengthening of fiscal projections and budget presentation and transparency to help guide policy goals; • Initial steps to roll out the new Financial Management Information System (FMIS) to improve accountability, management and reporting. Economic Policy Statement The Economic Policy Statement (EPS) sets out the framework for Government, development partners and Marshallese stakeholders to support growth and development of the economy. The EPS complements the National Strategic Plan and the annual budget while defining the strategic direction of fiscal and reform strategy. The RMI Economic Policy Statement, approved by Cabinet in November 2021, includes a table of selected economic indicators, prepared by IMF using data from RMI government sources. The focus on these indicators moving forward with the development of macroeconomic targets provides a foundation for addressing fiscal and other budgetary issues. Some of the most critical indicators include: • Debt ratio (as a percentage of GDP) • Amount of domestic revenues including fishing and other non-tax revenues, • Balance of payments Government will review these indicators and projections so that realistic targets are agreed to as a guide to implementing the medium-term fiscal strategy. CONTACTING REPMAR’S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers and investors and creditors a general overview of RepMar’s finances and to demonstrate its accountability for the money it receives. If you have questions about this report or need additional financial information, contact the Secretary of Finance, P.O. Box D, Majuro, MH 96960. - 17 - REPUBLIC OF THE MARSHALL ISLANDS Statement of Net Position September 30, 2020 Primary Component Government Units ASSETS Cash and cash equivalents $ 24,692,189 $ 28,943,047 Time certificates of deposit - 24,692,496 Receivables, net 26,269,129 43,579,569 Inventories - 10,929,882 Advances and other assets 4,354,204 2,893,839 Due from external parties 1,375,881 - Due from component units 6,850,336 - Due from primary government - 2,536,019 Investments - 15,898,641 Restricted assets: Cash and cash equivalents 9,739,057 858,465 Investments 86,131,874 - Capital assets: Nondepreciable capital assets 11,543,076 5,714,025 Capital assets, net of accumulated depreciation 74,798,005 130,004,165 Indefeasible right of use, net - 3,813,387 Total assets 245,753,751 269,863,535 LIABILITIES Accounts payable 11,405,791 18,502,219 Medical claims payable 457,929 - Other liabilities and accruals 4,076,440 7,411,713 Contracts payable - 459,137 Retention payable 2,312,633 - Payable to federal agencies 1,479,942 848,413 Unearned revenues 335,320 7,122,400 Customer deposits - 2,205,982 Accrued interest payable 213,631 - Noncurrent liabilities: Due within one year 8,136,705 3,825,260 Due in more than one year 49,161,175 24,280,642 Total liabilities 77,579,566 64,655,766 Commitments and contingencies NET POSITION Net investment in capital assets 69,645,290 122,906,811 Restricted for: Future operations - nonexpendable 86,131,874 - Debt service 3,254,682 - Compact related 5,113,416 - Other purposes 8,843,789 4,322,623 Unrestricted (deficits) (4,814,866) 77,978,335 Total net position $ 168,174,185 $ 205,207,769 See accompanying notes to basic financial statements. - 18 - REPUBLIC OF THE MARSHALL ISLANDS Statement of Activities Year Ended September 30, 2020 Net (Expenses) Revenues Program Revenues and Changes in Net Position Operating Capital Charges for Grants and Grants and Primary Component Expenses Services Contributions Contributions Government Units Functions/Programs Primary government: Governmental activities: President and Cabinet $ 2,229,914 $ - $ - $ - $ (2,229,914) $ - Office of the Chief Secretary 11,606,485 - 13,831,896 - 2,225,411 - Special appropriations 11,434,928 - - - (11,434,928) - Council of Iroij 593,106 - - - (593,106) - Nitijela 2,200,120 - - - (2,200,120) - Office of the Auditor-General 1,577,548 - 487,741 - (1,089,807) - Public Service Commission 634,201 4,000 - - (630,201) - Judiciary 1,121,137 213,792 - - (907,345) - Office of the Attorney General 2,748,531 63,598 1,590,754 - (1,094,179) - Education, Sports and Training 35,500,180 - 21,266,323 727,524 (13,506,333) - Health and Human Services 31,825,346 9,507,199 16,304,279 - (6,013,868) - Transportation, Communication and Information Technology 6,280,728 2,625 - - (6,278,103) - Natural Resources and Commerce 10,278,185 17,304 24,939 - (10,235,942) - Culture and Internal Affairs 6,439,682 65,147 255,707 - (6,118,828) - Justice, Immigration and Labor 4,640,671 1,093,247 - - (3,547,424) - Finance, Banking and Postal Services 17,129,431 815,756 9,518,117 - (6,795,558) - Foreign Affairs and Trade 4,939,332 92,360 - - (4,846,972) - Works, Infrastructure and Utilities 7,404,422 169,101 - - (7,235,321) - Environmental Protection Authority 905,759 929,862 2,379,006 - 2,403,109 - Nuclear claims related 1,680,238 - 1,656,005 - (24,233) - Capital projects 7,461,664 - 2,404,723 5,984,909 927,968 - Unallocated interest - long-term debt 715,604 - - - (715,604) - Total primary government $ 169,347,212 $ 12,973,991 $ 69,719,490 $ 6,712,433 (79,941,298) - Component units: Air Marshall Islands, Inc. 5,703,908 5,010,519 - - - (693,389) College of the Marshall Islands 14,609,613 630,003 7,668,638 - - (6,310,972) Kwajalein Atoll Joint Utilities Resources, Inc. 7,565,322 4,313,542 66,980 1,759,808 - (1,424,992) Marshalls Energy Company, Inc. 29,807,536 31,759,519 2,100,611 5,512,725 - 9,565,319 MI Development Bank 2,650,287 6,647,098 181,668 - - 4,178,479 MI Marine Resources Authority 37,027,666 35,199,282 3,200,759 - - 1,372,375 MI National Telecom. Authority 9,128,539 8,660,196 - 147,824 - (320,519) MI Shipping Corporation 4,496,771 1,059,105 - - - (3,437,666) RMI Ports Authority 7,277,551 3,422,924 50,165 96,955 - (3,707,507) Tobolar Copra Processing Authority 9,658,133 2,108,097 - - - (7,550,036) Other nonmajor component units 9,470,814 6,567,092 211,760 373,792 - (2,318,170) Total component units $ 137,396,140 $ 105,377,377 $ 13,480,581 $ 7,891,104 - (10,647,078) General revenues: Taxes: Income taxes 16,428,709 - Import taxes 8,819,400 - Gross revenue taxes 6,863,681 - Immovable property 752,390 - Fuel taxes 446,554 - Penalties and interest 117,395 - Other 108,973 - Unrestricted grants and contributions 12,975,705 - Contributions from component units 31,327,953 - Ship registry 7,386,364 - Unrestricted investment earnings 211,015 415,928 Contributions from primary government - 25,465,852 Other 342,311 306,751 Total general revenues 85,780,450 26,188,531 Special item - loss on SDR revaluation (1,227,718) - Contributions to permanent funds 13,991,499 - Total general revenues, special items and contributions 98,544,231 26,188,531 Change in net position 18,602,933 15,541,453 Net position at the beginning of the year 149,571,252 189,666,316 Net position at the end of the year $ 168,174,185 $ 205,207,769 See accompanying notes to basic financial statements. - 19 - REPUBLIC OF THE MARSHALL ISLANDS Balance Sheet Governmental Funds September 30, 2020 Special Revenue Permanent Other Grants Compact Governmental General Assistance Trust Funds Total ASSETS Cash and cash equivalents $ 22,569,943 $ - $ - $ 2,122,246 $ 24,692,189 Receivables, net: Taxes 2,716,244 - - 155,161 2,871,405 Federal agencies - 17,317,111 - - 17,317,111 General 872,810 2,594,448 - 2,417,253 5,884,511 Other - - - 196,102 196,102 Due from other funds 11,951,965 14,714,148 - 5,719,304 32,385,417 Due from component units 6,850,336 - - - 6,850,336 Advances 354,664 360,333 - 648,957 1,363,954 Other assets 2,990,250 - - - 2,990,250 Restricted assets: Cash and cash equivalents 9,739,057 - - - 9,739,057 Investments - - 86,131,874 - 86,131,874 Total assets $ 58,045,269 $ 34,986,040 $ 86,131,874 $ 11,259,023 $ 190,422,206 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 5,174,436 $ 4,250,769 $ - $ 1,980,586 $ 11,405,791 Medical claims payable - - - 457,929 457,929 Other liabilities and accruals 2,625,225 1,153,422 - 297,793 4,076,440 Payable to federal agencies - 1,479,942 - - 1,479,942 Retention payable 634,836 1,677,797 - - 2,312,633 Due to component units 551,741 - - - 551,741 Unearned revenue 335,320 - - - 335,320 Due to other funds 19,057,571 11,951,965 - - 31,009,536 Total liabilities 28,379,129 20,513,895 - 2,736,308 51,629,332 Fund balances: Nonspendable 9,840,586 - 86,131,874 - 95,972,460 Restricted 9,553,602 7,835,124 - 1,034,332 18,423,058 Committed 14,251 6,740,405 - 7,488,383 14,243,039 Unassigned (deficits) 10,257,701 (103,384) - - 10,154,317 Total fund balances 29,666,140 14,472,145 86,131,874 8,522,715 138,792,874 Total liabilities and fund balances $ 58,045,269 $ 34,986,040 $ 86,131,874 $ 11,259,023 Amounts reported for governmental activities in the statement of net position are different because: Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds 86,341,081 Long-term liabilities, including loans payable, are not due and payable in the current period and therefore are not reported in the funds. These liabilities include: Accrued interest payable (213,631) Loans payable (50,141,875) Due to component units (2,536,019) Compensated absences payable (4,068,245) (56,959,770) Net position of governmental activities $ 168,174,185 See accompanying notes to basic financial statements. - 20 - REPUBLIC OF THE MARSHALL ISLANDS Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds Year Ended September 30, 2020 Special Revenue Permanent Other Grants Compact Governmental General Assistance Trust Funds Total Revenues: Taxes $ 33,537,102 $ - $ - $ - $ 33,537,102 Federal and other grants 18,188,316 75,689,385 - 529,927 94,407,628 Sales - - - 475,506 475,506 Ship registry 7,386,364 - - - 7,386,364 Net change in the fair value of investments - - 8,991,499 - 8,991,499 Interest and dividends 113,087 - - 97,928 211,015 Fees and charges 220,947 - - 12,277,538 12,498,485 Contributions from component units 31,327,953 - - - 31,327,953 Other 342,311 - - - 342,311 Total revenues 91,116,080 75,689,385 8,991,499 13,380,899 189,177,863 Expenditures: Current: President and Cabinet 2,247,110 17,557 - - 2,264,667 Office of the Chief Secretary 6,657,141 5,622,250 - - 12,279,391 Special appropriations 9,851,926 1,530,399 - - 11,382,325 Council of Iroij 596,714 - - - 596,714 Nitijela 2,152,471 - - - 2,152,471 Office of the Auditor-General 1,078,178 487,741 - - 1,565,919 Public Service Commission 615,045 - - - 615,045 Judiciary 36,000 - - 1,085,776 1,121,776 Office of the Attorney General 1,147,949 1,590,754 - - 2,738,703 Ministries: Education, Sports and Training 11,130,423 20,247,008 - 2,512,631 33,890,062 Health and Human Services 4,826,912 16,602,427 - 10,014,412 31,443,751 Transportation, Communication and Information Technology 4,466,278 154,800 - - 4,621,078 Natural Resources and Commerce 9,942,899 413,918 - - 10,356,817 Culture and Internal Affairs 3,576,652 1,056,507 - 18,188 4,651,347 Justice, Immigration and Labor 3,792,067 360,000 - 303,777 4,455,844 Finance, Banking and Postal Services 8,475,663 11,435,671 - 786,334 20,697,668 Foreign Affairs and Trade 4,495,084 161,348 - 24,250 4,680,682 Works, Infrastructure and Utilities 3,486,548 - - 186,929 3,673,477 Environmental Protection Authority 439,604 461,525 - - 901,129 Nuclear claims related - - - 1,680,238 1,680,238 Debt service: Principal repayment 6,694,235 - - - 6,694,235 Interest 664,066 - - - 664,066 Capital outlay - 12,031,426 - - 12,031,426 Total expenditures 86,372,965 72,173,331 - 16,612,535 175,158,831 Excess (deficiency) of revenues over (under) expenditures 4,743,115 3,516,054 8,991,499 (3,231,636) 14,019,032 Other financing sources (uses): Loan proceeds 5,035,670 - - - 5,035,670 Operating transfers in 3,683,006 - 5,500,000 4,234,565 13,417,571 Operating transfers out (7,286,358) (2,448,207) (3,000,000) (683,006) (13,417,571) Total other financing sources (uses), net 1,432,318 (2,448,207) 2,500,000 3,551,559 5,035,670 Net change in fund balances 6,175,433 1,067,847 11,491,499 319,923 19,054,702 Fund balances at the beginning of the year 23,490,707 13,404,298 74,640,375 8,202,792 119,738,172 Fund balances at the end of the year $ 29,666,140 $ 14,472,145 $ 86,131,874 $ 8,522,715 $ 138,792,874 See accompanying notes to basic financial statements. - 21 - REPUBLIC OF THE MARSHALL ISLANDS Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities Year ended September 30, 2020 Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances - total governmental funds $ 19,054,702 Capital outlays are reported as expenditures in governmental funds. However, in the statement of activities, the cost of capital assets is allocated over their estimated useful lives as depreciation expense. For the current year, these amounts consist of: Capital outlays, net of disposals $ 7,568,038 Depreciation expense (7,288,167) 279,871 Capital assets transferred to Marshalls Energy Company, Inc. (see Note 5) (727,140) The issuance of long-term debt (e.g. bonds, leases) provides current financial resources to governmental funds, while the repayment of principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction has any effect on net position. For the current year, these amounts consist of: ICDF loan proceeds $ (3,000,000) MIDB loan proceeds (2,035,670) Repayment of MIDB loan 3,403,981 Repayment of ADB loans 3,290,254 1,658,565 Special item - loss on SDR re-evaluation (see Note 7) (1,227,718) Some expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds. For the current year, these activities consist of: Change in compensated absences payable (383,809) Change in accrued interest payable (51,538) (435,347) Change in net position of governmental activities $ 18,602,933 See accompanying notes to basic financial statements. - 22 - REPUBLIC OF THE MARSHALL ISLANDS Statement of Fiduciary Net Position Fiduciary Funds September 30, 2020 Private Purpose Trust Agency ASSETS Cash and cash equivalents $ 4,772,892 $ - Time certificate of deposit 2,000,000 - Receivables, net: Contributions 4,487,653 - Other 125,836 - Investments 79,249,751 - Due from other funds 810,490 164,484 Capital assets, net of accumulated depreciation 477,210 - Total assets 91,923,832 $ 164,484 LIABILITIES Accounts payable 231,250 $ - Other liabilities and accruals 99,741 164,484 Due to other funds 2,350,855 - Total liabilities 2,681,846 $ 164,484 NET POSITION Held in trust for: Social security benefits 88,466,762 Land use distributions 775,224 Total net position $ 89,241,986 See accompanying notes to basic financial statements. - 23 - REPUBLIC OF THE MARSHALL ISLANDS Statement of Changes in Fiduciary Net Position Fiduciary Funds Year Ended September 30, 2020 Private Purpose Trust Additions: Contributions: Private employees $ 15,434,429 Government employees 6,837,692 Penalties and interest 672,115 Total contributions 22,944,236 Investment income: Net change in the fair value of investments 885,458 Interest and dividends 1,660,257 Total investment income 2,545,715 Less investment expense 140,543 Net investment income 2,405,172 Other: Compact funding 22,374,000 Transfers in from the General Fund 1,686,400 Other 456,283 24,516,683 Total additions 49,866,091 Deductions: Land use distributions 22,338,247 Benefits 20,932,495 Administrative expenses 1,246,808 Total deductions 44,517,550 Change in net position held in trust for: Social security benefits 5,312,788 Land use distributions 35,753 Net position at the beginning of the year 83,893,445 Net position at the end of the year $ 89,241,986 See accompanying notes to basic financial statements. - 24 - REPUBLIC OF THE MARSHALL ISLANDS Combining Statement of Net Position Component Units September 30, 2020 Kwajalein Marshall Marshall Air College Atoll Joint Marshalls Marshall Islands Islands Marshall Tobolar Marshall of the Utilities Energy Islands Marine National Islands RMI Copra Nonmajor Islands, Marshall Resources, Company, Development Resources Telecom. Shipping Ports Processing Component Inc. Islands Inc. Inc. Bank Authority Authority Corporation Authority Authority Units Total ASSETS Cash and cash equivalents $ 1,044,923 $ 270,832 $ 107,979 $ 7,697,189 $ 8,878,874 $ 4,972,933 $ 884,380 $ 132,716 $ 2,197,190 $ 269,158 $ 2,486,873 $ 28,943,047 Time certificates of deposit - 2,592,989 - 2,998,764 1,537,128 14,018,484 829,567 - 2,589,697 125,867 - 24,692,496 Receivables, net 279,888 2,740,825 358,417 4,142,757 23,115,886 8,663,928 1,812,507 255,521 575,850 850,309 783,681 43,579,569 Inventories 866,625 417,153 527,108 6,802,960 - - 303,796 15,767 - 1,188,464 808,009 10,929,882 Other assets 260,381 222,863 1,750 1,531,669 26,787 121,314 20,594 198,833 22,373 277,492 209,783 2,893,839 Investments - 1,750,457 - - 9,452,095 4,696,089 - - - - - 15,898,641 Due from primary government - - - - 2,536,019 - - - - - - 2,536,019 Restricted assets: Cash and cash equivalents - - - 358,453 500,012 - - - - - - 858,465 Capital assets: Nondepreciable capital assets - 420,706 714,022 586,952 94,744 - 1,504,200 970,000 1,342,570 9,074 71,757 5,714,025 Capital assets, net of accumulated depreciation 9,796,264 10,199,168 10,998,339 10,713,953 320,770 5,413,423 17,382,361 7,682,543 53,634,202 714,583 3,148,559 130,004,165 Indefeasible right of use, net - - - - - - 3,813,387 - - - - 3,813,387 Total assets 12,248,081 18,614,993 12,707,615 34,832,697 46,462,315 37,886,171 26,550,792 9,255,380 60,361,882 3,434,947 7,508,662 269,863,535 LIABILITIES Accounts payable 1,019,717 692,551 6,647,545 1,726,905 271,086 650,248 773,943 849,702 744,779 792,075 4,333,668 18,502,219 Other liabilities and accruals 764,501 1,166,477 75,516 3,621,295 - 399,732 230,189 136,483 141,538 49,501 826,481 7,411,713 Contracts payable - - - - - 157,633 51,571 - 249,933 - - 459,137 Payable to federal agencies - 848,413 - - - - - - - - - 848,413 Unearned revenue 101,452 1,553,267 325,234 4,514,889 449,875 - 18,248 17,031 - - 142,404 7,122,400 Customer deposits - - - - 1,763,910 - 442,072 - - - - 2,205,982 Noncurrent liabilities: Due within one year - - - 342,064 - - 2,910,633 - 285,714 286,849 - 3,825,260 Due in more than one year 3,116,890 - - 5,508,272 1,000,000 - 14,455,464 - - 200,016 - 24,280,642 Total liabilities 5,002,560 4,260,708 7,048,295 15,713,425 3,484,871 1,207,613 18,882,120 1,003,216 1,421,964 1,328,441 5,302,553 64,655,766 NET POSITION Net investment in capital assets 9,972,192 10,619,874 11,712,361 11,300,905 415,514 5,413,423 5,633,851 8,652,543 54,976,772 989,060 3,220,316 122,906,811 Restricted - 1,750,457 22,478 358,453 500,012 991,623 76,614 195,388 - - 427,598 4,322,623 Unrestricted (2,726,671) 1,983,954 (6,075,519) 7,459,914 42,061,918 30,273,512 1,958,207 (595,767) 3,963,146 1,117,446 (1,441,805) 77,978,335 Total net position $ 7,245,521 $ 14,354,285 $ 5,659,320 $ 19,119,272 $ 42,977,444 $ 36,678,558 $ 7,668,672 $ 8,252,164 $ 58,939,918 $ 2,106,506 $ 2,206,109 $ 205,207,769 See accompanying notes to basic financial statements. - 25 - REPUBLIC OF THE MARSHALL ISLANDS Combining Statement of Revenues, Expenses, and Changes in Net Position Component Units Year Ended September 30, 2020 Kwajalein Marshall Marshall Air College Atoll Joint Marshalls Marshall Islands Islands Marshall Tobolar Marshall of the Utilities Energy Islands Marine National Islands RMI Copra Nonmajor Islands, Marshall Resources, Company, Development Resources Telecom. Shipping Ports Processing Component Inc. Islands Inc. Inc. Bank Authority Authority Corporation Authority Authority Units Total Expenses $ 5,703,908 $ 14,609,613 $ 7,565,322 $ 29,807,536 $ 2,650,287 $ 37,027,666 $ 9,128,539 $ 4,496,771 $ 7,277,551 $ 9,658,133 $ 9,470,814 $ 137,396,140 Program revenues: Charges for services 5,010,519 630,003 4,313,542 31,759,519 6,647,098 35,199,282 8,660,196 1,059,105 3,422,924 2,108,097 6,567,092 105,377,377 Operating grants and contributions - 7,668,638 66,980 2,100,611 181,668 3,200,759 - - 50,165 - 211,760 13,480,581 Capital grants and contributions - - 1,759,808 5,512,725 - - 147,824 - 96,955 - 373,792 7,891,104 Total program revenues 5,010,519 8,298,641 6,140,330 39,372,855 6,828,766 38,400,041 8,808,020 1,059,105 3,570,044 2,108,097 7,152,644 126,749,062 Net program revenues (expenses) (693,389) (6,310,972) (1,424,992) 9,565,319 4,178,479 1,372,375 (320,519) (3,437,666) (3,707,507) (7,550,036) (2,318,170) (10,647,078) General revenues: Payments from RepMar 843,200 4,969,285 1,481,720 1,932,372 - - 1,590,000 3,341,920 - 8,326,938 2,980,417 25,465,852 Investment earnings - 99,014 - - 596,314 (374,308) 18,352 - 76,556 - - 415,928 Other 273,515 - 13,012 - - - - - - - 20,224 306,751 Total general revenues 1,116,715 5,068,299 1,494,732 1,932,372 596,314 (374,308) 1,608,352 3,341,920 76,556 8,326,938 3,000,641 26,188,531 Change in net position 423,326 (1,242,673) 69,740 11,497,691 4,774,793 998,067 1,287,833 (95,746) (3,630,951) 776,902 682,471 15,541,453 Net position at the beginning of the year 6,822,195 15,596,958 5,589,580 7,621,581 38,202,651 35,680,491 6,380,839 8,347,910 62,570,869 1,329,604 1,523,638 189,666,316 Net position at the end of the year $ 7,245,521 $ 14,354,285 $ 5,659,320 $ 19,119,272 $ 42,977,444 $ 36,678,558 $ 7,668,672 $ 8,252,164 $ 58,939,918 $ 2,106,506 $ 2,206,109 $ 205,207,769 See accompanying notes to basic financial statements. - 26 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies The Republic of the Marshall Islands (“RepMar”) was constituted on May 1, 1979, under the provisions of the Constitution of the Republic of the Marshall Islands (the “Constitution”) as approved by the people of the Marshall Islands. The Constitution provides for the separation of powers of the executive, legislative, and judicial branches of the government. RepMar assumes responsibility for general government, public safety, health, education, and economic development. The United States dollar is the official currency and legal tender. The accompanying financial statements of RepMar have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Governmental Accounting Standards Board (GASB) is the recognized standard-setting body for establishing governmental accounting and financial reporting principles. The more significant of RepMar's accounting policies are described below. A. Reporting Entity The Government of RepMar is a constitutional government comprised of three branches: Legislative Branch (the Nitijela), consisting of 33 members elected for a term of four years; Executive Branch, consisting of the Cabinet; and Judiciary Branch made up of the High Court, the Supreme Court, and the Traditional Rights Court that advises the High Court on matters concerning customary law and traditional practice. The Nitijela elects one of its members at its first session following an election to serve as President. The President, in turn, appoints six to ten members of the Nitijela to serve as Ministers who collectively comprise the Cabinet. For financial reporting purposes, RepMar has included all funds, organizations, agencies, boards, commissions and institutions. RepMar has also considered all potential component units for which it is financially accountable as well as other entities for which the nature and significance of their relationship with RepMar are such that exclusion would cause RepMar’s financial statements to be misleading or incomplete. The criteria to be considered in determining financial accountability include whether RepMar, as the primary government, has appointed a voting majority of an organization’s governing body and either has the ability to impose its will on that organization or there is potential for the organization to provide specific financial benefits to or impose specific financial burdens on RepMar. Financial accountability also exists if an organization is determined to be fiscally dependent on the primary government, although the primary government does not appoint a voting majority of the organization’s governing board. Each blended and discretely presented component unit of RepMar has a September 30 year-end. The financial statements of the component units have been included in the financial reporting entity in accordance with GASB Statement No. 14, The Financial Reporting Entity, as amended by GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, GASB Statement No. 61, The Financial Reporting Entity: Omnibus - an amendment of GASB Statements No. 14 and 34, and GASB Statement No. 80, Blending Requirements for Certain Component Units - an amendment of GASB Statement No. 14. Component units are entities that are legally separate organizations for which RepMar’s elected officials are financially accountable or other organizations for which the nature and significance of their relationship with RepMar are such that exclusion would cause RepMar’s basic financial statements to be misleading or incomplete. RepMar is financially accountable because it appoints the members of the governing authorities of each of the component units and because it is able to impose its will on these organizations or because the organizations provide specific financial benefits or impose specific financial burdens on RepMar. - 27 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued A. Reporting Entity, Continued Blended component units are entities that are legally separate from RepMar, but are so related to RepMar that they are, in substance, the same as RepMar or entities providing services entirely or almost entirely to RepMar. The net position and results of operations of the following legally separate entities are presented as part of RepMar’s operations: · Marshall Islands Scholarship Grant and Loan Board, a Governmental Fund Type - Special Revenue Fund. This fund was established under Public Law No. 1979-19 to account for all disbursements of scholarship funds and is governed by a seven- member Board appointed by the Cabinet of RepMar. · Marshall Islands Judiciary Fund, a Governmental Fund Type - Special Revenue Fund. This fund was established to account for all activities of the Marshall Islands Judiciary not accounted for within the General Fund. · Health Care Revenue Fund, a Governmental Fund Type - Special Revenue Fund. This fund was established under Public Law No. 1989-59 within the Ministry of Health and Human Services to control the expenditure of funds for health care related services. · Marshall Islands Health Fund, a Governmental Fund Type - Special Revenue Fund. This fund was established under Public Law No. 1990-75, as amended by Public Law Nos. 2001-31 and 2001-35, to account for the operations of the Basic and Supplemental Health Funds delivering comprehensive medical care. Discretely presented component units are entities which are legally separate from RepMar, but are financially accountable to RepMar, or whose relationships with RepMar are such that exclusion would cause RepMar’s basic financial statements to be misleading or incomplete. The component units’ column of the basic financial statements includes the financial data of the following major component units: · Air Marshall Islands, Inc. (AMI): AMI was granted a corporate charter by the Cabinet of RepMar on October 12, 1989 to provide domestic and international carrier service within and from the Marshall Islands. AMI is governed by a seven-member Board of Directors appointed by the President upon approval of the Cabinet of RepMar. RepMar provides financial support to AMI through legislative appropriations. · College of the Marshall Islands (CMI): CMI was established as an independent institution pursuant to the College of the Marshall Islands Act of 1992 (Public Law No. 1992-13) to provide post-secondary education services to meet the needs of the Marshall Islands. CMI is governed by a nine-member Board of Regents appointed by the President upon approval of the Cabinet of RepMar. RepMar provides financial support to CMI through legislative appropriations. · Kwajalein Atoll Joint Utilities Resources, Inc. (KAJUR): KAJUR was incorporated under the laws of the Republic of the Marshall Islands on September 1, 1990, to generate and distribute utilities on the island of Ebeye. KAJUR is governed by a seven-member RMI Combined Utilities Board of Directors appointed by the Cabinet of RepMar. The RMI Combined Utilities Board of Directors also have governance over Marshalls Energy Company, Inc. and Majuro Water and Sewer Company, Inc. (MWSC). RepMar provides financial support to KAJUR through legislative appropriations. - 28 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued A. Reporting Entity, Continued · Marshalls Energy Company, Inc. (MEC): MEC was granted a corporate charter by the Cabinet of RepMar on February 2, 1984 to engage in the business of generating and transmitting electricity, and the import and marketing of petroleum products. MEC is governed by a seven-member RMI Combined Utilities Board of Directors appointed by the Cabinet of RepMar. The RMI Combined Utilities Board of Directors also have governance over KAJUR and MWSC. RepMar guarantees principal and interest payments to the Rural Utilities Service in the event of default by MEC on a Federal Financing Bank loan. RepMar provides financial support to MEC through legislative appropriations. · Marshall Islands Development Bank (MIDB): MIDB was established under Public Law No. 1988-1 to promote development and expansion of the Marshall Islands economy and is governed by a seven-member Board of Directors appointed by the Cabinet. MIDB has received funds under Sections 111 and 211 of the Compact of Free Association and funds from the U.S. Department of Agriculture under the Rural Housing and Community Development Service Housing Preservation Grant. RepMar has the ability to impose its will on MIDB. · Marshall Islands Marine Resources Authority (MIMRA): MIMRA was established as a body corporate pursuant to the Marshall Islands Marine Resources Authority Act of 1997 (Public Law No. 1997-60) to facilitate the sustainable and responsible use of the marine resources in the Marshall Islands. MIMRA is governed by a seven-member Board of Directors, including the Minister of Natural Resources and Commerce, the Minister of Foreign Affairs and Trade, the Minister of Culture and Internal Affairs, and four members appointed by the President. RepMar has the ability to impose its will on MIMRA. · Marshall Islands National Telecommunications Authority (MINTA): MINTA was incorporated under Public Law No. 1990-105 to engage in the business of providing local and international telecommunication services. MINTA is governed by an eight- member Board of Directors elected by a majority vote of its shareholders. RepMar owns a voting majority of MINTA stock. RepMar guarantees principal and interest payments to the Rural Utilities Service in the event of default by MINTA on Rural Electrification and Telephone Revolving Fund loans. · Marshall Islands Shipping Corporation (MISC): MISC was established as a body corporate pursuant to the Marshall Islands Shipping Corporation Act of 2004 (Public Law No. 2005-41) to operate services for the transportation of goods, mails and passengers by sea and to carry on business as ship owners, charterers of ships and vessels, ship brokers, and shipping agents, and to make provision for purposes connected with the aforesaid matters. MISC is governed by a five-member Board of Directors appointed by the President upon approval of the Cabinet of RepMar. RepMar provides financial support to MISC through legislative appropriations. · RMI Ports Authority (RMIPA): RMIPA was incorporated under Public Law No. 2003-81 to engage in the operation and maintenance of commercial port facilities in the Marshall Islands. RMIPA is governed by a seven-member Board of Directors appointed by the President upon the approval of the Cabinet of RepMar. RepMar has the ability to impose its will on RMIPA. - 29 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued A. Reporting Entity, Continued · Tobolar Copra Processing Authority (TCPA): TCPA was granted a corporate charter by the Cabinet of RepMar on August 13, 1977 for the primary purpose of engaging in the production, processing, and marketing of copra products. TCPA is governed by a six- member Board of Directors (with the President serving ex officio and without vote) appointed by the President upon approval by the Cabinet of RepMar. RepMar provides financial support to TCPA through legislative appropriations. The component units’ column of the basic financial statements also includes the financial data of the following nonmajor component units: Majuro Atoll Waste Company, Inc., Majuro Resort, Inc., Majuro Water and Sewer Company, Inc., Marshall Islands Postal Service Authority, National Environmental Protection Authority, and Office of Commerce, Investment and Tourism. In addition, RepMar’s single fiduciary component unit is subject to legislative and executive controls. This component unit, while meeting the definition of a component unit and while legally separate, is presented in the fund financial statements of RepMar; however, has been omitted from the government-wide financial statements as the resources are not available to fund operations of RepMar. The fiduciary component unit is as follows: · Marshall Islands Social Security Administration (MISSA), a Fiduciary Fund Type - Private Purpose Trust Fund. MISSA was established to provide a financially sound social security system with pension benefits and early retirement and operates under the authority of a seven-member Board of Directors appointed by the Cabinet of RepMar. RepMar’s component units, departments, and funds that are separately audited issue their own financial statements. These statements may be obtained by directly contacting the various entities or obtaining them directly from the Office of the Auditor-General website www.rmioag.com. RepMar is also responsible for appointing voting members to the governing boards of additional legally separate organizations, but RepMar’s financial accountability for these organizations does not extend beyond making the appointments. Therefore, the financial data of these entities are excluded from RepMar’s financial statements. Those organizations are Alele Museum, Inc. and the Republic of the Marshall Islands Private Industry Council, Inc. B. Government-Wide Financial Statements The Statement of Net Position and the Statement of Activities report financial information on all of the non-fiduciary activities of the primary government and its component units. For the most part, the effect of interfund activity has been eliminated from these statements except for other charges between the primary government and the discretely presented component units. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. - 30 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued B. Government-Wide Financial Statements, Continued Primary government activities are defined as either governmental or business-type activities. Governmental activities, which normally are supported by taxes, intergovernmental revenues and other non-exchange revenues, are reported separately from business-type activities, which rely to a significant extent on fees charged to external parties for goods or services. As such, business-type activities account for operations similarly to a for-profit business. Likewise, the primary government is reported separately from certain legally separate component units for which the primary government is financially accountable. Discretely presented component unit activities are presented with their business-type focus. The Statement of Net Position presents all of the reporting entity’s non-fiduciary assets, deferred outflows of resources, liabilities and deferred inflows of resources, with the difference reported as net position. Net position is reported in three categories: · Net investment in capital assets consists of capital assets, net of accumulated depreciation and reduced by outstanding balances for bonds, notes and other debt that are attributed to the acquisition, construction or improvement of those assets. · Restricted net position results when constraints placed on net position use are either externally imposed by creditors, grantors, contributors, and the like, or imposed by law. · Unrestricted net position consists of net position, which does not meet the definition of the two preceding categories. Unrestricted net position often is designated, (for example, internally restricted), to indicate that management does not consider such to be available for general operations. The government-wide Statement of Net Position reports $103,343,761 of restricted net position, of which $8,843,789 is restricted by enabling legislation. The Statement of Activities demonstrates the degree to which the direct expenses of given functions or segments are offset by program revenues. Direct expenses are those that are clearly identifiable within a specific function or segment. Program revenues include charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges that are restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not meeting the definition of program revenues are, instead, reported as general revenue. C. Fund Financial Statements Separate financial statements are provided for governmental funds and fiduciary funds even though the latter are excluded from the government-wide financial statements. Major individual governmental funds are reported as separate columns in the fund financial statements pursuant to GASB reporting standards, with nonmajor governmental funds being combined into a single column. RepMar reports its financial position and results of operations in funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures/expenses. Transactions between funds within a fund type, if any, have not been eliminated. - 31 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued D. Measurement Focus and Basis of Accounting Government-Wide Financial Statements - the government-wide financial statements are reported using the economic resources management focus and the accrual basis of accounting, as are the fiduciary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Amounts reported as program revenue include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than as program revenues. General revenue is derived from taxation, investment income and other fees that are not allocated to specific programs. Governmental Fund Financial Statements - the governmental fund financial statements account for the general governmental activities of RepMar and are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as they become susceptible to accrual; generally when they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, RepMar considers revenues to be available if they are collected within 90 days of the end of the current fiscal period. Significant revenues susceptible to accrual include income and gross revenue taxes, federal grants, federal reimbursements and other reimbursements for use of materials and services. Miscellaneous revenues from other financing sources are recognized when received in cash because they are generally not measurable until actually received. Investment earnings are recorded as earned, since they are both measurable and available. Investments and related investment earnings are recorded at fair value. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Expenditures generally are recorded in the period in which the related fund liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Fiduciary funds and discretely presented component units financial statements - the fiduciary funds and discretely presented component units financial statements are reported using the economic measurement focus and the accrual basis of accounting, similar to government-wide financial statements, as described above. Contributions for fiduciary funds are recorded when due and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. Additional contributions are recognized as revenue as soon as all eligibility requirements have been met. Investment earnings are recorded as earned, since they are both measurable and available. Discretely presented component units distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a component unit’s principal ongoing operations. All other revenues are reported as nonoperating. Operating expenses includes the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. - 32 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued D. Measurement Focus and Basis of Accounting, Continued GASB Statement No. 34, Basic Financial Statements - and Management’s Discussion and Analysis - For State and Local Governments, as amended by GASB Statement No. 37, Basic Financial Statements - and Management’s Discussion and Analysis - For State and Local Governments: Omnibus, sets forth minimum criteria (percentage of the assets, liabilities, revenues or expenditures/expenses for either fund category or the governmental and enterprise combined) for the determination of major funds. Major individual governmental funds are reported as separate columns in the fund financial statements. The nonmajor funds are combined in a column in the fund financial statements and detailed in the combining statements. RepMar reports the following major funds: · General Fund - this fund is the primary operating fund of RepMar. It is used to account for all governmental transactions, except those required to be accounted for in another fund. · Grants Assistance Fund - this special revenue fund accounts for all financial transactions that are subgranted to RepMar, including United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 211(a) and approved by Nitijela resolution 123 to promote economic advancement and budgetary self-reliance as well as other direct grants that RepMar received from the United States government and other donor countries. · Compact Trust Fund - this permanent fund accounts for RepMar’s contributions to the Trust Fund established in accordance with Section 216 of the Compact of Free Association, as amended, to provide for an additional source of revenue for the government budget that will be needed to substitute for the absence of Compact of Free Association funding in the future. The nonmajor governmental funds are comprised of special revenue funds, which account for financial resources obtained from specific revenue sources and used for restricted purposes. In addition, RepMar reports the following fund types: · Private Purpose Trust Funds - these funds are used to account for resources held in trust under which principal and income benefit certain individuals. These include funds held in trust by the Marshall Islands Social Security Administration (MISSA) for the beneficiaries of the MISSA Retirement Fund; funds received under the Interim Use Agreement for the benefit of Kwajalein landowners; and funds received under Section 177 of the Compact of Free Association for the benefit of victims related to the United States Nuclear Testing Program. · Agency Funds - this fund is used to report resources held by the primary government relating to unclaimed property in a purely custodial capacity. - 33 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued E. Cash and Cash Equivalents and Time Certificates of Deposit RepMar pools cash resources of its various funds in order to facilitate the management of cash. Unless otherwise required by law, interest income received on pooled cash accrues to the General Fund. Cash and cash equivalents applicable to a particular fund are readily identifiable. Cash and cash equivalents include cash on hand, demand deposits, and short- term investments in U.S. Treasury obligations with a maturity date within three months of the date acquired by RepMar. Deposits maintained in time certificates of deposit with original maturity dates greater than three months are separately classified on the statement of net position/balance sheet. F. Investments Investments and related investment earnings of the primary government and the discretely presented component units are recorded at fair value using quoted market prices. Fair value is the price that would be received to sell an asset or paid to transfer a liability (ie., the exit price) in an orderly transaction between market participants at the date as of which the fair value of an asset or liability is determined. RepMar categorizes its fair value measurements within the fair value hierarchy established by GAAP. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In certain instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy is based on the lowest level of input that is significant to the fair measurement. Investments not categorized under the fair value hierarchy are shown at either Net Asset Value (NAV) or amortized cost. Investments of 20% or more of the voting stock of an investee are presumed to give the investor significant influence and are carried using the equity method. Under the equity method, the investor records, as earnings or loss, its proportionate share of the investee’s earnings or loss. RepMar holds approximately 30% of the outstanding shares of Pacific Islands Development Bank at cost of $2,990,250. This equity interest does not meet the definition of an investment as the asset is held primarily for economic development. Accordingly, such is presented within the accompanying financial statements as other assets. G. Receivables In general, tax revenue is recognized on the government-wide financial statements, when assessed or levied and on the governmental fund financial statements to the extent that it is both measurable and available. Receivables are stated net of estimated allowances for uncollectible accounts. Reimbursements due to RepMar for expenditures on federally funded reimbursement and grant programs are reported as “receivables from federal agencies” on the governmental fund balance sheet. Receivables of the primary government and the discretely presented component units are primarily due from businesses and individuals residing on the islands of Majuro and Ebeye. The allowance for uncollectible accounts primarily represents estimated allowances for uncollectible amounts that are determined based upon past collection experience and aging of the accounts. - 34 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued H. Inventories Inventories of the discretely presented component units are valued at the lower of cost (FIFO) or market. I. Interfund Receivables/Payables During the course of its operations, RepMar records transactions between individual funds for goods provided or services rendered. Receivables and payables resulting from transactions between funds are classified as "due from other funds" or "due to other funds" on the governmental fund balance sheet. Receivables and payables resulting from transactions between component units and the primary government are classified as “due to/from primary government” or “due to/from component units” on the governmental fund balance sheet and the statement of net position. Interfund receivables and payables have been eliminated from the statement of net position. J. Restricted Assets Certain assets of the primary government and the discretely presented component units are classified as restricted assets because their use is restricted through loan agreements or enabling legislation. K. Indefeasible Right of Use RepMar has capitalized the cost of acquisition of the exclusive right to use a specified amount of fiber capacity for a period of time, which is amortized over the length of the term of the capacity agreement on the straight-line method. L. Capital Assets Capital assets, which include property, plant, equipment and infrastructure assets (e.g. roads, bridges, docks, water and sewer lines, water catchments, and other similar items), are reported in the governmental activity column of the government-wide financial statements. Such assets, whether purchased or constructed, are recorded at historical cost or estimated historical cost. Donated capital assets are recorded at estimated fair market value at the date of donation. RepMar currently holds no title to land. Singular pieces of machinery and equipment that equal or exceed $50,000 are capitalized. Buildings and infrastructure projects with a cost that equals or exceeds $100,000 are capitalized. The costs of normal maintenance and repairs that do not add to the value of assets or materially extend asset lives are not capitalized. Capital assets of the primary government and the component units are depreciated using the straight-line method over their estimated useful lives, with a full year’s depreciation charged in the year of acquisition and disposal, regardless of date. During the year ended September 30, 2020, management changed the estimated useful life of a building from 40 years to 20 years that resulted in additional depreciation expense of $1,548,183 being recognized prospectively. M. Deferred Outflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element represents a consumption of net position that applies to a future period and so will not be recognized as an outflow of resources (deduction of net position) until then. RepMar has no items that qualify for reporting in this category. - 35 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued N. Unearned Revenue In the government-wide financial statements, unearned revenue is recognized when cash, receivables or other assets are recorded prior to being earned. In the governmental fund financial statements, unearned revenue represents monies received or revenues accrued which have not been earned or do not meet the “available” criterion for revenue recognition under the modified accrual basis of accounting. Unearned revenue of the discretely presented component units primarily represents amounts received for tuition and fees, certain auxiliary activities, and fuel sales prior to the end of the fiscal year but are related to the subsequent accounting period. O. Long-term Debt The liabilities reported in the government-wide financial statements include long-term obligations incurred under various Asian Development Bank loans and compensated absences payable. Long-term obligations of component units are recorded as liabilities in the discretely presented component unit’s column. P. Compensated Absences It is the government’s policy to permit employees to accumulate earned but unused vacation and sick pay benefits. There is no liability for unpaid accumulated sick leave since the government does not have a policy to pay any amounts when employees separate from service with the government. All vacation pay is accrued when incurred in the government- wide and fiduciary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements. Annual leave accumulates at the rate of one working day per bi-weekly pay period. Q. Deferred Inflows of Resources In addition to liabilities, the statement of net position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element represents an acquisition of net position that applies to a future period and so will not be recognized as an inflow of resources (additions to net position) until then. RepMar has no items that qualify for reporting in this category. R. Fund Balances Fund balance classifications are based on the extent to which RepMar is bound to honor constraints on the specific purposes for which amounts in those funds can be spent and are reported under the following fund balance classifications: · Nonspendable - includes fund balance amounts that cannot be spent either because it is not in spendable form or because of legal or contractual constraints. · Restricted - includes fund balance amounts that are constrained for specific purposes which are externally imposed by providers, such as creditors or amounts constrained due to constitutional provisions or enabling legislation. · Committed - includes fund balance amounts that are constrained for specific purposes that are internally imposed by the government through formal action of the highest level of decision-making authority and does not lapse at year-end. · Unassigned - includes negative fund balances in other governmental funds. - 36 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued R. Fund Balances, Continued RepMar has a general policy to first use restricted resources for expenditures incurred for which both restricted and unrestricted (committed and unassigned) resources are available. When expenditures are incurred for which only unrestricted resources are available, the general policy of RepMar is to use committed resources first followed by unassigned. The use of restricted/committed resources may be deferred based on a review of the specific transaction. A formal minimum fund balance policy has not been adopted. S. Risk Financing RepMar is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. It is the policy of the primary government not to purchase commercial insurance for the risks of loss to which it is exposed. Instead, RepMar management believes it is more economical to manage its risks internally. In the event of claim settlements and judgments, RepMar reports all of its risk management activities in its General Fund. Claims expenditures and liabilities are reported when it is probable that a loss has occurred, and the amount of that loss can be reasonably estimated. These losses include an estimate of claims that have been incurred but not reported. No losses have occurred as a result of these policies in any of the past three fiscal years. T. New Accounting Standards During the year ended September 30, 2020, GASB issued Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance, which postpones the effective dates of GASB Statements No. 84, 89, 90, 91, 92 and 93 by one year and GASB Statement No. 87 by 18 months; however, earlier application of the provisions addressed in GASB Statement No. 95 is encouraged and is permitted to the extent specified in each pronouncement as originally issued. In accordance with GASB Statement No. 95, management has elected to postpone implementation of these statements. In January 2017, GASB issued Statement No. 84, Fiduciary Activities, which improves guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. The requirements of this Statement will enhance consistency and comparability by (1) establishing specific criteria for identifying activities that should be reported as fiduciary activities and (2) clarifying whether and how business-type activities should report their fiduciary activities. Management does not believe that this statement, upon implementation, will have a material effect on the financial statements. In accordance with GASB Statement No. 95, GASB Statement No. 84 will be effective for fiscal year ending September 30, 2021. In June 2017, GASB issued Statement No. 87, Leases, which better meets the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and as inflows of resources or outflows of resources recognized based on the payment provisions of the contract. Management believes that this statement, upon implementation, will have a material effect on the financial statements. In accordance with GASB Statement No. 95, GASB Statement No. 87 will be effective for fiscal year ending September 30, 2022. - 37 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued T. New Accounting Standards, Continued In June 2018, GASB issued Statement No. 89, Accounting for Interest Cost Incurred Before the End of a Construction Period, which enhances the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and simplifies accounting for interest cost incurred before the end of a construction period. Management does not believe that this statement, upon implementation, will have a material effect on the financial statements. In accordance with GASB Statement No. 95, GASB Statement No. 89 will be effective for fiscal year ending September 30, 2022. In August 2018, GASB issued Statement No. 90, Majority Equity Interests - an amendment of GASB Statements No. 14 and 61, which improves the consistency and comparability of reporting a government’s majority equity interest in a legally separate organization and improves the relevance of financial statement information for certain component units. It defines a majority equity interest and specifies that a majority equity interest in a legally separate organization should be reported as an investment if a government’s holding of the equity interest meets the definition of an investment. A majority equity interest that meets the definition of an investment should be measured using the equity method, unless it is held by a special-purpose government engaged only in fiduciary activities, a fiduciary fund, or an endowment (including permanent and term endowments) or permanent fund. Those governments and funds should measure the majority equity interest at fair value. Management does not believe that this statement, upon implementation, will have a material effect on the financial statements. In accordance with GASB Statement No. 95, GASB Statement No. 90 will be effective for fiscal year ending September 30, 2021. In May 2019, GASB issued Statement No. 91, Conduit Debt Obligations, which provides a single method of reporting conduit debt obligations by issuers and eliminates diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. This Statement achieves those objectives by clarifying the existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issuer; establishing standards for accounting and financial reporting of additional commitments and voluntary commitments extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures. Management does not believe that this statement, upon implementation, will have a material effect on the financial statements. In accordance with GASB Statement No. 95, GASB Statement No. 91 will be effective for fiscal year ending September 30, 2023. In January 2020, GASB issued Statement No. 92, Omnibus 2020, which enhances comparability in accounting and financial reporting and improves the consistency of authoritative literature by addressing practice issues that have been identified during implementation and application of certain GASB Statements. This Statement addresses a variety of topics and includes specific provisions about the effective date of Statement No. 87, Leases, and Implementation Guide No. 2019-3, Leases, for interim financial reports, the terminology used to refer to derivative instruments and the applicability of certain requirements of Statement No. 84, Fiduciary Activities, to postemployment benefits. The requirements related to the effective date of GASB Statement No. 87 and Implementation Guide 2019-3, reissuance recoveries and terminology used to refer to derivative instruments are effective upon issuance. In accordance with GASB Statement No. 95, the remaining requirements of GASB Statement No. 92 are effective for the fiscal year ending September 30, 2022. - 38 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued T. New Accounting Standards, Continued In March 2020, GASB issued Statement No. 93, Replacement of Interbank Offered Rates, which addresses those and other accounting and financial reporting implications of the replacement of an IBOR. Management does not believe that this statement, upon implementation, will have a material effect on the financial statements. Except for paragraphs 11b, 13, and 14, GASB Statement No. 93 will be effective for fiscal year ending September 30, 2021. The requirement in paragraphs 11b, 13, and 14 are effective for fiscal year ending September 30, 2022. In March 2020, GASB issued Statement No. 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements, which improves financial reporting by addressing issues related to public-private and public-public partnership arrangements. This Statement also provides guidance for accounting and financial reporting for availability payment arrangements. Management does not believe that this statement, upon implementation, will have a material effect on the financial statements. GASB Statement No. 94 will be effective for fiscal year ending September 30, 2023. In May 2020, GASB issued Statement No. 96, Subscription-Based Information Technology Arrangements, which provides guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users (governments). This Statement (1) defines a SBITA; (2) establishes that a SBITA results in a right-to-use subscription asset - an intangible asset - and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. Management does not believe that this statement, upon implementation, will have a material effect on the financial statements. GASB Statement No. 96 will be effective for fiscal year ending September 30, 2023. In June 2020, GASB issued Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans - an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32, which increases consistency and comparability related to the reporting of fiduciary component units in circumstances in which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; mitigates costs associated with the reporting of certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and enhances the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those plans. Management does not believe that this statement, upon implementation, will have a material effect on the financial statements. GASB Statement No. 97 will be effective for fiscal year ending September 30, 2022. U. Encumbrances RepMar utilizes encumbrance accounting to identify fund obligations. Encumbrances represent commitments related to unperformed contracts for goods. As of September 30, 2020, RepMar has significant encumbrances summarized as follows: Grants Compact Other General Assistance Trust Governmental Total $ 10,327,431 $ 30,697,575 $ - $ 82,502 $ 41,107,508 - 39 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (1) Summary of Significant Accounting Policies, Continued V. Estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and deferred outflows of resources, liabilities and deferred inflows of resources, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenditures and expenses during the reporting period. Actual results could differ from those estimates. W. Total Columns Total columns are presented primarily to facilitate financial analysis. The Management’s Discussion and Analysis includes certain prior year summarized comparative information in total. Such information does not include sufficient detail to constitute a full comparative presentation. Accordingly, such information should be read in conjunction with RepMar’s financial statements for the year ended September 30, 2019 from which summarized information was derived. (2) Deposits and Investments The deposit and investment policies of RepMar are governed by 3 MIRC 7, Investment of Public Funds, and 11 MIRC 1, Financial Management, in conjunction with various trust agreements. Under 3 MIRC 7, the Secretary of Finance, Banking and Postal Services, subject to approval of the Cabinet, may transfer specific amounts of money from the General Fund, and invest such money in financial institution investment accounts. Investment guidelines to be followed by the Secretary of Finance, Banking and Postal Services are as follows: (a) Public monies shall not be deposited with any financial institution that is not a member of the Federal Deposit Insurance Corporation (FDIC) of the United States or the Federal Savings and Loan Insurance Corporation (FSLIC) of the United States, unless the Secretary of Finance, Banking and Postal Services is satisfied, on the advice of the Banking Commissioner, that a financial institution (although not a member of the FDIC or FSLIC), owns sufficient assets to cover the total amount of the deposit; (b) The demand deposit account shall be continuously maintained to cover not less than seventy-five percent of the cash expenditures projected to be expended over the next succeeding ninety-day period; (c) All deposits, accounts and funds maintained pursuant to this Act shall be subordinate deposits, accounts and funds of the General Fund; and (d) No withdrawal of monies shall be made out of or charged against time or savings deposits, accounts or funds maintained pursuant to this Act except to transfer funds into the demand deposit account of the General Fund. All expenditures shall be made out of or charged against the demand deposit account of the General Fund only. Under 11 MIRC 1, the Secretary of Finance, Banking and Postal Services may invest any monies of RepMar, which: (a) Are funds that have not been appropriated by an Act; (b) In his judgment are in excess of the amounts necessary for meeting the immediate requirements of RepMar; and (c) In his judgment will not impede or hamper the necessary financial operations of RepMar. - 40 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (2) Deposits and Investments, Continued Any of such investments shall be due to mature no later than one (1) year from the date of investment, unless otherwise directed and authorized by the Cabinet for a longer period. Income derived from investments may be reinvested, unless the Cabinet decides otherwise, at the discretion of the Secretary of Finance, Banking and Postal Services and shall be recognized as revenue in accordance with generally accepted accounting principles. Long-term investments shall be in time certificates of deposits, bonds, notes, prime commercial paper or other low-risk investments. The Compact Trust Fund (the Trust Fund) operates under an investment policy adopted by the Trust Fund Committee. The investment policy has been established to reflect the growth objectives and risk tolerance of the Committee. The investment policy was adjusted in June 2020 per resolution RMI 2020-03, Adoption of Investment Policy Statement With Revised Capital Market Assumptions, and requires the Trust Fund to allocate its managed investment portfolios among domestic and foreign equity and fixed income securities. All or a portion of the Trust Fund may be invested in exchange traded funds (“ETFs”), mutual funds, real estate investment trusts (“REITs”), common trust funds (“commingled vehicles”), private equity funds, and other pooled investment vehicles (“pooled vehicles”). Equity securities issued by ETFs, mutual funds, REITs, commingled and pooled vehicles which invest exclusively in fixed income securities are considered to be fixed income securities for the purpose of compliance with the Trust Fund's investment policy. The fair values of ETFs, mutual funds, commingled and pooled vehicles are generally determined by the fair value of the underlying marketable equity and debt securities owned, which are principally common stocks and bonds, respectively. The fair value of REITs is generally based upon the quoted market value of underlying REIT units owned. Publicly traded ETFs, mutual funds, REITs and similar vehicles may trade at prices above or below the fair values of the underlying investments owned; therefore the fair value of such investments may differ from the sum of the fair values of the underlying investments owned. The Trust Fund's equity investment objective is for its various portfolios to achieve total returns similar to their benchmark equity indices. Benchmark indices include the CRSP US Total Market Index, the FTSE Global All Cap ex US Index, and the MSCI ACWI Index. The core fixed income portfolios may be invested in securities issued by the U.S. government and government agencies, foreign governments, domestic and international corporate securities, including asset-backed and mortgage-backed obligations. The fixed income portfolio may invest in high yield securities; however the average quality of the fixed income portfolio must be rated "investment grade" by at least one nationally recognized rating agency at the time of purchase. Private equity funds are a form of pooled investment vehicle, typically limited partnerships controlled by a private equity firm that acts as general partner. The general partner seeks to obtain specific dollar commitments from qualified institutional and accredited investors to invest capital in the fund as limited partners. The passive limited partners fund pro rata portions of their commitments when the general partner has identified an appropriate opportunity, which may be venture capital in the form of equity securities, convertible debt securities, or real estate for which no active markets exist. Venture capital is often used to finance new products and technologies, expand working capital, make acquisitions, or finance leveraged buyouts. A typical private equity fund could make between 15 and 25 separate investments over a ten-year life, with no single investment exceeding 10% of the total capital commitment. The fair values of the underlying investments held by each private equity fund are generally determined by management of the equity investee or as determined by the general partner or manager of the private equity fund and is based upon the Trust Fund's percentage ownership of the underlying investments. Investments in private equity funds generally tend to be illiquid for significant periods of time. - 41 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (2) Deposits and Investments, Continued Derivatives, options and futures are permitted investments for the purpose of reducing risk and efficient portfolio management. Derivatives, options and futures may not be used for speculative purposes. Asset allocations are targets and will be dictated by current and anticipated market conditions and may be amended by the Trust Fund Committee from time to time. Tactical ranges anticipate fluctuation and provide flexibility for each investment manager’s portfolio to vary within the range without the need for immediate rebalancing. A. Deposits Custodial credit risk is the risk that in the event of a bank failure, RepMar’s deposits may not be returned to it. Such deposits are not covered by depository insurance and are either uncollateralized or collateralized with securities held by the pledging financial institution or held by the pledging financial institution but not in the depositor-government’s name. RepMar does not have a deposit policy for custodial credit risk. As of September 30, 2020, the carrying amount of the primary government’s total cash and cash equivalents was $34,431,246 and the corresponding bank balances were $36,219,665. Of the bank balances, $32,107,087 is maintained in financial institutions subject to Federal Deposit Insurance Corporation (FDIC) insurance. As of September 30, 2020, bank deposits in the amount of $1,564,808 were FDIC insured. Bank deposits of $4,112,578 are maintained in financial institutions not subject to depository insurance. RepMar does not require collateralization of its cash deposits; therefore, deposit levels in excess of FDIC insurance coverage are uncollateralized. Accordingly, these deposits are exposed to custodial credit risk. As of September 30, 2020, the carrying amount of the fiduciary fund’s total cash and cash equivalents and time certificate of deposit was $6,772,892 and the corresponding bank balances were $6,526,820. Of the bank balances, $2,026,365 is maintained in financial institutions subject to FDIC insurance. As of September 30, 2020, bank deposits in the amount of $250,000 were FDIC insured. Bank deposits of $4,500,455 are maintained in financial institutions not subject to depository insurance. RepMar does not require collateralization of its cash deposits; therefore, deposit levels in excess of FDIC insurance coverage are uncollateralized. Accordingly, these deposits are exposed to custodial credit risk. As of September 30, 2020, the carrying amount in the aggregate of the discretely presented component units’ total cash and cash equivalents and time certificates of deposit was $54,494,008 and the corresponding bank balances were $55,749,817. Of the bank balances, $16,377,316 is maintained in financial institutions subject to FDIC insurance. As of September 30, 2020, bank deposits in the amount of $3,314,335 were FDIC insured. Bank deposits of $39,372,501 are maintained in financial institutions not subject to depository insurance. The component units do not require collateralization of their cash deposits; therefore, deposit levels in excess of FDIC insurance coverage are uncollateralized. Accordingly, these deposits are exposed to custodial credit risk. - 42 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (2) Deposits and Investments, Continued B. Investments Primary Government Investments of the primary government as of September 30, 2020, are as follows: Compact Trust Fund: Common Trust Funds: Domestic Equity $ 30,531,301 International Equity 29,331,509 Fixed Income 17,498,810 Real Estate Investment Trust 501,411 Private Markets 6,051,619 Money Market Funds 2,217,224 $ 86,131,874 As of September 30, 2020, all fixed income investments were held in ETFs. The Trust Fund’s fixed income allocation consists of a Vanguard Total Bond Market Index (“VTBMI”), a Vanguard Intermediate-Term Investment Grade Fund (“VIT IGF”), a Vanguard Short-Term Investment-Grade Fund ("VST IGF"), and a Vanguard High-Yield Corporate Fund (“VHY CF”); the performance of the fixed income funds is expected to closely replicate the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. The bonds held by VTBMI vary in credit quality with an average overall rating of “A” as rated by Moody’s as of September 30, 2020. High yield debt receiving a credit rating below “A” comprises approximately 20.2% of the VTBMI fixed income portfolio as rated by Moody’s as of September 30, 2020. As of September 30, 2020, the weighted average maturity of the bonds comprising VTBMI is 8.49 years. The bonds held by VIT IGF vary in credit quality with an average overall rating of "A" as rated by Moody’s as of September 30, 2020. High yield debt receiving a credit rating below "A" comprises approximately 33.2% of the VIT IGF fixed income portfolio as rated by Moody’s as of September 30, 2020. As of September 30, 2020, the weighted average maturity of the bonds comprising VIT IGF is 6.67 years. The bonds held by VST IGF vary in credit quality with an average overall rating of "A" as rated by Moody’s as of September 30, 2020. High yield debt receiving a credit rating below "A" comprises approximately 2.6% of the VST IGF fixed income portfolio as rated by Moody’s as of September 30, 2020. As of September 30, 2020, the weighted average maturity of the bonds comprising VST IGF is 2.57 years. The bonds held by VHY CF vary in credit quality with an average overall rating of "A" as rated by Moody’s as of September 30, 2020. High yield debt receiving a credit rating below "A" comprises approximately 93.2% of the VHY CF fixed income portfolio as rated by Moody’s as of September 30, 2020. As of September 30, 2020, the weighted average maturity of the bonds comprising VHY CF is 4.68 years. The Trust Fund’s investment policy does not require direct investment in fixed maturity securities ("Bonds") as a means of managing its exposure to loss of principal due to increasing interest rates. The Trust Fund’s investment policy requires the performance of each investment class to be periodically compared with an associated benchmark. Bonds and bond funds generally decrease in value in response to rising interest rates. Bonds, however, have a fixed date of maturity and do not have exposure to loss of principal from rising interest rates, whereas shares of a common trust fund, ETF, or similar investment vehicle have no maturity date. The Trust Fund’s exposure to foreign currency risk is derived from its investment in common trust funds and ETFs that hold investments in securities of foreign issuers and sovereigns. - 43 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (2) Deposits and Investments, Continued B. Investments, Continued Primary Government, Continued Foreign currency risk is the risk that changes in foreign exchange rates will adversely affect the fair values of an investment or deposit. As of September 30, 2020, the Trust Fund held approximately $24,319,000 in securities of foreign issuers held in common trust funds. Of this amount, approximately 25% was held in securities whose functional currency is the Euro, 16% was held in securities whose functional currency is the Japanese Yen, 14% was held in securities whose functional currency is the Chinese Yuan, 9% whose functional currency is the British pound, and 36% in functional currencies of 31 other countries. Concentration of credit risk for investments is the risk of loss attributed to the magnitude of an entity’s investment in a single issuer. As of September 30, 2020, there were no investments in any one issuer that exceeded 5% of total investments. The Trust Fund has the following recurring fair value measurements as of September 30, 2020: Fair Value Measurements Using Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Investments by fair value level: Common trust funds: Domestic Equity $ 30,531,301 $ 30,531,301 $ - $ - International Equity 29,331,509 29,331,509 - - Fixed Income 17,498,810 17,498,810 - - Real Estate Investment Trust 501,411 501,411 - - 77,863,031 $ 77,863,031 $ - $ - Investments measured at NAV: Private Markets 6,051,619 Investments measured at amortized cost: Money market funds 2,217,224 $ 86,131,874 Fiduciary Funds Investments in marketable securities of the Marshall Islands Social Security Administration (MISSA) as of September 30, 2020, are as follows: Money market funds $ 143,764 Exchange Traded Funds 19,280,662 Mutual funds 38,938,905 $ 58,363,331 - 44 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (2) Deposits and Investments, Continued B. Investments, Continued Fiduciary Funds, Continued Fiduciary funds have the following recurring fair value measurements as of September 30, 2020: Fair Value Measurements Using Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Investments by fair value level: Exchange traded funds $ 19,280,662 $ 19,280,662 $ - $ - Mutual funds 38,938,905 38,938,905 - - 58,219,567 $ 58,219,567 $ - $ - Investments measured at amortized cost: Money market funds 143,764 $ 58,363,331 Additionally, MISSA owns 60,200 shares of common stock of Marshall Islands Holdings, Inc. (MIHI), which represents approximately 36% of the outstanding shares of MIHI as of September 30, 2020. MIHI engages in all aspects of holding company activities in the Marshall Islands and which is the sole shareholder of Bank of Marshall Islands (BOMI). MISSA also owns 80,080 shares of common stock of Marshall Islands Service Corporation (MISC), which represents approximately 5% of the outstanding shares of MISC as as of September 30, 2020. MISC is majority-owned by MIHI. The investment in MIHI is accounted for on the equity method since the investment constitutes 20% or more of the voting stock of MIHI. As of September 30, 2020, MISSA’s investment in MIHI amounted to $19,856,323. The investment in MISC is accounted for at the Net Asset Value. As of September 30, 2020, MISSA’s investment in MISC amounted to $1,030,097. During the year ended September 30, 2020, MISSA received dividend payments from MIHI of $480,830. For the year ended September 30, 2020, MISSA recognized $1,597,119 of equity in net earnings of MIHI. A summarized financial information of MIHI as of and for the year ended December 31, 2020 is presented on the table below: Total assets $ 167,798,436 Total liabilities $ 108,925.045 Equity: Attributable to stockholders of MIHI $ 53,201,698 Noncontrolling interest $ 5,671,693 Net income attributed to: Stockholder of MIHI $ 3,351,527 Noncontrolling interests $ 342,170 - 45 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (2) Deposits and Investments, Continued B. Investments, Continued Fiduciary Funds, Continued The deposit and investment policies of MISSA are governed by its enabling legislation. The Board is required to engage one or more fund custodians to assume responsibility for the physical possession of MISSA’s investments. Legally authorized investments are as follows: (i) Government obligations - Obligations issued or guaranteed as to principal and interest by RepMar or by the Government of the United States, provided that the total market value of the investments in obligations guaranteed by RepMar shall at the time of purchase not exceed twenty-five percent (25%) of the total market value of all investments of MISSA, and further provided that the principal and interest on each obligation are payable in the currency of the United States. (ii) Corporate obligations and mortgage-backed securities - Obligations of any public or private entity or corporation created or existing under the laws of RepMar or of the United States or any state, territory or commonwealth thereof, or obligations of any other government or economic community which are payable in United States dollars, or pass through and other mortgage-backed securities provided that the obligation is from an agency of the United States Government or is rated in one of the four highest categories by two nationally recognized rating agencies in the United States. No investment under this heading shall exceed five percent of the market value of the Fund or ten percent of the outstanding value of the issue at the time of purchase. (iii) Preferred and common stocks - Shares of preferred or common stocks of any corporation created or existing under the laws of RepMar or under the laws of the United States or any state, territory or commonwealth thereof provided that the purchase of such shares shall be considered reasonable and prudent by MISSA’s investment advisor at the time of purchase, that not more than fifteen percent (15%) of the market value of the Fund shall be invested in the stock of any one corporation, and that not more than twenty-five percent (25%) of the market value of the Fund shall be invested in any one industry group. (iv) Insurance company obligations - Contracts and agreements supplemental thereto providing for participation in one or more accounts of a life insurance company authorized to do business in the Republic or in any state, territory or commonwealth of the United States provided that the total market value of these investments at no time shall exceed ten percent (10%) of all investments of the Fund. MISSA investments are held and administered by trustees in accordance with various trustee agreements. Based on negotiated trust and custody contracts, all of these investments were held in the name of MISSA by their custodial financial institutions as of September 30, 2020. MISSA does not have a formal investment policy that limits investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. Furthermore, as of September 30, 2020, there were no investments in any one issuer that exceeded 5% of total investments. - 46 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (2) Deposits and Investments, Continued B. Investments, Continued Discretely Presented Component Units Investments of the discretely presented component units as of September 30, 2020, are as follows: College of the Marshall Islands (CMI): Money Market Funds $ 85,495 Exchange Traded Funds 940,286 Mutual Funds 724,676 $ 1,750,457 The deposit and investment policies of CMI are governed by the Board of Regents. As such, the Board of Regents is authorized to delegate certain responsibilities to third parties. Investment managers have discretion to purchase, sell, or hold the specific securities to meet the objectives set forth in the investment policy. Generally, CMI can invest in cash and cash equivalents, bonds, U.S. and non-U.S. equities, and fixed income securities. CMI has the following recurring fair value measurements as of September 30, 2020: Fair Value Measurements Using Quoted Prices In Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Investments by fair value level: Exchange traded funds $ 940,286 $ 940,286 $ - $ - Mutual funds 724,676 724,676 - - 1,664,962 $ 1,664,962 $ - $ - Investments measured at amortized cost: Money market funds 85,495 $ 1,750,457 Marshall Islands Development Bank: Common equity securities $ 9,452,095 The deposit and investment policies of MIDB are governed by MIDB’s Board of Directors. Generally, MIDB can provide financial assistance to enterprises operating in the Republic, including making equity investments in such enterprises. MIDB owns 26,376 shares of common stock of Marshall Islands Holdings, Inc. (MIHI), which represents approximately 16% of the outstanding shares of MIHI as of September 30, 2020. MIDB also owns 3,000 shares of common stock of Marshall Islands Service Corporation (MISC), which represents approximately 1% of the outstanding shares of MISC as of September 30, 2020. MISC is majority-owned by MIHI. The investments in MIHI and MISC are accounted for at the Net Asset Value. - 47 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (2) Deposits and Investments, Continued B. Investments, Continued Discretely Presented Component Units, Continued Marshall Islands Marine Resources Authority (MIMRA): Investment in joint venture $ 4,696,089 In 2005, MIMRA entered into a joint venture agreement with a third party to form the Marshall Islands Fishing Corporation (MIFCO), an ongoing association for the purpose of engaging in the purse seine fishing business. The association was formally organized during fiscal year 2006 with the purchase of the vessel, RMI201. MIMRA’s contributed capital was $2,940,000, which represented a 49% interest of the vessel’s value of $6,000,000. A summary of audited financial information as of and for the year ended December 31, 2020, for investees accounted for using the equity method of accounting for investments, is as follows: Assets $ 24,624,467 Liabilities $ 15,474,189 Net loss $ (1,729,893) During the year ended September 30, 2020, MIMRA received no dividend payments from MIFCO. For the year ended September 30, 2020, MIMRA recognized equity in net loss of MIFCO of $526,267. (3) Receivables Primary Government Receivables as of September 30, 2020, for the primary government’s individual major governmental funds, nonmajor governmental funds in the aggregate, and fiduciary funds, including applicable allowance for uncollectible accounts, are as follows: Nonmajor Grants Compact Governmental Fiduciary General Assistance Trust Funds Funds Totals Receivables: Taxes $ 2,716,244 $ - $ - $ 155,161 $ - $ 2,871,405 Federal agencies - 17,317,111 - - - 17,317,111 General 1,430,611 2,786,384 - 8,832,577 - 13,049,572 Contributions - - - - 10,181,507 10,181,507 Loans 4,368,787 - - 13,271,968 - 17,640,755 Other - - - 403,642 969,036 1,372,678 8,515,642 20,103,495 - 22,663,348 11,150,543 62,433,028 Less: allowance for uncollectible Accounts (4,926,588) (191,936) - (19,894,832) (6,537,054) (31,550,410) Net receivables $ 3,589,054 $ 19,911,559 $ - $ 2,768,516 $ 4,613,489 $ 30,882,618 Certain receivables due from federal grantor agencies recorded within the Grants Assistance Fund remain uncollected. RepMar is currently negotiating with these grantors for a final determination insofar as collection on these amounts. Management is of the opinion that collection efforts will be favorable and thus no allowance for uncollectible accounts is considered necessary. - 48 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (3) Receivables, Continued Primary Government, Continued Loans receivable of the primary government are summarized as follows: General Fund: Notes receivable from four fishing companies incorporated and operating in the Republic of the Marshall Islands, due August 1992, interest at 6% per annum, interest and principal payable on demand. These notes have been fully provided for in the allowance for uncollectible accounts. $ 1,780,000 Loan receivable from Ebje Ruktok/Rukjenlein Fishing Company, Inc., interest at 8.5% per annum, with repayments commencing March 1995. The loan is a subsidiary loan of a loan agreement (Loan Number 1102 MAR (SF)) between RepMar and the Asian Development Bank. This loan has been fully provided for in the allowance for uncollectible accounts. 2,588,787 $ 4,368,787 Nonmajor Governmental Funds: Loans to qualified Marshallese students under a student financial assistance program, interest free, uncollateralized with no set repayment terms, and may be converted to grants at a later date if the recipients meet certain criteria. These loans have been fully provided for in the allowance for uncollectible accounts. During the year ended September 30, 2020, loans in the amount of $964,538 were converted to grants as the recipients met the criteria for conversion. $ 13,271,968 Discretely Presented Component Units Receivables as of September 30, 2020, for the discretely presented component units, including applicable allowance for uncollectible accounts, are as follows: Kwajalein Marshall Marshall Air College Atoll Joint Marshalls Marshall Islands Islands Marshall Tobolar Marshall of the Utilities Energy Islands Marine National Islands Copra Non-major Islands, Marshall Resources, Company, Development Resources Telecom. Shipping RMI Ports Processing Component Inc. Islands Inc. Inc. Bank Authority Authority Corporation Authority Authority Units Totals Receivables: Federal agencies $ - $ 428,849 $ 47,679 $ - $ - $ - $ - $ - $ 178,756 $ - $ 7,329 $ 662,613 General 477,561 4,953,144 3,607,430 17,733,225 - 2,202,045 2,162,074 837,761 1,763,181 1,258,125 3,590,971 38,585,517 Loans - - - - 27,399,968 - - - - - - 27,399,968 Due from PNA Office - - - - - 7,048,506 - - - - - 7,048,506 Due from World Bank - - - - - 322,573 - - - - - 322,573 Interest - - - - 173,000 64,628 - - 57,480 - - 322,573 Other 118,461 310,776 326,823 235,030 589,527 93,567 154,245 224,728 16,299 595,236 294,790 2,959,482 596,022 5,692,769 3,981,932 17,968,255 28,162,495 9,731,319 2,316,319 1,062,489 2,015,716 1,853,361 3,992,152 77,273,767 Less: allowance for uncollectible Accounts (316,134) (2,951,944) (3,623,515) (13,825,498) (5,046,609) (1,067,391) (503,812) (806,968) (1,439,866) (1,003,052) (3,109,409) (33,694,198) Net receivables $ 279,888 $ 2,740,825 $ 358,417 $ 4,142,757 $ 23,115,886 $ 8,663,928 $ 1,812,507 $ 255,521 $ 575,850 $ 850,309 $ 783,681 $ 43,579,569 Loans receivable of the discretely presented component units are as follows: Marshall Islands Development Bank (MIDB): MIDB’s loan portfolio is comprised of consumer, housing and business loans. The majority of the loan portfolio is unsecured, while the remaining portion is secured by various forms of collateral. These loans are cosigned by third parties. The basis for expected repayment of a majority of consumer and housing loans is the continued employment of the borrower and allotment agreements between MIDB and the borrower’s employer. All loans are at fixed rates ranging from 4% - 14% per annum. - 49 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (4) Interfund Receivables and Payables Primary Government Receivables and payables between funds reflected as due to/from other funds in the governmental funds balance sheet as of September 30, 2020, are summarized as follows: Due From Due To Receivable Fund Payable Fund Other Funds Other Funds General Grants Assistance $ 11,951,965 $ 11,951,965 Grants Assistance General 14,714,148 14,714,148 Nonmajor governmental funds General 3,368,449 3,368,449 Nonmajor governmental funds Fiduciary Funds - Private Purpose Trust 2,350,855 - Fiduciary Funds - Private Purpose Trust General - 810,490 Fiduciary Funds - Agency General - 164,484 32,385,417 31,009,536 Fiduciary Funds - Private Purpose Trust General 810,490 - Nonmajor governmental funds Fiduciary Funds - Private Purpose Trust - 2,350,855 Fiduciary Funds - Agency General 164,484 - $ 33,360,391 $ 33,360,391 Receivables and payables reflected as due to/from component units as of September 30, 2020, are summarized as follows: Due From Due To Governmental activities: Marshall Islands Development Bank $ - $ 2,536,019 General Fund: Marshalls Energy Company, Inc. 5,850,336 - Marshall Islands Development Bank 1,000,000 - Marshall Islands Marine Resources Authority - 330,000 RMI Ports Authority - 152,678 Nonmajor component units - 69,063 6,850,336 551,741 $ 6,850,336 $ 3,087,760 The amount recorded by the General Fund due from Marshalls Energy Company, Inc. of $5,850,336 represents a subsidiary loan agreement under an Asian Development Bank (ADB) loan (Loan Number 2659 RMI (SF)) received by RepMar from the ADB. Interest accrues at the rate of 1% per annum through September 30, 2020 and at 1.5% per annum thereafter with monthly principal and interest payments due of $37,960 and matures on May 31, 2034. - 50 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (4) Interfund Receivables and Payables, Continued Primary Government, Continued Annual debt service requirements to maturity for principal and interest are as follows: Year ending September 30, Principal Interest Total 2021 $ 342,064 $ 85,636 $ 427,700 2022 375,470 80,050 455,520 2023 381,141 74,379 455,520 2024 386,898 68,622 455,520 2025 392,741 62,779 455,520 2026-2030 2,054,496 223,104 2,277,600 2031-2034 1,917,526 62,958 1,980,484 $ 5,850,336 $ 657,528 $ 6,507,864 The amount recorded by the General Fund due from Marshall Islands Development Bank of $1,000,000 represents a subsidiary loan agreement received by RepMar from the International Cooperation and Development Fund (ICDF). Total available subsidiary loan of $4,000,000 was divided into four drawdowns of $1,000,000 each. Loan drawdowns commenced in 2019 with repayment commencing on December 15, 2021 in bi-monthly installments with interest at the rate of 2% per annum. Loan repayments will be based on total drawdowns made up to 2021. The amount recorded as due from component units of the primary government of $6,850,336 does not equal the corresponding due to primary government of the discretely presented component units of $11,252,940 due to an allowance for doubtful accounts recorded by the General Fund and the Grants Assistance Fund of $2,802,604 and $1,600,000, respectively. The amount recorded as due to component units of the primary government of $3,087,760 does not equal the corresponding due from primary government of the discretely presented component units of $2,536,019 due to a $551,741 allowance for doubtful accounts recorded by the respective component units. Due to component units includes $2,536,019 due to the Marshall Islands Development Bank (MIDB), which represents amounts drawn down on a $6,000,000 loan facility to provide additional funds to supplement the General Fund’s subsidy to Tobolar Copra Processing Authority as a result of the increase in the price of copra. The MIDB loan is governed by a Loan Agreement and related Promissory Note, which sets forth covenants to ensure compliance with the terms and conditions during the term of the loan including payment of debt service. The primary requirements are summarized below: Events of Default - Article 5A of the Loan Agreement sets forth various events of default, which occurs when the Borrower fails to fulfill a payment obligation under the loan agreement when due; or the Borrower fails to perform any of the covenants provided under Article 4 of the Loan Agreement. Acceleration of Maturity - Article 5B of the Loan Agreement sets forth certain remedies in the event of default. Upon default by the Borrower, MIDB may exercise all rights and remedies available to MIDB to enforce the Loan Agreement. - 51 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (4) Interfund Receivables and Payables, Continued Discretely Presented Component Units Receivables and payables reflected as due to/from primary government as of September 30, 2020, are summarized as follows: Due From Due To Air Marshall Islands, Inc.: General Fund $ - $ 1,516,890 Grants Assistance Fund - 1,600,000 Marshalls Energy Company, Inc.: General Fund - 5,850,336 Marshall Islands Development Bank: Governmental activities 2,536,019 - General Fund - 1,000,000 Marshall Islands National Telecommunications Authority: General Fund - 1,000,000 RMI Ports Authority: General Fund - 285,714 $ 2,536,019 $ 11,252,940 The amount recorded by the Marshall Islands National Telecommunications Authority (MINTA) due to the General Fund of $1,000,000 includes Compact of Free Association Infrastructure Maintenance Sector grant funds borrowed by MINTA of $700,000. This loan is unsecured and interest free with annual payments due of $100,000 commencing March 2012 to be deposited into a savings account established in accordance with Section 211(d)(2) of the Compact of Free Association, as amended. The remaining amount of $300,000 represents an advance from the General Fund for the purpose of providing funding for the 4G LTE Project, which is to be reimbursed by MINTA. (5) Capital Assets Capital asset activities for the year ended September 30, 2020, are as follows: Primary Government Estimated Balance Balance Useful October September Lives 1, 2019 Additions Transfers Retirements 30, 2020 Depreciable capital assets: Electrical distribution 30 yrs $ 30,540,465 $ - $ (30,440,465) $ (100,000) $ - Buildings 20 - 40 yrs 109,672,456 1,052,204 4,394,825 - 115,119,485 Water infrastructure system 25 yrs 9,261,029 - - - 9,261,029 Docks, roads and bridges 25 - 30 yrs 20,710,923 - - - 20,710,923 Ships 25 yrs 11,123,000 - - - 11,123,000 Software 10 yrs 3,413,327 330,000 - - 3,743,327 Heavy equipment 3 - 10 yrs 9,740,335 158,792 332,300 (1,080,772) 9,150,655 194,461,535 1,540,996 (25,713,340) (1,180,772) 169,108,419 Less accumulated depreciation: Electrical distribution (29,655,865) (110,793) 29,713,325 53,333 - Buildings (50,479,433) (4,024,906) - - (54,504,339) Water infrastructure system (8,532,190) (364,419) - - (8,896,609) Docks, roads and bridges (14,680,045) (748,942) - - (15,428,987) Ships (7,213,320) (952,560) - - (8,165,880) Software (1,893,294) (225,191) - - (2,118,485) Heavy equipment (5,051,185) (861,356) - 716,427 (5,196,114) (117,505,332) (7,288,167) 29,713,325 769,760 (94,310,414) Total depreciable capital assets, net 76,956,203 (5,747,171) 3,999,985 (411,012) 74,798,005 Nondepreciable capital assets: Construction in progress 9,832,147 8,355,812 (4,727,125) (1,917,758) 11,543,076 $ 86,788,350 $ 2,608,641 $ (727,140) $ (2,328,770) $ 86,341,081 - 52 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (5) Capital Assets, Continued Primary Government, Continued On January 3, 2020, the RepMar Cabinet authorized and approved the transfer from RepMar to the Marshalls Energy Company, Inc. of all assets associated with Majuro public power distribution services. Capital assets of $30,440,465, net of accumulated depreciation of $29,713,325, were transferred representing capital contributions of $727,140. Depreciation expense was charged to functions/programs of the primary government’s governmental activities as follows: Public Service Commission $ 15,000 Education, Sports and Training 1,626,179 Health and Human Services 646,317 Transportation, Communication and Information Technology 1,658,328 Natural Resources and Commerce 22,600 Culture and Internal Affairs 54,536 Justice, Immigration and Labor 147,417 Finance, Banking and Postal Services 40,547 Foreign Affairs and Trade 226,437 Works, Infrastructure and Utilities 2,791,682 President and Cabinet 10,958 Chief Secretary 9,775 Nitijela 38,391 $ 7,288,167 Discretely Presented Component Units Estimated Balance Balance Useful October September Lives 1, 2019 Additions Retirements 30, 2020 Depreciable capital assets: Buildings 3 - 34 yrs $ 50,100,422 $ 733,524 $ (219,906) $ 50,614,040 Utility plant 3 - 40 yrs 88,881,033 43,352,407 (71,132) 132,162,308 Vessels 25 yrs 6,792,253 2,162,712 (715,891) 8,239,074 Machinery and equipment 2 - 25 yrs 55,584,043 4,647,875 (1,232,688) 58,999,230 Infrastructure 5 - 50 yrs 86,376,401 2,699,756 (31,636) 89,044,521 287,734,152 53,596,274 (2,271,253) 339,059,173 Less accumulated depreciation (165,843,178) (46,191,096) 2,979,266 (209,055,008) Total depreciable capital assets, net 121,890,974 7,405,178 708,013 130,004,165 Nondepreciable capital assets: Land 372,306 - - 372,306 Construction in progress 10,690,821 5,494,141 (10,843,243) 5,341,719 11,063,127 5,494,141 (10,843,243) 5,714,025 $ 132,954,101 $ 12,899,319 $ (10,135,230) $ 135,718,190 (6) Indefeasible Right of Use (IRU) In 2009, the Marshall Islands National Telecommunications Authority (MINTA) entered into an IRU Capital Lease agreement with a third party for the exclusive use of 8 wave lengths of fiber capacity of the two fibers of the Kwajalein Cable System (KCS) which runs between Guam and Kwajalein and which is known as the “HANTRU1 System”. Under the terms of the agreement, MINTA made certain payments of $6,500,091. The initial term of the agreement is for a period of 10 years commencing on the date MINTA is initially granted access, and which term is automatically renewable for a further 10-year period and an additional 5-year period thereafter. Prior to the tenth and twentieth anniversary dates, MINTA has the option to terminate this agreement; however, such is subject to prior approval of the Rural Utilities Services (RUS) of the U.S. Department of Agriculture. MINTA’s policy is to amortize the right of use over the 25-year period. As of September 30, 2020, accumulated amortization expense of $2,686,704 has been recorded. - 53 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (7) Long-term Debt Primary Government Under the Government Borrowing Act of 1985, RepMar may borrow money for such purposes as approved by the Nitijela of RepMar. As of September 30, 2020, the primary government had the following long-term debt outstanding and payable: Dated Interest Final Outstanding Date Rate Maturity Amount Asian Development Bank (ADB): Loan No. 1102 MAR (SF) Fisheries Development Project November 28, 1991 1% July 1, 2031 $ 1,420,721 Loan No. 1218 MAR (SF) Typhoon Rehabilitation January 29, 1993 1% November 15, 2032 256,555 Loan No. 1249 MAR (SF) Basic Education Project November 17, 1993 1% October 15, 2033 4,365,508 Loan No. 1250 MAR (SF) Majuro Water Supply Project #1 November 17, 1993 1% May 15, 2033 329,321 Loan No. 1316 RMI (SF) Health and Population Project February 24, 1995 1% July 1, 2034 3,342,466 Loan No. 1389 RMI (SF) Majuro Water Supply Project #2 February 1, 1996 1% September 1, 2035 5,620,910 Loan No. 1513 RMI (SF) Public Sector Reform Program January 30, 1997 1% December 1, 2036 8,083,290 Loan No. 1694 RMI (SF) Ebeye Health and Infrastructure Project October 8, 1999 1% August 1, 2031 4,667,854 Loan No. 1791 RMI (SF) Skills Training and Vocational Education Project January 11, 2001 1.5% November 15, 2032 2,702,058 Loan No. 1829 RMI (SF) Fiscal and Financial Management Program #2 June 22, 2001 1% - 1.5% May 15, 2025 2,621,552 Loan No. 1948 RMI (SF) Outer Island Transport Infrastructure Project February 14, 2003 1% - 1.5% August 1, 2034 272,461 Loan No. 2659 RMI (SF) Public Sector Reform Sub Program #1 September 8, 2010 1% - 1.5% August 15, 2034 7,896,777 Loan No. 2950 RMI (SF) Public Sector Reform Sub Program #2 December 13, 2012 1% - 1.5% November 15, 2036 4,562,402 46,141,875 International Cooperation and Development Fund (ICDF): Home Energy Efficiency and Renewable Energy Project November 8, 2016 2% May 8, 2032 1,000,000 Track and Field 2022 Micronesian Games Project August 16, 2019 2% March 15, 2052 3,000,000 4,000,000 $ 50,141,875 Asian Development Bank Loans: Loan Number 1102 MAR (SF) in the amount of SDR 2,432,599 is to assist RepMar in initiating a domestic commercial fish production and marketing capability, and to strengthen RepMar's institutional capabilities to support economic self-reliance through the development of its major natural resource of fisheries. Loan Number 1218 MAR (SF) in the amount of SDR 364,000 is to provide funding for the emergency rehabilitation and restoration of facilities that were damaged or destroyed by Typhoon Gay in November 1992. Loan Number 1249 MAR (SF) in the amount of SDR 5,717,446 is to provide funding for the improvement of basic education within the Marshall Islands. Loan Number 1250 MAR (SF) and Loan Number 1389 RMI (SF) in the cumulative amount of SDR 6,540,496 is to provide funding for the Majuro Water Supply Project. Loan Number 1316 RMI (SF) in the amount of SDR 3,911,000 is to provide funding for improving the quality of health and family planning services and strengthening RepMar’s primary health care model of services. Loan Number 1513 RMI (SF) in the amount of SDR 8,241,000 is to provide funding for the Public Sector Reform Program. The proceeds are to be used to: (i) stabilize RepMar’s finances in the short run; (ii) ensure the long-term structural stability of RepMar’s finances; and (iii) create an improved enabling environment for the private sector. Loan Number 1694 RMI (SF) in the amount of SDR 6,924,000 is to provide funding for the Ebeye Health and Infrastructure Project. The proceeds are to be used to: (i) improve the delivery of quality medical care for Ebeye and proximate islands; (ii) strengthen primary health care and preventive services to the general population; (iii) rehabilitate and expand the existing water supply and sewerage systems on Ebeye; and (iv) upgrade the islets power generation and distribution system. - 54 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (7) Long-term Debt, Continued Primary Government, Continued Asian Development Bank Loans, Continued: Loan Number 1791 RMI (SF) in the amount of SDR 5,276,000 is to provide funding for the Skills Training and Vocational Education Project. The proceeds are to be used to: 1) provide funding for career awareness, skills training, special training programs for women and youth; and 2) institutional capacity building within the Marshall Islands. Loan Number 1829 RMI (SF) in the amount of SDR 6,320,000 is to provide funding for the Fiscal and Financial Management Program. The proceeds are to be used to: 1) establish a trust fund; 2) finance the payment of medical referral costs in arrears; and 3) improve the overall financial management of RepMar. Loan Number 1948 RMI (SF) in the amount of SDR 5,304,000 is to provide funding for the Outer Island Transport Infrastructure Project. The proceeds are to be used to provide or improve outer island port infrastructure, navigation aids, storage warehouses, and airstrip extensions and maintenance. Loan Number 2659 RMI (SF) and Loan Number 2950 RMI (SF) in the cumulative amount of SDR 9,655,000 is to provide funding for the Public Sector Reform Sub Program # 1 and # 2. The proceeds are to be used to: 1) improve the medium term fiscal outlook, with a view to increasing the budget surplus; 2) restrain public expenditure through selected reductions and freezes in selected major recurrent expenditure items; 3) reform and modernize the tax system, including by introducing a sales tax, and by improving tax administration; 4) improve the operational and financial performance of state owned enterprises (SOEs) through introduction of a national SOE policy and related legislation, and to implement a recovery plan for MEC; and 5) support stakeholder participation and consultation in respect of the Program. The abovementioned ADB loans payable are uncollateralized and are backed by the full faith and credit of RepMar. The abovementioned loans are designated and measured by the ADB using Special Drawing Rights (SDRs). The value of a SDR is defined by a weighted currency basket of five major currencies: the U.S. Dollar, the Chinese Yuan, the Euro, the British Pound, and the Japanese Yen. The International Monetary Fund re-evaluates this currency basket every five years. The effects of foreign currency transaction gains or losses resulting from this re-evaluation are included in the government-wide financial statements in the period when such re-evaluation occurs. During the year ended September 30, 2020, RepMar recognized a foreign exchange loss of $1,227,718 associated with re-valuation of the SDR, which is presented as a special item in the accompanying financial statements, and which results in an increase in ADB loans payable. Annual debt service requirements to maturity for principal and interest are as follows: Year ending September 30, Principal Interest Total 2021 $ 3,492,434 $ 541,665 $ 4,034,099 2022 3,635,009 498,339 4,133,348 2023 3,635,009 453,943 4,088,952 2024 3,635,009 409,547 4,044,556 2025 3,635,009 365,151 4,000,160 2026 - 2030 15,553,495 1,248,297 16,801,792 2031 - 2035 11,392,008 387,846 11,779,854 2036 - 2037 1,163,902 13,783 1,177,685 $ 46,141,875 $ 3,918,571 $ 50,060,446 - 55 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (7) Long-term Debt, Continued Primary Government, Continued Asian Development Bank Loans, Continued: ADB loans are governed by Loan Regulations, which set forth certain terms and conditions applicable to these loans as follows: Events of default with finance related consequences - in the event that the Borrower shall have failed to make payment of principal, interest charge or any other charge required under the Loan Agreement, the ADB may by notice to the Borrower suspend in whole or in part the right of the Borrower to make any further withdrawals from the Loan Account. The right of the Borrower to make withdrawals from the Loan Account shall continue to be suspended in whole or in part, as the case may be, until the event which gave rise to such suspension shall have, in the reasonable opinion of the ADB, ceased to exist or until the ADB shall have notified the Borrower that the right to make withdrawals has been restored in whole or in part, whichever is the earlier. If the right of the Borrower to make withdrawals from the Loan Account shall have been suspended with respect to any amount of the Loan for a continuous period of 30 days, the ADB may by notice to the Borrower terminate the right of the Borrower to make withdrawals. Upon the giving of such notice, the Loan shall be cancelled. Acceleration of maturity - the regulations specify that in the case of default that has occurred and continues for a period of 30 days, the ADB, at its option, may by notice to the Borrower declare the principal of the loan then outstanding, together with all accrued interest and other charges thereon, to be due and payable immediately. International Cooperation and Development Fund (ICDF) Loans: The Home Energy Efficiency and Renewable Energy Project loan in the amount of $4,000,000 aims to increase local energy resources and efficient utilization of energy through the household sector, both of which are expected to reduce pollution through a reduction in the use of imported fossil fuel for power generation. Loan proceeds are to be lent to the Marshall Islands Development Bank (MIDB) for the purpose of providing funds to household borrowers. The applicant households must take an energy audit to obtain a list of the inefficient appliances and light fittings in need of replacement, which will later be provided to MIDB for loan approval. The RMI Track and Field Project loan in the amount of $6,158,000 is to provide funding for the construction of a track and field for the purpose of hosting the 2022 Micronesian Games. Annual debt service requirements to maturity for principal and interest are as follows: Year ending September 30, Principal Interest Total 2021 $ - $ 80,000 $ 80,000 2022 50,000 80,000 130,000 2023 100,000 78,500 178,500 2024 100,000 76,500 176,500 2025 100,000 74,500 174,500 2026 - 2030 1,019,231 321,731 1,340,962 2031 - 2035 726,923 225,115 952,038 2036 - 2040 576,923 164,423 741,346 2041 - 2045 576,923 106,731 683,654 2046 - 2050 576,923 49,038 625,961 2051 - 2052 173,077 3,462 176,539 $ 4,000,000 $ 1,260,000 $ 5,260,000 - 56 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (7) Long-term Debt, Continued Primary Government, Continued International Cooperation and Development Fund (ICDF) Loans, Continued: ICDF loans are governed by the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Lender (the “General Conditions”), which set forth covenants to ensure compliance with the terms and conditions of the Projects during the implementation phase and payment of debt service. The primary requirements of the General Conditions are summarized below: The Borrower shall implement the Projects with due diligence and due care and in accordance with sound financial standards and practice. Events of default with finance related consequences - Section 13.1 of the General Conditions sets forth various events of default, which occurs when the Borrower shall have failed to pay, when due, any interest or installment of principal or any other sums due under the Loan Agreement; or the Borrower shall have failed to perform any of the covenants provided under Section 11 of the General Conditions. Acceleration of maturity - Section 13.2 of the General Conditions specify that in the case of default that has occurred and continues for a period of 21 days, the ICDF, at its option, may by notice to the Borrower declare the principal of the loan then outstanding, together with all accrued interest and other charges thereon, to be due and payable immediately. Default interest at a rate equal to 4% above the applicable LIBOR, as defined in the General Conditions, shall accrue on each installment payment of the principal amount of the Loan, interest thereon, which are overdue. Changes in long-term debt of the primary government for the year ended September 30, 2020 was as follows: Balance Balance October 1, September Due Within 2019 Additions Reductions 30, 2020 One Year Loans payable: ADB loans $ 48,204,411 $ 1,227,718 $ (3,290,254) $ 46,141,875 $ 3,492,434 ICDF loans 1,000,000 3,000,000 - 4,000,000 - $ 49,204,411 $ 4,227,718 $ (3,290,254) $ 50,141,875 $ 3,492,434 Discretely Presented Component Units As of September 30, 2020, the discretely presented component units had the following long-term debt outstanding and payable: Dated Interest Final Outstanding Date Rate Maturity Amount Marshall Islands National Telecommunications Authority: Rural Utilities Service (RUS) mortgage note April 17, 1990 5.00% April 17, 2025 $ 4,123,512 Rural Utilities Service (RUS) mortgage note June 4, 1992 5.00% June 4, 2027 515,662 Rural Utilities Service (RUS) mortgage note March 12, 2009 5.00% March 12, 2030 9,208,155 Rural Utilities Service (RUS) mortgage note March 12, 2009 3.64% - 3.84% March 12, 2030 2,518,768 16,366,097 Tobolar Copra Processing Authority: Bank loan June 23, 2016 8.5% June 30, 2022 486,685 $ 16,852,782 - 57 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (7) Long-term Debt, Continued Discretely Presented Component Units, Continued Marshall Islands National Telecommunications Authority (MINTA): Certain portions of loan repayments of the RUS mortgage notes are unconditionally guaranteed by the primary government, under which the primary government will make debt service payments to RUS up to $1,500,000 annually in the event of default by MINTA and have been collateralized by a leasehold mortgage and security agreement over the assets of MINTA. The respective RUS Loan Agreements set forth covenants to ensure proper operation and maintenance of the telecommunications system and payment of debt service. In 2020, MINTA did not meet the required times interest earned ratio (TIER). MINTA management is of the opinion that RUS is aware of this matter. The primary requirements of the loan agreements are summarized below: Rate Covenant - MINTA has covenanted to at all times fix, prescribe and collect rates, fees and charges in connection with the services furnished by the telecommunications system that will be sufficient to yield the sum of net income during each fiscal year equal to at least 150% of the annual debt service commencing on December 31, 2012. TIER is defined as net income (after tax) plus interest divided by interest expense. The Loan Agreements prohibit MINTA, without the prior written consent of RUS, to incur additional indebtedness while MINTA maintains a TIER below 1.0; or if the additional indebtedness will cause MINTA’s TIER to fall below 1.0; or an Event of Default has occurred and is continuing. Events of default with finance related consequences - the Loan Agreements specify a number of Events of Default and related Remedies. MINTA shall furnish to RUS promptly, after becoming aware, notice of the occurrence of any default under the Loan Documents or the receipt of any notice with respect to the occurrence of any event with which the giving of notice or the passage of time, or both, could become an Event of Default. Acceleration of maturity - Upon the occurrence of an Event of Default and is continuing, RUS may, by notice in writing to MINTA, declare all unpaid principal of and all interest accrued on the Notes to be immediately due and payable and upon such declaration, all such principal and interest shall become immediately due and payable. Annual debt service requirements to maturity for principal and interest are as follows: Year ending September 30, Principal Interest Total 2021 $ 1,910,633 $ 743,107 $ 2,653,740 2022 2,005,217 648,523 2,653,740 2023 2,104,523 549,217 2,653,740 2024 2,208,786 444,954 2,653,740 2025 1,608,664 345,928 1,954,592 2026 - 2030 6,528,274 782,574 7,310,848 $ 16,366,097 $ 3,514,303 $ 19,880,400 - 58 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (7) Long-term Debt, Continued Discretely Presented Component Units, Continued Tobolar Copra Processing Authority (TCPA): Loan repayments to the bank are guaranteed by Marshall Islands Development Bank (MIDB) under which MIDB will make debt service payments in the event of default by TCPA and have been collateralized by a general security agreement over the assets of TCPA. The Loan Agreement sets forth covenants to ensure payment of debt service. The primary requirements of the loan agreement are summarized below: Events of default with finance related consequences - the Loan Agreement specifies a number of Events of Default and related Remedies. Acceleration of maturity - Upon the occurrence of an Event of Default and is continuing, the bank may, without notice or demand, declare all unpaid principal of and all interest accrued on the loan to be immediately due and payable and upon such declaration, all such principal and interest shall become immediately due and payable. Annual repayment requirements to maturity for principal and interest are as follows: Year ending September 30, Principal Interest Total 2021 $ 286,849 $ 33,157 $ 320,006 2022 200,016 5,750 205,766 $ 486,865 $ 38,907 $ 525,772 Changes in long-term debt of the discretely presented component units for the year ended September 30, 2020 was as follows: Balance Balance October 1, September Due Within 2019 Additions Reductions 30, 2020 One Year Loans payable: MEC $ 213,612 $ - $ (213,612) $ - $ - MINTA 18,086,873 - (1,720,776) 16,366,097 1,910,633 TCPA 768,366 - (281,501) 486,865 286,849 $ 19,068,851 $ - $ (2,215,889) $ 16,852,962 $ 2,197,482 (8) Change in Other Long-term Obligations Primary Government Other long-term liabilities will be liquidated in the future primarily from the General Fund and the Grants Assistance Fund. During the year ended September 30, 2020, the following changes occurred in liabilities reported as part of the primary government’s long-term liabilities in the statement of net position: Balance Balance October 1, September Due Within 2019 Additions Reductions 30, 2020 One Year Due to component units $ 4,456,071 $ 2,035,670 $ (3,403,981) $ 3,087,760 $ 3,087,760 Other: Compensated absences 3,684,436 1,793,474 (1,409,665) 4,068,245 1,556,511 $ 8,140,507 $ 3,829,144 $ (4,813,646) $ 7,156,005 $ 4,644,271 - 59 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (8) Change in Other Long-term Obligations, Continued Discretely Presented Component Units Changes in other long-term liabilities of discretely presented component units for the year ended September 30, 2020, are as follows: Balance Balance October 1, September Due Within 2019 Additions Reductions 30, 2020 One Year Due to component unit: AMI $ 300,792 $ - $ (300,792) $ - $ - Due to primary government: AMI 3,116,890 - - 3,116,890 - MEC 6,215,130 - (364,794) 5,850,336 342,064 MIDB 1,000,000 - - 1,000,000 - MINTA 1,000,000 - - 1,000,000 1,000,000 RMIPA 285,714 - - 285,714 285,714 11,617,734 - (364,794) 11,252,940 1,627,778 $ 11,918,526 $ - $ (665,586) $ 11,252,940 $ 1,627,778 (9) Fund Balances Classifications of fund balances comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. The following table enumerates the fund balance classifications: Nonmajor Grants Compact Governmental General Assistance Trust Funds Totals Fund balances: Nonspendable: Pacific Islands Development Bank investment $ 2,990,250 $ - $ - $ - $ 2,990,250 Loan receivable – MEC 5,850,336 - - - 5,850,336 Loan receivable – MIDB 1,000,000 - - - 1,000,000 Permanent fund principal - - 86,131,874 - 86,131,874 Restricted: Education and health - 1,356,093 - 477,085 1,833,178 Capacity building - 163,374 - - 163,374 Environmental - 107,956 - - 107,956 Infrastructure - 3,075 - - 3,075 Infrastructure maintenance - 1,066,513 - - 1,066,513 Disaster assistance - 3,941,239 - - 3,941,239 Compact - other - 42,663 - - 42,663 ADB loan # 2659 sinking fund 3,254,682 - - - 3,254,682 ADB COVID-19 emergency response 627,495 - - - 627,495 ROC COVID-19 emergency response 673,246 - - - 673,246 ADB Pacific Disaster Resilience Program 4,103,803 - - - 4,103,803 ICDF loan - Track and Field 314,599 - - - 314,599 MIDB loan - Tobolar subsidy 517,068 - - - 517,068 European Development Fund - 678,234 - - 678,234 World Bank - 475,977 - - 475,977 Credit card collateralization 62,709 - - - 62,709 Nuclear claims related - - - 557,247 557,247 Committed: Judiciary - - - 593,744 593,744 Education and health - - - 5,457,438 5,457,438 Capital projects - 6,740,405 - - 6,740,405 Other 14,251 - - 1,437,201 1,451,452 Unassigned 10,257,701 (103,384) - - 10,154,317 $ 29,666,140 $ 14,472,145 $ 86,131,874 $ 8,522,715 $ 138,792,874 - 60 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (9) Fund Balances, Continued Restricted fund balance of the Grants Assistance Fund includes unexpended World Bank funds as follows: Beginning Ending Balance Revenues Expenditures Balance Pacific Resilience Project II $ (119,671) $ 1,245,143 $ 1,038,114 $ 87,358 Sustainable Energy Development Project 563,621 1,619,146 2,182,767 - RMI Maritime Investment Project 314,850 591,422 868,532 37,740 Strengthen Budget Execution and Financial Reporting (1,528) 1,002,081 1,000,553 - Multisectoral Early Childhood Development Project 822,724 (94,215) 475,752 252,757 Digital RMI Project - 338,498 335,498 3,000 Education and Skills Strengthening Project - 5,778 5,778 - COVID-19 Emergency Response - 1,600,000 1,504,878 95,122 $ 1,579,996 $ 6,307,853 $ 7,411,872 $ 475,977 (10) Restricted Assets Primary Government Restricted cash and cash equivalents of the primary government are as follows: Escrow account established for the benefit of landowners of Kwajalein Atoll. $ 294,151 Savings account established in accordance with Section 211(d)(2) of the Compact of Free Association, as amended, for the purpose of funding RepMar’s infrastructure maintenance plan. 1,767,866 Savings account established in accordance with Section 211(e) of the Compact of Free Association, as amended, for the purpose of funding RepMar’s disaster assistance emergency fund. 4,054,673 Savings accounts collateralizing a credit card facility. 62,709 Deposit account established in accordance with ADB Loan 2659-RMI (SF) for the purpose of funding loan debt service payments. 3,254,682 Deposit account established to satisfy a court judgment pertaining to Civil Action 2014-133. 200,929 Savings account established for the purpose of accounting for funds held by RepMar in a custodial capacity relating to unclaimed property. 104,047 $ 9,739,057 - 61 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (10) Restricted Assets, Continued Primary Government, Continued Restricted investments of the primary government are as follows: Investments held in a trust fund for the purpose of accumulating resources to fund RepMar government operations after fiscal year 2023. $ 86,131,874 Discretely Presented Component Units Restricted cash and cash equivalents of the discretely presented component units are as follows: Deposit account established by Marshalls Energy Company, Inc. in accordance with ADB Loan 2659-RMI (SF) for the purpose of funding repairs and maintenance. $ 358,453 Savings account established by the Marshall Islands Development Bank collateralizing loans funded by Rural Housing Service. 500,012 $ 858,465 (11) Operating Transfers In/Out Operating transfers in/out for each major governmental fund and nonmajor governmental funds in the aggregate, for the year ended September 30, 2020, are as follows: Transfers Out Transfers In General Fund: Compact Trust Fund $ 5,500,000 $ 3,000,000 Nonmajor governmental funds 1,786,358 683,006 7,286,358 3,683,006 Grants Assistance Fund: Nonmajor governmental funds 2,448,207 - Compact Trust Fund: General Fund 3,000,000 5,500,000 Nonmajor governmental funds: General Fund 683,006 1,786,358 Grants Assistance Fund - 2,448,207 683,006 4,234,565 $ 13,417,571 $ 13,417,571 Transfers are used to 1) move revenues from the fund that enabling legislation or budget requires to collect them to the fund that enabling legislation or budget requires to expend them, 2) use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations, and 3) record reductions in interfund loans for amounts that are not expected to be repaid. Specifically, RepMar transferred $2,500,000 from the General Fund to the Compact Trust Fund as a net trust fund contribution; $1,786,358 from the General Fund to the Nonmajor Governmental Funds to finance Judicial branch operations and scholarships; $2,448,207 from the Grants Assistance Fund to the Nonmajor Governmental Funds to finance scholarships and Four-atoll medical costs; and $683,006 from the Nonmajor Governmental Funds to the General Fund to fund general operations. - 62 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (12) Compact Trust Fund Section 216(a) of the Compact, as amended, provides for annual contributions from the United States into a trust fund established in accordance with the Agreement Between the Government of the United States of America and the Government of the Republic of the Marshall Islands Implementing Section 216 and Section 217 of the Compact, as Amended, Regarding a Trust Fund (Trust Fund Agreement). The contributions by the United States were conditioned upon RepMar contributing to the trust fund at least $25,000,000 on October 1, 2003, $2,500,000 prior to October 1, 2004, and a final $2,500,000 prior to October 1, 2005. As of September 30, 2020, RepMar has contributed the required amounts to the “A Account” as required under Article 16 of the Trust Fund Agreement; however, Article 21 of the Trust Fund Agreement states that the United States may withdraw the Present Market Value of its contributions to the “A Account” if certain events occur. In 2005, RepMar entered into a Subsequent Contributor Accession Agreement with the Republic of China whereby the Republic of China agreed to contribute annually certain amounts to the “A Account”. In addition, the Republic of China agreed to contribute annually certain amounts to the “D Account”, which was established by RepMar in accordance with Article 16. However, in the event of a severing of diplomatic relations between the Government of the Republic of the Marshall Islands and the Government of the Republic of China, the Republic of China may withdraw the Present Market Value of its contributions to the “A Account”. In addition to the “A Account”, the Trust Fund Agreement requires a “C Account” be created into which annual income earnings over 6% from the “A Account” shall be deposited. The “C Account” is maintained as a memorandum account within the Trust Fund and is not separately invested. Accordingly, the Compact Trust Fund presented within the accompanying financial statements presents only the contributions made to the “A Account” by RepMar and the “D Account” by the Republic of China and the related “C Account” as well as associated undistributed income summarized as follows: RepMar - “A Account” and “C Account” $ 73,257,307 RepMar - “D Account” 12,874,567 $ 86,131,874 As of September 30, 2020, the fair market value of contributions to the Compact Trust Fund “A Account” by the United States and the Republic of China, including associated undistributed income, and the related “C Account” is as follows: United States - “A Account” and “C Account” $ 384,773,054 Republic of China - “A Account” and “C Account” 56,398,917 $ 441,171,971 (13) Contingencies and Commitments Economic Dependency During the year ended September 30, 2020, RepMar’s General Fund recorded contributions from component units of $31,327,953, which represents 34% of total General Fund revenues. These contributions include fisheries revenues of $31,300,000 collected by the Marshall Islands Marine Resources Authority (MIMRA) and, as a result, the General Fund is economically dependent upon such contributions. If a significant reduction in the level of budgetary support from MIMRA due to the migratory nature of this economic resource were to occur, it may have an effect on the General Fund’s programs and activities. - 63 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (13) Contingencies and Commitments, Continued Nuclear Claims Trust Fund (NCTF) Section 177(c) of the Compact of Free Association (the Compact) provides, on a one-time grant basis, the amount of $150,000,000 to RepMar to be used to establish a trust fund from which annual distributions are to be made in accordance with Article II of the Agreement between the Government of the United States and RepMar for Implementation of Section 177 of the Compact (the Agreement). Pursuant to the Agreement, RepMar established the NCTF from which these distributions are made. Over a period of fifteen years, the Nuclear Claims Tribunal (NCT) received $45,750,000 from the NCTF that was made available for whole or partial payment of monetary awards. As of September 30, 2020, NCT has committed to the distribution of monetary awards for personal injury claims of $23,159,963 and of property damage claims of $2,284,108,436. Accordingly, in order to satisfy these claims, additional funds will have to be made available from a renegotiated financial settlement of damages with the United States. Federal Grants RepMar participates in a number of federally assisted grant programs and other various U.S. Department of the Interior grants. These programs are subject to financial and compliance audits to ascertain if Federal laws and guidelines have been followed. Questioned costs relating to fiscal years 2005 through 2019 have been set forth in RepMar's Single Audit Report for the year ended September 30, 2020. In addition, RepMar is considered to have responsibility for any questioned costs that may result from Single Audits of subgrantees who have not satisfied the audit requirements of OMB Circular A-133 or the OMB Uniform Guidance. The ultimate disposition of these questioned costs can be determined only by final action of the respective grantor agencies. Therefore, no provision for any liability that may result upon resolution of this matter has been made in the accompanying financial statements. Litigation RepMar is party to various legal proceedings, many of which are normal recurrences in governmental operations. The Attorney General of RepMar is of the opinion that the probable outcome of suits existing as of September 30, 2020 is not predictable. No provision for any liability has been made in the accompanying financial statements because management believes that no unfavorable outcome is likely to occur. Marshall Islands Social Security Administration (MISSA) In 2019, MISSA obtained an actuarial valuation of the Retirement Fund as of October 1, 2018. The valuation reported actuarial accrued liabilities and market value of assets for the Retirement Fund of $428,740,000 and $79,270,000, respectively, as of October 1, 2018. The funded ratio of the Retirement Fund as of October 1, 2017 is 18%. As of September 30, 2020, MISSA recorded total fund equity of $88,122,276 in the Retirement Fund, as funds available to fund future benefit obligations. These conditions indicate that MISSA may be unable to meet its future benefit obligations. Coin Issue RepMar authorized the issuance of certain commemorative coins that are represented to be the legal tender of the Republic of the Marshall Islands. Under the terms of the contract, if an owner of the coins presents them in the Republic of the Marshall Islands, the Government must redeem them for the face value. In 1998, the Cabinet of RepMar directed the Minister of Finance, Banking and Postal Services to terminate the contract. Insurance Coverage RepMar does not maintain insurance coverage for a significant amount of fixed assets. In the event of a catastrophe, RepMar may be self-insured to a material extent. - 64 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (13) Contingencies and Commitments, Continued Sick Leave It is the policy of RepMar to record expenditures for sick leave when leave is actually taken. Sick leave is compensated time for absence during working hours arising from employee illness or injury. The estimated accumulated amount of unused sick leave as of September 30, 2020 is $12,897,461. Leases RepMar enters into numerous leases with various landowners. The lease terms generally range from one to fifteen years. However, appropriations to fund these leases are made only on an annual basis. For the year ended September 30, 2020, RepMar appropriated $1,405,835 to fund such leases. College of the Marshall Islands has entered into various thirty-year ground lease agreements. Future minimum annual lease payments under this lease are as follows: Year ending September 30, Total 2021 $ 97,684 2022 97,684 2023 97,684 2024 97,684 2025 97,684 2026 - 2030 504,418 2031 - 2035 104,418 2036 - 2040 89,418 2041 - 2044 63,534 $ 1,250,208 Marshall Islands National Telecommunications Authority (MINTA) has long-term commitments for several ground leases and satellite circuit leases. Leases are both cancelable and noncancelable operating leases. Future minimum annual lease payments under these leases are as follows: Year ending September 30, Total 2021 $ 1,580,689 2022 1,695,733 2023 1,652,533 2024 1,630,933 2025 943,832 2026 - 2030 469,571 2031 - 2035 139,623 2036 - 2040 96,353 2041 1,037 $ 8,210,304 - 65 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (13) Contingencies and Commitments, Continued Operation, Management and Repair (OM&R) Agreement In 2009, MINTA, along with the Federated States of Micronesia Telecommunications Corporation (FSMTC), entered into an OM&R agreement with a third party for the purpose of operating, maintaining, and repairing the “Micronesian Addition”, which is a subset of the HANTRU1 System. The term of the agreement coincides with the term of the IRU Capital Lease agreement wherein MINTA and FSMTC are required to each make monthly payments of $6,400 less certain service credits, and which are subject to inflationary adjustments and an annual incremental increase of 3%. Approximate future minimum annual payments under this agreement are as follows: Year ending September 30, Total 2021 $ 104,761 2022 107,904 2023 111,141 2024 114,475 2025 117,909 2026 - 2030 644,777 2031 - 2034 589,013 $ 1,789,980 4G LTE Project In 2016, MINTA entered into a 6-year master services agreement with a vendor for the purpose of providing 4G LTE services to MINTA, which MINTA will re-sell to its customers. The vendor will be responsible for finance, implementation, and operation of the 4G LTE Project at no cost to MINTA. Upon commencement of services, the vendor will be reimbursed from net project revenues, which are defined as new revenue generated by the project less MINTA expense directly related to the project, and MINTA lost revenues, which are defined as revenues lost from existing MINTA services as a result of the new 4G LTE Project. On March 25, 2020, MINTA entered into an amendment to this agreement whereby the vendor and MINTA agreed to equally share all revenues from the 4G LTE services for a period of six months, commencing March 1, 2020, which may be extended by mutual consent. During the year ended September 30, 2020, MINTA recognized 4G LTE service revenues of $518,621 associated with this arrangement. Trust Company of the Marshall Islands Under the Joint Venture Agreement, as amended, between RepMar and the Trust Company of the Marshall Islands, Inc. (TCMI) dated September 14, 1990, and as amended August 18, 1995, after meeting certain contractual working capital requirements, annual gross revenues of the programs managed by TCMI are shared using a graduated schedule. In 2002, RepMar agreed to set aside the financial provisions of this Joint Venture Agreement in favor of an annual payment of $1,000,000, payable in quarterly installments of $250,000 through December 31, 2006. On December 6, 2006, RepMar agreed to again set aside the financial provisions of this Joint Venture Agreement in favor of an annual payment of $2,000,000, payable in quarterly installments of $500,000 through December 31, 2009. - 66 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (13) Contingencies and Commitments, Continued Trust Company of the Marshall Islands, Continued In 2009, RepMar agreed to further amend the financial provisions of this Joint Venture Agreement whereby an annual payment of $3,000,000 is payable by TCMI through December 31, 2010 in monthly installments of $250,000, with an effective date of July 1, 2008. For the period January 1, 2011 through December 31, 2013, the annual payment amount increased to $4,000,000, payable in monthly installments of $333,333 and further increased to an annual payment amount of $5,000,000 for the period January 1, 2014 through December 31, 2018, payable in monthly installments of $416,667. In 2015, RepMar agreed to further amend the financial provisions of this Joint Venture Agreement whereby annual payments payable by TCMI through December 31 of each year would be as follows: Year ending December 31, Total 2016 $ 6,500,000 2017 $ 7,000,000 2018 $ 7,500,000 2019 $ 7,500,000 2020 $ 8,000,000 The abovementioned annual payments are contingent upon continued net earnings being generated by TCMI. In the event that net earnings of TCMI fall below 2007 levels, the annual payments are to be adjusted accordingly on a prorated basis. During the year ended September 30, 2020, TCMI made payments of $7,386,364 to RepMar. Ebeye Water Supply and Sanitation Project (EWSSP) In 2015, the Asian Development Bank (ADB) approved two grants (Grant Nos. 0438-RMI and 0439-RMI) to RepMar in the aggregate amount of $9,000,000 for the EWSSP. Simultaneously, the ADB entered into a project agreement with the Kwajalein Atoll Joint Utilities Resources, Inc. (KAJUR) for the purpose of implementing the Project by improving water and sanitation systems on Ebeye. The grant agreements required that the grant proceeds be made available to KAJUR for the purpose of financing expenditures of the Project. During the year ended September 30, 2020, $2,796,285 of project capital expenditures were incurred. Loan Guarantees Marshall Islands Development Bank (MIDB) has pledged an escrow account in support of certain USDA Rural Development housing loans, the balance of which amounted to $11,570,121 as of September 30, 2020. In the event of default, MIDB could be exposed to an amount in excess of the escrow account balance, an amount that is presently indeterminable. No provision for any liability that may result from this matter has been provided for within the accompanying financial statements. - 67 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (13) Contingencies and Commitments, Continued Budgetary Compliance For the year ended September 30, 2020, over-expenditures exceeding appropriations within the General Fund were as follows: Outer Islands Local Government MISSA Payments $ 671,220 MIDB Loan Repayment $ 11,450 ICDF Commitment Fee $ 10,667 Majuro Landowners Electricity Bills $ 466,081 International Subscriptions $ 20,773 Prior Year Liabilities $ 66,383 ADB Loan Repayment $ 75,401 Council of Iroij $ 1,221 These over-expenditures of the General Fund have not been funded by legislative authorization. Other Commitments Significant commitments of the primary government as of September 30, 2020, are as follows: a) Guaranteed debt of Marshall Islands National Telecommunications Authority (MINTA) in respect of a loan from RUS with a letter of guarantee. As of September 30, 2020, MINTA had guaranteed RUS debt totaling $16,366,097. b) RepMar has entered into lease agreements with certain landowners for the use of land situated at the Majuro international airport. The terms of the lease agreements are for a 25-year period commencing September 1, 1996. Annual lease rental commitments are $305,613 per year. c) RepMar has issued a letter of guarantee of $178,000 plus interest for the benefit of the Delap Assembly of God Church for a loan issued by Marshall Islands Development Bank. d) On October 27, 2016, the Cabinet of RepMar authorized and approved a loan from the International Cooperation and Development Fund (ICDF) for the Home Energy Efficiency and Renewable Energy Projects. On November 8, 2016, RepMar entered into a $4,000,000 loan with ICDF. As of September 30, 2020, $1,000,000 has been drawn against this loan commitment. e) On August 9, 2019, the Cabinet of RepMar authorized and approved a loan from the International Cooperation and Development Fund (ICDF) for the 2020 Micronesian Games Track and Field Project. On August 16, 2019, RepMar entered into a $6,158,000 loan with ICDF. As of September 30, 2020, $3,000,000 has been drawn against this loan commitment. - 68 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Financial Statements September 30, 2020 (14) COVID-19 Pandemic On January 30, 2020, the World Health Organization (WHO) declared the novel strain of coronavirus (COVID-19) outbreak a Public Health Emergency of International Concern. On February 7, 2020, RepMar’s Office of the President issued a State of Emergency declaration due to COVID-19. RepMar’s Ministry of Health and Human Services in conjunction with the National Disaster Committee and the Cabinet subsequently issued Health Travel Advisory and Restrictions Issuance No. 9 suspending passenger air travel into the Marshall Islands effective March 8, 2020. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended the containment and mitigation measures worldwide. On October 28, 2020, one confirmed case was identified in the Marshall Islands that was subsequently isolated and contained. On November 17, 2020, an additional three cases were identified, which were subsequently isolated and contained. On January 4, 2022, an additional three cases were identified, which were isolated and contained. As of May 13, 2022, no community transmission has been identified and air passenger travel into the Marshall Islands remains suspended with the exception of repatriation flights for stranded residents that require stringent quarantine measures prior to re-entry into the Marshall Islands. Major donor organizations have committed resources to assist RepMar in responding to the threat posed by the pandemic, including the Asian Development Bank (ADB) and the World Bank (WB). The ADB has committed $24,500,000 for COVID-19 response in the Marshall Islands, comprising $16,000,000 from the Health Expenditure and Livelihoods Support Program, $6,000,000 from Phase 3 of the Pacific Disaster Resilience Program, and $1,000,000 from COVID- 19 Emergency Response. In addition, the WB has committed $2,500,000 to assist RepMar with prevention and detection of COVID-19 and to strengthening the local health system. Finally, RepMar is also able to avail of certain funding under the provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by the U.S. Congress and signed into law by President Donald Trump on March 27, 2020. RepMar has determined that should community transmission occur within the Marshall Islands, it may negatively impact RepMar’s financial position. However, the effect of the pandemic on RepMar is uncertain. Therefore, while RepMar expects this matter to potentially have a negative impact on its financial position, the related financial impact cannot be reasonably estimated at this time. - 69 - REPUBLIC OF THE MARSHALL ISLANDS REQUIRED SUPPLEMENTARY INFORMATION YEAR ENDED SEPTEMBER 30, 2020 - 70 - REPUBLIC OF THE MARSHALL ISLANDS Schedule of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual General Fund (Fund 100100) Year Ended September 30, 2020 Actual - Variance with Budgeted Amounts Budgetary Final Budget - Basis Positive Original Final (see Note 1) (Negative) Revenues: Taxes $ 36,205,684 $ 36,205,684 $ 33,537,102 $ (2,668,582) MI Marine Resources Authority 30,000,000 31,300,000 31,300,000 - Ship registry 7,250,000 7,390,513 7,386,364 (4,149) Taiwan grant 4,000,000 5,250,000 5,282,388 32,388 World Bank grants - 6,000,000 6,000,000 - Other grants - - 53,317 53,317 Fees and charges 218,043 218,043 40,583 (177,460) Interest and dividends - - 113,087 113,087 Other 1,566,210 2,690,683 326,716 (2,363,967) Total revenues 79,239,937 89,054,923 84,039,557 (5,015,366) Expenditures: President and Cabinet 3,015,105 3,041,417 2,844,890 196,527 Office of the Chief Secretary 1,280,463 11,803,421 7,061,648 4,741,773 Special appropriations 16,419,923 17,951,253 17,641,766 309,487 Council of Iroij 623,641 607,511 608,732 (1,221) Nitijela 2,544,679 2,340,084 2,296,733 43,351 Office of the Auditor-General 1,937,765 2,083,406 1,874,741 208,665 Foreign Affairs and Trade 5,143,334 4,956,347 4,609,526 346,821 Public Service Commission 667,350 660,213 652,719 7,494 Judiciary 1,491,625 294,600 294,600 - Office of the Attorney General 1,489,946 1,354,435 1,146,858 207,577 Education, Sports and Training 12,288,624 8,454,163 8,135,491 318,672 Health and Human Services 5,821,060 5,393,330 5,144,631 248,699 Transportation, Communication and Information Technology 4,628,160 4,580,269 4,493,524 86,745 Natural Resources and Commerce 11,139,530 10,879,720 10,273,947 605,773 Culture and Internal Affairs 3,623,326 4,029,791 3,969,293 60,498 Justice, Immigration and Labor 4,082,627 4,071,735 3,870,727 201,008 Finance, Banking and Postal Services 4,223,658 11,421,973 11,144,089 277,884 Work, Infrastructure and Utilities 5,106,362 5,483,523 5,287,139 196,384 Environmental Protection Authority 514,831 499,028 477,913 21,115 Total expenditures 86,042,009 99,906,219 91,828,967 8,077,252 Deficiency of revenues under expenditures (6,802,072) (10,851,296) (7,789,410) 3,061,886 Other financing sources(uses): Loan proceeds - 6,000,000 5,035,670 (964,330) Operating transfers in - 3,000,000 3,683,006 683,006 Operating transfers out (500,000) (5,450,776) (5,356,649) 94,127 Total other financing sources(uses), net (500,000) 3,549,224 3,362,027 (187,197) (7,302,072) (7,302,072) (4,427,383) 2,874,689 Encumbrances for supplies and equipment ordered but not received are reported in the year the order is placed for budgetary purposes but in the year the supplies are received for financial reporting purposes 7,302,072 7,302,072 9,933,830 2,631,758 Net change in fund balance $ - $ - $ 5,506,447 $ 5,506,447 See accompanying notes to required supplementary information - budgetary reporting. - 71 - REPUBLIC OF THE MARSHALL ISLANDS Notes to Required Supplementary Information - Budgetary Reporting September 30, 2020 (1) Budgetary Information The Secretary of Finance, Banking and Postal Services and the Chief Budget Officer present to the Cabinet, prior to September 30, proposed budget estimates for the fiscal year commencing October 1. The budget estimates include the overall and total proposed expenditures of RepMar and the means of financing those expenditures. The Cabinet reviews and approves these estimates making changes, as it deems appropriate. The Appropriation Committee of the Nitijela, during the second sitting of the regular session of the Nitijela, holds public hearings at which time Ministries and Offices are required to justify their budget estimates. During the second sitting of the Nitijela, an appropriation bill, as required by the Constitution, is introduced and budget estimates are then legally enacted by the Nitijela. The Budget Act for fiscal year 2020, Public Law No. 2019-111, was passed by the Nitijela on September 20, 2019. Formal budget integration is employed as a management control device during the year for all funds. The Cabinet has the authority to reprogram budgeted estimates in accordance with the Constitution. All annual appropriations lapse at fiscal year-end unless otherwise specified by law. Supplemental appropriations may occur throughout the year. Unexpended encumbrances at each fiscal year end are carried forward until they are expended or canceled without further legislative action. RepMar does not establish budgets for the operations of its other governmental funds. Encumbrance accounting is employed in governmental funds. For budgetary purposes, the encumbrances (i.e., purchase orders, contracts) are considered expenditures when incurred. For GAAP reporting purposes, encumbrances outstanding at year end are reported as reservations of fund balances and do not constitute expenditures or liabilities because the commitments will be reappropriated and honored during the subsequent fiscal year. (2) Reconciliation of Budgetary Schedule Net Change In Fund Reserve for Balance Encumbrances Budgetary basis - Fund 100100 $ 5,506,447 $ 9,933,830 GASB 54 Funds included within the General Fund: PSS Education Fund (58,930) - Reimbursable Fund (4,716) 6,324 Judiciary Fund 29,850 - EPA Fund 11,584 - Agricultural Supplies Fund 29,037 - ADB Development Fund 662,161 387,277 668,986 393,601 General Fund $ 6,175,433 $ 10,327,431 See Accompanying Independent Auditors’ Report. - 72 - REPUBLIC OF THE MARSHALL ISLANDS OTHER SUPPLEMENTARY INFORMATION YEAR ENDED SEPTEMBER 30, 2020 - 73 - REPUBLIC OF THE MARSHALL ISLANDS Combining Schedule of Expenditures by Account Governmental Funds Year Ended September 30, 2020 Special Revenue Permanent Other Grants Compact Governmental General Assistance Trust Funds Total Expenditures: Salaries and wages $ 24,390,098 $ 23,234,723 $ - $ 1,490,446 $ 49,115,267 Unemployment benefits - 1,550,709 - - 1,550,709 Grants and subsidies 23,654,917 15,951,982 - 2,139,251 41,746,150 Financial assistance 1,716,623 - - - 1,716,623 Utilities 5,293,174 2,175,082 - 92,787 7,561,043 Contractual services 2,684,334 7,222,687 - 5,491,771 15,398,792 Capital outlay 6,068,999 8,053,521 - 219,235 14,341,755 Travel 1,018,608 834,916 - 742,581 2,596,105 Medical supplies 16,160 164,707 - 4,988,478 5,169,345 Principal repayment 6,694,235 - - - 6,694,235 Supplies and materials 706,167 1,588,001 - 235,117 2,529,285 Leased housing 2,277,352 357,353 - 72,000 2,706,705 Rentals 2,560,006 864,695 - 50,312 3,475,013 Food stuffs 2,197,208 746,593 - 63,867 3,007,668 Interest 664,066 - - - 664,066 Communications 609,532 447,008 - 131,887 1,188,427 POL 592,951 486,689 - 162,488 1,242,128 Allowances 1,346,821 9,460 - - 1,356,281 Professional services 863,206 5,884,702 - 249,401 6,997,309 Printing and reproduction 77,124 174,936 - 36,077 288,137 Insurance 179,791 48,711 - 26,095 254,597 Freight 65,400 35,244 - 130,541 231,185 Other 2,696,193 2,341,612 - 290,201 5,328,006 $ 86,372,965 $ 72,173,331 $ - $ 16,612,535 $ 175,158,831 See Accompanying Independent Auditors' Report. - 74 - REPUBLIC OF THE MARSHALL ISLANDS GENERAL FUND September 30, 2020 The general fund is used to account for resources traditionally associated with government, which are not required legally or by sound financial management to be accounted for in another fund. See Accompanying Independent Auditors’ Report. - 75 - REPUBLIC OF THE MARSHALL ISLANDS Statement of Revenues, Expenditures by Function, and Changes in Fund Balance - General Fund (Fund 100100) Year Ended September 30, 2020 (with comparative totals for the year ended September 30, 2019) 2020 2019 Revenues: Taxes: Income $ 16,428,709 $ 16,257,737 Import 7,199,898 7,311,957 Import - CMI 1,619,502 1,525,138 Gross revenue 6,863,681 7,696,026 Immovable property 752,390 702,622 Fuel 446,554 523,561 Penalties and interest 117,395 73,963 Other 108,973 97,122 33,537,102 34,188,126 Fees and charges 40,583 53,573 Interest and dividends 113,087 130,300 Other: Taiwan grant 5,282,388 4,225,000 World Bank grants 6,000,000 - Other grants 53,317 - Ship registry 7,386,364 8,426,462 Contribution from MI Marine Resources Authority 31,300,000 29,141,128 Contribution from RMI Ports Authority 27,953 111,813 Other 298,763 724,283 50,348,785 42,628,686 Total revenues 84,039,557 77,000,685 Expenditures: President and Cabinet: Office of the President 1,174,216 1,098,044 President and Ministers 6,632 667,086 Building Renovation 6,146 - Cabinet Operations 1,060,116 616,263 Red Cross - - 2,247,110 2,381,393 Office of the Chief Secretary: Administration 5,847,157 625,480 Deputy Chief Secretary - Ebeye 108,329 91,025 Economic Policy, Planning and Statistics Office 331,847 389,310 Office of Environmental Planning and Policy Coordination - 8,671 6,287,333 1,114,486 Special appropriations: Marshall Islands Social Security Administration (MISSA) subsidy 1,686,400 2,314,747 Kwajalein Atoll Local Government (Solid Waste matching) 135,000 307,981 Capitol Building - (1,483) National Election 611,303 161,195 Centralized Utility Billings - Majuro 794,776 906,443 Nuclear Victim's Day 11,000 - Employee Pension Fund 10,294 112,943 General Fund Reserve - 155,000 Centralized Utility Billings - Ebeye 39,830 33,131 Land leases 1,244,134 1,292,124 Majuro Landowners Electricity 3,821,071 3,800,200 Leased housing 118,725 116,834 Contingency Fund 59,008 288,111 International Subscriptions/Membership Fees 485,029 476,888 Prior Year Liabilities 152,390 1,731,818 ADB loan repayment 3,875,401 3,844,485 Majuro Resort, Inc. (Ebeye Wellness) (178,560) 198,400 COMI Endowment Fund 99,200 99,200 MIDB Loan Repayment 3,482,900 - KADA Operations 29,847 28,565 OIHD Solar System 50,592 - ICDF Commitment Fee 10,667 - Kwajalein Atoll Local Government (MISSA payments) 671,220 594,702 17,210,227 16,461,284 See Accompanying Independent Auditors' Report. - 76 - REPUBLIC OF THE MARSHALL ISLANDS Statement of Revenues, Expenditures by Function, and Changes in Fund Balance - General Fund (Fund 100100), Continued Year Ended September 30, 2020 (with comparative totals for the year ended September 30, 2019) 2020 2019 Expenditures, continued: Council of Iroij: Administration 180,856 159,220 Members 415,858 402,777 596,714 561,997 Nitijela: Operations 880,919 785,200 General membership 1,084,107 1,420,859 Speaker's contingency 83,434 115,497 Committee 9,531 97,709 Legislative counsel 94,480 111,321 2,152,471 2,530,586 Office of the Auditor-General: Operations 672,931 684,120 Single audit - local match 405,247 421,761 1,078,178 1,105,881 Public Service Commission: Members 134,149 140,491 Administration 480,896 511,420 615,045 651,911 Office of the Attorney General 1,072,978 1,623,284 Ministries: Education, Sports and Training 7,986,691 7,958,291 Health and Human Services 4,826,912 5,659,512 Transportation, Communication and Information Technology 4,466,278 5,705,868 Natural Resources and Commerce 9,928,802 8,036,816 Culture and Internal Affairs 3,559,122 3,401,920 Justice, Immigration and Labor 3,792,067 3,520,739 Finance, Banking and Postal Services 7,642,389 3,936,918 Foreign Affairs and Trade 4,495,084 4,681,048 Works, Infrastructure and Utilities 3,486,548 6,767,072 50,183,893 49,668,184 Environmental Protection Authority 451,188 407,299 Total expenditures 81,895,137 76,506,305 Excess of revenues over expenditures 2,144,420 494,380 Other financing sources: Loan proceeds: International Cooperation and Development Fund 3,000,000 1,000,000 Marshall Islands Development Bank 2,035,670 3,904,330 Operating transfers in: Section 211 (b)(1) Ebeye Special Needs Fund - 500,000 Section 211 (e)(1) Disaster Assistance Fund - 1,394,169 Compact Trust Fund 3,000,000 - Ministry of Justice Fund 683,006 971,088 Total other financing sources 8,718,676 7,769,587 Other financing uses: Operating transfers out: Judiciary Fund 698,421 694,451 Marshall Islands Scholarship, Grant and Loan Board Fund 758,692 1,496,785 Marshall Islands Judiciary Fund 329,245 324,012 Marshall Islands Health Fund - 1,400,000 Marshall Islands Public School System Fund 3,070,291 3,305,583 Section 211 (a)(5) Environment Fund - 4,577 Compact Trust Fund 500,000 250,000 Section 211 (d)(2) Infrastructure Maintenance Fund - 468,617 Section 211 (e)(1) Disaster Assistance Fund - 244,260 Total other financing uses 5,356,649 8,188,285 Net change in fund balance 5,506,447 75,682 Fund balance at the beginning of the year 23,353,646 23,277,964 Fund balance at the end of the year $ 28,860,093 $ 23,353,646 See Accompanying Independent Auditors' Report. - 77 - REPUBLIC OF THE MARSHALL ISLANDS Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund (Fund 100100) Year Ended September 30, 2020 Budgeted Amounts Actual - Original Final Budgetary Basis Variance Revenues: Taxes: Income $ 17,899,230 $ 17,899,230 $ 16,428,709 $ (1,470,521) Import 7,744,128 7,744,128 7,199,898 (544,230) Import - CMI 1,333,000 1,333,000 1,619,502 286,502 Gross revenue 7,500,000 7,500,000 6,863,681 (636,319) Immovable property 700,000 700,000 752,390 52,390 Fuel 872,872 872,872 446,554 (426,318) Penalties and interest 70,000 70,000 117,395 47,395 Other 86,454 86,454 108,973 22,519 36,205,684 36,205,684 33,537,102 (2,668,582) Fees and charges 218,043 218,043 40,583 (177,460) Interest and dividends - - 113,087 113,087 Other: Taiwan grant 4,000,000 5,250,000 5,282,388 32,388 World Bank grants - 6,000,000 6,000,000 - Other grants - - 53,317 53,317 Ship registry 7,250,000 7,390,513 7,386,364 (4,149) MI Marine Resources Authority 30,000,000 31,300,000 31,300,000 - RMI Ports Authority 791,000 791,000 27,953 (763,047) Other 775,210 1,899,683 298,763 (1,600,920) 42,816,210 52,631,196 50,348,785 (2,282,411) Total revenues 79,239,937 89,054,923 84,039,557 (5,015,366) Expenditures: President and Cabinet: Office of the President 1,976,656 1,911,677 1,732,373 179,304 President and Ministers - - 6,632 (6,632) Building Renovation - - 6,146 (6,146) Cabinet Operations 1,038,449 1,129,740 1,099,739 30,001 3,015,105 3,041,417 2,844,890 196,527 Office of the Chief Secretary: Administration 671,503 11,234,582 6,601,092 4,633,490 Deputy Chief Secretary - Ebeye 120,334 105,340 114,765 (9,425) EPPSO 488,626 463,499 345,791 117,708 1,280,463 11,803,421 7,061,648 4,741,773 Special appropriations: MISSA subsidy 1,686,400 1,686,400 1,686,400 - Solid Waste Matching - 135,000 135,000 - Capital Building 40,625 40,625 40,625 - Employee Pension Fund 424,760 424,760 29,802 394,958 Outer Islands Local Government MISSA payments - - 671,220 (671,220) National Election 448,250 678,086 660,949 17,137 General Fund reserve 30,000 30,000 30,000 - Ebeye Wellness 198,400 198,400 19,840 178,560 KADA operations 39,680 39,680 33,399 6,281 Centralized Utility Billings - Majuro 823,360 823,360 794,776 28,584 Nuclear Victim's Day - 11,000 11,000 - Outer Islands Projects 260 260 260 - Water Project 53,694 53,694 53,694 - CMI Endowment Fund 99,200 99,200 99,200 - MIDB Loan Repayment 2,480,000 3,471,450 3,482,900 (11,450) Constitutional Convention 446,400 446,400 - 446,400 Pacific Festival of Arts 74,400 74,400 - 74,400 OIHD Solar System 50,592 50,592 50,592 - ICDF Commitment Fee - - 10,667 (10,667) Centralized Utility Billings - Ebeye 49,600 49,600 39,830 9,770 Land leases 1,405,835 1,405,835 1,244,134 161,701 Majuro Landowners Electricity 3,354,990 3,354,990 3,821,071 (466,081) Leased housing 158,723 153,885 130,018 23,867 Contingency Fund 210,547 357,634 68,297 289,337 International Subscriptions/Membership Fees 464,256 464,256 485,029 (20,773) Prior Year Liabilities 86,007 86,007 152,390 (66,383) ADB loan repayment 3,769,600 3,800,000 3,875,401 (75,401) Constitutional Convention 24,344 15,739 15,272 467 16,419,923 17,951,253 17,641,766 309,487 Council of Iroij: Administration 184,264 184,444 187,458 (3,014) Members 439,377 423,067 421,274 1,793 623,641 607,511 608,732 (1,221) See Accompanying Independent Auditors' Report. - 78 - REPUBLIC OF THE MARSHALL ISLANDS Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund (Fund 100100) Year Ended September 30, 2020 Budgeted Amounts Actual - Original Final Budgetary Basis Variance Expenditures, Continued: Nitijela: Operations 738,906 972,172 952,214 19,958 General Membership 1,383,501 1,092,842 1,111,981 (19,139) Speaker's Contingency 130,585 110,987 102,488 8,499 Committee 154,281 47,751 35,570 12,181 Legislative Counsel 137,406 116,332 94,480 21,852 2,544,679 2,340,084 2,296,733 43,351 Office of the Auditor-General: Operations 766,899 847,040 694,375 152,665 Single audit 1,170,866 1,236,366 1,180,366 56,000 1,937,765 2,083,406 1,874,741 208,665 Foreign Affairs and Trade: Administration 2,179,069 1,950,585 1,911,409 39,176 Washington D.C. Embassy 668,386 620,074 517,340 102,734 RMI-Usaka Office 114,467 93,384 83,160 10,224 Honolulu Consulate 272,427 271,177 234,310 36,867 United Nations Mission - New York 487,951 567,887 522,584 45,303 Japan Embassy - Tokyo 523,373 552,885 536,690 16,195 ROC Embassy - Taipei 396,263 380,567 349,867 30,700 Fiji Embassy - Suva 428,899 441,395 397,846 43,549 Korea Embassy 72,499 78,393 56,320 22,073 5,143,334 4,956,347 4,609,526 346,821 Public Service Commission: Members 158,569 150,433 134,649 15,784 Administration 508,781 509,780 518,070 (8,290) 667,350 660,213 652,719 7,494 Judiciary: General Courts 1,229,368 294,600 294,600 - Traditional Rights Court 142,712 - - - Community Court 104,096 - - - Judicial Service Commission 15,449 - - - 1,491,625 294,600 294,600 - Office of the Attorney General: Attorney General Office 1,134,115 1,029,520 888,699 140,821 Immigration - Majuro 264,153 243,937 206,019 37,918 Immigration - Ebeye 91,678 80,978 52,140 28,838 1,489,946 1,354,435 1,146,858 207,577 Education, Sports and Training: College of the Marshall Islands 2,565,203 2,813,203 2,813,203 - National Training Council 92,846 86,205 84,482 1,723 RMI/USP Joint Project 595,200 595,200 595,200 - Scholarship Board 764,678 - - - Administration 3,371,944 1,069,049 1,066,184 2,865 Policy and Planning 248,808 244,408 214,924 29,484 Elementary Support Services 655,735 515,338 412,125 103,213 Contracted Teachers 3,073,304 2,685,499 2,525,669 159,830 Secondary Education and Support Services 95,140 64,475 46,856 17,619 Aid to Private Schools 496,000 - - - Property and Maintenance 329,766 325,580 321,642 3,938 PSS Teachers Certification Program - 55,206 55,206 - 12,288,624 8,454,163 8,135,491 318,672 Health and Human Services: Office of the Secretary 2,319,230 2,262,591 1,973,102 289,489 Health Planning and Statistics 189,879 173,460 153,363 20,097 Majuro Hospital Medical Services 2,399,201 2,303,472 2,283,600 19,872 Hospital Capital Account 197,658 197,658 197,658 - Primary Health Care 171,621 106,815 121,150 (14,335) Outer Island Dispensaries 14,545 82,361 80,075 2,286 Kwajalein Atoll Public Health - - 6,720 (6,720) Kwajalein Atoll Health Services 528,926 266,973 328,963 (61,990) 5,821,060 5,393,330 5,144,631 248,699 Transportation, Communication and Information Technology: Office of the Secretary 4,270,910 4,259,365 4,204,697 54,668 Director of Civil Aviation 357,250 320,904 288,827 32,077 4,628,160 4,580,269 4,493,524 86,745 Natural Resources and Commerce: Administration 9,354,809 9,241,179 8,767,624 473,555 Agro-Forestry 704,519 630,235 522,175 108,060 Trade and Investment 286,602 214,706 190,548 24,158 Office of Commerce and Investment 793,600 793,600 793,600 - 11,139,530 10,879,720 10,273,947 605,773 See Accompanying Independent Auditors' Report. - 79 - REPUBLIC OF THE MARSHALL ISLANDS Schedule of Revenues, Expenditures and Changes in Fund Balance Budget and Actual - General Fund (Fund 100100) Year Ended September 30, 2020 Budgeted Amounts Actual - Original Final Budgetary Basis Variance Expenditures, Continued: Culture and Internal Affairs: Administration 1,519,175 1,716,821 1,715,433 1,388 Alele Corporation 221,628 238,699 238,874 (175) Local Government Affairs 1,050,024 1,266,461 1,214,808 51,653 Community Development 50,828 35,741 38,226 (2,485) Youth Services Bureau 44,618 40,109 37,757 2,352 Gender and Development 47,594 38,617 27,641 10,976 Electoral Administration 167,135 185,425 190,131 (4,706) Elections 352 352 352 - V7AB Radio Division 322,764 326,543 315,424 11,119 Registrar Office 156,992 140,838 151,801 (10,963) Central Adoption Administration 42,216 40,185 38,846 1,339 3,623,326 4,029,791 3,969,293 60,498 Justice, Immigration and Labor: Public Defender 240,557 224,227 193,544 30,683 Public Safety - Majuro 2,364,982 2,346,340 2,179,254 167,086 Public Safety - Ebeye 560,124 560,124 558,012 2,112 Sea Patrol 802,557 826,637 825,510 1,127 Land Registry Authority 114,407 114,407 114,407 - 4,082,627 4,071,735 3,870,727 201,008 Finance, Banking and Postal Services: Office of the Secretary 893,075 8,212,079 8,161,744 50,335 Accounting and Administration 731,933 802,695 777,144 25,551 Revenue Division - Majuro 387,170 360,903 395,271 (34,368) Customs Division 319,733 294,869 239,637 55,232 Treasury Division 83,390 81,562 72,833 8,729 Budget and Procurement 573,814 496,774 415,932 80,842 Procurement and Supply Division 307,733 288,206 257,137 31,069 Ebeye - Finance 220,984 252,175 250,814 1,361 Ebeye - Revenue Collections - - 340 (340) Ebeye Revenue/Custom Office 185,537 154,307 140,394 13,913 Banking Commission 520,289 478,403 432,843 45,560 4,223,658 11,421,973 11,144,089 277,884 Work, Infrastructure and Utilities: Administration 3,524,772 3,855,283 3,654,287 200,996 CGMA 1,478,743 1,405,393 1,440,938 (35,545) OI Projects 1,402 1,402 1,402 - Pass (Lib and Jabot) - 120,000 120,000 - Project Management Unit 101,445 101,445 70,512 30,933 5,106,362 5,483,523 5,287,139 196,384 Environment: Ministry Office 514,831 499,028 473,505 25,523 Environmental Protection Authority - - 4,408 (4,408) 514,831 499,028 477,913 21,115 Total expenditures 86,042,009 99,906,219 91,828,967 8,077,252 (6,802,072) (10,851,296) (7,789,410) 3,061,886 Other financing sources (uses): Loan proceeds: International Cooperation and Development Fund - 6,000,000 3,000,000 (3,000,000) Marshall Islands Development Bank - - 2,035,670 2,035,670 - 6,000,000 5,035,670 (964,330) Operating transfers in: Compact Trust Fund - 3,000,000 3,000,000 - Ministry of Justice Fund - - 683,006 683,006 - 3,000,000 3,683,006 683,006 Operating transfers out: Judiciary Fund - 791,319 698,421 92,898 MI Scholarship Fund - 759,921 758,692 1,229 MI Judiciary Fund - 329,245 329,245 - MI Public School System Fund - 3,070,291 3,070,291 - Compact Trust Fund 500,000 500,000 500,000 - 500,000 5,450,776 5,356,649 94,127 Encumbrances for supplies and equipment ordered but not received are reported in the year the order is placed for budgetary purposes but in the year the supplies are received for financial reporting purposes 7,302,072 7,302,072 9,933,830 2,631,758 Net change in fund balance $ - $ - $ 5,506,447 $ 5,506,447 See Accompanying Independent Auditors' Report. - 80 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR GOVERNMENTAL FUNDS - SPECIAL REVENUE FUNDS September 30, 2020 Special revenue funds are used to account for specific revenues that are legally restricted for particular purposes. A brief discussion of RepMar's Nonmajor Governmental Funds - Special Revenue Funds as of September 30, 2020, follows: Public Works Fund This fund was established under Public Law No. 2003-24 and accounts for all charges, fees and other monies collected or generated by the Ministry of Works, Infrastructure and Utilities. Land Registration Authority Fund This fund accounts for the operations of the Marshall Islands Land Registration Authority. This Authority was established under Public Law No. 2001-26 to provide a legal framework for registration of land in the Marshall Islands in order to encourage investment and to protect land interest holders. Labor (General) Fund This fund accounts for the collection of all fees and charges levied under the Labor (Non-Resident Workers) Act of 2006 (Public Law No. 2006-60) as administered by the Ministry of Foreign Affairs and Trade. Labor (Bond) Fund This fund accounts for the collection of all bonds paid or forfeited by employers under the Labor (Non- Resident Workers) Act of 2006 (Public Law No. 2006-60) as administered by the Ministry of Foreign Affairs and Trade. Ministry of Justice Fund This fund accounts for specific operations of both the Department of Public Safety and Ministry of Justice, Immigration and Labor. This fund was established under Public Law No. 1989-70 and administers fees and fines, as collected by the courts with respect to violation of National Government laws, and any appropriations made by the Nitijela for related purposes. Marshall Islands Revised Code Fund This fund accounts for the maintenance of the Marshall Islands Revised Code. This fund was established under Public Law No. 2006-61 to administer revenue received with respect to the sale and distribution of the Marshall Islands Revised code, and any appropriations made by the Nitijela for related purposes. Recycling Fund This fund accounts for the collection of all fees and charges levied under the Styrofoam Cups and Plates, and Plastic Products Prohibition, and Container Deposit Act, 2016 (Public Law No. 2016-17) as administered by the RMI Environmental Protection Authority. Resident Workers Training Account Fund This fund was established under Public Law No. 1987-6 and accounts for all monies collected under the provisions of the Nonresident Workers Act of 1983 from employers who employ non-resident workers, and accounts for all financial transactions of the National Training Council. See Accompanying Independent Auditors’ Report. - 81 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR GOVERNMENTAL FUNDS - SPECIAL REVENUE FUNDS September 30, 2020 Sea Patrol Fund This fund was established under Public Law No. 1991-143 and accounts for all charges, fees and fines generated and received by the Sea Patrol Division through the use of the patrol boat M.V. Lomor. Transportation Services Fund This fund was established under Public Law No. 2001-38 and accounts for all charges, fees and other monies collected or generated by the Ministry of Transportation, Communication and Information Technology through the use of their shipping vessels. Registrar General Fund This fund was established under Public Law No. 1992-4 and accounts for all charges, fees and monies collected or generated by the Ministry of Culture and Internal Affairs Registrar-General of Births, Deaths and Marriages. Ministry of Internal Affairs Fund This fund was established under Public Law No. 2003-84 and accounts for all charges, fees and monies collected or generated by Ministry of Culture and Internal Affairs through Radio V7AB, the Lands and Survey Division, the ID Card Section, the Sports and Recreation Division, and any other funds generated by the Ministry for a specific purpose. Four-Atoll Medical Fund This fund accounts for transactions from the distribution of annual proceeds from the Nuclear Claims Trust Fund in accordance with Article II, Section 1(a) of the agreement between the Government of the United States and RepMar for the implementation of Section 177 of the Compact of Free Association. Marshall Islands Scholarship Grant and Loan Board This fund was established under Public Law No. 1979-19 and accounts for all disbursements of scholarship funds. Marshall Islands Judiciary Fund This fund was established to account for all activities of the Marshall Islands Judiciary not accounted for within the General Fund. Health Care Revenue Fund This fund was established under Public Law No. 1989-59 within the Ministry of Health and Human Services to control the expenditure of funds for health care related services. See Accompanying Independent Auditors’ Report. - 82 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR GOVERNMENTAL FUNDS - SPECIAL REVENUE FUNDS September 30, 2020 Marshall Islands Health Fund This fund was established under Public Law No. 1990-75, as amended by Public Law Nos. 2001-31 and 2001-35, to account for the operations of the Basic and Supplemental Health Funds delivering comprehensive medical care to the residents of the Marshall Islands. See Accompanying Independent Auditors’ Report. - 83 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Combining Balance Sheet September 30, 2020 200105 200224 200318 200319 200332 200333 200334 200340 200520 Resident Land Marshall Workers Public Registration Labor Labor Ministry Islands Training Works Authority (General) (Bond) of Justice Revised Code Recycling Account Sea Patrol ASSETS Cash and cash equivalents $ - $ - $ - $ - $ - $ - $ - $ - $ - Receivables, net: Taxes - - - - - - - 155,161 - General - - - - - - - - - Other - - - - - - - 810 - Due from other funds 365,964 18,118 476,560 181,845 515,392 - 173,515 1,259,636 12,829 Advances 100 - 1,204 - 16,529 - - (1,804) - Total assets $ 366,064 $ 18,118 $ 477,764 $ 181,845 $ 531,921 $ - $ 173,515 $ 1,413,803 $ 12,829 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 17,748 $ - $ - $ - $ 379,829 $ - $ 13,258 $ 519,800 $ 440 Medical claims payable - - - - - - - - - Other liabilities and accruals - - - 181,845 - - - 8,819 - Total liabilities 17,748 - - 181,845 379,829 - 13,258 528,619 440 Fund balances: Restricted - - - - - - - - - Committed 348,316 18,118 477,764 - 152,092 - 160,257 885,184 12,389 Total fund balances 348,316 18,118 477,764 - 152,092 - 160,257 885,184 12,389 Total liabilities and fund balances $ 366,064 $ 18,118 $ 477,764 $ 181,845 $ 531,921 $ - $ 173,515 $ 1,413,803 $ 12,829 See Accompanying Independent Auditors' Report. - 84 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Combining Balance Sheet, Continued September 30, 2020 200525 200527 200528 200540 300612 Marshall Islands Ministry of Scholarship, Marshall Health Marshall Transportation Registrar Internal Banking Four-Atoll Grant and Islands Care Islands Services General Affairs Commissioner Medical Loan Board Judiciary Revenue Health Elimination Total ASSETS Cash and cash equivalents $ - $ - $ - $ - $ - $ 683,450 $ 601,801 $ 651,540 $ 185,455 $ - $ 2,122,246 Receivables, net: Taxes - - - - - - - - - - 155,161 General - - - - 459,612 - - - 1,957,641 - 2,417,253 Other - - - - - 15,569 3,689 176,034 - - 196,102 Due from other funds 37,019 391 222,045 7,500 97,635 - - - 2,350,855 - 5,719,304 Advances - - 6,242 - - 21,115 - 230,571 375,000 - 648,957 - Total assets $ 37,019 $ 391 $ 228,287 $ 7,500 $ 557,247 $ 720,134 $ 605,490 $ 1,058,145 $ 4,868,951 $ - $ 11,259,023 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ - $ - $ 4,932 $ - $ - $ 35,470 $ 7,511 $ 485,412 $ 516,186 $ - $ 1,980,586 Medical claims payable - - - - - - - - 457,929 - 457,929 Other liabilities and accruals - - - - - - 4,235 102,894 - - 297,793 Total liabilities - - 4,932 - - 35,470 11,746 588,306 974,115 - 2,736,308 Fund balances: Restricted - - - - 557,247 477,085 - - - - 1,034,332 Committed 37,019 391 223,355 7,500 - 207,579 593,744 469,839 3,894,836 - 7,488,383 Total fund balances 37,019 391 223,355 7,500 557,247 684,664 593,744 469,839 3,894,836 - 8,522,715 Total liabilities and fund balances $ 37,019 $ 391 $ 228,287 $ 7,500 $ 557,247 $ 720,134 $ 605,490 $ 1,058,145 $ 4,868,951 $ - $ 11,259,023 See Accompanying Independent Auditors' Report. - 85 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Combining Statement of Revenues, Expenditures By Function, and Changes in Fund Balances (Deficits) Year Ended September 30, 2020 200105 200224 200318 200319 200332 200333 200334 200340 200520 Resident Land Marshall Workers Public Registration Labor Labor Ministry Islands Training Works Authority (General) (Bond) of Justice Revised Code Recycling Account Sea Patrol Revenues: Federal and other grants $ - $ - $ - $ - $ - $ - $ - $ - $ - Fees and charges 169,101 - 92,360 - 1,043,128 - 929,862 738,061 10,240 Interest - - - - - - - - - Sales - - - - 39,879 - - - - Total revenues 169,101 - 92,360 - 1,083,007 - 929,862 738,061 10,240 Expenditures by Function: Current: Judiciary - - - - - - - - - Ministries: Education, Sports and Training - - - - - - - 535,310 - Health and Human Services - - - - - - - - - Culture and Internal Affairs - - - - - - - - - Justice, Immigration and Labor - - - - 300,058 - - - 3,719 Finance, Banking and Postal Services - - - - - - 786,334 - - Foreign Affairs and Trade - - 24,250 - - - - - - Works, Infrastructure and Utilities 186,929 - - - - - - - - Nuclear claims related - - - - - - - - - Total expenditures 186,929 - 24,250 - 300,058 - 786,334 535,310 3,719 Excess (deficiency) of revenues over (under) expenditures (17,828) - 68,110 - 782,949 - 143,528 202,751 6,521 Other financing sources (uses): Operating transfers in - - - - - - - - - Operating transfers out - - - - (683,006) - - - - Total other financing sources (uses), net - - - - (683,006) - - - - Net change in fund balances (deficits) (17,828) - 68,110 - 99,943 - 143,528 202,751 6,521 Fund balances (deficits) at the beginning of the year 366,144 18,118 409,654 - 52,149 - 16,729 682,433 5,868 Fund balances at the end of the year $ 348,316 $ 18,118 $ 477,764 $ - $ 152,092 $ - $ 160,257 $ 885,184 $ 12,389 See Accompanying Independent Auditors' Report. - 86 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Combining Statement of Revenues, Expenditures By Function, and Changes in Fund Balances (Deficits), Continued Year Ended September 30, 2020 200525 200527 200528 200540 300612 Marshall Islands Ministry of Scholarship, Marshall Health Marshall Transportation Registrar Internal Banking Four-Atoll Grant and Islands Care Islands Services General Affairs Commissioner Medical Loan Board Judiciary Revenue Health Elimination Total Revenues: Federal and other grants $ - $ - $ - $ - $ - $ - $ - $ 529,927 $ - $ - $ 529,927 Fees and charges - - 65,147 7,500 - - 99,329 418,627 8,704,183 - 12,277,538 Interest - - - - - 21,271 5,622 - 71,035 - 97,928 Sales 2,625 - - - - - 48,613 40,980 343,409 - 475,506 Total revenues 2,625 - 65,147 7,500 - 21,271 153,564 989,534 9,118,627 - 13,380,899 Expenditures by Function: Current: Judiciary - - - - - - 1,085,776 - - - 1,085,776 Ministries: Education, Sports and Training - - - - - 1,977,321 - - - - 2,512,631 Health and Human Services - - - - - - - 5,011,144 5,003,268 - 10,014,412 Culture and Internal Affairs - - 18,188 - - - - - - - 18,188 Justice, Immigration and Labor - - - - - - - - - - 303,777 Finance, Banking and Postal Services - - - - - - - - - - 786,334 Foreign Affairs and Trade - - - - - - - - - - 24,250 Works, Infrastructure and Utilities - - - - - - - - - - 186,929 Nuclear claims related - - - - 1,680,238 - - - - - 1,680,238 Total expenditures - - 18,188 - 1,680,238 1,977,321 1,085,776 5,011,144 5,003,268 - 16,612,535 Excess (deficiency) of revenues over (under) expenditures 2,625 - 46,959 7,500 (1,680,238) (1,956,050) (932,212) (4,021,610) 4,115,359 - (3,231,636) Other financing sources (uses): Operating transfers in - - - - 1,656,005 1,550,894 1,027,666 3,073,017 - (3,073,017) 4,234,565 Operating transfers out - - - - - - - - (3,073,017) 3,073,017 (683,006) Total other financing sources (uses), net - - - - 1,656,005 1,550,894 1,027,666 3,073,017 (3,073,017) - 3,551,559 Net change in fund balances (deficits) 2,625 - 46,959 7,500 (24,233) (405,156) 95,454 (948,593) 1,042,342 - 319,923 Fund balances (deficits) at the beginning of the year 34,394 391 176,396 - 581,480 1,089,820 498,290 1,418,432 2,852,494 - 8,202,792 Fund balances at the end of the year $ 37,019 $ 391 $ 223,355 $ 7,500 $ 557,247 $ 684,664 $ 593,744 $ 469,839 $ 3,894,836 $ - $ 8,522,715 See Accompanying Independent Auditors' Report. - 87 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Combining Statement of Revenues, Expenditures By Account, and Changes in Fund Balances (Deficits) Year Ended September 30, 2020 200105 200224 200318 200319 200332 200333 200334 200340 200520 Resident Land Marshall Workers Public Registration Labor Labor Ministry Islands Training Works Authority (General) (Bond) of Justice Revised Code Recycling Account Sea Patrol Revenues: Federal and other grants $ - $ - $ - $ - $ - $ - $ - $ - $ - Fees and charges 169,101 - 92,360 - 1,043,128 - 929,862 738,061 10,240 Interest - - - - - - - - - Sales - - - - 39,879 - - - - Total revenues 169,101 - 92,360 - 1,083,007 - 929,862 738,061 10,240 Expenditures by Account: Grants and subsidies - - - - - - - 385,522 - Salaries and wages - - - - 258 - - 138,952 - Medical supplies - - - - - - - - - Contractual services - - - - - - 786,334 - - Capital outlay 42,587 - 24,250 - 19,264 - - - - Travel - - - - 36,047 - - - - Food stuffs 23,494 - - - 6,024 - - - - Supplies and materials 19,922 - - - 91,041 - - - 3,719 POL 61,066 - - - 72,011 - - - - Rentals 5,867 - - - - - - 10,836 - Communications - - - - 300 - - - - Insurance - - - - 5,018 - - - - Utilities 835 - - - 988 - - - - Leased housing - - - - - - - - - Freight - - - - 40,399 - - - - Professional services - - - - - - - - - Printing and reproduction - - - - 352 - - - - Other 33,158 - - - 28,356 - - - - Total expenditures 186,929 - 24,250 - 300,058 - 786,334 535,310 3,719 Excess (deficiency) of revenues over (under) expenditures (17,828) - 68,110 - 782,949 - 143,528 202,751 6,521 Other financing sources (uses): Operating transfers in - - - - - - - - - Operating transfers out - - - - (683,006) - - - - Total other financing sources (uses), net - - - - (683,006) - - - - Net change in fund balances (deficits) (17,828) - 68,110 - 99,943 - 143,528 202,751 6,521 Fund balances (deficits) at the beginning of the year 366,144 18,118 409,654 - 52,149 - 16,729 682,433 5,868 Fund balances at the end of the year $ 348,316 $ 18,118 $ 477,764 $ - $ 152,092 $ - $ 160,257 $ 885,184 $ 12,389 See Accompanying Independent Auditors' Report. - 88 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS Combining Statement of Revenues, Expenditures By Account, and Changes in Fund Balances (Deficits), Continued Year Ended September 30, 2020 200525 200527 200528 200540 300612 Marshall Islands Ministry of Scholarship, Marshall Health Marshall Transportation Registrar Internal Banking Four-Atoll Grant and Islands Care Islands Services General Affairs Commissioner Medical Loan Board Judiciary Revenue Health Elimination Total Revenues: Federal and other grants $ - $ - $ - $ - $ - $ - $ - $ 529,927 $ - $ - $ 529,927 Fees and charges - - 65,147 7,500 - - 99,329 418,627 8,704,183 - 12,277,538 Interest - - - - - 21,271 5,622 - 71,035 - 97,928 Sales 2,625 - - - - - 48,613 40,980 343,409 - 475,506 Total revenues 2,625 - 65,147 7,500 - 21,271 153,564 989,534 9,118,627 - 13,380,899 Expenditures by Account: Grants and subsidies - - - - - 1,723,737 - 29,992 - - 2,139,251 Salaries and wages - - - - - 128,169 698,419 217,988 306,660 - 1,490,446 Medical supplies - - - - - - - 4,262,926 725,552 - 4,988,478 Contractual services - - 10,828 - 1,680,238 - - - 3,014,371 - 5,491,771 Capital outlay - - 3,839 - - 8,493 73,229 1,890 45,683 - 219,235 Travel - - - - - - 26,441 118,958 561,135 - 742,581 Food stuffs - - - - - - 745 33,604 - - 63,867 Supplies and materials - - 3,377 - - 12,451 57,633 29,498 17,476 - 235,117 POL - - - - - 2,506 10,746 10,373 5,786 - 162,488 Rentals - - - - - 15,840 2,167 15,602 - 50,312 Communications - - - - - 30,737 59,205 31,018 10,627 - 131,887 Insurance - - - - - - 4,419 - 16,658 - 26,095 Utilities - - - - - - 37,347 - 53,617 - 92,787 Leased housing - - - - - - 72,000 - - - 72,000 Freight - - - - - - 173 89,969 - - 130,541 Professional services - - - - - - 26,789 22,612 200,000 - 249,401 Printing and reproduction - - - - - 2,303 - 33,422 - - 36,077 Other - - 144 - - 53,085 16,463 113,292 45,703 - 290,201 Total expenditures - - 18,188 - 1,680,238 1,977,321 1,085,776 5,011,144 5,003,268 - 16,612,535 Excess (deficiency) of revenues over (under) expenditures 2,625 - 46,959 7,500 (1,680,238) (1,956,050) (932,212) (4,021,610) 4,115,359 - (3,231,636) Other financing sources (uses): Operating transfers in - - - - 1,656,005 1,550,894 1,027,666 3,073,017 - (3,073,017) 4,234,565 Operating transfers out - - - - - - - - (3,073,017) 3,073,017 (683,006) Total other financing sources (uses), net - - - - 1,656,005 1,550,894 1,027,666 3,073,017 (3,073,017) - 3,551,559 Net change in fund balances (deficits) 2,625 - 46,959 7,500 (24,233) (405,156) 95,454 (948,593) 1,042,342 - 319,923 Fund balances (deficits) at the beginning of the year 34,394 391 176,396 - 581,480 1,089,820 498,290 1,418,432 2,852,494 - 8,202,792 Fund balances at the end of the year $ 37,019 $ 391 $ 223,355 $ 7,500 $ 557,247 $ 684,664 $ 593,744 $ 469,839 $ 3,894,836 $ - $ 8,522,715 See Accompanying Independent Auditors' Report. - 89 - REPUBLIC OF THE MARSHALL ISLANDS FIDUCIARY FUNDS - PRIVATE PURPOSE TRUSTS September 30, 2020 Private purpose trusts are used to report any trust arrangement not properly reported in a pension trust fund or an investment trust fund “under which principal and income benefit individuals, private organizations, or other governments.” A brief discussion of RepMar’s Private Purpose Trusts as of September 30, 2020, follows: Marshall Islands Social Security Administration (MISSA) This fund established MISSA under Public Law No. 1990-75, which administers the Marshall Islands Social Security Retirement Fund, to provide a financially sound social security system with pension benefits and early retirement. Kwajalein Atoll Trust Fund This fund accounts for funds received under the Interim Use Agreement, to be disbursed to various Kwajalein landowners. Section 212 Kwajalein Landowners Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 212 and approved by Nitijela resolution 123 in accordance with the Military Use and Operating Rights Agreement. See Accompanying Independent Auditors’ Report. - 90 - REPUBLIC OF THE MARSHALL ISLANDS Combining Statement of Fiduciary Net Position Fiduciary Funds - Private Purpose Trusts September 30, 2020 DILOG Fund Number 350610 510610 Marshall Islands Section Social 212 Security Kwajalein Kwajalein Admin. Atoll Trust Landowners Total ASSETS Cash and cash equivalents $ 4,772,892 $ - $ - $ 4,772,892 Time certificate of deposit 2,000,000 - - 2,000,000 Receivables, net: Contributions 4,487,653 - - 4,487,653 Other 125,836 - - 125,836 Investments 79,249,751 - - 79,249,751 Due from other funds - 421,658 388,832 810,490 Capital assets, net of accumulated depreciation 477,210 - - 477,210 Total assets 91,113,342 421,658 388,832 91,923,832 LIABILITIES Accounts payable 195,984 - 35,266 231,250 Other liabilities and accruals 99,741 - - 99,741 Due to other funds 2,350,855 - - 2,350,855 Total liabilities 2,646,580 - 35,266 2,681,846 NET POSITION Restricted for: Social security benefits 88,466,762 - - 88,466,762 Land use distributions - 421,658 353,566 775,224 Total net position $ 88,466,762 $ 421,658 $ 353,566 $ 89,241,986 See Accompanying Independent Auditors' Report. - 91 - REPUBLIC OF THE MARSHALL ISLANDS Combining Statement of Changes in Fiduciary Net Position Fiduciary Funds - Private Purpose Trusts Year Ended September 30, 2020 DILOG Fund Number 350610 510610 Marshall Islands Section Social 212 Security Kwajalein Kwajalein Admin. Atoll Trust Landowners Total Additions: Contributions: Private employees $ 15,434,429 $ - $ - $ 15,434,429 Government employees 6,837,692 - - 6,837,692 Penalties and interest 672,115 - - 672,115 Total contributions 22,944,236 - - 22,944,236 Investment earnings: Net change in the fair value of investments 885,458 - - 885,458 Interest and dividends 1,660,257 - - 1,660,257 Total investment earnings 2,545,715 - - 2,545,715 Less investment expense 140,543 - - 140,543 Net investment earnings 2,405,172 - - 2,405,172 Other: Compact funding - - 22,374,000 22,374,000 Transfer in 1,686,400 - - 1,686,400 Other 456,283 - - 456,283 2,142,683 - 22,374,000 24,516,683 Total additions 27,492,091 - 22,374,000 49,866,091 Deductions: Land use distributions - - 22,338,247 22,338,247 Benefits 20,932,495 - - 20,932,495 Administrative expenses 1,246,808 - - 1,246,808 Total deductions 22,179,303 - 22,338,247 44,517,550 Change in net position held in trust for: Social security benefits 5,312,788 - - 5,312,788 Land use distributions - - 35,753 35,753 Net position at the beginning of the year 83,153,974 421,658 317,813 83,893,445 Net position at the end of the year $ 88,466,762 $ 421,658 $ 353,566 $ 89,241,986 See Accompanying Independent Auditors' Report. - 92 - REPUBLIC OF THE MARSHALL ISLANDS FIDUCIARY FUNDS - AGENCY September 30, 2020 Agency funds are used to report resources held by the reporting government in a purely custodial capacity (assets equal liabilities). Agency funds typically involve only the receipt, temporary investment, and remittance of fiduciary resources to individuals, private organizations, or other governments. A brief discussion of RepMar’s Agency Funds as of September 30, 2020, follows: Unclaimed Property Fund This fund accounts for funds received in a fiduciary capacity for distribution to other individuals that primarily consists of Bank of Hawaii deposits and share dividends from United Micronesia Development Association. See Accompanying Independent Auditors’ Report. - 93 - REPUBLIC OF THE MARSHALL ISLANDS Statement of Changes in Assets and Liabilities Fiduciary Funds - Agency September 30, 2020 Balance Balance October 1, September 30, 2019 Additions Deductions 2020 ASSETS Due from other funds $ 164,484 $ - $ - $ 164,484 Total assets $ 164,484 $ - $ - $ 164,484 LIABILITIES Other liabilities and accruals $ 164,484 $ - $ - $ 164,484 Total liabilities $ 164,484 $ - $ - $ 164,484 See Accompanying Independent Auditors' Report. - 94 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR COMPONENT UNITS September 30, 2020 Component units are legally separate organizations for which the elected officials of RepMar are financially accountable. A brief discussion of RepMar’s Nonmajor Component Units as of September 30, 2020, follows: Majuro Atoll Waste Company, Inc. (MAWC) MAWC was incorporated under the laws of the Republic of the Marshall Islands on January 30, 2007 to engage in, but not limited to, the collection and disposal of solid waste on Majuro Atoll. MAWC is governed by a five-member Board of Directors comprising the Secretary of Public Works or Secretary responsible for solid waste, the Councilman on the Executive Committee responsible for solid waste management on the Majuro Atoll Local Government, one member from a list of two or more nominations by the Marshall Islands Chamber of Commerce, one member from a list of two or more nominations by the Marshall Islands Tourism Association, and one member from a list of two or more nominations by the Marshall Islands Conservation Society. RepMar provides financial support to MAWC through legislative appropriations. Majuro Resort, Inc. (MRI) MRI was granted a corporate charter by the Cabinet of RepMar on November 8, 1995 to engage in the operation of a 150-room hotel on the atoll of Majuro. MRI is governed by a seven-member Board of Directors appointed by the President upon approval of the Cabinet of RepMar. RepMar has the ability to impose its will on MRI. Majuro Water and Sewer Company, Inc. (MWSC) MWSC was granted a corporate charter by the Cabinet of RepMar on January 26, 1989 to engage in the business of collecting and distributing fresh water, waste water and maintaining the sewer system. MWSC is governed by a seven-member Board of Directors appointed by the President upon approval of the Cabinet of RepMar. RepMar provides financial support to MWSC through legislative appropriations. Marshall Islands Postal Services Authority (MIPSA) MIPSA was created by the Postal Service Act of 1983 for the purpose of establishing an effective and efficient postal service for the Republic, both domestic and international, from three service outlets - the Uliga and Delap postal stations located on Majuro Atoll, and the Ebeye postal station located on Kwajalein Atoll. MIPSA is governed by a five-member Board of Directors appointed by the President upon approval of the Cabinet of RepMar. The Board of Directors, in turn, is responsible for the appointment of the Postmaster General who oversees the day-to-day operations of the Authority. RepMar provides financial support to MIPSA through legislative appropriations. National Environmental Protection Authority (EPA) EPA was created by the National Environmental Protection Authority Act of 1984 (Public Law No, 1984- 31, the Act). EPA began operations as a statutory corporation on December 19, 1984, in accordance with the Act. The objectives of EPA are to preserve and improve the quality of the environment of the Marshall Islands. EPA is governed by a five-member Board of Directors appointed by the President upon approval of the Cabinet of RepMar. RepMar provides financial support to EPA through legislative appropriations. See Accompanying Independent Auditors’ Report. - 95 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR COMPONENT UNITS September 30, 2020 Office of Commerce, Investment and Tourism (OCIT) OCIT, formerly known as the Office of Commerce and Investment (OCI), was established pursuant to the Office of Commerce, Investment and Tourism (Amendment) Act 2018 (Public Law No. 2018-57), which amended the OCI Act of 2013 (Public Law 2013-21). OCI began operations as a statutory corporation on November 25, 2013 upon receiving its first operational budget. The objectives of OCI were to: (1) to investigate, study, develop and implement social and economic development programs and projects, alone or in conjunction with other governmental, private organizations, or agencies, for the betterment of the economic and social conditions of the inhabitants of the Republic; (2) encourage and develop, and manage, businesses of economic or social importance to the Republic, such as tourism, poultry farming and piggeries; and (3) conduct, on behalf of RepMar, such business enterprises as the RepMar Cabinet directs, on such terms and conditions as were agreed to between OCI and the RepMar Cabinet; provided, however, in all decisions of the Board or the RepMar Cabinet, the protection of existing enterprises shall be given highest consideration. OCIT is governed by a seven-member Board of Directors appointed by the President upon approval of the Cabinet of RepMar. RepMar provides financial support to OCIT through legislative appropriations. See Accompanying Independent Auditors’ Report. - 96 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR COMPONENT UNITS Combining Statement of Net Position September 30, 2020 Majuro Majuro Marshall Office of Atoll Water Islands National Commerce, Waste Majuro and Sewer Postal Environmental Investment Company, Resort, Company, Service Protection and Inc. Inc. Inc. Authority Authority Tourism Total ASSETS Cash and cash equivalents $ 76,064 $ 466,800 $ 320,471 $ 942,347 $ 588,004 $ 93,187 $ 2,486,873 Receivables, net 56,285 390,149 247,433 49,534 30,128 10,152 783,681 Inventories - 24,036 766,157 17,816 - - 808,009 Other assets 21,100 29,507 155,841 3,335 - - 209,783 Capital assets: Nondepreciable capital assets - 71,757 - - - - 71,757 Other capital assets, net of accumulated depreciation 580,564 930,740 1,379,990 68,717 89,196 99,352 3,148,559 Total assets 734,013 1,912,989 2,869,892 1,081,749 707,328 202,691 7,508,662 LIABILITIES Accounts payable 68,142 791,614 3,390,815 47,401 - 35,696 4,333,668 Other liabilities and accruals 44,482 605,800 42,488 53,172 25,153 55,386 826,481 Unearned revenue - - 86,935 24,088 31,381 - 142,404 Total liabilities 112,624 1,397,414 3,520,238 124,661 56,534 91,082 5,302,553 NET POSITION Net investment in capital assets 580,564 1,002,497 1,379,990 68,717 89,196 99,352 3,220,316 Restricted 89,221 - 105,008 - 233,369 - 427,598 Unrestricted (48,396) (486,922) (2,135,344) 888,371 328,229 12,257 (1,441,805) Total net position $ 621,389 $ 515,575 $ (650,346) $ 957,088 $ 650,794 $ 111,609 $ 2,206,109 See Accompanying Independent Auditors' Report. - 97 - REPUBLIC OF THE MARSHALL ISLANDS NONMAJOR COMPONENT UNITS Combining Statement of Revenues, Expenses, and Changes in Net Position Year Ended September 30, 2020 Majuro Majuro Marshall Office of Atoll Water Islands National Commerce, Waste Majuro and Sewer Postal Environmental Investment Company, Resort, Company, Service Protection and Inc. Inc. Inc. Authority Authority Tourism Total Expenses $ 1,617,075 $ 3,755,798 $ 1,781,897 $ 790,574 $ 736,644 $ 788,826 $ 9,470,814 Program revenues: Charges for services 939,031 3,620,374 992,648 698,514 296,247 20,278 6,567,092 Operating grants and contributions - - - - 184,036 27,724 211,760 Capital grants and contributions 82,480 - 291,312 - - - 373,792 Total program revenues 1,021,511 3,620,374 1,283,960 698,514 480,283 48,002 7,152,644 Net program revenues (expenses) (595,564) (135,424) (497,937) (92,060) (256,361) (740,824) (2,318,170) General revenues: Payments from RepMar 598,898 239,065 757,902 238,080 352,872 793,600 2,980,417 Other 20,224 - - - - - 20,224 Total general revenues 619,122 239,065 757,902 238,080 352,872 793,600 3,000,641 Change in net position 23,558 103,641 259,965 146,020 96,511 52,776 682,471 Net position at the beginning of the year 597,831 411,934 (910,311) 811,068 554,283 58,833 1,523,638 Net position at the end of the year $ 621,389 $ 515,575 $ (650,346) $ 957,088 $ 650,794 $ 111,609 $ 2,206,109 See Accompanying Independent Auditors' Report. - 98 - REPUBLIC OF THE MARSHALL ISLANDS GRANTS ASSISTANCE FUND September 30, 2020 The Grants Assistance Fund accounts for all financial transactions that are subgranted to RepMar. A brief discussion of the funds that comprise the Grants Assistance Fund as of September 30, 2020, follows: Section 215(a)(1) Communications Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, Title II, Article I, Section 215(a)(1) and approved by Nitijela resolution 62. Section 216(a)(1) Surveillance and Enforcement Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, Title II, Article I, Section 216(a)(1) and approved by Nitijela resolution 62. Section 216(a)(3) Scholarship Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, Title II, Article I, Section 216(a)(3) and approved by Nitijela resolution 62. Section 213 Audit Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 213 and approved by Nitijela resolution 123. U.S. Federal Grants Fund This fund accounts for all financial transactions that are subgranted to RepMar, as well as other direct federal grants that RepMar received from the United States government. European Union Grants Fund This fund accounts for all financial transactions that are subgranted to RepMar, as well as other direct grants that RepMar received from the European Union. World Bank Fund This fund accounts for all financial transactions that are subgranted to RepMar, as well as other direct grants that RepMar received from the World Bank. Other Direct Assistance Fund This fund accounts for all financial transactions related to direct grants received from non-U.S. agencies, which have historically been accounted for herein, and also includes grants from other world organizations. Republic of China Projects Fund This fund accounts for all financial transactions related to direct grants received from the Republic of China relating to designated projects. See Accompanying Independent Auditors’ Report. - 99 - REPUBLIC OF THE MARSHALL ISLANDS GRANTS ASSISTANCE FUND September 30, 2020 Compact Sector Grants Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 211(a) and approved by Nitijela resolution 123 to promote economic advancement and budgetary self-reliance. These appropriations are to be used for assistance in education, health care, the environment, public sector capacity building, and private sector development, or for other areas as mutually agreed, with priorities in the education and health care sectors. See Accompanying Independent Auditors’ Report. - 100 - REPUBLIC OF THE MARSHALL ISLANDS GRANTS ASSISTANCE FUND Combining Balance Sheet September 30, 2020 DILOG Fund Number 350200 350305 350315 510130 600350 700100 700200 700360 700370 Section Section 216(a)(1) 215(a)(1) Surveillance Section Section U.S. European Republic of Commu- and 216(a)(3) 213 Federal Union World Other Direct China Compact nications Enforcement Scholarship Audit Grants Grants Bank Assistance Projects Sector Total ASSETS Receivables: Federal agencies $ - $ - $ - $ 291,500 $ 7,904,003 $ - $ - $ - $ - $ 9,121,608 $ 17,317,111 General - - - - - - 728,443 (133,995) 2,000,000 - 2,594,448 Due from other funds 40,380 690 1,593 - - 726,675 365,497 165,234 5,473,233 7,940,846 14,714,148 Advances - - - - 131,974 8,575 19,619 (5,784) 16,415 189,534 360,333 Total assets $ 40,380 $ 690 $ 1,593 $ 291,500 $ 8,035,977 $ 735,250 $ 1,113,559 $ 25,455 $ 7,489,648 $ 17,251,988 $ 34,986,040 LIABILITIES AND FUND BALANCES (DEFICITS) Liabilities: Accounts payable $ - $ - $ - $ 22,500 $ 1,572,783 $ 51,888 $ 637,582 $ 14,689 $ 493,745 $ 1,457,582 $ 4,250,769 Other liabilities and accruals - - - - 207,008 5,128 - 2,106 12,238 926,942 1,153,422 Payable to federal agencies - - - - - - - - - 1,479,942 1,479,942 Retention payable - - - - 37,926 - - 70,000 243,260 1,326,611 1,677,797 Due to other funds - - - 269,000 6,260,304 - - - - 5,422,661 11,951,965 Total liabilities - - - 291,500 8,078,021 57,016 637,582 86,795 749,243 10,613,738 20,513,895 Fund balances: Restricted 40,380 690 1,593 - - 678,234 475,977 - - 6,638,250 7,835,124 Committed - - - - - - - - 6,740,405 - 6,740,405 Unassigned (deficits) - - - - (42,044) - - (61,340) - - (103,384) Total fund balances (deficits) 40,380 690 1,593 - (42,044) 678,234 475,977 (61,340) 6,740,405 6,638,250 14,472,145 Total liabilities and fund balances $ 40,380 $ 690 $ 1,593 $ 291,500 $ 8,035,977 $ 735,250 $ 1,113,559 $ 25,455 $ 7,489,648 $ 17,251,988 $ 34,986,040 See Accompanying Independent Auditors' Report. - 101 - REPUBLIC OF THE MARSHALL ISLANDS GRANTS ASSISTANCE FUND Combining Statement of Revenues, Expenditures by Function, and Changes in Fund Balances (Deficits) Year Ended September 30, 2020 DILOG Fund Number 350200 350305 350315 510130 600350 700100 700200 700360 700370 Section Section 216(a)(1) 215(a)(1) Surveillance Section Section U.S. European Republic of Commu- and 216(a)(3) 213 Federal Union World Other Direct China Compact nications Enforcement Scholarship Audit Grants Grants Bank Assistance Projects Sector Elimination Total Revenues: Federal and other grants $ - $ - $ - $ 487,741 $ 15,530,873 $ 2,344,455 $ 6,307,853 $ 382,480 $ 8,640,000 $ 41,995,983 $ - $ 75,689,385 Expenditures by Function: Current: President and Cabinet - - - - - - - - 17,557 - - 17,557 Office of the Chief Secretary - - - - 3,711,755 - 1,504,589 145,465 260,441 - - 5,622,250 Special appropriations - - - - - 1,500,000 - - 30,399 - - 1,530,399 Office of the Auditor-General - - - 487,741 - - - - - - - 487,741 Office of the Attorney General - - - - 1,590,754 - - - - - - 1,590,754 Ministries: Education, Sports and Training - - - - 1,777,551 - - - - 18,469,457 - 20,247,008 Health and Human Services - - - - 5,217,550 - - - 700,211 10,684,666 - 16,602,427 Transportation, Communication and Information Technology - - - - - - - - 154,800 - - 154,800 Natural Resources and Commerce - - - - - 14,661 - 22,342 376,915 - - 413,918 Culture and Internal Affairs - - - - 255,707 - - 739 800,061 - - 1,056,507 Justice, Immigration and Labor - - - - - - - - 360,000 - - 360,000 Finance, Banking and Postal Services - - - - 1,321,551 276,792 5,907,283 41,856 1,421,634 2,466,555 - 11,435,671 Foreign Affairs and Trade - - - - - - - 2,594 158,754 - - 161,348 Environmental Protection Authority - - - - - 220,388 - 43,010 1,672 196,455 - 461,525 Capital outlay - - - - - - - - 3,394,942 8,636,484 - 12,031,426 Total expenditures - - - 487,741 13,874,868 2,011,841 7,411,872 256,006 7,677,386 40,453,617 - 72,173,331 Excess (deficiency) of revenues over (under) expenditures - - - - 1,656,005 332,614 (1,104,019) 126,474 962,614 1,542,366 - 3,516,054 Other financing sources (uses): Operating transfers in - - - - - - - - - 651,332 (651,332) - Operating transfers out - - - - (1,656,005) - - - (651,332) (792,202) 651,332 (2,448,207) Total other financing sources (uses), net - - - - (1,656,005) - - - (651,332) (140,870) - (2,448,207) Net change in fund balances (deficits) - - - - - 332,614 (1,104,019) 126,474 311,282 1,401,496 - 1,067,847 Fund balances (deficits) at the beginning of the year 40,380 690 1,593 - (42,044) 345,620 1,579,996 (187,814) 6,429,123 5,236,754 - 13,404,298 Fund balances (deficits) at the end of the year $ 40,380 $ 690 $ 1,593 $ - $ (42,044) $ 678,234 $ 475,977 $ (61,340) $ 6,740,405 $ 6,638,250 $ - $ 14,472,145 See Accompanying Independent Auditors' Report. - 102 - REPUBLIC OF THE MARSHALL ISLANDS GRANTS ASSISTANCE FUND Combining Statement of Revenues, Expenditures by Account, and Changes in Fund Balances (Deficits) Year Ended September 30, 2020 DILOG Fund Number 350200 350305 350315 510130 600350 700100 700200 700360 700370 Section Section 216(a)(1) 215(a)(1) Surveillance Section Section U.S. European Republic of Commu- and 216(a)(3) 213 Federal Union World Other Direct China Compact nications Enforcement Scholarship Audit Grants Grants Bank Assistance Projects Sector Elimination Total Revenues: Federal and other grants $ - $ - $ - $ 487,741 $ 15,530,873 $ 2,344,455 $ 6,307,853 $ 382,480 $ 8,640,000 $ 41,995,983 $ - $ 75,689,385 Expenditures by Account: Salaries and wages - - - - 4,193,943 107,129 - 123,938 124,453 18,685,260 - 23,234,723 Unemployment benefits - - - - 1,550,709 - - - - - - 1,550,709 Capital outlay - - - - 3,925,470 43,598 62,609 4,735 658,734 3,358,375 - 8,053,521 Grants and subsidies - - - - 731,632 1,520,000 - 14,400 3,732,342 9,953,608 - 15,951,982 Utilities - - - - 288,880 450 993 - 3,271 1,881,488 - 2,175,082 Leased housing - - - - 55,680 - - - 4,100 297,573 - 357,353 Supplies and materials - - - - 281,425 5,322 95,109 2,092 193,861 1,010,192 - 1,588,001 Contractual services - - - - 1,160,271 241,921 1,857,359 90,106 2,374,007 1,499,023 - 7,222,687 Travel - - - - 344,806 19,069 107,259 4,725 22,460 336,597 - 834,916 Food stuffs - - - - 73,810 8,858 40,196 2,000 94,887 526,842 - 746,593 Professional services - - - 487,741 26,467 30,068 5,180,276 12,000 142,650 5,500 - 5,884,702 Allowances - - - - 4,500 - 960 - - 4,000 - 9,460 Medical supplies - - - - 97,486 - - - 16,484 50,737 - 164,707 Communications - - - - 228,494 4,533 9,729 - 8,539 195,713 - 447,008 POL - - - - 162,791 2,845 2,988 - 47,568 270,497 - 486,689 Rentals - - - - 184,709 5,220 21,822 - 161,469 491,475 - 864,695 Freight - - - - 3,277 - - 1,734 - 30,233 - 35,244 Printing and reproduction - - - - 107,787 - 18,155 - 3,200 45,794 - 174,936 Insurance - - - - 7,970 164 1,038 - - 39,539 - 48,711 Other - - - - 444,761 22,664 13,379 276 89,361 1,771,171 - 2,341,612 Total expenditures - - - 487,741 13,874,868 2,011,841 7,411,872 256,006 7,677,386 40,453,617 - 72,173,331 Excess (deficiency) of revenues over (under) expenditures - - - - 1,656,005 332,614 (1,104,019) 126,474 962,614 1,542,366 - 3,516,054 Other financing sources (uses): Operating transfers in - - - - - - - - - 651,332 (651,332) - Operating transfers out - - - - (1,656,005) - - - (651,332) (792,202) 651,332 (2,448,207) Total other financing sources (uses), net - - - - (1,656,005) - - - (651,332) (140,870) - (2,448,207) Net change in fund balances (deficits) - - - - - 332,614 (1,104,019) 126,474 311,282 1,401,496 - 1,067,847 Fund balances (deficits) at the beginning of the year 40,380 690 1,593 - (42,044) 345,620 1,579,996 (187,814) 6,429,123 5,236,754 - 13,404,298 Fund balances (deficits) at the end of the year $ 40,380 $ 690 $ 1,593 $ - $ (42,044) $ 678,234 $ 475,977 $ (61,340) $ 6,740,405 $ 6,638,250 $ - $ 14,472,145 See Accompanying Independent Auditors' Report. - 103 - REPUBLIC OF THE MARSHALL ISLANDS COMPACT OF FREE ASSOCIATION SECTOR GRANTS FUND September 30, 2020 Section 211(a)(1) Education Sector Grant Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 211(a)(1) and approved by Nitijela resolution 123 to support and improve the educational system of the Republic of the Marshall Islands. Supplemental Education Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, which takes the place of certain domestic grants once offered through the U.S. Department of Education, the U.S. Department of Health and Human Services and the U.S. Department of Labor. Section 211(a)(2) Health Sector Grant Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 211(a)(2) and approved by Nitijela resolution 123 to support and improve the delivery of preventive, curative, and environmental healthcare services in the Republic of the Marshall Islands. Section 211(a)(4) Capacity Building Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 211(a)(4) and approved by Nitijela resolution 123 to support the efforts in building an effective, accountable and transparent national and local government and other public sector institutions and systems in the Republic of the Marshall Islands. Section 211(a)(5) Environment Sector Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 211(a)(5) and approved by Nitijela resolution 123 to increase environmental protection; establish and manage conservation areas; engage in environmental infrastructure planning, design construction and operation; and to involve the citizens of the Marshall Islands in the process of conserving their country’s natural resources. Section 211(b)(1) Ebeye Special Needs Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 211(b)(1) and approved by Nitijela resolution 123 to support the special needs of the community at Ebeye, Kwajalein Atoll and other Marshallese communities within Kwajalein Atoll. Section 211(b)(2) Landowners Special Needs Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 211(b)(1) and approved by Nitijela resolution 123 to support the special needs of the community at Ebeye, Kwajalein Atoll and other Marshallese communities within Kwajalein Atoll with emphasis on the Kwajalein Landowners. See Accompanying Independent Auditors’ Report. - 104 - REPUBLIC OF THE MARSHALL ISLANDS COMPACT OF FREE ASSOCIATION SECTOR GRANTS FUND September 30, 2020 Section 211(b)(3) Kwajalein Environment Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 211(b)(1) and approved by Nitijela resolution 123 to address the special needs of the community at Ebeye, Kwajalein Atoll, with respect to environmental protection issues. Section 211(d)(1) Public Infrastructure Sector Grant Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 211(d)(1) and approved by Nitijela resolution 123. The aforementioned section requires no less than 30% and no more than 50% of the total amounts appropriated by the United States Congress under Section 211 to be made available in accordance with a list of specific projects included in the infrastructure improvement and maintenance plan prepared by RepMar. Section 211(d)(2) Infrastructure Maintenance Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 211(d)(2) and approved by Nitijela resolution 123. The aforementioned section requires 5% of the total amounts appropriated by the United States Congress under Section 211(d)(1) to be set aside and made available, with an equal contribution from RepMar, as a contribution to an Infrastructure Maintenance Fund. Section 211(e)(1) Disaster Assistance Emergency Fund This fund accounts for United States Congress appropriations under United States Public Law 99-239, as amended, Title II, Article I, Section 211(e)(1) and approved by Nitijela resolution 123 to support the establishment of a disaster assistance emergency fund. See Accompanying Independent Auditors’ Report. - 105 - REPUBLIC OF THE MARSHALL ISLANDS COMPACT OF FREE ASSOCIATION SECTOR GRANTS Combining Balance Sheet September 30, 2020 DILOG Fund Number 410100 410102 410110 410120 410140 410150 410160 410170 510100 510110 510120 Section Section Section Section Section Section Section Section Section 211(a)(4) Section 211(b)(1) 211(b)(2) 211(b)(3) 211(d)(1) 211(d)(2) 211(e)(1) 211(a)(1) Supplemental 211(a)(2) Capacity 211(a)(5) Ebeye Landowners Kwajalein Public Infrastructure Disaster Education Education Health Building Environment Special Needs Special Needs Environment Infrastructure Maintenance Assistance Total ASSETS Receivables: Federal agencies $ - $ 1,044,328 $ 143,016 $ - $ - $ 1,196,572 $ 593,972 $ - $ 5,849,498 $ 294,222 $ - $ 9,121,608 Due from other funds 1,139,641 - 968,934 163,374 - 376,676 - 227,362 - 1,123,620 3,941,239 7,940,846 Advances 14,293 58,445 7,907 - - 88,929 9,984 5,907 7,040 (2,971) - 189,534 Total assets $ 1,153,934 $ 1,102,773 $ 1,119,857 $ 163,374 $ - $ 1,662,177 $ 603,956 $ 233,269 $ 5,856,538 $ 1,414,871 $ 3,941,239 $ 17,251,988 LIABILITIES AND FUND BALANCES Liabilities: Accounts payable $ 145,856 $ 233,720 $ 78,150 $ - $ - $ 447,589 $ 53,997 $ 1,598 $ 490,672 $ 6,000 $ - $ 1,457,582 Other liabilities and accruals 398,753 121,485 282,395 - - 93,281 5,519 8,181 17,328 - - 926,942 Payable to federal agencies 298,677 - 297,242 - - 325,848 248,990 115,534 193,651 - - 1,479,942 Retention payable - - - - - 212,084 179,152 - 593,017 342,358 - 1,326,611 Due to other funds - 747,568 - - - - 116,298 - 4,558,795 - - 5,422,661 Total liabilities 843,286 1,102,773 657,787 - - 1,078,802 603,956 125,313 5,853,463 348,358 - 10,613,738 Fund balances: Restricted 310,648 - 462,070 163,374 - 583,375 - 107,956 3,075 1,066,513 3,941,239 6,638,250 Total liabilities and fund balances $ 1,153,934 $ 1,102,773 $ 1,119,857 $ 163,374 $ - $ 1,662,177 $ 603,956 $ 233,269 $ 5,856,538 $ 1,414,871 $ 3,941,239 $ 17,251,988 See Accompanying Independent Auditors' Report. - 106 - REPUBLIC OF THE MARSHALL ISLANDS COMPACT OF FREE ASSOCIATION SECTOR GRANTS Combining Statement of Revenues, Expenditures by Function, and Changes in Fund Balances Year Ended September 30, 2020 DILOG Fund Number 410100 410102 410110 410120 410140 410150 410160 410170 510100 510110 510120 Section Section Section Section Section Section Section Section Section 211(a)(4) Section 211(b)(1) 211(b)(2) 211(b)(3) 211(d)(1) 211(d)(2) 211(e)(1) 211(a)(1) Supplemental 211(a)(2) Capacity 211(a)(5) Ebeye Landowners Kwajalein Public Infrastructure Disaster Education Education Health Building Environment Special Needs Special Needs Environment Infrastructure Maintenance Assistance Total Revenues: Compact funding $ 10,977,819 $ 5,062,967 $ 7,923,995 $ - $ - $ 8,470,548 $ 2,466,555 $ 133,066 $ 6,260,714 $ 451,719 $ 248,600 $ 41,995,983 Expenditures by Function: Current: Ministries: Education, Sports and Training 10,352,141 5,062,967 - - - 2,326,825 - - 727,524 - - 18,469,457 Health and Human Services - - 7,703,911 - - 2,757,405 - - - 223,350 - 10,684,666 Finance, Banking and Postal Services - - - - - - 2,466,555 - - - - 2,466,555 Environmental Protection Authority - - - - - - - 196,455 - - - 196,455 Capital outlay - - - - - 2,954,312 - - 5,533,190 148,982 - 8,636,484 Total expenditures 10,352,141 5,062,967 7,703,911 - - 8,038,542 2,466,555 196,455 6,260,714 372,332 - 40,453,617 Excess (deficiency) of revenues over (under) expenditures 625,678 - 220,084 - - 432,006 - (63,389) - 79,387 248,600 1,542,366 Other financing sources (uses): Operating transfers in - - - - - - - - - 402,732 248,600 651,332 Operating transfers out (592,202) - - - - (200,000) - - - - - (792,202) Total other financing sources (uses), net (592,202) - - - - (200,000) - - - 402,732 248,600 (140,870) Net change in fund balances (deficits) 33,476 - 220,084 - - 232,006 - (63,389) - 482,119 497,200 1,401,496 Fund balancesat the beginning of the year 277,172 - 241,986 163,374 - 351,369 - 171,345 3,075 584,394 3,444,039 5,236,754 Fund balances at the end of the year $ 310,648 $ - $ 462,070 $ 163,374 $ - $ 583,375 $ - $ 107,956 $ 3,075 $ 1,066,513 $ 3,941,239 $ 6,638,250 See Accompanying Independent Auditors' Report. - 107 - REPUBLIC OF THE MARSHALL ISLANDS COMPACT OF FREE ASSOCIATION SECTOR GRANTS Combining Statement of Revenues, Expenditures by Account, and Changes in Fund Balances (Deficits) Year Ended September 30, 2020 DILOG Fund Number 410100 410102 410110 410120 410140 410150 410160 410170 510100 510110 510120 Section Section Section Section Section Section Section Section Section 211(a)(4) Section 211(b)(1) 211(b)(2) 211(b)(3) 211(d)(1) 211(d)(2) 211(e)(1) 211(a)(1) Supplemental 211(a)(2) Capacity 211(a)(5) Ebeye Landowners Kwajalein Public Infrastructure Disaster Education Education Health Building Environment Special Needs Special Needs Environment Infrastructure Maintenance Assistance Total Revenues: Compact funding $ 10,977,819 $ 5,062,967 $ 7,923,995 $ - $ - $ 8,470,548 $ 2,466,555 $ 133,066 $ 6,260,714 $ 451,719 $ 248,600 $ 41,995,983 Expenditures by Account: Salaries and wages 7,812,130 2,418,779 5,819,176 - - 2,015,407 103,619 184,196 331,953 - - 18,685,260 Capital outlay 66,224 276,861 114,882 - - 462,173 637,010 - 1,728,542 72,683 - 3,358,375 Grants and subsidies 1,281,996 288,325 100,000 - - 2,776,087 1,655,961 - 3,532,132 319,107 - 9,953,608 Utilities 618,848 35,973 643,144 - - 582,623 900 - - - - 1,881,488 Leased housing - - 258,065 - - - 9,000 - 30,508 - - 297,573 Supplies and materials 76,640 490,276 110,889 - - 315,386 - 901 9,985 6,115 - 1,010,192 Contractual services - 986,809 269,321 - - 242,893 - - - - - 1,499,023 Travel 66,686 94,523 59,817 - - 84,663 377 4,158 26,373 - - 336,597 Food stuffs 207,242 48,156 116,162 - - 155,282 - - - - - 526,842 Professional services - - - - - - - - 5,500 - - 5,500 Allowances - 4,000 - - - - - - - - - 4,000 Medical supplies - - 9,198 - - 41,539 - - - - - 50,737 Communications 22,209 23,768 18,300 - - 112,493 - - 18,943 - - 195,713 POL 85,476 23,561 43,868 - - 105,834 100 - 11,658 - - 270,497 Rentals 2,750 49,681 53,360 - - 378,484 - 7,200 - - - 491,475 Freight 11,947 9,394 1,398 - - 7,494 - - - - - 30,233 Printing and reproduction 18,983 128 20,000 - - 6,683 - - - - - 45,794 Insurance 29,794 - 3,644 - - 1,963 - - 4,138 - - 39,539 Other 51,216 312,733 62,687 - - 749,538 59,588 - 560,982 (25,573) - 1,771,171 Total expenditures 10,352,141 5,062,967 7,703,911 - - 8,038,542 2,466,555 196,455 6,260,714 372,332 - 40,453,617 Excess (deficiency) of revenues over (under) expenditures 625,678 - 220,084 - - 432,006 - (63,389) - 79,387 248,600 1,542,366 Other financing sources (uses): Operating transfers in - - - - - - - - - 402,732 248,600 651,332 Operating transfers out (592,202) - - - - (200,000) - - - - - (792,202) Total other financing sources (uses), net (592,202) - - - - (200,000) - - - 402,732 248,600 (140,870) Net change in fund balances (deficits) 33,476 - 220,084 - - 232,006 - (63,389) - 482,119 497,200 1,401,496 Fund balances (deficits) at the beginning of the year 277,172 - 241,986 163,374 - 351,369 - 171,345 3,075 584,394 3,444,039 5,236,754 Fund balances at the end of the year $ 310,648 $ - $ 462,070 $ 163,374 $ - $ 583,375 $ - $ 107,956 $ 3,075 $ 1,066,513 $ 3,941,239 $ 6,638,250 See Accompanying Independent Auditors' Report. - 108 - REPUBLIC OF THE MARSHALL ISLANDS GENERAL FUND September 30, 2020 Education Fund This fund was established under Public Law No. 2013-23 to account for and administer monies collected and paid under the provisions of the Marshall Islands Public School System Act 2013 and any appropriations made by the Nitijela for related purposes. Reimbursable Fund This fund accounts for the operations of the Majuro Weather Station that is funded by the United States Department of Commerce National Weather Service and overtime charges for Customs and Immigration personnel whose attendance is required at the various ports of entry into the Marshall Islands. Changed Circumstances Fund This fund accounts for the expenditures related to the Changed Circumstances Study using excess annual proceeds from the Section 177 Nuclear Claims Trust Fund. Judiciary Fund This fund accounts for all financial transactions related to RepMar's judicial system as required under Public Law No. 1989-69. Alternative Energy Fund This fund accounts for the development, marketing, and operation of alternative energy systems. This fund was established under Public Law No. 1989-63 to administer revenue received with respect to alternative energy systems, and any appropriations made by the Nitijela for related purposes. EPA Fund This fund accounts for all financial transactions related to RepMar's Environmental Protection Authority Fund prior to the creation of the separate statutory body under Public Law No. 1984-31. Agricultural Supplies Fund This fund was established under Public Law No. 1979-18 to account for and administer monies collected and paid under the provisions of the Agricultural Supplies Account Act 1979 and any appropriations made by the Nitijela for related purposes. Postal Service Fund This fund was established under Public Law No. 1985-4 to account for and administer monies collected and paid under the provisions of the Postal Service Act 1983 and any appropriations made by the Nitijela for related purposes. See Accompanying Independent Auditors’ Report. - 109 - REPUBLIC OF THE MARSHALL ISLANDS GENERAL FUND September 30, 2020 Marshall Islands Development Authority (MIDA) Fund This fund accounts for capital projects specified under Public Law No. 1988-14, Section 12 and Schedule 3, appropriated to MIDA from Capital Account funds provided under Section 211 of the Compact of Free Association. Those appropriations do not lapse at the end of the fiscal year, but continue until either the purpose of the appropriation is complete, or the funds are expended, whichever occurs first. Local Government Fund This fund accounts for the disbursement of funds to Local Governments. The fund was established under Public Law No. 1981-2 to channel monies appropriated by the Nitijela and granted by RepMar to local governments. Asian Development Bank (ADB) Development Projects This fund accounts for projects funded by Asian Development Bank loans. These projects include the fisheries development (ADB Loan Number 1102 MAR (SF)), typhoon emergency rehabilitation program (ADB Loan Number 1218 MAR (SF)), improvement of basic education (ADB Loan Number 1249 MAR (SF)), Majuro water supply project (ADB Loan Numbers 1250 MAR (SF) and 1389 RMI (SF)), improvement of health care (ADB Loan Number 1316 RMI (SF)), the Ebeye health and infrastructure project (ADB Loan Number 1694 RMI (SF)), the skills training and vocational education project (ADB Loan Number 1791 RMI (SF)), and the fiscal debt management project (ADB Loan Number 2950 RMI (SF)). Treasury Fund This fund accounts for cash account balances centrally maintained by RepMar within the Ministry of Finance, Banking, and Postal Services for the government as a whole unless otherwise required by law to be maintained outside of the treasury. Payroll Revolving Fund This fund accounts for all accounts associated with the payment of compensation to employees and officers of RepMar and distributions of all amounts withheld therefrom pursuant to law and amounts authorized by employees to be withheld. See Accompanying Independent Auditors’ Report. - 110 - REPUBLIC OF THE MARSHALL ISLANDS GENERAL FUND Combining Balance Sheet September 30, 2020 100100 200090 200317 200330 200335 200337 200507 200515 300400 300600 500617 800405 950000 960000 ADB Changed Alternative Agricultural Postal Local Compact Development Payroll General Education Reimbursable Circumstances Judiciary Energy EPA Supplies Service MIDA Government Section 111 Projects Treasury Revolving Elimination Total ASSETS Cash and cash equivalents $ - $ 191,463 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 22,268 $ 22,356,212 $ - $ - $ 22,569,943 Receivables, net: Taxes 2,716,244 - - - - - - - - - - - - - - - 2,716,244 General 641,876 - 8,508 - - - - - - - - - 223,992 (1,566) - - 872,810 Due from other funds 23,477,987 - - 54,458 420,495 444 - 73,326 - - 14,251 - 320,137 12,148,543 18,320 (24,575,996) 11,951,965 Due from component units 6,850,336 - - - - - - - - - - - - - - - 6,850,336 Advances 410,277 - 6,864 - - - - - - - - - 1,106 (63,583) - - 354,664 Other assets 2,990,250 - - - - - - - - - - - - - - - 2,990,250 Restricted assets: Cash and cash equivalents - - - - - - - - - - - - - 9,739,057 - - 9,739,057 - Total assets $ 37,086,970 $ 191,463 $ 15,372 $ 54,458 $ 420,495 $ 444 $ - $ 73,326 $ - $ - $ 14,251 $ - $ 567,503 $ 44,178,663 $ 18,320 $ (24,575,996) $ 58,045,269 LIABILITIES AND FUND BALANCE (DEFICIT) Liabilities: Accounts payable $ 4,122,682 $ 177,027 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 133,053 $ 741,674 $ - $ - $ 5,174,436 Other liabilities and accruals 2,582,298 - 16,103 - - 28 4,042 - - - - - 4,434 - 18,320 - 2,625,225 Retention payable 634,836 - - - - - - - - - - - - - - - 634,836 Due to component units 551,741 - - - - - - - - - - - - - - - 551,741 Unearned revenue 335,320 - - - - - - - - - - - - - - - 335,320 Due to other funds - - 164,617 - - - 31,303 - 658 - - - - 43,436,989 - (24,575,996) 19,057,571 Total liabilities 8,226,877 177,027 180,720 - - 28 35,345 - 658 - - - 137,487 44,178,663 18,320 (24,575,996) 28,379,129 Fund balance: Nonspendable 9,840,586 - - - - - - - - - - - - - - - 9,840,586 Restricted 5,608,716 - - - - - - - - - - - 627,495 3,317,391 - - 9,553,602 Committed - - - - - - - - - - 14,251 - - - - - 14,251 Unassigned (deficits) 13,410,791 14,436 (165,348) 54,458 420,495 416 (35,345) 73,326 (658) - - - (197,479) (3,317,391) - - 10,257,701 Total fund balance (deficits) 28,860,093 14,436 (165,348) 54,458 420,495 416 (35,345) 73,326 (658) - 14,251 - 430,016 - - - 29,666,140 Total liabilities and fund balance $ 37,086,970 $ 191,463 $ 15,372 $ 54,458 $ 420,495 $ 444 $ - $ 73,326 $ - $ - $ 14,251 $ - $ 567,503 $ 44,178,663 $ 18,320 $ (24,575,996) $ 58,045,269 See Accompanying Independent Auditors' Report. - 111 - REPUBLIC OF THE MARSHALL ISLANDS GENERAL FUND Combining Statement of Revenues, Expenditures By Function, and Changes in Fund Balances (Deficits) Year Ended September 30, 2020 100100 200090 200317 200330 200335 200337 200507 200515 300400 300600 500617 800405 950000 960000 ADB Changed Alternative Agricultural Postal Local Compact Development Payroll General Education Reimbursable Circumstances Judiciary Energy EPA Supplies Service MIDA Government Section 111 Projects Treasury Revolving Elimination Total Revenues: Taxes $ 33,537,102 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 33,537,102 Federal and other grants 11,335,705 - - - - - - - - - - 5,000,000 1,852,611 - - - 18,188,316 Ship registry 7,386,364 - - - - - - - - - - - - - - - 7,386,364 Interest and dividends 113,087 - - - - - - - - - - - - - - - 113,087 Fees and charges 40,583 - 114,514 - 65,850 - - - - - - - - - - - 220,947 Contributions from component units 31,327,953 - - - - - - - - - - - - - - - 31,327,953 Other 298,763 14,511 - - - - - 29,037 - - - - - - - - 342,311 Total revenues 84,039,557 14,511 114,514 - 65,850 - - 29,037 - - - 5,000,000 1,852,611 - - - 91,116,080 Expenditures by Function: Current: President and Cabinet 2,247,110 - - - - - - - - - - - - - - - 2,247,110 Office of the Chief Secretary 6,287,333 - - - - - - - - - - - 369,808 - - - 6,657,141 Special appropriations 17,210,227 - - - - - - - - - - - - - - (7,358,301) 9,851,926 Council of Iroij 596,714 - - - - - - - - - - - - - - - 596,714 Nitijela 2,152,471 - - - - - - - - - - - - - - - 2,152,471 Office of the Auditor-General 1,078,178 - - - - - - - - - - - - - - - 1,078,178 Public Service Commission 615,045 - - - - - - - - - - - - - - - 615,045 Judiciary - - - - 36,000 - - - - - - - - - - - 36,000 Office of the Attorney General 1,072,978 - 74,971 - - - - - - - - - - - - - 1,147,949 Ministries: Education, Sports and Training 7,986,691 3,143,732 - - - - - - - - - - - - - - 11,130,423 Health and Human Services 4,826,912 - - - - - - - - - - - - - - - 4,826,912 Transportation, Communication and Information Technology 4,466,278 - - - - - - - - - - - - - - - 4,466,278 Natural Resources and Commerce 9,928,802 - 14,097 - - - - - - - - - - - - - 9,942,899 Culture and Internal Affairs 3,559,122 - - - - - - - - - - - 17,530 - - - 3,576,652 Justice, Immigration and Labor 3,792,067 - - - - - - - - - - - - - - - 3,792,067 Finance, Banking and Postal Services 7,642,389 - 30,162 - - - - - - - - - 803,112 - - - 8,475,663 Foreign Affairs and Trade 4,495,084 - - - - - - - - - - - - - - - 4,495,084 Works, Infrastructure and Utilities 3,486,548 - - - - - - - - - - - - - - - 3,486,548 Environmental Protection Authority 451,188 - - - - - (11,584) - - - - - - - - - 439,604 Debt service: Principal repayment - - - - - - - - - - - - - - - 6,694,235 6,694,235 Interest - - - - - - - - - - - - - - - 664,066 664,066 Total expenditures 81,895,137 3,143,732 119,230 - 36,000 - (11,584) - - - - - 1,190,450 - - - 86,372,965 Excess (deficiency) of revenues over (under) expenditures 2,144,420 (3,129,221) (4,716) - 29,850 - 11,584 29,037 - - - 5,000,000 662,161 - - - 4,743,115 Other financing sources (uses): Loan proceeds 5,035,670 - - - - - - - - - - - - - - - 5,035,670 Operating transfers in 3,683,006 3,070,291 - - 698,421 - - - - - - - - - - (3,768,712) 3,683,006 Operating transfers out (5,356,649) - - - (698,421) - - - - - - (5,000,000) - - - 3,768,712 (7,286,358) Total other financing sources (uses), net 3,362,027 3,070,291 - - - - - - - - - (5,000,000) - - - - 1,432,318 Net change in fund balances (deficits) 5,506,447 (58,930) (4,716) - 29,850 - 11,584 29,037 - - - - 662,161 - - - 6,175,433 Fund balances (deficits) at the beginning of the year 23,353,646 73,366 (160,632) 54,458 390,645 416 (46,929) 44,289 (658) - 14,251 - (232,145) - - - 23,490,707 Fund balances (deficits) at the end of the year $ 28,860,093 $ 14,436 $ (165,348) $ 54,458 $ 420,495 $ 416 $ (35,345) $ 73,326 $ (658) $ - $ 14,251 $ - $ 430,016 $ - $ - $ - $ 29,666,140 See Accompanying Independent Auditors' Report. - 112 - REPUBLIC OF THE MARSHALL ISLANDS GENERAL FUND Combining Schedule of Expenditures By Account Year Ended September 30, 2020 100100 200090 200317 200330 200335 200337 200507 200515 300400 300600 500617 800405 ADB Changed Alternative Agricultural Postal Local Compact Development General Education Reimbursable Circumstances Judiciary Energy EPA Supplies Service MIDA Government Section 111 Projects Total Expenditures by Account: Salaries and wages $ 24,163,357 $ - $ 119,230 $ - $ - $ - $ (11,584) $ - $ - $ - $ - $ - $ 119,095 $ 24,390,098 Capital outlay 5,995,347 63,629 - - - - - - - - - - 10,023 6,068,999 Grants and subsidies 23,085,206 552,181 - - - - - - - - - - 17,530 23,654,917 Financial assistance 1,716,623 - - - - - - - - - - - - 1,716,623 Medical supplies 16,160 - - - - - - - - - - - - 16,160 Contractual services 1,897,819 67,562 - - - - - - - - - - 718,953 2,684,334 Travel 970,077 44,521 - - - - - - - - - - 4,010 1,018,608 Utilities 5,252,276 40,898 - - - - - - - - - - - 5,293,174 Supplies and materials 665,814 35,501 - - - - - - - - - - 4,852 706,167 Leased housing 1,663,652 613,700 - - - - - - - - - - - 2,277,352 POL 576,393 16,558 - - - - - - - - - - - 592,951 Rentals 2,270,634 45,000 - - - - - - - - - - 244,372 2,560,006 Food stuffs 642,312 1,554,896 - - - - - - - - - - - 2,197,208 Professional services 852,706 - - - - - - - - - - - 10,500 863,206 Principal repayment 6,694,235 - - - - - - - - - - - - 6,694,235 Interest 664,066 - - - - - - - - - - - - 664,066 Allowances 1,276,637 70,184 - - - - - - - - - - - 1,346,821 Communications 606,797 1,215 - - - - - - - - - - 1,520 609,532 Freight 55,656 9,744 - - - - - - - - - - - 65,400 Printing and reproduction 76,988 - - - - - - - - - - - 136 77,124 Insurance 179,791 - - - - - - - - - - - - 179,791 Other 2,572,591 28,143 - - 36,000 - - - - - - - 59,459 2,696,193 Total expenditures $ 81,895,137 $ 3,143,732 $ 119,230 $ - $ 36,000 $ - $ (11,584) $ - $ - $ - $ - $ - $ 1,190,450 $ 86,372,965 See Accompanying Independent Auditors' Report. - 113 -