Project Financial Statements and Independent Auditor's Report State Agency "Healthcare Project Implementation Unit" of the Ministry of Health of the Republic of Armenia Additional Financing for the Disease Prevention and Control Project Loan number 9202-AM As of and for the year ended 31 December 2021 Contents Independent auditor’s report 3 Statement of cash receipts and payments 5 Statement of uses of funds by Project activities 6 Notes to the Project financial statements 7 Additional Financing for the Disease Prevention and Control Project Loan number 9202-AM As of and for the year ended 31 December 2021 Independent auditor’s report Grant Thornton CJSC Yerevan Plaza Business Center 9 Grigor Lusavorich Street, Yerevan 0015, Republic of Armenia T + 374 10 50 09 64/61 To the State Agency “Healthcare Project Implementation Unit” of the Ministry of Health of the Republic of Armenia, Opinion We have audited the accompanying project financial statements of the Additional Financing for the Disease Prevention and Control Project (the “Project”), financed by the International Bank for Reconstruction and Development Loan number 9202-AM, which comprise the statement of cash receipts and payments, the statement of uses of funds by Project activities as of and for the year ended 31 December 2021, and a summary of significant accounting policies and other explanatory information. In our opinion, the project financial statements present fairly, in all material respects, the cash balance of the Additional Financing for Disease Prevention and Control Project as of 31 December 2021 and the cash received and cash paid for the year then ended in accordance with the International Public Sector Accounting Standards (“IPSAS”) Financial Reporting Under the Cash Basis of Accounting issued by the International Public Sector Accounting Standards Board of the International Federation of Accountants, the World Bank guidelines and the relevant points of Loan number 9202-AM. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Project Financial Statements section of our report. We are independent of the State Agency “Healthcare Project Implementation Unit” of the Ministry of Health of the Republic of Armenia (the “HPIU”) in a ccordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (the “IESBA Code”) together with the ethical requirements that are relevant to our audit of the financial statements in the Republic of Armenia, and we have fulfilled our other ethical responsibilities in accordance with those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of a Matter We draw attention to note 2 to the project financial statements, which describes the basis of accounting. The project financial statements are prepared to assist the management of the HPIU to meet the requirements of the financial reporting of the World Bank. As a result, the project financial statements may not be suitable for another purpose. Our opinion is not modified in respect of this matter. www.grantthornton.am Statement of uses of funds by Project activities As of and for the year ended 31 December 2021 In US dollars Actual Planned Variance Year ended As of 31 Year ended As of 31 Year ended As of 31 31 December December 31 December December 31 December December 2021 2021 2021 2021 2021 2021 Project life Part A: Performance-based Financing to Improve MCH Services and NCD Services in PHC Facilities - - - - - - 25,000 A2 - Performance-based financing program implementation and capacity building - - - - - - 25,000 Part B: Improving Efficiency and Quality of Selected Hospitals 1,176,152 1,176,152 1,316,429 1,316,429 (140,277) (140,277) 8,700,000 B4 - Hospital Quality Improvement 1,176,152 1,176,152 1,316,429 1,316,429 (140,277) (140,277) 8,700,000 Part C: Project Management - - - - - - 506,500 Front-end fee 18,500 18,500 18,500 18,500 - - 18,500 Total 1,194,652 1,194,652 1,334,929 1,334,929 (140,277) (140,277) 9,250,000 This statement is to be read in conjunction with the notes to and forming part of the project financial statements set out on pages 7 to 14. Additional Financing for the Disease Prevention and Control Project Loan number 9202-AM As of and for the year ended 31 December 2021 6 Notes to the Project financial statements 1 Activity The Financing Agreement (Loan number 9202-AM) of the Additional financing of the Disease Prevention and Control Project (the “Project”) was signed on 18 February 2021 between the Republic of Armenia and the International Bank for Reconstruction and Development (the “IBRD”). The total amount of the Loan was agreed to be 7,400,000 USD. The objective of the Project is to (i) increase the detection of selected non-communicable diseases (NCD) at the Primary Health Care (PHC) level and among pregnant mothers; (ii) improve the efficiency and quality of selected hospitals; and (iii) prevent, detect and respond to the threat posed by COVID-19. The Project consists of the following parts: Part A: Performance-based financing to improve MCH services and NCD services in PHC facilities. a) Implementation of the Performance-Based Financing Scheme, through: (i) the reimbursement for Eligible Screening Tests performed at Eligible PHC Facilities; (ii) the provision of Performance-Based Incentives to Eligible PHC Facilities against their level of performance achieved; and (iii) the provision of additional reimbursement for Eligible Screening Tests performed at Eligible PHC Facilities in cases where said Eligible PHC Facilities exceed the initial screening targets as set forth in the respective PHC Performance Agreements and the PBF Manual. b) Provision of: (i) Operating Costs to SHA for the carrying out the Performance-Based Financing Scheme; (ii) training and capacity building activities to key stakeholders on the implementation of the Performance-Based Financing Scheme, screening programs & NCD management; (iii) essential equipment for screening programs in PHC facilities and selected hospitals; (iv) support for the carrying out of health promotion activities, including a national public information campaign focused on promotion of healthy lifestyles, aimed at increasing population’s awareness on major risks associated with NCDs; (v) support for personal invitations to households with individuals in the target age groups to generate demand for screenings; (vi) support for short term trainings for PHC providers on NCD screening guidelines; (vii) the support for the implementation of a nation-wide health sector performance assessment survey and national health accounts; (viii) advanced training on colposcopy for obstetricians and gynecologists, (ix) cryotherapy medical equipment to selected hospitals for the management of early stages of cervical cancer; (x) IT equipment for Eligible PHC Facilities. Part B: Improving efficiency and quality of selected hospitals. a) Provision of support for the modernization of the Marz Hospital Network, through, inter alia: (i) the provision of medical and waste management equipment, furniture, and supplies to the Vanadzor Medical Center; (ii) the rehabilitation of, and provision of medical equipment, medical furniture and supplies to the Artashat Medical Center in Ararat Marz; (iii) the construction of, and provision of medical equipment, medical furniture and supplies to a new medical center in Sevan and its merger with the Sevan polyclinic; (iv) the provision of medical equipment, medical furniture and supplies to the Megri regional medical center; (v) the construction of, and provision of medical equipment, medical furniture and supplies to the Martuni medical center in Gegharkunik Marz; (vi) the financing of angiographs at the Gyumri hospital and Nork-Marash specialized cardiology and cardiac surgery center; (vii) the provision of training to clinical staff and hospital administration for medical centers and hospitals in the Marz Hospital Network and (viii) the construction of, and the provision of medical equipment, medical furniture and supplies to the Vayots Dzor Medical Center in Vayots Dzor Marz. b) Improvement of the quality of specialized in-patient and out-patient hematological services offered by the center of hematology “Professor Yeolyan”, though, inter alia: (i) the preparation of the designs Additional Financing for the Disease Prevention and Control Project Loan number 9202-AM As of and for the year ended 31 December 2021 7 needed for the reconstruction of the center of hematology and the creation of a bone marrow transplant center; (ii) the carrying out of the necessary civil works for the renovation and reconstruction of the center; (iii) the provision of the necessary medical equipment, furniture and supplies; (iv) the provision of training to clinical staff and hospital administration; and (v) the provision of support for the development and implementation of treatment standards (in accordance with international standards) for treatment of blood diseases. c) Provision of support for the establishment of a new oncology center aimed at providing integrated oncology services to the Recipient’s population through, inter alia: (i) the provision of technical assistance for the design of the oncology center; and (ii) support for the development of clinical protocols and treatment standards for the oncology center. d) Provision of support for the improvement of hospital quality, through, inter alia: (i) the development of a comprehensive cancer registry system; provision of training to hospital personnel on epidemiology and statistics; and the necessary IT equipment to the statistical department of the oncology center referred to in (c) above; and (ii) the provision of technical assistance to NIH for the development of clinical guidelines and standards for all hospitals in the Borrower’s territory. Part C: Project management Provision of support to MOH for the technical and administrative management of the Project, including the financing of the necessary Operating Costs and audits. Part D: Emergency response to COVID-19 Preventing, detecting and responding to the threat posed by COVID-19, through, inter alia, the procurement of equipment and supplies to facilitate case management, infection prevention and control, and case detection. In accordance with the Loan Agreement (Loan number 9202-AM), financing of the Project is implemented through the following categories: Percentage of Expenditures to be Amount of the financed Loan Allocated (inclusive of Category (In USD) Taxes) (1) Goods, Works, Non-Consulting services, Operating costs, Training and Consulting Services for the Project, including audits. 7,381,500 80% (2) Front-end fee 18,500 100% 7,400,000 The Project is co-financed by the Republic of Armenia, as well as by the IDA credit No 5222-AM in an amount of SDR 22,800,000, which was signed on 17 May 2013. The Project is implemented by the State Agency “Healthcare Project Implementation Unit” of the Ministry of Health of the Republic of Armenia (the “HPIU”). The HPIU was established as a state agency by the Minister of Health of the Republic of Armenia decree number 22 dated 17 January 2000, on the basis of the Government of Armenia decision number N765. The legal address of HPIU is Komitas Street 49/4, 0051, Yerevan, Republic of Armenia. The average number of the HPIU staff in 2021 was 6. Additional Financing for the Disease Prevention and Control Project Loan number 9202-AM As of and for the year ended 31 December 2021 8 2 Significant accounting policies 2.1. Statement of compliance The project financial statements are prepared in accordance with IPSAS Financial Reporting Under the Cash Basis of Accounting, the World Bank guidelines and the relevant points of the Financing Agreement (Loan number 9202-AM). Alternatively, the HPIU presents a statement of financial position of the Project as of the reporting date as an encouraged additional disclosure, as prescribed in the part 2 of IPSAS Financial Reporting Under the Cash Basis of Accounting (refer to note 9). 2.2. Project financial statements The project financial statements include: a) The statement of cash receipts and payments as of and for the year ended 31 December 2021, showing the World Bank and counterpart funds separately, and the statement of uses of funds by Project activities. b) Accounting policies and explanatory notes (including additional accounting policies and disclosures), covering  Summary of summary reports or SOEs used as the basis for the submission of withdrawal applications in the notes, as appropriate;  Statement of designated account in the notes, as appropriate;  Statement of financial position showing accumulated funds of the Project, bank balances, other assets of the Project, and liabilities, if any, as described in the note 9. 2.3. Functional and presentation currency The national currency of Armenia is the Armenian dram (“dram”), which is the Project’s functional currency, since this currency best reflects the economic substance of the underlying events and transactions of the Project. These project financial statements are presented in US dollars (presentation currency). In preparing the project financial statements, transactions of Government of Armenia in Armenian drams are recorded at the rates of exchange defined by the Central Bank of Armenia prevailing on the previous date of the transaction. Direct payments and reimbursements, as well as expenditures incurred during the retroactive financing period denominated in currencies other than US dollar from the World Bank funds to the Project's counterparties are recorded at the exchange rate of the client connection (https://clientconnection.worldbank.org) system. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rate defined by the Central Bank of Armenia prevailing on that date, which is 480.14 drams for 1 US dollar as of 31 December 2021. Any exchange rate differences are recognized in the statement of cash receipts and payments and the accumulated figure of exchange rate difference is disclosed in the Statement of financial position under “Foreign exchange rate difference”. 2.4. Expenses Expenses incurred in the framework of the Project are recognized on the cash basis of accounting, i.e. when the relevant cash is paid. The expenses are recognized in the statement of cash receipts and payments under the caption “cash payments”. Additionally, the Project expenses are disclosed in the statement of uses of funds by Project activities. Additional Financing for the Disease Prevention and Control Project Loan number 9202-AM As of and for the year ended 31 December 2021 9 2.5. Project financing Financing received in the framework of the Financing Agreement (Loan number 9202-AM) is recorded in the statement of cash receipts and payments as “cash receipts” and is recognized at each replenishment. In addition, the Project funds received are disclosed in the Statement of financial position (refer to note 9). 2.6. The World Bank financing To finance eligible expenditures under the Financing Agreement, the World Bank disburses proceeds from the Loan account using one or more of the disbursement methods, which are stated below: a. Reimbursement The Bank may reimburse the borrower to finance eligible expenditures that the borrower has refinanced from its own resources. b. Advance The Bank may advance loan proceeds into a Designated account of the borrower to finance eligible expenditures as they are incurred and for which supporting documents will be provided at a later date. c. Direct payments The Bank may make payments, at the borrower’s request, directly to a third party f or eligible expenditures. d. Special commitment The Bank may pay amounts to a third party for eligible expenditures under Special commitments entered into, in writing, at the borrower’s request and on terms and conditions agreed between the Bank and the borrower. 2.7. Planned annual expenses As of the end of the year the “Planned Project Expenses” comprise the sum of the amount of “Actual Project Expenses” as of the end of the previous period and the annual budgeted expenses of the reporting year. 3. Closing date of the Project According to the amendment of Financing Agreement (Loan number 9202-AM), the closing date of the Project was defined as 28 February 2023. 4. IBRD Fund In US dollars Year ended 31 December As of 31 2021 December 2021 Designated account advance 900,000 900,000 Reimbursement* 664,257 664,257 Front-end fee 18,500 18,500 1,582,757 1,582,757 *The expenditures have been incurred during the retroactive financing period. Additional Financing for the Disease Prevention and Control Project Loan number 9202-AM As of and for the year ended 31 December 2021 10 5. Government co-financing In US dollars Year ended 31 December As of 31 2021 December 2021 Government co-financing 256,649 256,649 Refund (35,495) (35,495) 221,154 221,154 6. SOE withdrawal schedule For the year ended 31 December 2021 In US dollars Category Application No. (1)Goods, Works, Non-Consulting services, Operating costs, Training and Consulting Services for the Project, including audits. Total AF-2 661,460 661,460 AF-3 2,797 2,797 Total 664,257 664,257 Additional Financing for the Disease Prevention and Control Project Loan number 9202-AM As of and for the year ended 31 December 2021 11 7. Designated account statement As of and for the year ended 31 December 2021 In US dollars Opening balance as of 1 January 2021 - Add: Loan replenishment during the year 900,000 900,000 900,000 Less: Refund to the IBRD from the designated account during the year - Present outstanding amount advanced to the designated account (1) 900,000 Closing balance as of 31 December 2021 618,212 Add: Amount of eligible expenditures paid during the year 281,788 281,788 281,788 Less: Interest earned (if credited into the designated account) - Total advance accounted for (2) 281,788 Discrepancy (1) – (2) to be explained - The HPIU used the same treasury account both for Loan Number 9202-AM and Credit No 5222-AM. Additional Financing for the Disease Prevention and Control Project Loan number 9202-AM As of and for the year ended 31 December 2021 12 8. Reconciliation between the amounts received by the HPIU and disbursed by the World Bank For the year ended 31 December 2021 In US dollars The World Category Appl. HPIU Bank Difference Goods, Works, Non-Consulting services, Operating costs, Training and Consulting Services for the Project, including audits. AF-2 661,460 661,460 - AF-3 2,797 2,797 - 664,257 664,257 - Designated account advance AF-1 900,000 900,000 - 900,000 900,000 - Front-end fee 18,500 18,500 18,500 18,500 Total 1,582,757 1,582,757 - Additional Financing for the Disease Prevention and Control Project Loan number 9202-AM As of and for the year ended 31 December 2021 13 9. Statement of financial position As described in the note 2, the policy of the HPIU is to prepare the project financial statements in accordance with IPSAS Financial Reporting Under the Cash Basis of Accounting . However, the HPIU also has presented a separate statement of financial position as a disclosure encouraged under IPSAS Financial Reporting Under the Cash Basis of Accounting. In US dollars As of 31 December 2021 Assets Designated account 618,212 Advances and prepayments 710,991 Project expenditures 482,598 Total assets 1,811,801 Funds and liabilities IBRD Fund 1,582,757 Government co-financing 221,154 Exchange rate difference (17,781) Accounts payable 25,671 Total funds and liabilities 1,811,801 Additional Financing for the Disease Prevention and Control Project Loan number 9202-AM As of and for the year ended 31 December 2021 14