EAST AFRICAN COMMUNITY AUDIT REPORT FOR THE PROJECT - MEDICINES REGULATORY HARMONIZATION IDA GRANT NUMBER TF010846 January 2017 INNO VE East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) Audit Report for the year ended 30 1h June 2016 TABLE OF CONTENTS PAGE Organizational information 2 Report of the Secretary General 3-12 Statement of EAC Secretariat responsibilities 13 Declaration of Project Accountant 14 Report of the independent auditor 15-16 Statement of financial performance 17 Statement of financial position 18 Statement of cash flows 19 Statement of comparison of budgeted and actual expenditure 20 Special designated account activity 21 Notes to the financial statements 22-38 INNOVEX ©2017 11 Page I East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) Audit Report for the year ended 30 1h June 2016 ORGANISATION INFORMATION CHIEF OFFICERS Dr. Stanley Sonoiya Principal Health Officer Jane Mashingia Senior Health Officer Patrick Mwesigye Senior Health Officer Daniel Murenzi eHealth and Informatics Officer Justine Katesigwa Project Accountant Nancy Cherotich Pharmaceutical Program Assistant REGISTERED OFFICE East Africa Community P.O Box 1096 EAC Headquarters Afrika Mashariki Road Arusha Tanzania AUDITORS INNOVEX Auditors 8 Kilimani Road Ada Estate, Kinondoni P. 0 . Box 75297 Dar es Salaam , Tanzania Email : admin@innovexdc.com Website : www.innovexdc.com BANKERS Designated bank account KCB Bank Tanzania Limited Account No. 3300705770 P.O Box 4605 Arusha , Tanzania INNOVEX ©2017 2 JPage I East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) REPORT OF THE SECRETARY GENERAL FOR THE YEAR ENDED JQTH JUNE 2016 1. Background of the project The East African Community (EAC) herein after referred to as the (Recipient or EAC) is a regional inter-governmental organization of the five Partner States, namely: the Republic of Kenya , the Republic of Uganda, the Republic of Burundi, the Republic of Rwanda and the United Republic of Tanzania. The East African Community is currently implementing a regional project on harmonisation of Medicines Regulation (EAC-MRH) in collaboration with six (6) National Medicines Regulatory Authorities (NMRAs) namely Burundi Department of Pharmaceuticals and Medical Laboratories (DPML) , Kenya Pharmacy and Poisons Board (PPB) , Rwanda Pharmacy Task Force (PTF) , Tanzania Food and Drugs Authority (TFDA) , Zanzibar Food and Drugs Board (ZFDB) and Uganda National Drug Authority (NOA) . The recipient has received a financial Grant to implement the East African Community Medicines Regulatory Harmonization Project. The project is aimed at establishing harmonized regulatory processes for registering medicines in the region and ultimately increases availability of safe and efficacious medicines of assured quality for treatment of priority diseases. The Grant is administered by the International Bank for Reconstruction and Development /International Development Association ("the World Bank"), which is also a financial administrator of the Global Medicines Regulatory Harmonization Initiative implemented by regional economic communities and supported by the African Union - New Partnership for Africa's Development (NEPAD) Agency , the World Health Organization (WHO) , the Pan African Parliament (PAP) , the Bill and Melinda Gates Foundation (BGMF) , the UK Department for International Development (DFID) and the Clinton Health Access Initiative (CHAI) . The total estimated budget for the implementation of the East African Community Medicines Regulatory Harmonization Project is USO 8.9 million , distributed in two phases, Phase I (3 Years) - USO 5.5 Million and Phase II (2 Years) - USO 3.4 Million. 2. Project description The objective of the Project is to harmonise medicines registration systems and to improve efficiency and enhance transparency in medicine registration among the EAC partner states. The project constitutes the first phase of the program and consists of the following parts: Part 1: Regional coordination and capacity building for medicines regulatory harmonisation Part 2: Institutional development and strengthening of the national medicines regulatory authorities. The East African Community Medicines Regulation Harmonization (EAC-MRH) Project will be implemented over a five-year period . A two phased approach has been agreed upon for implementation of the project with clearly defined results for each phase . INNOVEX ©2017 3 j Page I East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) REPORT OF THE SECRETARY GENERAL FOR THE YEAR ENDED 3QTH JUNE 2016 2. Project description (continued) The first phase will involve a three year Grant of USO 5.5 Million to the EAC Secretariat and support Medicines Registration Harmonization among six (6) EAC Partner States National Medicines Regulatory Authorities. Successful achievement of agreed results in the first phase and additional commitments from the Development Partners supporting Multi Donor Trust Fund (MDTF) will determine the second phase Grant. The Multi Donor Trust Fund (MDTF) will also provide direct financing for the World Health Organization (WHO) and African Union-NEPAD Agency who will be responsible for providing technical assistance to EAC Secretariat and NMRA's and support advocacy, coordination and enhance political comm itment and support for enactment of relevant policies and regulatory framework. Successful implementation of the EAC MRH Project will set an example for other Regional Economic Communities (RECs) in Africa to realize the benefits of medicines regulation for their populations. 3. Project goal The project goal is to harmonize medicines registration systems within the East African Community to facilitate access to safe , efficacious and quality essential Medicines for treatment of conditions of Public Health importance. 4. Project objectives The project objectives are as follows i) To implement an agreed common technical document for registration of Medicines in the EAC Partner States ii) To implement a common information management system for Medicines registration in each of the EAC Partner States' NMRAs which are linked in all Partner States and EAC Secretariat iii) To implement a quality management system in each of the EAC Partner States' NMRAs iv) To build regional and national capacity to implement Medicines registration harmonization in the EAC v) To develop and implement a framework for mutual recognition vi) To create a platform for information sharing on the harmonized medicines registration system to key stakeholders at national and regional level. 5. GMRHI grant agreement A Global Medicines Regulatory Harmonisation Initiatives Trust Fund Grant Ag reement for the East African Community for Medicines Regulatory Harmonisation Project was signed between East African Community and International Development Association on 21 March 2012. 6. Performance for the year The EAC Medicines Regulatory Harmonisation Project results of the year are shown in the statement of financial performance and statement of financial position on pages 16 - 17. Financial position i. Property and equipment The carrying value of the project's property and equipment as of June 30 , 2016 decreased to US$ 29,488 (2015: US$ 197,906) . INNOVEX ©2017 4 1Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) REPORT OF THE SECRETARY GENERAL FOR THE YEAR ENDED 3QTH JUNE 2016 6. Performance for the year (Continued) Financial position (Continued) i. Property and equipment (Continued) During the year ended 30 1h June 2016 , the Project transferred some assets with a value of US$ 233,321 to partner states with their corresponding net accumulated depreciation of US$ 85,218 resulting into a net decrease of assets by US$ 148,102. This was necessitated by a management decision requiring these assets to be in the books of the respective partner states. ii. Trade and other receivables The receivables stood at US$ 711 ,573 (2015: US$ 118,231) . This was due to increase an in VAT receivables of USO 66 ,997 to USO 74 ,679 and an increase in deferred revenue grant receivable of USO 552 ,566 to US$ 623 ,897 compared to last year. This increase in World Bank receivable was as a result of reported expenditure for the year under review being more than the funds that were availed by the World Bank. However, staff imprests reduced by US$ 26,221 to US$ 12,997 for the year under review. Analysis of trade and other receivables is detailed on note 8. 111. Cash and cash equivalents Cash and cash equivalents stood at US$ 6,289 (2015 : US $ 11 ,876) , the analysis of which is detailed in Note 9. iv. Deferred revenue grant The reported expenditure for the year under review was more than the funds that were availed by the World Bank. This has resulted in the project being owed US$ 623 ,897 (receivable) as at the end of the year compared to a liability of US$ 71 ,331 for the year ended 30 June 2015. Analysis of deferred revenue grant is detailed on note 10 a. v. Trade payables Trade payables stood at US$ 523,475 compared to US $ 54 ,943 for 2015. The increase was primarily due to the purchase of computer equipments from MFI Solutions on credit for US$ 427 ,665. vi. Accruals Accruals stood at US$ 194,387 (2015 ; US$ 75 , 164).The increase was due to the accrual of staff gratuity at the end of the year. Increase in reimbursable expense by US$ 26,880 was due to the increase in consultancy expenses during the year. vii. Deferred capital grant The balance stood at US$ 29,488 (2015 ; US$ 197,906). During the year ended 30th June 2016 , the Project transferred some assets with a value of US $ 233,321 to partner states with their corresponding net accumulated depreciation of US$ 85,218 resulting into a net decrease of assets by US$ 148, 102. INNOVEX ©2017 5 1Page I East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) REPORT OF THE SECRETARY GENERAL FOR THE YEAR ENDED 3QTH JUNE 2016 6. Performance for the year (Continued) Financial performance i. Revenue from non-exchange transactions Revenue from non-exchange transactions released to the statement of fi nancial performance stood at US$ 1,635,232 (2015 : US$ 2,067,865). The actuals grant received from the World Bank for the year under review were US$ 1,038 ,299 (2015: US$ 1,794 ,016) as shown in Notes 3 and Note 11 . ii. Personnel costs Personnel costs increased by US$32 ,542 to US$ 58 1, 144 compared to US$ 548 ,602 in 2015. This is because staff were given education allowances and spouse allowances amounting to US$ 43,700 compared to the previous year where this allowance was not paid. However, gratuity pa id to staff reduced by US$ 10,834 to US$ 62 ,004 compared to last year whereby US$ 72 ,838 was incurred. 111. Training/workshop expenses The training/workshop expenditure for the year under review decreased to US$ 670.670 compared to last year whereby US$ 1,269,072 was incurred . This was due to late accessing of funds for Phase II during the year as compared to last year. iv. Computer equipment bought for partners During the year under review, some computer equipment amounting to US$ 362 ,428 were bought and distributed to partner states. These were expensed to statement of financial performance compared to last year where no assets were expensed statement of financial performance. v. Depreciation charges Depreciation charges decreased to US$ 20,990 from US$ 102,088 in 2015 due to the fact that assets which were booked in the project books of accounts were transferred to their respective partner states during the year under review. Therefore depreciation were charged to the remaining assets which belonged to the project. Assets transferred to partner states which were bought in previous years amounted to US$ 233,320. 7. Achievements during the year The following are the major achievements during the year: 7.1 Implementation of the EAC Common Technical Documents (CTD) • From June 2015 to July 2016, we received 29 applications for joint assessment and evaluation by EAC Partner States NMRAS under the joint Scheme. So far 4 medicinal products have been registered in the United Republic of Tanzania , Kenya , Rwanda and Uganda; • Using harmonized Common Technical Document guidelines, Partner States have registered about 4,110 dossiers and about 1,285 products have been reg istered by NMRAs across the Partner States; • Implementation and domestication of the EAC Harmonized guidelines is on ongoing in all Partner States; and • Guidelines on regulation of Human Vaccines, Similar Bio therapeutics and Bisimilars have been drafted and are ready fo r the next steps. INNOVEX ©2017 6 1Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) REPORT OF THE SECRETARY GENERAL FOR THE YEAR ENDED 3QTH JUNE 2016 7.2 Implementation of EAC - GMP Inspection guidelines and technical requirements • Partner States NMRAs have conducted 1O joint GMP inspections in the EAC Region , Egypt and India, and four (4) have been approved to comply with the EAC -GMP Requirements ; • Experts developed an EAC Guideline for Inspection of drug manufacturing facilities for GMP Compliance and the accompanying forms ; and • Developed a Standard Operating Procedure for EAC Joint GMP Document Assessment. 7.3 Quality Management System Tanzania Food and Drugs Authority: • Reviewed and amended standard operating procedures (SOP) to be in line with ISO 9001 :2015 ; and • It has also created a system for risk management. Kenya Pharmacy and Poisons Board: • Internal Audit of the Quality Management System (QMS) was concluded and is expecting to be ISO 9001 :2015; compliant by June 2017 . Zanzibar Food and Drugs Board (ZFDB): • Trained by TFDA on ISO 9001 :2015 requirements; • Risk management guidelines being developed ; and • Reviewed and developed internal Standard Operating Procedures in line with ISO 9001 :2015. National Drug Authority Uganda • Internal and external Audit of the Quality Management System (QMS) was concluded and is expecting to be ISO 9001 :2015; compliant by June 2017. 7.4 Integrated Information Management System • System User test acceptance completed in all NMRAs, each NMRAs supplied with 2 data Servers each with capacity of 2 terabyte and including EAC Secretariat; • Each NMRAs was financially supported to pay monthly purchase of the internet; • Data entry into the systems has been going on in all NMRAs except Burundi DPLM whose system is still not yet ready ; • The TFDA Laboratory Information Management System (LIMS) is LIVE since May 2016; and • All websites are up and functional as below: National Drug Authority, Republic of Uganda (https://portal.nda.or.ug/) Pharmacy Task Force - Republic of Rwanda (http:/1197 .243.60.138:8080/web/rwanda Zanzibar Food and Drugs Board (ZFDB), United Republic of Tanzania (http:l/212.22.169.19/zfdbmis/) INNOVEX ©2017 7 1Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) REPORT OF THE SECRETARY GENERAL FOR THE YEAR ENDED 3QTH JUNE 2016 7. Achievements during the year (Continued) 7.4 Integrated Information Management System (Continued) Department of Pharmaceuticals and Medical Laboratories (DPML), Republic of Burundi (http:/1212.22.169.19/dpmlmis/) Tanzania Food and Drugs Authority (TFDA), United Republic of Tanzania (http://tfda.go.tz/portal/online-services-1 ) Pharmacy and Poisons Board, Republic of Kenya (http://portal.pharmacyboardkenya.org/) EAC Secretariat (http:l/212.22.169.19:8080/web/eac/home) 7.5 Pharmacovigilance • Under the pharmacovigilance system development and strengthening , Pharmacovigilance system assessments tools with minimum system requirements have been developed ; and • About 20 Experts working group members and a few other key staff were trained in the use of the assessment tool. 7.6 Development of Pharmaceutical Policy Strategic Plan and EAC - Partner States NMRAs Cooperation Framework Agreement Reg ional Pharmaceutical Policy, its Strategic Plan and the EAC Partner States NMRAs Cooperation Framework Agreement drafts are available and national consultations have already been conducted 8. Future plans The major activities for the upcoming phase are : • Continue with approval and implementation processes of the regional pharmaceutical policies, its strategic plan and EAC Partner States NMRAs Cooperation Framework Agreement; • Continue with Joint Dossier Assessment under Partner States Joint Scheme ; • Continue with Joint GMP inspections into pharmaceutical plants in the reg ion and outside ; • Fast tracking of implementation of the Quality Management System in the Republic of Kenya (PPB), Uganda (NOA), URT -Zanzibar (ZFDB) and later Rwanda MoH and Burundi (DMPL); • Implementation and domestication of the regional pharmaceutical policy, its strategic plan and Cooperation Framework Agreement across Partner States NMRAs ; • Implementation of activities gearing toward strengthening of the pharmacovigilance system in the EAC Partner States; • Fully implementation of the Integrated Information Management System in all NMRAs; • Finalize development of EAC -MRH Project phase Ill and continue with resources mobilization ; • Working towards establishment of the EAC -MRH Project into a regional programme INNOVEX ©2017 8 1Page East African Community (EAC) Project- Medicines Regulatory Harmonisation (MRH) REPORT OF THE SECRETARY GENERAL FOR THE YEAR ENDED 3QTH JUNE 2016 8. Future plans (Continued) • Domestication of harmonised guidelines on regulation of Vaccines, Similar Bio therapeutics and Biosimilars; and • Build technical capacity in Bioequivalance studies, specialized medical products (Vaccines , Biolog icals and Nouvelle Medical Products regulation . 9. Corporate governance The implementation of the project is vested with the Steering Committee. The Steering committee is responsible for providing overall gu idance and oversight over project preparation and implementation and to approve the Annual Work Plans and Budgets. The Steering Committee is composed of senior representatives from the Secretariat and from Partner States. The Steering Committee met twice du ring the year under review. 10. Meetings of the steering committees and its members The steering committee is composed of the representatives from the 5 Partner States and is made of the Chief Pharmacist, Head of National Medicines Regulatory Agency and Head of Medicines Registration and Evaluation from each Partner State. Th e main responsibility of the Committee is to advice the project and EAC secretari at on all matters which need consideration of the committee . The Committee held two meetings during the period ended 30th June 2016 i.e. the seventh and eighth steering committee . The seventh steering comm ittee meeting was held from 30th to 31 st July 2015 wh ile the eighth meeting was held from 2nd to 5th May 2016. The composition of the Executive Committee as at 30th June 2016 is as follows : a. For Chief Pharmacists Steering No. Name Country Country's institution meeting United republic of 1 Chief Pharmacist Ministry of Health 1 Tanzania 2 Chief Pharmacist Republic of Uganda Ministry of Health 2 3 Chief Pharmacist Republic of Burundi Ministry of Health 2 4 Chief Pharmacist Republic of Rwanda Ministry of Health 2 5 Chief Pharmacist Republic of Kenya Ministry of Health 2 6 Chief Pharmacist Zanzibar Ministry of Health - b. For heads of National Medicines Regulatory Agencies · No. - 2 - Name Head of NMRA Head of NMRA Country ------ Country's institution Tanzania Food Authorit • • Drugs • • • and I Department of pharmacy, • Steering meeting 2 3 Head of NMRA Republic of Burund i med icines and 2 laboratories 4 Head of NMRA Re ublic of Rwanda Minist of health 2 Pharmacy and poisons 5 Head of NMRA Republic of Kenya 2 board 6 Head of NMRA Zanzibar Zanzibar Food and Dru s INNOVEX ©2017 91 Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) REPORT OF THE SECRETARY GENERAL FOR THE YEAR ENDED 3QTH JUNE 2016 Board c. For heads of Medicines Registration and Evaluation Steering No. Name Country Country's institution meeting Head of medicine United republic of Tanzania Food and Drugs 1 1 reqistration Tanzania Authority Head of medicine 2 Republic of Uganda National Drug Authority 2 reqistration Department of pharmacy, Head of medicine 3 Republic of Burundi medicines and 2 registration laboratories Head of medicine 4 Republic of Rwanda Ministry of health 2 reqistration Head of medicine Pharmacy and poisons 5 Republic of Kenya 2 reqistration board Head of medicine Zanzibar Food and Drugs 6 Zanzibar - reqistration Board 11. Risk management and internal control The EAC Secretariat accepts final responsibility for the risk management and internal control system of the project. It is the task of management to ensure that adequate internal financial and operational control systems are developed and maintained on an ongoing basis in order to provide reasonable assurance regarding : • The effectiveness and efficiency of operations ; • The safeguarding of the project's assets ; • Compliance with signed grant agreement and other applicable laws and regulations ; • The reliability of accounting records ; and • Responsible behaviours towards all stakeholders . 11. Risk management and internal control (Continued) The efficiency of any internal control system is depended on the strict observance of prescribed measures. There is always a risk of non-compliance of such measures by staff. Whilst no system of internal control can provide absolute assurance against misstatement or losses, the project's system is designed to provide the EAC Secretariat with reasonable assurance that the procedures in place are operating effectively. The EAC Secretariat at assessed the internal control systems throughout the financial year that ended 30 June 2016, and is of the opinion that they met the accepted criteria. 12. Management structure The Project Coordinating Team within the Health Department of the Secretariat, including financial management, procurement, health , accounting , and mon itoring and evaluations and informatics specialists to assist the Secretariat carry out its tasks in the project. The current management team has been disclosed on page 2. INNOVEX ©2017 10 1Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) REPORT OF THE SECRETARY GENERAL FOR THE YEAR ENDED JQTH JUNE 2016 13. Employees' welfare Management- Employees' Relationship Currently the EAC MRH Project has ten employees . The relationship between the employees and management was good . There were no unresolved complaints . EAC Secretariat is equal opportunity employer. It gives equal access to employment opportunities and ensures that the best available person is appointed to any given position free from discrimination of any kind and without regard to factors like gender, marital status , tribes, religion , nationality and disability which does not impair ability to discharge duties. Medical Assistance The EAC Secretariat has arranged medical facility which is available to all recruited staff and their immediate family members. Currently this service is provided by AAR (T). Persons with Disability The recruitment policy of the EAC Secretariat does not discriminate against persons with disabilities, rather the ability to discharge their responsibility. Employee Benefit Plan EAC Secretariat employment contracts provides for gratuity benefit at a rate of 25% of the basic salaries for the term of employment at the end of the contract. 14. Gender parity The EAC Secretariat has no gender bias. Men and women are equally eligible for holding any office of the EAC Secretariat provided that they possess the required qualifications and proven competence. Currently the EAC MRH Project team is made up of three females and seven males. 15. Related party transactions Transactions with related parties are disclosed under Note 15 to the financial statements. 16. Accounting policies A summary of key accounting policies is in Note 2 to the financial statements and were consistently applied during the year under review. 17. Environmental control programme The East Africa Community (EAC) preserves the environment through tree planting within and outside its offices and is committed to making sure that all internal and external surroundings of its offices are clean . 18. Political and charitable donations The Medicines Regulatory Harmonization (MRH) project did not make any political and charitable donations . 19. Prejudicial issues In the opinion of the EAC Secretariat, there are no serious unfavourable matters that can affect the MRH project. INNOVEX ©2017 111 Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) REPORT OF THE SECRETARY GENERAL FOR THE YEAR ENDED 30TH JUNE 2016 20. Corporate social responsibilities The EAC encourages employees' initiatives on participating in corporate social responsibilities activities. However during the period under review the EAC Secretariat did not engage in any corporate social responsibility activities. 21. Independent auditors M/s INNOVEX Auditors were appointed to carry out the audit of the EAC - MRH project fo r the period ended 30 June, 2016. The Aud itors have expressed willingness to continue in office. Signed by on its behalf Amb Liberat Mfumukeko Secretary General ······: . Date: .. ~3-.(.. ..JJ.~ 1- INNOVEX ©201 7 12 1Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) FOR THE YEAR ENDED 3QTH JUNE 2016 STATEMENT OF EAC SECRETARIAT RESPONSIBILTIES The EAC Secretariat is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position and performance of the project and which enable them to ensure that the financial statements comply with the International Public Accounting Standards. This includes the maintenance of adequate accounting records and internal controls, the selection and application of accounting policies , and safeguarding of the assets of the project. They are also responsible for safeguarding the assets of the project and hence for taking reasonable steps for the prevention and detection of fraud , error and other irregularities. The EAC Secretariat confirms that suitable accounting policies have been used and applied consistently, and reasonable and prudent judgment and estimates have been made in the preparation of the financial statements for the period from 151 July 2015 to 30 June 2016. The EAC Secretariat also confirms that the International Public Sector Accounting Standards have been followed and that the financial statements have been prepared on the going concern basis . Nothing has come to the attention of the management to indicate that the project will not remain a going concern for at least the next twelve months from the date of this statement. Approved by the management on .... ~3..J..9.J. ).~ ..± .... . and signed on their behalf by; Amb Liberat Mfumukeko Secretary General Juvenal Ndimurirwo (ACCA) Director of finance INNOVEX ©2017 13 1Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) FOR THE YEAR ENDED 3QTH JUNE 2016 DECLARATION OF THE PROJECT ACCOUNTANT OF EAST AFRICAN COMMUNITY-PUBLIC FINANCIAL MANAGEMENT COORDINATION AND HARMONIZATION PROJECT The National Board of Accountants and Auditors (NBAA) according to the power conferred , under the Auditors and Accountants (Registration) Act. No. 33 of 1972, as amended by Act No . 2 of 1995, requires financial statements to be accompanied with a declaration issued by the Head of Finance/Accounting responsible for the preparation of financial statements of the entity concerned . It is the duty of a Professional Accountant to assist the EAC Secretariat to discharge the responsibility of preparing financial statements of a project showing true and fair view of the entity position and performance in accordance with applicable International Accounting Standards and statutory financial reporting requirements. Full legal responsibility for the preparation of financial statements rests with the EAC Secretariat as under EAC Secretariat responsibility statement on an earlier page. l ... ;;f~~~..~-~..... ~ ~-~-~ eing the project accountant of East African Community-Medicines Regulatory Harmonisation Project hereby acknowledge my responsibility of ensuring that financial statements for the year ended 30th June 2016 have been prepared in compliance with applicable accounting standards and statutory requirements . I thus confirm that the financial statements give a true and fair view position of East African Community- Medicines Regulatory Harmonisation Project as on that date and that they have been prepared based on properly maintained financial records. Signed by: ... .. ~ ~ ( L........ . . ..... . .. '7Y'\ _ Pos1t1on : .. T.~~ ,.._\ .ht-, AL~\J ~t~ -v.-:-:-:-:-:\........... .. .... ..... ......... .. .. 1 NBAA Membership No.: ......\9.\\ ......................... . Date: .....3:-~..\.. ~.~-.\~..\±. . INNOVEX ©2017 141 Page INNO VEX INNOVEX Auditors 8 Kilimani Road , Ada Estate, Kinondoni rNear the French Embassy] PO Box 75297 Dar es Salaam , Tanzania Mobile: +255 715 540949 Landline: +255 22 2664099 Fax: +255 22 2664098 Email:admin innovexdc.com Website: www.innovex c.com 13th January 2017 The Secretary General East Africa Community EAC Headquarter, Afrika Mashariki Road P. 0 . Box 1096 Arusha Tanzania REPORT OF THE INDEPENDENT AUDITOR ON THE PROJECT FINANCIAL STATEMENTS We have audited the accompanying project financial Statements and the special designated account for the Medicine Regulatory Harmonization Project (MRHP) implemented by East African Community (EAC) Secretariat, for the period from 1st July 2015 to 30 June 2016 , which comprises of the statement of financial position , statement of financial performance, statement of designated accounts and statement of cash flows and the explanatory notes set on pages 22 to 38 . EAC Secretariat's responsibility for the financial statements The EAC Secretariat is responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards (IPSAS) - Accrual basis . This responsibility includes designing , implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances . Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (ISAs) . Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the project financial statements and the special designated accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. INNOVEX ©2017 15 1Page REPORT OF THE INDEPENDENT AUDITOR ON THE PROJECT FINANCIAL STATEMENTS (Continued) 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of 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 opinion . Unqualified opinion In our opinion , the financial statements and the special designated account presents fairly , in all material respects , the credit received and the expenses incurred by the Project for the period from 1 July 2015 to 30 June 2016 and its financial position as at the end of the period in accordance with the International Public Sector Accounting Standards. Key internal control weaknesses • Inadequate financial close process as audit adjustments for the year ended 30 June 2015 were not processed in the accounting system (credits and debits amounting to US$ 157,474); and • Unreconciled differences of USO 20,343 between the general \ ledger and the fixed assets register. Report on Other Legal and Regulatory Requirements In our opinion , proper accounting records for the project have been kept by the East African Community and the financial statement referred to the preceding paragraph are in agreement with the accounting records and have generally complied with terms of the financing agreement with International Development Association (IDA) . INNOVEX Auditors Certified Public Accountants Dar es Salaam Christopher Mageka, CPA - PP D~te c?J/Q/ //p)/ 1- INNOVEX ©2017 16 1Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) STATEMENT OF FINANCIAL PERFROMANCE FOR THE YEAR ENDED JQTH JUNE 2016 Notes 2015/16 2014/15 USD USO REVENUE Revenue from non-exchange transactions 3 1,635,232 2 ,067 ,865 EXPENDITURE Personnel costs 4 581, 144 548 ,602 Training/workshop expenditure 5 670,670 1,269 ,072 Purchase of fixed assets for partner states 6 362,428 148,103 Depreciation expense 7 20,990 102,088 TOT AL EXPENDITURE 1,635,232 2 ,067 ,865 Surplus A The independent auditors· r port is on pages 15 and 16 INNOVEX ©2017 17 1Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) STATEMENT OF FINANCIAL POSITION AS AT JOTH JUNE 2016 Notes 2015/16 2014/15 USO USO ASSETS Non-current assets Property and equipment 7 28,812 49 ,802 Current assets Accounts receivable 8 711,575 118,232 Cash and cash equivalents 9 6,289 11 ,876 717,864 130, 108 Total assets 746,676 179,910 LIABILITIES Deferred capital grant 10b 28,812 49 ,803 Trade payables 12 523,475 54 ,943 Accruals and other payables 13 194,389 75,164 TOTAL LIABILITIES 746,676 179,910 38 form an integral part of these financial statements . T e financial o 21 were approved by the EAC Secretariat o . ...~ . . ... ..../. ..... . n its behalf by: Amb Liberat Mfum Secretary General The independent auditors' re rt is on pages 15 and 16 INNOVEX ©2017 181 Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED 3QTH JUNE 2016 Notes 2015/16 2014/15 USO USO CASHFLOW FROM OPERATIONG ACTIVITIES Surplus of income over expenditure Depreciation 7 20,990 102,088 Adjusted for movements in working capital: (Increase) /decrease in account receivable (593,343) (51 ,440) Increase I (decrease) in deferred capital grant (20,990) (249,251) lncrease/(decrease) in accruals 119,224 (281,647) lncrease/(decrease) in trade and other payables 468,532 {9,024} Net cash generated from operating activities (5,587) (489 ,274) Cash flow from investing activities Purchase of property and equipment (940) Property and equipment purchased to partner states 148, 103 Cash generated from investing activities 147,163 Net increase in cash and cash equivalents (5,587) (342 ,111) Cash and cash equivalents at the beginning of period 11,876 353 ,987 Cash and cash equivalents at end of period 9 6,289 11 ,876 38 form an integral part of these financial statements. The financial 21 were approved by the EAC Secretari t .. ...?.-..3 . 9..1. .. ...... its behalf by: The independent auditors report is on pages 15 and 16 INNOVEX ©2017 191 Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) STATEMENT OF COMPARISON OF BUDGET AND ACTUAL EXPENDITURE FOR THE YEAR ENDED 30rH JUNE 2016 Actual Annual to 30th Budget June Budget Description of Activity Amount 2016 Variance Utilization Notes USD USD USD % Meetings of EAC Pharmaceutical Experts to review guidelines 192,000 92 ,040 99 ,960 48% 16 Assessment of the pharmaceutical Policies Laws and regulation 258 ,200 53,706 204,494 21% 16 National Meetings of Pharmaceutical Experts and other stakeholders 422,800 175,099 249,898 41 % 16 Ensuring more structured approach in supporting the NMRAs 258 ,860 7,678 251 ,182 3% 16 Continue with capacity building activities of the NMRAs 844,450 56,194 788,256 7% 16 Commence with Building capacity of the pharmaceutical industry 357 ,850 98,027 259,823 27% 16 Domestication of the harmonised technical guidelines 576 ,525 89,128 487,397 15% 16 To start and continue training the NMRA staff in QMS 501 ,970 88,329 413,641 18% 16 Reg ional meetings of Pharmaceutical and Medical Devices 80,850 11 ,810 69,040 15% 16 To retain Project Staff under MRHP 613 ,921 581 ,144 32 ,777 95% 16 Total 4, 107,426 1,253,155 2,856,468 31 % 8 form an integral part of these financial statements. The financial 21 were approved by the EAC Secretariat " ... :.?-:-. .! ........ ........ its behalf by: Am The independent auditor · report is on pages 15 and 16 INNOVEX ©2017 20 I P age East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) STATEMENT OF SPECIAL (DESIGNATED) ACCOUNT ACTIVITY FOR THE PERIOD ENDED 3QTH JUNE 2016 Notes 2015/16 Cumulative US$ US$ Opening balance as at 1st July 2015 21 ,046 21,046 Total amount deposited by World Bank 1,038,299 1,059,345 Total amount deposited by IAVI-Africa 23,026 1,082,371 Total amount deposited of unspent imprest 102,060 1,184,431 Total funds available 1,184,431 1,184,431 Deduct: Total amount withdrawn including bank charges {1 ,057,326} {1,057,326} Closing balance per bank statement as at 30 June 2016 127,105 127,105 Unpresented cheques issued out which cleared after year end 120,816 120,816 Closing balance per cash book as at June 2016 9 6,289 6,289 The independent auditor · report is on pages 15 and 16 INNOVEX ©2017 21 I P age East African Community (EAC) Project- Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED JQTH JUNE 2016 1. GENERAL INFORMATION The East African Community (EAC) is a regional inter-governmental organization of the five Partner States, namely: the Republic of Kenya , the Republic of Uganda, the Republic of Burundi, the Republic of Rwanda and the United Republic of Tanzania . The East African Community is currently implementing a regional project on harmonisation of Medicines Regulation (EAC-MRH) in collaboration with six (6) National Medicines Regulatory Authorities (NMRAs) . The registered office is EAC Headquarters, Afrika Mashariki Road , P.O. Box 1096, Arusha , Tanzania . 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented , unless otherwise stated. a. Statement of compliance The financial statements have been prepared in accordance with International Public Sector Accounting Standards. b. Basis of preparation The accompanying financial statements have been presented on an accrual basis of accounting while the budget has been prepared using cash basis of accounting. Accrual basis means a basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid) . Therefore, the transactions and events are recorded in the accounting records and recognized in the financial statements of the periods to which they relate. Accrual accounting allows for revenue to be recognized when earned and expenses to be recognized when goods or services are received , without regard to the receipt or payment of cash . Budgetary accounting allows for compliance with the requirements for and controls over the use of Development Partners budgeted funds . c. Significant accounting policies The financial statements have been prepared on a going concern basis, they also comply with International Public Sector Accounting Standards (IPSASs) for the accrual basis of accounting in as far as the IPSASs so far adopted are concerned ; otherwise IASs/lFRSs are still applicable". The following IPSASs which are applicable to the EAC have been adopted. IPSAS 1: Preparation of financial statements ; IPSAS 2: Cash flow statements; IPSAS 3: Accounting policies, changes in accounting estimates and errors ; IPSAS 4: The effects of foreign exchange rates ; IPSAS 9: Revenue from exchange transactions ; IPSAS 12: Inventories; IPSAS 17: Property and equipment; IPSAS 19: Provisions , contingent liabilities and contingent assets; IPSAS 20: Related party disclosures; IPSAS 23: Revenue from Non-Exchange Transactions; IPSAS 24: Presentation of budget information in financial statements; IPSAS 31 : Intangible assets ; and INNOVEX ©2017 22 I P age East African Community (EAC) Project- Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 3QTH JUNE 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) c. Significant accounting policies (continued) IPSAS 25: (Employee Benefits) has not been complied with in full because of the need to streamline the current policy on plan assets and obligations and the need to change the policy on the accounting treatment on interest earned on gratuity. The accounting policies have been applied consistently throughout the period . d. Adoption of new and revised international public sector accounting standards (i) New and revised IPSASs effective for the year ended 30 June 2016 The Project has not adopted and applied any new or revised IPSASs in the current year. (ii) New IPSASs in issue but not yet effective for the period ended 30 June 2016 Improvements to IPSASs 2015 The IPSAS Improvements to IPSASs 2015 was issued on 18 April 2016. This is the first IPSASB Improvements project to consider broader improvements resulting from the Conceptual Framework and alignment with government finance statistics, in addition to amendments arising from maintaining convergence with International Financial Reporting Standards (IFRS) . Amendments of IPSAS shall be applied for annual financial statements covering periods beg inning on or after January 1, 2017. Earlier applicati on is encouraged. The Applicability of IPSASs The Applicability of IPSASs was issued on 21 April 2016. The objective of this is to remove the Government Business Enterprise (GBE) definition in IPSAS 1 Presentation of Financial Statements and propose consequential amendments in IPSASs and RPGs . The effective date of the standard is January 1, 2018 and earlier application is encouraged. The revised Preface to IPSASs is effective immediately. Consultation Paper (CP) Public Sector Specific Financial Instruments The Consultation Paper Public Sector Specific Financial Instruments was issued end of July 2016. The Consultation Paper considers the issues related to public sector specific financial instruments such as currency in circulation , monetary gold , the IMF quota subscription , Special Drawing Rights (SOR) Holdings and SOR Allocations and proposes approaches to accounting for them . Comments relating to this Consultation Paper can be provided to the IPSASB until 31 December 2016. INNOVEX ©2017 23 1Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 3QTH JUNE 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) d. Adoption of new and revised international public sector accounting standards (ii) New IPSASs in issue but not yet effective for the period ended 30 June 2016 (Continued) The Project has not applied the following new and revised IPSAS that have been issued but are not yet effective. The Project will apply these standards, if applicable, when they become effective. IPSAS 34 Separate Financial Statements IPSAS 35 Consolidated Financial Statements IPSAS 36 Investments in Associates and Joint Ventures IPSAS 37 Joint Arrangements IPSAS 38 Disclosure of Interests in Other Entities IPSAS 39 Employee Benefits IPSAS 34 Separate financial statements IPSAS 34 prescribes the accounting and disclosure requirements for investments in controlled entities , joint ventures and associates when an entity prepares separate financial statements. It requires an entity that prepares and presents financial statements under the accrual basis of accounting to apply this Standard in accounting for investments in controlled entities, joint ventures and associates when it elects, or is required by regulations, to present separate financial statements. However, this Standard does not mandate which entities produce separate financial statements. It applies when an entity prepares separate financial statements that comply with International Public Sector Accounting Standards (IPSASs) . This Standard applies to all public sector entities other than Government Business Enterprises (GBEs) . An entity shall apply this Standard for annual financial statements covering periods beginning on or after January 1, 2017. Earlier application is encouraged . If an entity applies this Standard for a period beginning before January 1, 2017, it shall disclose that fact and apply IPSAS 35 , IPSAS 36 , IPSAS 37, and IPSAS 38 at the same time . This Standard applies to all public sector entities other than Government Business Enterprises (GBEs). The EAC Secretariat is of the opinion that the standard will not be applicable for the Project. IPSAS 35 Consolidated financial statements The Standard establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. It requires an entity (the controlling entity) that controls one or more other entities (controlled entities) to present consolidated financial statements. It defines the principle of control , and establishes control as the basis for consolidation and sets out how to apply the principle of control to identify whether an entity controls another entity and therefore must consolidate that entity. It also sets out the accounting requirements for the preparation of consol idated financial statements; and defines an investment entity and sets out an exception to consolidating particular controlled entities of an investment entity. INNOVEX ©2017 24 1Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 3QTH JUNE 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) d. Adoption of new and revised international public sector accounting standards (ii) New IPSASs in issue but not yet effective for the period ended 30 June 2016 (Continued) IPSAS 35 Consolidated financial statements (Continued) This Standard does not deal with the accounting requirements for public sector combinations and their effect on consolidation , including goodwill arising on a public sector combination . An entity shall apply this Standard for annual financial statements covering periods beginning on or after January 1, 2017. Earlier application is encouraged. If an entity applies this Standard for a period beginning before January 1, 2017, it shall disclose that fact and apply IPSAS 34 , Separate Financial Statements, IPSAS 36 , IPSAS 37 , and IPSAS 38 at the same time. Th is Standard applies to all public sector entities other than Government Business Enterprises (GBEs). The EAC Secretariat is of the opinion that the standard will not be applicable for the Project. IPSAS 36 Investments in associates and joint ventures IPSAS 36 prescribes the accounting for investments in associates and joint ventures and sets out the requirements for the application of the equ ity method when accounting for investments in associates and joint ventures. It shall be appl ied by all entities that are investors with significant influence over, or joint control of, an investee where the investment leads to the holding of a quantifiable ownersh ip interest. The Standard provides the basis for accounting for ownership interests in associates and joint ventures that is, the investment in the other entity confers on the entity the ri sks and rewards incidental to an ownership interest. This includes ownership interests arising from investments in the formal equity structure of another entity. A formal equity structure means share capital or an equivalent form of capital , such as units in a property trust. Quantifiable ownersh ip interests may also include ownership interests arising from other investments in wh ich the entity's ownership interest can be measured reliably (for example, interests in a partnersh ip). Where the equ ity structure of the other entity is poorly defined , it may not be possible to obta in a reliable measure of the ownership interest. An entity shall apply this Standard for annual financial statements covering periods beginning on or after January 1, 2017. Earlier application is encouraged . If an entity applies this Standard for a period beginning before January 1, 2017, it shall disclose that fact and apply IPSAS 34 , IPSAS 35 , IPSAS 37 , and IPSAS 38, Disclosure of Interests in Other Entities, at the same time. This Standard applies to all public sector entities other than Government Business Enterprises (GBEs). The EAC Secretariat is of the opinion that the standa rd will not be applicable fo r the Project. INNOVEX ©2017 25 1Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30TH JUNE 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) d. Adoption of new and revised international public sector accounting standards (continued) (ii) New IPSASs in issue but not yet effective for the period ended 30 June 2016 (Continued) IPSAS 37 Joint arrangements The standard establishes principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (i.e. joint arrangements). It requ ires an entity that is a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations and to account for those rights and obligations in accordance with that type of joint arrangement. The standard shall be applied by all entities that are a party to a joint arrangement. An entity shall apply this Standard for annual financial statements covering periods beginning on or after January 1, 2017. Earlier application is encouraged . If an entity applies this Standard for a period beginning before January 1, 2017 , it shall disclose that fact and apply IPSAS 34 , IPSAS 35 , IPSAS 36 and IPSAS 38, Disclosure of Interests in Other Entities , at the same time. This Standard applies to all public sector entities other than Government Business Enterprises (GBEs). The EAC Secretariat is of the opinion that the standard will not be applicable for the Project. /PSAS 38 Disclosure of interests in other entities The standard requires an entity to disclose information that enables users of its financial statements to evaluate the nature of, and risks associated with , its interests in controlled entities , unconsolidated controlled entities , joint arrangements and associates , and structured entities that are not consolidated ; and the effects of those interests on its financial position , financial performance and cash flows . This Standard shall be applied by an entity that has an interest in controlled entities; joint arrangements (i.e. joint operations or joint ventures) ; associates; or structured entities that are not consolidated . This Standard does not apply to the following : a) Post-employment benefit plans or other long-term employee benefit plans to which IPSAS 25; b) Employee Benefits applies and an entity's separate financial statements to which IPSAS 34 , Separate Financial Statements, applies ; c) An interest held by an entity that participates in , but does not have joint control of, a joint arrangement unless that interest results in significant influence over the arrangement or is an interest in a structured entity; and d) An interest in another entity that is accounted for in accordance with IPSAS 29, Financial Instruments: Recognition and Measurement. An entity shall apply this Standard for annual financial statements covering periods beginning on or after January 1, 2017. Earlier application is encouraged . INNOVEX ©2017 261 Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 3QTH JUNE 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) d. Adoption of new and revised international public sector accounting standards (continued) (ii) New IPSASs in issue but not yet effective for the period ended 30 June 2016 (Continued) IPSAS 38 Disclosure of interests in other entities (Continued) This Standard applies to all public sector entities other than Government Business Enterprises (GBEs) . The EAC Secretariat is of the opinion that the standard will not be applicable for the Project. IPSAS 39 Employee Benefits IPSAS 39 reflects amendments made by the IASB to IAS 19 Employee Benefits, up to December 2015. The main differences between IPSAS 39 and IPSAS 25 are the removal of an option that allowed an entity to defer the recognition of changes in the net defined benefit liability (so-called "corridor approach"), the introduction of the net interest approach for defined benefit plans and amendments of certain disclosure requirements for defined benefit plans and multi-employer plans. IPSAS 39 also addresses a number of other issues raised (e .g. accounting for the risk-sharing features of defined benefit plans, the classification of employee benefits , recognition and measurement of other long-term employee benefits , the point in time when termination benefits are recognized) . IPSAS 39 - Employee Benefits will replace IPSAS 25 Employee Benefits on January 1, 2018, with earlier adoption encouraged . This Standard applies to all public sector entities other than Government Business Enterprises (GBEs) . The EAC Secretariat will adopt and apply the standard for the Project when it becomes effective. e. Use of estimates The financial statements in conformity with IPSAS 3 - Accounting Policies , Changes in Accounting Estimates and Errors, requires management to make estimates and assumptions that, affect the reported amounts of assets and liabilities and the disclosure of the reported amounts of revenues and expenses during the reporting period . Actual results could differ from these estimates. f. Donations and grants The financial statements in conformity with IPSAS 23 - Revenue from Non-Exchange Transactions, require management to recognize liabilities from transfers with restrictions (conditions) over the period of which economic benefits will be received from such transfers , with disclosure of such restricted contributions from Development Partners. Most of the assistance given to the Project by the Development Partners is in relation to specific projects or programmes. Hence, they are considered as restricted contributions. INNOVEX ©2017 27 I P age East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 3QTH JUNE 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) f. Donations and grants (Continued) Restricted contributions are recognized as Revenue over the periods necessary to match them with the related costs, which they are intended to compensate on a systematic basis. Grants related to assets are presented in the statement of financial position as deferred revenue , which is recognized as revenue on a systematic and rational basis over the useful life of the asset. g. Foreign currency transactions The financial statements are prepared in conformity with IPSAS 4 - The Effects of Changes in Foreign Exchange Rates that requires management to disclose effects of foreign currency transactions in their financial statements. In accordance with IPSAS 4 and related definition, the presentation currency of the Project, currency in wh ich its financial statements are prepared , is the United States Dollar. The Project has its Presentation currency, the United States Dollar, and Tanzanian shillings as its functional currency and hence uses the following procedure to translate its fore ign currency transactions into the Presentation currency for reporting purpose ; a. monetary assets/liabilities are translated at current exchange rate b. Non-monetary assets/liabilities measured at historical cost are translated at historical exchange rate c. Non-monetary assets/li abilities measured at current value are translated at the exchange rate at the date when the current value was determined. Owners' interest accounts are translated at historical exchange rate Revenues/expenses other than those expenses related to non-monetary items (as in (a) and (b) above) are translated at the exchange rate that existed when transactions took place (for practical reasons , average rates may be use) (b) expenses related to non-monetary assets , such as depreciation (fixed assets) and amortization (intangible assets) are translated at the exchange rate used to translate the related assets. This procedure above is descriptive of the Temporal Method of translating foreign exchange transactions where the exchange translation adjustment gains/losses are shown in the financial statements usually under the Operating Income/Expenses or Non-operating Income/ Expenses section of the Statement of the financial Performance. f. Interest earned The financial statements are prepared in conformity with IPSAS 9 - Revenue from Exchange Transactions , requires management to treat such revenue as revenue for the year. Such interest comprises mainly interest from banks, for operating accounts and fixed deposits. g. Property, plant and equipment The financial statements in conformity with IPSAS 17 - Property, Plant, and Equipment, requires management to treat the assets of the Project as follows - Property and equipment are initially recorded at purchase cost plus direct attributable cost. Where an item of property and equipment comprises major components having different useful lives, they are accounted for separately. INNOVEX ©2017 281 Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 3QTH JUNE 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) g. Property, plant and equipment (Continued) Subsequent expenditures are capitalized only when they increase the current economic benefits and meet the recognition criteria . Expenditure incurred to replace a component of item of property and equipment is accounted for separately and capitalized while the major replaced component is derecognized . All other expenditure items, which do not meet recognition criteria , are recognized in the statement of financial performance as expenses as they are incurred. Property and equipment are derecognized when no economic benefits are expected from its use or disposal. The disposal methods applied include; sale , or scrapping . Gains or losses on disposal of property, plant and equipment are determined by comparing net disposa l proceeds if any with the carrying amount. These gains or losses are not considered in arriving at the operating surplus or deficit for the year, instead are taken to the statement of changes in statement of financial performance h. Depreciation The financial statements in conformity with IPSAS 1 - Presentation of Financial Statement and IPSAS 17 - Property, Plant and Equipment recognize depreciation in the Statement of Financial Performance . Management charges depreciation to the Statement of Financial Performance on a straight-line basis to write off the cost of property, plant and equipment to their residual values over their expected useful lives. No depreciation is provided on the land . Depreciation for Property and Equipment purchased during the year is apportioned proportionately to the rema ining period of the year. Property and equipment acquired during the year is depreciated from the date when it is available for use and cease to be depreciated at earlier of the date that the asset is derecognized . Annual depreciation rates applied during the financial year are as follows : Computer equipment 33 .33% Telecommunication equipment 33.33% Office equipment 25 .00% Office furniture 12.50% i. Taxation Article 4 Section (1) subsection (d) of the Headquarters Agreement between East African Community and the United Republic of Tanzania states that: "The Secretariat, its property, assets , income and transactions shall be exempt from all direct taxation including sales tax and from Customs Duties and prohibitions , restrictions on imports and exports in respect of articles imported or exported by Secretariat for its official use. The Secretariat shall also be exempt from any obligation relating to payments, withholding or collection of any tax or duty provided that such assets and other property shall not be sold within the United Republic of Tanzania except in accordance with conditions agreed to with the Government". The same treatment is expected to be accorded to property, assets , income and transactions of Projects implemented by EAC . INNOVEX ©2017 29 J P age East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED JQTH JUNE 2016 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) j. Presentation of the budget information The financial statements in conformity with IPSAS 24 requires management of a public sector entity to show comparison of budget amounts arising from execution of the budget to be included in the financial statements of the entity which are required to , or elect to , make publicly available their approved budget for which they are, therefore, held publicly accountable. The Project prepares its financial statements clearly indicating the actual expenditure in comparison with the approved budgetary provisions and in so doing fully complies with th is Standard . The statement of comparison of budgeted and actual amounts has been presented using accrual basis of accounting . k. Employee benefits Employment contracts provided for gratuity benefit at a rate of 25% of the basic total salaries for the term of employment. The gratuity benefit is charged to the statement of financial performance on accrual basis. I. Cash and cash equivalents Cash and cash equivalents includes cash in hand and demand and short term deposits, with maturities of three months or less from the date of acquisition , that are read ily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, net of bank overdrafts. Bank overdraft if any, are shown within borrowings in the current liabilities in the statement of financial position. 3. REVENUE FROM NON EXCHANGE TRANSACTIONS 2015/16 2014/15 USD USO Amount released from deferred grant to statement of financial performance (Note 1Oa) 1,614,242 1,817 ,674 Grant for assets 148,103 Recycled from capital grant (Note 1Ob) 20,990 102,088 1,635,232 2,067,865 4. PERSO NNEL COSTS Basic salary- staffs 291,352 291 ,352 Housing allowance-staff 112,800 112,800 Transport allowance-staff 28,800 28,800 Overtime-non-established Staff 8 10 Medical cover-staff 21,196 21 ,505 Life insurance-staff 21,284 21 ,297 Gratuity-staff 62,004 72 ,838 Education allowance-staff 42,500 Spouse allowance-staff 1,200 581,144 548 ,602 INNOVEX ©2017 30 I P age East African Community (EAC) Project- Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 3orH JUNE 2016 5. TRAINING/WORKSHOP EXPENDITURE 2015/16 2014/15 USO USO Internet connection services 50,552 Hiring of vehicle 4,300 Library supplies 17,725 Conference facilities 27,452 36 ,971 Conference I workshop participation fee 12,158 49 ,827 Air Ticket within EAC-staff 29,905 29 ,553 Air Ticket within EAC-delegates 89,951 133,551 International air ticket - delegates 11 ,659 Airport transfers 7,127 2,250 DSA and accommodation- staff 240,097 140,795 DSA and accommodation- delegates 206,428 696 ,745 Production of workshop materials 35 ,997 Contracted professional services 91 ,799 Audit fee 7,000 7,000 Office operations expenses 1,523 Other workshops sundries 9,377 670,670 1,269 ,072 6. COMPUTER EQUIPMENT FOR PARTNER STATES Purchased during the year 362,428 Purchased in previous years but transferred this year - cost 233 ,320 362,428 233 ,320 Less: accumulated depreciation of computer equipment purchased in previous years but transferred this year (85 ,218) 362,428 148,102 INNOVEX ©2017 31 I P age East African Community (EAC) Project- Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30TH JUNE 2016 7. PROPERTY AND EQUIPMENT Other office Computer Telecommunication Other office fixture & Office Egui(2ment Egui(2ment Egui(2ment fittings Furniture Total USO USD USD USO USO Cost At start of year 27 ,153 36 ,938 13,413 328 10,790 88,622 Additions At end of year 27 ,153 36 ,938 13,413 328 10,790 88 ,622 Depreciation At start of year 24,329 7,386 3,381 41 3,683 38,820 Charge for the year 2,824 12,311 3,354 41 2,460 20 ,990 At end of year 27 ,153 19,697 6,735 82 6,143 59,810 Net book value 30/6/2016 17,241 6,678 246 4,647 28,812 During the year under review, non-current assets with a cost of USD 233 ,321 and accumulated depreciation of USD 85 ,218 which were purchased for partner states were derecognized from the EAC-MRH Project in favour of the partner states. In the past, the project used to maintain these assets in its records despite the fact that they were under the custody and use of the respective partner states. These assets were charged off to receipts and expenditure statement as a prior year adjustment. INNOVEX © 2017 32 I P age East African Community (EAC) Project- Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30TH JUNE 2016 7. PROPERTY AND EQU IPM ENT (Continued) Other office Computer Telecommun ication Other office fixture & Office equipment equ ipment eq uipment fittings fu rniture Total USD USO USO USO USD USD Cost At start of yea r 45,918 242 ,935 13,413 18,736 321 ,002 Additions 328 612 940 Disposal (18 ,765) (205 ,998) (8,558) (233 ,321) At end of year 27 ,153 36 ,937 13,413 328 10,790 88 ,621 Depreciation At start of year 18,406 796 27 2,720 2 1,949 Charge for the year 15,305 80 ,970 3,353 41 2,419 102 ,088 Disposal (9,382) (74,380) (1 ,456) (85,218) At end of year 24,329 7,386 3,380 41 3,683 38 ,819 Net book value 30/6/2015 2,824 29,551 10,033 287 7,107 49,802 INNOVEX © 2017 331 Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 3QTH JUNE 2016 8. ACCOUNTS RECEIVABLE 2015/16 2014/15 USO USO VAT receivables 74,679 7,682 Staff imprests 12,997 39 ,218 World Bank (Note 1O.a) 623,897 71 ,331 711 ,573 118,231 9. CASH AND CASH EQUIVALENTS USO bank balance 6,289 11,876 10 a. DEFERRED REVEN UE GRANT Balance as at 1 July (71,332) (47 ,674) Amount received from World Bank 1,038,299 1,794 ,016 Amount received from IAVI-Africa 23,026 Other income (gain in forex exchange) 350 Amount released to the statement of financial performance (Notes 5 & 6) {1,614,242} {1,817 ,674} Ba lance as at 30 June (Note 6) {623,899} {71 ,332} 10 b. DEFERRED CAPITAL GRANT Opening balance as at 1st July 49,803 299 ,054 Additions during the year 940 Depreciation recycled to statement of financial performa nce (20,990) (102 ,088) Transferred to partner states (Note 6) {148 ,103} Balance as at 30th June 28,813 49 ,803 11. CASH RECEIPTS FROM WORLD BANK Grant received from World Bank Date Installment received pt Installment 13-Aug-15 255,547 95 ,988 2nd installment 2-Sep-1 5 187,871 339 ,519 3rd installment 15-0ct-15 204,473 118,358 4th installment 4-Dec-1 5 120,213 198,899 5th installment 27-Jan-1 6 91,784 410 ,838 6th installment 11 -Dec-1 6 21,352 240 ,330 7th installment 20-May-16 157,059 389 ,589 1,038,299 1,793 ,521 Other income (bank interest) 495 1,038,299 1,794 ,016 Grant received from IAVI-Africa Date Installment received 1st Installment 1O-Sept-15 23,026 INNOVEX ©2017 34 1Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 3QTH JUNE 2016 12. TRADE PAY ABLES 2015/16 2014/15 USO USO Jr Electronics Limited 1,250 Creative Media Company Ltd 1,755 Charleston travel ltd 18,871 7,310 Demo Interiors 90 90 Hotel des Mille Collines 3,201 Palace Hotel Arusha 2,066 1,234 Imperial Group Of Hotels 6,443 lnnovex Auditors 7,000 14,000 MFI Document Solutions Ltd 427,665 Imprest payable 6,614 RwandAir 5,158 407 Uganda Travel Bureau 2004 Limited 33,258 13,753 One off suppliers 19,723 8,530 523,475 54 ,943 13. ACCRUALS AND OTHER PAYABLES Staff salary payable 35,480 Gratuity payable (Note 13a) 62,004 EAC Current Account 1,137 22 ,989 Medical & life insurance 31,693 12,142 Zanzibar Foods & Drugs Board(ZFDB) 5,310 2,034 EAC staff refunds 6,571 2,517 Activities imprest payable 72,672 EAC Secretariat 15,000 194,387 75, 163 13.a MOVEMENT IN STAFF GRATUITY Opening balance Additional during the year 62,004 Total Payable 62,004 Less: Paid during the year Closing balance 62,004 14. BUDGET PERFORMANCE RECONCILIATION Total expenditure per statement of budget and actual expenditure 1,251,814 1,817 ,674 Total expenditure per statement of financial performance 1,635,233 2,067 ,868 Difference (383,419) (250 ,194) The accompanying financial statements have been presented on an accrual basis of accounting , while the budget has been prepared using cash basis of accounting . The difference of total expenditure between the budget performance and statement of financial performance is made up of depreciation charge during the year which is a non-cash item which amounted to INNOVEX ©2017 351 Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JQTH JUNE 2016 14. BUDGET PERFORMANCE RECONCILIATION (Continued) USO 20,990 (2014/15 : USO 102,088) while the remaining balance of USO 362,428 (2014/15 : USO 148,103) relates to the value of computer equipment purchased for partner states. Equ ipment that were bought and transferred to partner states during the year under review. 15. RELATED PARTY TRANSACTIONS a) Identification of related parties Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. In the normal course of business, a number of project transactions are entered into with related parties i.e. Key management personnel that re made up of Principal Health Officer, Senior Health Officer, eHealth Officer, Project Accountant and Pharmaceutical Program Assistant. These include imprest receivables and payables and short term employment benefits for key management personnel. The volume of related party transactions for the yea r and the outstand ing amounts at the year- end were as follows: b) Transactions The following transactions were carried out with related parties : i. Key management personnel Key management includes project accountant, the project eHealth and Information Officer, Pri ncipal Health Officer and Sen iors Health Officers.The compensation paid to key management during the year is shown below: 2015/15 2014/15 Staff Costs USO USO Short term benefits (Note 4) 581 ,144 548 ,602 b) Balances i. Receivables from related parties Staff imprests (Note 19) 12,997 39 ,218 INNOVEX ©201 7 361 Page East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 3QTH JUNE 2016 ii. Payable from related parties 2015116 2014/15 USO USO Advance from EAC secretariat 15,000 Staff salaries 35,480 Staff imprests 72,672 Staff gratuity 62,004 149,676 35,480 16. EXPLANATION OF VARIANCE BETWEEN BUDGET AND ACTUAL EXPENDITURE Actual Annual to 30th Description of Budget June ----llllllllll!IIDJ·mll.mml·lllllmnl·-------- Activity Meetings Pharmaceutical Experts to of EAC review Amount 2016 Variance Explanation Due to delays in accessing funds , This was conducted in October 2016 , in Dar guidelines 192,000 92,040 99,960 Es Salaam The national and Regional validation Assessment of the meetings due to late disbursement of pharmaceutical fund were resched uled to FY 2016/17, Policies Laws and conducted during July, September, regulation 258,200 53,706 204,494 October and November 2016 National Meetings of Due inadequate fu nds meetings were Pharmaceutical not held as planned , under cu rrent Experts and other plan these to be held in the FY stakeholders 422,800 175,099 247,701 2016/201 7 Ensuri ng more Due to lack of fun ds, this could not be structured approach in executed and is expected in quarter supporting the two of FY 2016/20 17 with activities like NMRAs 258 ,860 7,678 251 ,182 twinning Payments for IMS Servers and IMS Continue with capacity users (staff and stakeholders) building activities of postponed and implemented in Ju ly the NMRAs 844 ,450 56,194 788,256 and September 201 6 (FY 2016/17) Commence with Building capacity of the pharmaceutical There was no adequate funds to industry 357,850 98,027 259,823 conduct the activities Domestication of the A few activities were conducted in harmonised technical partner states under this activity due to gu idelines 576,525 89,128 487,397 non-availability of funds There was no adequate funds to To start and continue conduct the activities, some of the training the NMRA activities started after July 20 16, like in staff in QMS Zanzibar for QMS training with 501 ,970 88,329 413, 641 technical support from TFDA Reg ional meetings of 80,850 11 ,810 69,040 Duri ng the planning and budgeting and INNOVEX ©20 17 37 JP age East African Community (EAC) Project - Medicines Regulatory Harmonisation (MRH) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 3QTH JUNE 2016 Actual Annual to 30th Description of Budget June Activity Amount 2016 Variance Explanation Pharmaceutical and with World Bank negotiation we Med ical Devices expected to have this component supported but it did not happen and therefore this should not be considered as a fundable activity under the current phase Due inadequate funds other trainings were not held as planned , under To retain Project Staff current plan these to be held in the FY under MRHP 613,921 581 ,144 32,777 2016/2017 17. COMMITMENTS The Project did not have any commitments as at 30 June 2016 . 18. CONTINGENT LIABILITIES There were no contingent liabilities nor contingent assets reported during the yea r. 19. COMPARATIVES Wherever considered necessary, comparative figures have been reclassified to conform to changes in presentation in the current year. 20. EVENTS AFTER REPORTING DATE As at 30 1h June 2016 , some activities were not yet implemented . These were conducted after the reporting date and are listed below; • Implementation of IMS to facilitate information sharing and exchange ; • Development of M & E tool for EAC - MRH ; • Strengthening of Pharmacovigilance system in the EAC region ; • Implementation of EAC -CTD ; • Implement GMP harmonized requirements , and • Drafting of bills and laws to improve medicines regulatory governance. INNOVEX ©2017 381 Page