THE PROJECT MANAGEMENT UNIT OF WATERWAY NORTHERN DELTA TRANSPORT DEVELOPMENT PROJECT Credit Agreement IDA No. 6028 - VN (Part A and C) AUDITED FINANCIAL STATEMENTS The period from 23/06/2017 to 31/12/2019 Northern Delta Transport Development Project Credit Agreement IDA No. 6028 - VN (Part A and C) CONTENTS Page PART I INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS Report of the Project Management Unit 3 Independent Auditors' Report on the Financial statements 4-5 Audited Financial statements Statement of Funds and Expenditures 6 Statement of Funds balance 7 Notes to the Financial statements 8-9 PART II INDEPENDENT AUDITORS' REPORT ON 10-11 THE INTERNAL CONTROL SYSTEM PART Ill INDEPENDENT AUDITORS' REPORT ON 12-13 THE COMPLIANCE PART IV MANAGEMENT LETTER 14-16 2 Northern Delta Transport Development Project Credit Agreement IDA No. 6028 - VN (Part A and C) REPORT OF THE PROJECT MANAGEMENT UNIT The Project Management Unit of Waterway ("the Project Management Unit" or "PMU-W') presents this report and the Financial Statements of the Northern Delta Transport Development Project - Part A and C ("the Project") for the period from 23/06/2017 to 31/12/2019. The Project The Project is implemented under the Credit Agreement IDA No. 6028 - VN dated 23 June 2017 ("the Agreement") between the Government of the Socialist Republic of Vietnam and the World Bank. The Project Management Unit Members of the Project Management Unit in the year and to the reporting date are: Mr. Duong Thanh Hung Deputy Director in-charge Mr. Tran Quoc Bao Deputy Director Mr. Nguyen Xuan Lam Deputy Director Ms. Nguyen Thi Thanh Huyen Person in-charge of finance accounting department Auditors The auditors of AASC Limited have taken the audit of financial statements of the Project. Responsibilities of the Project Management Unit The Project Management Unit is responsible for preparing the project financial statements, including Statement of Funds and Expenditures, Statement of Funds balance which comply with the accounting policies described in the attached Notes to the Financial Statements. The Project Management Unit assures that the accounting policies are appropriately selected and consistently applied. The Project Management Unit assures that the accounting records were fully maintained to prepare the financial statements in accordance with the applied accounting policies and to disclose, with reasonable accuracy at any time, the financial position of the Project. The Project Management Unit is also responsible for maintaining an effective internal control as management determines necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and comply with relevant laws, regulations and other provisions of the funding agreement that could have a direct and material financial effect on the Project financial statements. On behalf of the Project Management Unit 01dong-Tharth Hung Deputy D,Wector in-charge Hanoi, 29 December 2020 3 No.: 291220.001/BCTC.FIS2 INDEPENDENT AUDITORS' REPORTS ON THE FINANCIAL STATEMENTS To: The Project Management Unit of Waterway Opinion We have audited the accompanying financial statements of Northern Delta Transport Development Project ("the Project") which comprise Statement of Funds and Expenditures and Notes to the Financial Statements for the period from 23/06/2017 to 31/12/2019, including a summary of significant accounting policies. In our opinion, accompanying financial statements give a true and fair view of the financial position of the Project, including funds received and expenditures incurred for the period from 23/06/2017 to 31/12/2019 in accordance with the basis of the principal accounting policies described in the Notes to the Financial Statements and the provisions of the Credit Agreement IDA No. 6028 - VN Emphasis of Matter We would draw readers' attention to the World Bank fund which is not in place in the period from 23/06/2017 to 31/12/2019 due to having no demand for capital. Accordingly, the Statement of Withdrawals and Reconciliation of Funds, and the Statement of Designated Account are not presented in these financial statements. Our opinion is not modified in respect of this matter. Basis of Opinion We conducted our audit in accordance with International Standards on Auditing ("ISAs"). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are independent of Project Management Unit in accordance with the international Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants ("IESBA Code"), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management for the Financial Statements The Project Management Unit is responsible for the preparation of the financial statements in accordance with the principal accounting policies described in Notes to the Financial Statements, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Project's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless management either intends to cease operations, or has no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. T: (84)24 3824 1990 | F: (84)24 3825 3973 | 1 Le PhuI g I-ieu, Hanoi, V etnam A iembe I of International HANG KidmToANAASC 4 As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's internal control; Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management; Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Project to cease to continue as a going concern; Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Project Management Unit regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. AASC Limited o anti Cuong Nguyen Pham Hung Deputy General Director Auditor in-charge CPA Registered No.: 0744-2018-002-1 CPA Registered No.: 2893-2020-002-1 Hanoi, 29 December 2020 Northern Delta Transport Development Project Financial Statements Credit Agreement IDA No. 6028 - VN (Part A and C) The period ended 31 December 2019 STATEMENT OF FUNDS AND EXPENDITURES The period from 23/06/2017 to 31/12/2019 Accumulated to Note 31/12/2019 VND I. Funds 1 Counterpart funds 62,669,676,222 62,669,676,222 I. Expenditures I Administratie costs 8,580,322,222 2 Land acquisition 54,089,354,000 3 62,669,676,222 1Il. Surplus / (Deficit) 6 Northern Delta Transport Development Project Financial Statements Credit Agreement IDA No. 6028 - VN (Part A and C) The period ended 31 December 2019 STATEMENT OF FUNDS BALANCE As at 31 December 2019 Note 31/12/2019 VND Surplus I (Deficit) Surplus / (Deficit) as at begining Surplus / (Deficit) in the period - Surplus I (Deficit) as at closing Represented by: Current assets Current liabilities Net worth - 7 Northern Delta Transport Development Project Financial Statements Credit Agreement IDA No. 6028 - VN (Part A and C)The period ended 31 December 2019 NOTES TO THE FINANCIAL STATEMENTS The period from 23/06/2017 to 31/12/2019 1. Background The Northern Delta Transport Development Project is implemented under the Credit Agreement IDA No. 6028 - VN dated 23 June 2017 (the "Agreement") between the Government of the Socialist Republic of Vietnam and the World Bank. The objective of the Project is to assist in enhancing the efficiency, environmental sustainability, and safety of transport infrastructures and services through alleviation of physical and institutional bottlenecks in the Northern Delta Region. The Project consists of the following parts: Part A: Multimodal transport Corridor Investment. Improving two waterway corridors in the Northern Delta Region to increase the efficiency of multimodal transport and supply chains and enhance the environmental sustainability of the waterway system. Part B: Investments in Ferry boat stages: (1) Improving about 15 to 30 ferry boat stages to improve passenger safety for river crossing; (2) Providing technical assistance for engineering design and construction supervision related to the implementation of Part B of the Project. Part C: Institutional support to Ministry of Transport, Viet Nam Inland Waterways Administrative and the Project Provinces. The Project officially came into operation since 23 June 2017 and is expected to close on 30 June 2022. The Project is managed by The Project Management Unit of Waterway, and its office is located at No 308 Minh Khai Street, Minh Khai Ward, Hai Ba Trung District, Hanoi City, Vietnam. 2. Principal Accounting Policies a. Basis of preparation of the Financial Statements The annual accounting period commences from 1S1 January and ends at 3111 December. The first accounting period is from 23 June 2017 to 31 December 2019. The financial statements are prepared in accordance with the requirements of the World Bank and presented in Vietnam Dong (VND). The Financial Statements are prepared for funds received and expenditures incurred in relation to Part A and C of the Agreement that is managed by PMU-W. The principal accounting policies are summarized as below: b. Funds and Expenditures Funds Counterpart funds of the Vietnamese Government are recorded when payments are made directly from the Vietnamese Government to contractors/suppliers of the Project or funds are remitted to PMU-W for settlement of the Project's activities, including any payments under current year plan until the next 31/01. Expenditures Expenditures are recorded when they are actually incurred, except for Land acquisition costs which are recognized when the State Treasury approves the settlement. 8 Northern Delta Transport Development Project Financial Statements Credit Agreement IDA No. 6028 - VN (Part A and C) The period ended 31 December 2019 3. Expenditures Accumulated to 31/12/2019 VND Expenditures covered by: The Counterpart funds 62,669,676,222 62,669,676,222 The Credit Agreement No. 6028 - VN finances 100% expenditures of works, goods, consultants' services and non-consultants' services, excluding taxes. 4. Subsequent events There have been no significant events occurring after the reporting date, which would require adjustments or disclosures to be made in the financial statements. 5. Approval of the Financial Statements The financial statements were approved by the Project Management Unit for issuance on 29 December 2020.( Duong Thanh Hung Nguyen Thi Thanh Huyen Deputy Director in-charge Person in-charge of finance accounting department Hanoi, 29 December 2020 9 No.: 291220.001/BCTC.FIS2 INDEPENDENT AUDITORS' REPORT ON THE INTERNAL CONTROL SYSTEM To: The Project Management Unit of Waterway The Northern Delta Transport Development Project We have audited, in accordance with International Standards on Auditing, the financial statements of the Northern Delta Transport Development Project ("the Project") for the period from 23/06/2017 to 31/12/2019 and issued the auditors' report thereon dated 29 December 2020 expressing an opinion on those financial statements. In connection with our audit of the financial statements, we also examined the effectiveness of internal control over compliance with requirements that could have a direct and material financial effect on the financial statements as well as the internal control over financial reporting for the fiscal year ended 31 December 2019. Responsibilities of the Project Management Unit The Project Management Unit is responsible for maintaining an effective internal control over compliance with requirements that could have a direct and material financial effect on the financial statements as well as the internal control over financial reporting. Auditor's Responsibility Our responsibility is to express an opinion on the effectiveness of internal control based on our examination. Our examination was conducted in accordance with the International Standard on Assurance Engagements (ISAE) 3000 (Revised). That standard requires that we comply with ethical requirements and plan and perform our procedures to obtain reasonable assurance about whether, in all material respects, the Project has maintained an effective internal control over compliance with requirements that could have a direct and material financial effect on the financial statements as well as internal control over financial reporting. Our examination included obtaining an understanding, testing, and evaluating the design and operating effectiveness of the internal control, and performing other procedures as we considered necessary in the circumstances to obtain sufficient appropriate evidence to provide a basis for our opinion. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not to be prevented or detected on a regular basis. In addition, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. T: (84)24 3824 1990 | F: (84)24 3825 3973 | 1 Le Phung Hieu, Hanoi, Vietnam A memiber of International HANGE 1i6m ToANt AASC 10 Auditors' opinion In our opinion, the Project has maintained an effective internal control over misstatements that could have a direct and material financial effect on the Project financial statements for the period from 23/06/2017 to 31/12/2019, AASC Limited Do Manh Ciong Nguyen Pham Hung Depuy neral Director Auditor in-charge CPA Registered No.: 0744-2018-002-1 CPA Registered No.: 2893-2020-002-1 Hanoi, 29 December 2020 No.: 291231.001/BCTC.FIS2 INDEPENDENT AUDITORS' REPORT ON THE COMPLIANCE To: The Project Management Unit of Waterway The Northern Delta Transport Development Project We have audited, in accordance with the International Standards on Auditing, the financial statements of the Northern Delta Transport Development Project ("the Project") for the period from 23/06/2017 to 31/12/2019 and issued the auditors' report thereon dated on 29 December 2020 expressing an opinion on those financial statements. In connection with the audit of the financial statements, we also performed procedures on the Project's compliance with the Credit Agreement IDA No. 6028 - VN dated 23 June 2017, law and regulations that have a direct and material effect on the Project's financial statements for the period from 23/06/2017 to 31/12/2019 ("the Requirements"). Responsibilities of the Project Management Unit The Project Management Unit is responsible for complying with the Requirements applicable to the Project. Auditor's Responsibility Our responsibility is to express an opinion on the Project's compliance with the Requirements based on our procedures. We limited our tests of compliance to the Requirements, and we did not test compliance with all laws and regulations applicable to the Project. We performed our work in accordance with the International Standard on Assurance Engagements (ISAE) 3000 (Revised). That standard requires that we comply with ethical requirements and plan and perform our procedures to obtain reasonable assurance about whether, in all material respects, the Project has complied with the Requirements. An assurance engagement to report on the compliance with the Requirements at the Project Y1 involves performing procedures to obtain evidence about whether the Project's activities are free of I material non-compliance with the Requirements, including obtaining an understanding of the internal control relevant to the Project's compliance with the Requirements. The procedures selected depend on the auditors' judgment, including the assessment of risks that the Project does not comply with the Requirements and whether such non-compliance could have a direct and material financial effect on the Project's financial statements. Our procedures included testing the compliance with the Requirements we consider necessary to provide a reasonable assurance that the Requirements are complied by the Project. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. T: (84)24 3824 1990I F: (84)24 3825 3973 I 1 Le Phung Hieu, Hanoi, Vietnam A imebiier I, tii aionIal HjANG KI1CM TAAAC12 Auditors' opinion in our opinion, the Project has complied with the Requirements that could have a direct and material financial effect on the Project's financial statements for the period from 23/06/2017 to 31/12/2019. AASC Limited Do Manh Cuong Nguyen Pham Hung beputy General Director Auditor in-charge CPA Registered No.: 0744-2018-002-1 CPA Registered No.: 2893-2020-002-1 Hanoi, 29 December 2020 13 NORTHERN DELTA TRANSPORT DEVELOPMENT PROJECT Credit Agreement IDA No. 6028 - VN (Parts A and C) MANAGEMENT LETTER The period from 23/06/2017 to 31/12/2019 Hanoi, 29 December 2020 To: The Project Management Unit of Waterways The Northern Delta Transport Development Project We have conducted the audit of financial statements of the Northern Delta Transport Development Project ("the Project") for the period from 23 June 2017 to 31 December 2019. During the course of our engagement, we reviewed the accounting procedures and internal controls, and examined the compliances with laws, regulations and the Credit Agreement IDA No. 6028 - VN. Accordingly, we enclose a memorandum of the points noted by us during our audit together with recommendations thereon. We have discussed the matters with the Board of Directors, and the responses were incorporated in our memorandum. We would also like to extend our sincere thanks to Deputy Director, Person in-charge of finance accounting department and your staffs for the co-operation you all have extended to us during our recent audit visit. We look forward to working with you again soon, and in providing you with the required assistance, if any, in your future endeavors. Yours sincerely, Po ManhQCuong Deputy General Director T (84)24 3824 1990 | F: (84)24 3825 3973 1 1 Le Phung I Ieu, Hanoi, Vietnam A member ot International HANG K0M TOAN AASC 14 Management Letter Northern Delta Transport Development Project The period ended Credit Agreement IDA No. 6028 - VN (Parts A and C) 31 December 2019 CONTENT 1. P roject im plem entation prog ress..................................................................................................... 16 15 Management Letter Northern Delta Transport Development Project The period ended Credit Agreement IDA No. 6028 - VN (Parts A and C) 31 December 2019 1. Project implementation progress Observation and Implication We noted that the progress of procurement and project implementation is delayed compared to the approved plan according to Decisions No. 3637/QD-BGTVT dated 27/12/2017, No. 83/QD- BGTVT dated 10/01/2018, No. 2259/QD-BGTVT dated 23/10/2018 and No. 1723/QD-BGTV dated 19/09/2019 by the Ministry of Transport. Specifically, the contractor selection of 10 out of 13 bidding packages started from Quarter 1/2018 and 03 out of 13 packages from September 2019 to October 2019. We noted the delay by the following reasons: - Funds with medium-term plan for public investment had not been allocated to the project until March 2019; - The capital plan in 2019 of the project had not been approved until 17 July 2019; - According to Credit Agreement IDA No. 6028 - VN, the project will close on 31 December 2019, so the bidding packages and project implementation depends on the results of the Project extension - the Project is extended until 30 June 2022 (an agreement letter to extend the Project implementation period dated 30 December 2019). Recommendation We recommend the Project Management Unit should speed up the progress to ensure the Project' activities are implemented within the extension period. The Project's responses Agree with the opinion of the Auditor. 16