The World Bank Albania Strengthening Quality of Auditing and Reporting Project (P176084) Appraisal Environmental and Social Review Summary Appraisal Stage (ESRS Appraisal Stage) Public Disclosure Date Prepared/Updated: 03/02/2021 | Report No: ESRSA01324 Apr 08, 2021 Page 1 of 8 The World Bank Albania Strengthening Quality of Auditing and Reporting Project (P176084) BASIC INFORMATION A. Basic Project Data Country Region Project ID Parent Project ID (if any) Albania EUROPE AND CENTRAL ASIA P176084 Project Name Albania Strengthening Quality of Auditing and Reporting Project Practice Area (Lead) Financing Instrument Estimated Appraisal Date Estimated Board Date Governance Investment Project 4/12/2021 Financing Borrower(s) Implementing Agency(ies) Republic of Albania Ministry of Finance and Economy Proposed Development Objective The development objective of the proposed project is to strengthen the government and relevant stakeholder’s Public Disclosure capacity to improve, apply and enforce corporate financial reporting in line with good international standards and practices. Financing (in USD Million) Amount Total Project Cost 1.73 B. Is the project being prepared in a Situation of Urgent Need of Assistance or Capacity Constraints, as per Bank IPF Policy, para. 12? No C. Summary Description of Proposed Project [including overview of Country, Sectoral & Institutional Contexts and Relationship to CPF] The proposed project seeks to support the third phase of implementation of the CAP over the period of up to 5 years. The proposed total budget of the SDTF is EUR 2.3 million, including EUR 1.5 million - recipient executed activities, and EUR 0.8 million – Bank executed activities. The RE activities are crucial to support the country systems, strengthen local capacity and promote country ownership of reform agendas. A number of stakeholders will be responsible for overall project management (the MoFE and its General Directorate for Financing and Contracting [GDFC], as well as Reform Implementation Group [RIG]). Some Apr 08, 2021 Page 2 of 8 The World Bank Albania Strengthening Quality of Auditing and Reporting Project (P176084) stakeholders have already been involved in phase I and phase II: the NAC, the POB, the Institute of Authorized Chartered Auditors of Albania (IEKA), as well as leading accountancy education institutions and professional associations. The proposed project will also have new stakeholders from the judiciary sector, i.e. Albanian Courts [District, Appeal, Supreme/High], the Administrative Court both District and Appeal, the General Prosecutor Office, officers of judicial police. Institutions have sufficient human resources to engage in the project implementation. Workshops and seminars will be supported under the proposed project to broaden the understanding of best practice settings and other countries. The Bank-executed activities will support the recipient executed components and include a heightened role of the WB team in providing implementation support and limited knowledge-related activities. These activities include providing policy advice to the beneficiaries, providing support and capacity building activities on improving monitoring of SOEs’ financial performance; reviewing the project outputs and offering guidance and support on a needs basis. D. Environmental and Social Overview D.1. Detailed project location(s) and salient physical characteristics relevant to the E&S assessment [geographic, environmental, social] The purpose of the project is to modernize and improve GOA’s corporate financial reporting systems and develop confidence in corporate financial reporting to help achieve growth and developing of the Albanian economy. Project location is in Tirana, Albania. Albania is a predominantly mountainous country in Southeastern Europe with a total area of 28,748 square kilometers. Albania borders Montenegro, Kosovo, Northern Macedonia and Greece with a Public Disclosure coastline of almost 500 km that extends along the Adriatic and Ionian Sea. Few of the largest and oldest bodies of freshwater of Europe occur in Albania. The second largest lake of Southern Europe, the Lake of Shkodër, is located in the northwest surrounded by the Albanian Alps and the Adriatic Sea. Nevertheless, one of the oldest continuously existing lakes in the world, the Lake of Ohrid, straddles in the southeast, while the highest tectonic lakes of the Balkan Peninsula, the Large and Small Lake of Prespa are well hidden among high mountains in the southeast. The rivers of Albania belong to the drainage basins of the Adriatic, Aegean and Black Sea. The longest river in the country, measured from its mouth to its source, is the Drin that starts at the confluence of its two headwaters, the Black and White Drin, though also notable is the Vjosë, one of the last intact large river systems in Europe. D. 2. Borrower’s Institutional Capacity The responsibility for project implementation, including day-to-day management will rest with the Ministry of Finance and Economy (MoFE), while the National Steering Committee (NSC) will have an overall oversight role. The MoFE will continue working with the Reform Implementation Group (RIG), a committee which represents various stakeholders and beneficiaries of the project, including qualified MoFE staff, to support project coordination and implementation. MoFE will also manage issues related to stakeholder engagement and grievances about the project. The project will include the provision of both technical and financial resources to strengthen the implementation capacity of the reform implementation group. Fiduciary aspects of the trust fund management, including procurement and financial management, will be handled by the General Directorate of Financing and Contracting (GDFC) at the MoFE. Apr 08, 2021 Page 3 of 8 The World Bank Albania Strengthening Quality of Auditing and Reporting Project (P176084) The implementation of this project presents a good opportunity to engage and introduce functions of Corporate Financial reporting to a wider audience through various trainings and capacity building activities. MoFE had previous experience in World Bank projects and safeguards requirements. The World Bank with financial assistance from the SECO, has assisted the reform through two projects: the Corporate Financial Reporting Enhancement Project (CFREP) and Enhancing the Quality of Financial Reporting (EQFINREP) project. The two projects were efficiently managed under the recipient management approach. The quality of the outputs was confirmed by the beneficiaries as good. The quality of consultation with beneficiaries and the project design approach are factors which have contributed to a high level of efficiency. The projects had essential impact on creating the higher standard of financial reporting and auditing. The impacts extend from the adoption of international equivalent standards, improvements to both university and professional accounting and auditing education, oversight of the certification of qualified accountants and auditors and supervision of their continuing professional development (CPD) obligations and the quality of their work, by reference to the adopted standards. The official users of financial statements are more knowledgeable of the interpretation of financial statements and audit opinions and have the tools to make better use of financial statements in their work. Both previous projects were classified as E&S low risk and the effects are evaluated as positive for the beneficiaries, and no adverse impact on the E&S has been reported. Public Disclosure II. SUMMARY OF ENVIRONMENTAL AND SOCIAL (ES) RISKS AND IMPACTS A. Environmental and Social Risk Classification (ESRC) Low Environmental Risk Rating Low The project aims to strengthen capacities of GOA’s government institutions, regulators, judicial system, and the accountancy profession in ensuring continuous improvement, application and enforcement of corporate financial reporting framework. There are no activities that have an associated environmental impact or risk at this point in project preparation. The proposed environmental risk level for the project therefore is low. Social Risk Rating Low Similar to the preceding projects (CFREP and EQFINREP), this project is expected to bring positive outcomes towards reform implementation in Albania. The objective aims at strengthening capacities of GOA’s government institutions, regulators, judicial system, and the accountancy profession in ensuring continuous improvement, application and enforcement of corporate financial reporting framework. The project design reflects lessons learned from the previous two projects (CFREP and EQFINREP) and includes stronger and wider support among all stakeholders, fostering relationship with local stakeholders representing various institutions, encouraging stakeholders’ ownership in reforms implementation. The project is aimed at improving corporate financial reporting, so it is not expected to have adverse social impacts. Given technical and political interest in the project, it includes Strong and ongoing engagement among interested parties--project stakeholders, project beneficiaries, CSOs and general public throughout the project implementation. Apr 08, 2021 Page 4 of 8 The World Bank Albania Strengthening Quality of Auditing and Reporting Project (P176084) The actions include: access to trainings for all eligible project stakeholders and beneficiaries, timely information sharing with wider public, and a GRM. There are no identified activities that have a direct or associated adverse social impact or risk at this stage of project. The proposed social risk level for the project therefore is low. B. Environment and Social Standards (ESSs) that Apply to the Activities Being Considered B.1. General Assessment ESS1 Assessment and Management of Environmental and Social Risks and Impacts Overview of the relevance of the Standard for the Project: The proposed project aims to support reform and development of financial reporting and auditing in Albania. The reforms that will be supported through this project include: (i) strengthening existing institutions and functions of corporate financial reporting (CFR); (ii) capacity building of the judicial system; (iii) capacity building of the accounting profession and (iv) ensuring a wider public awareness of the fundamental importance of having the highest standards of financial reporting in Albania. Project components are: (i) Strengthening Standards Setting, Oversight and Examinations; (ii) Research & Development and Public Awareness; (iii) Financial accountability, controls and transparency in State-owned Enterprises; (iv) Strengthening accountancy profession and building capacity in the judicial system; and (v) Project management, strengthening reform capacity, and monitoring and evaluation. At this stage, there are no identified direct or indirect environmental or social impacts of the project activities. The team will communicate to the Borrower that any subsequent activities that may stem from this Project would be prepared in line with the World Bank Environmental and Social Framework and this will be reflected in the TORs for Public Disclosure all such activities, if any. If any unintended environmental and social adverse impacts will arise as a result of changes/reforms in institutional, regulatory, judicial and financial systems the project will recommend measures as needed to manage any negative impacts. ESS10 Stakeholder Engagement and Information Disclosure The project involves a number of Stakeholders, and it is important to build a wider support among all stakeholders and beneficiaries, establish clear communication and foster strong relationship with representatives of various government institutions and entities, and encourage ownership and information sharing with a wider public. It is necessary to understand the impact and opportunities the CFR reform will create for the general public and to advance public awareness and understanding of corporate financial reporting system as well as create equitable opportunities accessible to vulnerable and disadvantaged groups, as per ESS10. Key Stakeholders: MoFE and NSC Staff will be responsible for project coordination, project management and overall project oversight (supervision, research, financial education, public relations and human recourses, procurement and financial management), including stakeholder engagement and grievance redress. The General Directorate of Financing and Contracting together with MOFE will be responsible for fiduciary aspects of the trust fund management, including procurement and financial management. Other Affected Stakeholders include: Ministry of Energy and Infrastructure (MoEI), National Accounting Council, Apr 08, 2021 Page 5 of 8 The World Bank Albania Strengthening Quality of Auditing and Reporting Project (P176084) Public Oversight Board, professional associations, Bank of Albania, Financial Supervision Authority, State-Owned Enterprises (SOEs), Judiciary Institutions, the Examination Commission, Universities, business enterprises. The engagement among Stakeholders will be organized throughout implementation of the Project by conducting technical meetings, training activities, workshops, regular reports and regular communication efforts. A preliminary Stakeholder Engagement Plan (SEP) has been prepared for the project. It sets out the key stakeholders and consultation activities, as well as the process and modalities for sharing information on the project activities, incorporating stakeholder feedback into the Project, and reporting and disclosure of project documents. Project preparation has included a detailed mapping of the stakeholders. The SEP also outlines the project’s Grievance Redress Mechanism (GRM) which will enable stakeholders to raise project related concerns and grievances. The GRM will include adequately trained staff with GRM responsibilities, community awareness tools, and investigation and feedback processes. The final SEP (and GRM) will be shared with relevant stakeholders via culturally appropriate means. A dedicated hotline and email will be established for grievances and feedback. The GRM will be managed by a staff member in MoFE. B.2. Specific Risks and Impacts A brief description of the potential environmental and social risks and impacts relevant to the Project. Public Disclosure ESS2 Labor and Working Conditions ESS2 is relevant for this project. Project Work force will include direct workers: Project Implementation Unit and other government agencies staff. Contracted workers will include local and international consultants hired by the PIU. An LMP has been prepared by the borrower outlining the expected number and type of workers and work monitoring and supervision arrangements. All workers will have access to GRM designed to address workers’ complaints and grievances. The project shall be carried out in accordance with the applicable requirements of ESS2, in a manner acceptable to the World Bank. MoFE will manage the implementation of the LMP. ESS3 Resource Efficiency and Pollution Prevention and Management Although there are no activities that could be linked to this standard, there is a capacity building activity aimed at the project beneficiaries staff to handle technologically driven development. New technologies often call for improved resource use efficiency and more stringent environmental mitigation measures. As such, depending on the scope of the capacity building for project beneficiaries staff, part of the training could include a session on resource efficiency and the environmental aspects of new technologies. ESS4 Community Health and Safety The project will implement adequate occupational health and safety measures (including emergency preparedness Apr 08, 2021 Page 6 of 8 The World Bank Albania Strengthening Quality of Auditing and Reporting Project (P176084) and response measures), setting out grievance arrangements for project workers. The Code of Conduct as part of the LMP will be prepared for governing the conduct of all workers to ensure health and safety and prevent Sexual Exploitation and Abuse/Sexual Harassment (SEA/SH). ESS5 Land Acquisition, Restrictions on Land Use and Involuntary Resettlement The project is not undertaking any land acquisition leading to economic or physical displacement. This standard is not relevant. ESS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources The project does not affect or involve biodiversity conservation or sustainable management of living resources. ESS7 Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Communities There are no Indigenous Peoples, as defined by ESS 7, in the project area. ESS8 Cultural Heritage Public Disclosure The project is not undertaking activities related to or having impacts on cultural heritage. ESS9 Financial Intermediaries This is not a FI project. B.3 Other Relevant Project Risks None identified. C. Legal Operational Policies that Apply OP 7.50 Projects on International Waterways No OP 7.60 Projects in Disputed Areas No B.3. Reliance on Borrower’s policy, legal and institutional framework, relevant to the Project risks and impacts Is this project being prepared for use of Borrower Framework? No Apr 08, 2021 Page 7 of 8 The World Bank Albania Strengthening Quality of Auditing and Reporting Project (P176084) Areas where “Use of Borrower Framework” is being considered: None IV. CONTACT POINTS World Bank Contact: Andrei Busuioc Title: Senior Financial Management Specialist Telephone No: 5775+271 / 7-727-3778271 Email: abusuioc1@worldbank.org Contact: Garik Sergeyan Title: Senior Financial Management Specialist Telephone No: 5258+271 / 7-727-377-8271 Email: gsergeyan@worldbank.org Borrower/Client/Recipient Borrower: Republic of Albania Implementing Agency(ies) Implementing Agency: Ministry of Finance and Economy Public Disclosure V. FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects VI. APPROVAL Task Team Leader(s): Andrei Busuioc, Garik Sergeyan Practice Manager (ENR/Social) Anne Olufunke Asaolu Cleared on 02-Mar-2021 at 10:13:42 GMT-05:00 Apr 08, 2021 Page 8 of 8