Gaza Water Supply and Sewage Systems Improvement Project (GWSSSIP) Funded by the World Bank (WB) and the Islamic Development Bank (IDB) Implemented by the Palestinian Water Authority (PWA) and Coastal Municipalities Water Utility (CMWU) Financial Statements and Independent Auditor’s Report for the Year Ended December 31, 2016 Talal Abu Ghazaleh & Co. "Certified Public Accountants" Gaza Water Supply and Sewage Systems Improvement Project (GWSSSIP) Funded by the World Bank (WB) and the Islamic Development Bank (IDB) Implemented by the Palestinian Water Authority (PWA) and Coastal Municipalities Water Utility (CMWU) Table of Contents Page Exhibit Independent Auditor’s Report 1-3 - Statement of Financial Position as of December 31, 2016 4 (A) Statement of Receipts and Disbursements from the Year Ended 5 (B) December 31, 2016 Statement of Designated Bank Account for the Year Ended 6 (C) December 31, 2016 Notes to the Financial Statements 7-21 - Independent Auditor's Report HE. Dr. Shokri Bushara Minister of Finance Ramallah - Palestine Report on the Audit of the Financial Statements Adverse Opinion We have audited the financial statements of “Gaza Water Supply and Sewage Systems Improvement Project (GWSSSIP) – TF (103564), (018248) and (018268)” Implemented by Palestinian Water Authority (PWA) and Coastal Municipalities Water Utility (CMWU) and funded by the World Bank (WB) and the Islamic Development Bank (IDB) – Pages 4 to 21, which comprise the statement of financial position as of December 31, 2016, and statement of receipts and disbursements and statement of designated bank account for the year then ended and notes to the financial statements, including a summary of significant accounting policies. In our opinion, because of the effects of the matters discussed in the following paragraph, the financial statement do not present fairly, the financial position of “Gaza Water Supply and Sewage Systems Improvement Project (GWSSSIP) – TF (103564), (018248) and (018268)” as of December 31, 2016, and its financial performance for the year then ended in accordance with International Financial Reporting Standards (IFRS). Basis for Adverse Opinion 1. We did not receive direct confirmation letter from Islamic Development Bank to confirm the amounts transferred during the year and other financial information. 2. As explained in note number (8) and World Bank notification dated January 30, 2017 for cancellation of funds of USD (989,470.91) by the world bank due to mis-procurements of goods and works and refund request of ineligible expenditures USD 37,495. The said cancellation or refund requests were not reflected in the current financial statements, which we believe it should be affected and revised. 3. During the audit, many findings related to substantial weaknesses in internal control were noted and reported to the management; it was concluded that the project management has not maintained sufficient internal control procedures and the current control procedure needs strengthening. 4. Physical inventory for the project’s materials was not conducted periodically to be matched with materials balances in the computerized accounting systems. 5. As explained in note number (8), from the samples reviewed during the audit the project’s payment included some payments (USD 755,207.36) for items were not in compliance with the grant contract in addition to other noncompliance issues with grant contract this amount were included in point No. 2 above. We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. 1 We are independent of the project in accordance with the Code of Ethics for Professional Accountants registered under Board of Auditing Profession, which are in conformity with the code of ethics of accountants registered under Palestinian Association of Certified Public Accountants, in line with the ethical requirements related to our audit of the financial statements in Palestine, and we have fulfilled our other ethical responsibilities in accordance with those requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters “KAM” Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Other information Management is responsible for the other information. The other information comprises the management report and the audit committee, which we have obtained before the date of the auditor’s report and which expected to be available to us after that date. Other information does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance or conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, we consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard. As described in the basis of adverse opinion paragraph above which indicates that there are material expenditures were considered ineligible and resulted in material cancellation and refund request, based on the effect of the cancellation and the refund and the other information on the current financial statements were considered as the basis for the adverse opinion Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs 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 related to going concern and using the going concern basis of accounting unless management either intends to liquidate the project or to cease operations, or have no realistic alternative but to do so. Management is responsible for overseeing the project’s financial reporting process. 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. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 2 - 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 auditor’s report to the related disclosures in the 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 auditor’s 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 management 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. Report on Other Requirements. Because of the effects of the preceding, paragraph (Basis of our Adverse Opinion) we provide an opinion on other compliance requirements. In our opinion, - With respect to SOEs, adequate original supporting documentations have not been maintained to support claims to the World Bank for reimbursements of expenditures incurred and some of those expenditures were not eligible for financing under the agreement. - Internal controls involved in the preparation of the SOEs cannot be relied upon to support the related withdrawals. - The procurement guidelines of the World Bank have not been properly applied in accordance with the Project's Grant Agreement. The engagement partner on the audit resulting in this independent auditor’s report is the Executive Director, Jamal Milhem. Talal Abu – Ghazaleh & Co. License No. 251/1997 Jamal Milhem, CPA Certified Accountant License # (100/98) Ramallah, on May 1, 2017 3 Gaza Water Supply and Sewage Systems Improvement Project (GWSSSIP) TF 013564, TF 018248 and TF 018268 Funded by the World Bank (WB) and Islamic Development Bank (IDB) Statement of Financial Position as of December 31, 2016 Exhibit (A) (Amounts are expressed in USD) December 31, 2016 December 31, 2015 Islamic Islamic Development World Development Notes World Bank Bank Total Bank Bank Total Assets Cash and Cash Equivalents 4 1,083,492 170,649 1,254,141 994,523 200,000 1,194,523 Total Assets 1,083,492 170,649 1,254,141 994,523 200,000 1,194,523 Net Assets Net Assets – Exhibit (B) 1,083,492 170,649 1,254,141 994,523 200,000 1,194,523 Total Net Assets – Exhibit (B) 1,083,492 170,649 1,254,141 994,523 200,000 1,194,523 “The accompanying notes constitute an integral part of these financial statements” 4 Gaza Water Supply and Sewage Systems Improvement Project (GWSSSIP) TF 013564, TF 018248 and TF 018268 Funded by the World Bank (WB) and Islamic Development Bank (IDB) Statement of Receipts and Disbursements for the Year Ended December 31, 2016 Exhibit (B) (Amounts are expressed in USD) World Bank (WB) Islamic Development Bank (IDB) From From January 1, January 1, Up to 2016 to Up to Up to 2016 to Up to December December December December December December Note 31, 2015 31, 2016 31, 2016 31, 2015 31, 2016 31, 2016 Receipts Transfers from Donors to Designated Account 5 8,371,968 3,584,964 11,956,932 10,593,417 117,405 10,710,822 Direct Payments --- 914,555 914,555 546,346 1,950,379 2,496,725 Total Receipts 8,371,968 4,499,519 12,871,487 11,139,763 2,067,784 13,207,547 Disbursements Component (1) Improving Water Supply and Wastewater Facilities 3,670,115 2,654,004 6,324,119 7,055,092 836,001 7,891,093 Component (2) CMWU Capacity Building & Operational Support 569,834 1,013,046 1,582,880 3,481,820 1,261,134 4,742,954 Component (3) Project Management, Monitoring & Evaluation 3,137,496 742,923 3,880,419 402,469 --- 402,469 Total Disbursements 6 7,377,445 4,409,973 11,787,418 10,939,381 2,097,135 13,036,516 Change in Net Assets during the Year 994,523 89,546 1,084,069 200,382 (29,351) 171,031 Net Assets, Beginning of the Year – Exhibit (A) --- 994,523 --- --- 200,382 --- Adjustments --- (577) (577) (382) (382) (382) Net Assets, End of the Year – Exhibit (B) 994,523 1,083,492 1,083,492 200,000 170,649 170,649 “The accompanying notes constitute an integral part of these financial statements” 5 Gaza Water Supply and Sewage Systems Improvement Project (GWSSSIP) TF 013564, TF 018248 and TF 018268 Funded by the World Bank (WB) and Islamic Development Bank (IDB) Statement of Designated Bank Account for the Year Ended December 31, 2016 Exhibit (C) (Amounts are expressed in USD) Islamic Development Bank World Bank (WB) (IDB) Total Total Note TF013564 TF018248 TF018268 2016 2015 2016 2015 Cash Balance, Beginning of the Year 463,160 22,314 509,049 994,523 284,567 200,000 61,250 Cash Receipts during 2016 – DAs 5.1 64,903 800,452 2,719,609 3,584,964 4,025,577 117,405 543,829 Total Cash Receipt 528,063 822,766 3,228,658 4,579,487 4,310,144 317,405 605,079 Cash Disbursements during 2016 – DAs (293,183) (593,743) (2,608,492) (3,495,418) (3,315,621) (146,756) (405,079) Adjustments (577) --- --- (577) --- --- --- Cash Balance, End of the Year 4 234,303 229,023 620,166 1,083,492 994,523 170,649 200,000 “The accompanying notes constitute an integral part of these financial statements” 6 Gaza Water Supply and Sewage Systems Improvement Project (GWSSSIP) TF 013564, TF 018248 and TF 018268 Funded by the World Bank (WB) and Islamic Development Bank (IDB) Notes to the Financial Statements (Amounts are expressed in USD) 1. Coastal Municipalities Water Utility (CMWU) Coastal Municipalities Water Utility (CMWU) is a public utility established on October 30, 2000 pursuant to the Palestinian Authorities’ Local Government Law No (1) for the Year 1997 to consolidate the existing small municipal water departments into a service delivery unit. CMWU’s Vision CMWU’s vision is to be the leading national institution in the provision of water and sanitation services. CMWU’s Mission CMWU’s mission is to provide the Gaza Strip residents with integrated, distinct, and environmentally safe water and sanitation services through the optimal utilization of available resources and creative solutions. CMWU’s Goals CMWU is aiming at:  Developing and conserving water resources in cooperation with Palestinian Water Authority.  Disinfection of water from source to consumer including water network.  Extending the water supply services to all Gaza Strip inhabitants.  Covering all costs of operation, maintenance and development by improving the billing system Cost Recovery.  Improve wastewater and storms water collection and treatment according to the Palestinian standards for Re – use. 2. Project Background The Palestinian Liberation Organization (PLO) for the benefit of the Palestinian Authority has received grants from the World Bank in the amount of US$ 18.1 million, and the Coastal Municipalities Water Utility (CMWU) as an implementation unit under the Palestinian Water Authority (PWA) has received a grant from the Islamic Development Bank (IDB) in the amount of US$ 17.76 million in parallel, toward the costs of the Gaza Water Supply and Sewage Systems Improvement Project (the Project). The Palestinian Water Authority (PWA) is the responsible body for the implementation, monitoring and evaluation of the Project. The Project Management Unit (PMU) of PWA and CMWU have the responsibility for managing all procurement and financial issues related to the Project. The Project aims to improve the water supply and wastewater facilities including, water supply network rehabilitation and reconfiguration, rehabilitation of water wells, service water meters replacement and district meters installation, upgrading and maintenance of wastewater pumping stations and utility capacity building and operational support. 7 The Project consists of the following parts: Part A: Improving water supply and wastewater facilities. Part B: CMWU capacity building and operational support. Part C: Project management, monitoring and evaluation. 3. Basis of Accounting - The statement of receipts and disbursements was prepared on the cash basis of accounting, according to the cash basis, revenues/funds are recognized when received and disbursements are recognized when paid. - The Financial statements are presented in USD. 4. Cash and Cash Equivalents Cash and cash equivalents, as of December 31, 2016 and 2015 comprise of the following: December 31, 2016 2015 Bank of Palestine – A/C # 2210401 – USD – WB TF013564 234,303 463,160 Bank of Palestine – A/C # 2216755 – USD – WB TF018248 229,023 22,314 Bank of Palestine – A/C # 2216876 – USD – WB TF018268 620,166 509,049 Sub-Total 1,083,492 994,523 Bank of Palestine – A/C # 223900 – USD – IDB 170,649 200,000 Total - Exhibit (A) 1,254,141 1,194,523 8 5. Transfers from Donors World Bank Islamic (WB) Development Bank (IDB) Total – Exhibit (B) 12,871,487 13,207,547 5.1 Designated Account DAs Date TF013564 TF018248 TF018268 Total Replenishment (25) November 11, 2016 64,903 --- --- 64,903 Replenishment (4) March 3, 2016 --- --- 492,473 492,473 Replenishment (5) April 26, 2016 --- --- 407,649 407,649 Replenishment (6) August 1, 2016 --- --- 350,296 350,296 Replenishment (7) September 22, 2016 --- --- 501,631 501,631 Replenishment (8) November 23, 2016 --- --- 522,409 522,409 Replenishment (11) December 20, 2016 --- --- 445,151 445,151 Replenishment (4) March 23, 2016 --- 184,523 --- 184,523 Replenishment (5) April 26, 2016 --- 93,159 --- 93,159 Replenishment (7) August 3, 2016 --- 260,331 --- 260,331 Replenishment (10) November 22, 2016 --- 262,439 --- 262,439 Total Cash Receipt to Designated Account 64,903 800,452 2,719,609 3,584,964 During 2016 5.2 Direct Payment Date TF013564 TF018248 TF018268 Total Replenishment (6) June 15, 2016 --- 309,336 --- 309,336 Direct Replenishment (8) June 15, 2016 --- 121,448 --- 121,448 Direct Replenishment (9) September 29, 2016 --- --- 70,128 70,128 Direct Replenishment (9) August 9, 2016 --- 121,629 --- 121,629 Direct Replenishment (10) September 29, 2016 --- --- 92,510 92,510 Direct Replenishment (11) September 9, 2016 --- 123,864 --- 123,864 Direct Replenishment (12) October 9, 2016 --- 75,640 --- 75,640 Direct Total Direct Payments During 2016 --- 751,917 162,638 914,555 Total Transfers During 2016 64,903 1,552,369 2,882,247 4,499,519 Transfers Up to December 31, 2015 6,335,097 520,430 1,516,441 8,371,968 Total Transfers Up to December 31, 2016 6,400,000 2,072,799 4,398,688 12,871,487 Note (5) 9 5.2 Islamic Development Bank (IDB) Date USD IDB GCC-10-06 July 14, 2016 64,205 IDB GCC-10-06 November 24, 2016 53,200 Total Transfers During 2016 117,405 Direct Payments - IsDB GCC-07-17/A 836,001 Direct Payments – IsDB KDF-06 1,114,378 Total Direct Payments During 2016 1,950,379 Total Receipt During 2016 2,067,784 Transfers Up to December 31, 2015 11,139,763 Grand Total - Note (5) 13,207,547 10 6. Disbursements of TF013564, TF018248 &TF018268 World Bank (WB) Islamic Development Bank From From Cumulative Cumulative Cumulative Cumulative January 1, January 1, Up to Up to Up to Up to 2016 to 2016 to December 31, December December December 31, December December 31, 2015 31, 2016 31, 2015 2016 31, 2016 2016 1. Improving Water Supply and Wastewater Facilities 1.1 Civil Works Water Supply Network Rehabilitation and Reconfiguration 933,912 1,000,996 1,934,908 5,266,083 836,001 6,102,084 Rehabilitation of Water Wells 998,003 183,235 1,181,238 1,095,729 --- 1,095,729 Service Water Meter Replacement and Installation of District Meters 132,737 --- 132,737 693,280 --- 693,280 Upgrading and Maintenance of Wastewater Pumping Stations 1,186,394 1,177,278 2,363,672 --- --- --- 1.2 Goods Water Supply Rehabilitation and Reconfiguration 372,519 90,332 462,851 --- --- --- Rehabilitation of Water Wells 46,550 17,400 63,950 --- --- --- Upgrading and Maintenance of Wastewater Pumping Stations --- 184,763 184,763 Sub-Total – Note (6.1, 6.2, 6.3) 3,670,115 2,654,004 6,324,119 7,055,092 836,001 7,891,093 2. CMWU Capacity Building and Operational Support 2.1 Civil Work Construction of Utility Central Facilities --- --- --- 2,465,520 1,114,378 3,579,898 Operational Assistance of CMWU 139,096 384,975 524,071 --- --- --- 2.2 Goods Construction of Utility Central Facilities 120,548 39,900 160,448 --- --- --- Technical Assistance for CMWU 4,988 --- 4,988 1,016,300 50,186 1,066,486 Operational Assistance for CMWU 108,234 278,428 386,662 --- --- --- 2.3 Consultancy Services Construction of Utility Central Facilities 80,801 --- 80,801 --- --- --- Technical Assistance for CMWU 116,167 309,743 425,910 --- 96,570 96,570 Sub-Total - Note (6.1, 6.2, 6.3) 569,834 1,013,046 1,582,880 3,481,820 1,261,134 4,742,954 3. Project Management Monitoring and Evaluation 3.1 An External Monitoring and Evaluating Expert 19,720 --- 19,720 --- --- --- 3.1 An External Audit --- 7,830 7,830 3.3 PMU’s Incremental Costs 3,117,776 735,093 3,852,869 402,469 --- 402,469 Sub-Total - Note (6.1, 6.2, 6.3) 3,137,496 742,923 3,880,419 402,469 --- 402,469 Total – Exhibit (B) 7,377,445 4,409,973 11,787,418 10,939,381 2,097,135 13,036,516 11 6.1 Disbursements of TF 013564 World Bank (WB) From Cumulative Cumulative January 1, Up to Up to 2016 to December 31, December December 2015 31, 2016 31, 2016 1. Improving Water Supply and Wastewater Facilities 1.1 Civil Works Water Supply Network Rehabilitation and Reconfiguration 517,792 160,475 678,267 Rehabilitation of Water Wells 772,266 --- 772,266 Service Water Meter Replacement and Installation of District 132,737 --- 132,737 Meters Upgrading and Maintenance of Wastewater Pumping Stations 728,097 --- 728,097 1.2 Goods Water Supply Rehabilitation and Reconfiguration 372,519 --- 372,519 Rehabilitation of Water Wells 46,550 17,400 63,950 Sub-Total 2,569,961 177,875 2,747,836 2. CMWU Capacity Building and Operational Support 2.2 Goods Construction of Utility Central Facilities 120,548 39,900 160,448 Technical Assistance for CMWU 4,988 --- 4,988 Operational Assistance for CMWU 108,234 --- 108,234 2.3 Consultancy Services Construction of Utility Central Facilities 80,801 --- 80,801 Technical Assistance for CMWU 4,987 7,192 12,179 Sub-Total 319,558 47,092 366,650 3. Project Management Monitoring and Evaluation 3.1 An External Monitoring and Evaluating Expert 19,720 --- 19,720 3.3 PMU’s Incremental Costs 2,962,698 68,216 3,030,914 Sub-Total 2,982,418 68,216 3,050,634 Total – Note (6) 5,871,937 293,183 6,165,120 12 6.2 Disbursements of TF 018248 Cumulative From January Cumulative Up to 1, 2016 to Up to December 31, December 31, December 2015 2016 31, 2016 1. Improving Water Supply and Wastewater Facilities 1.1 Civil Works Water Supply Network Rehabilitation and Reconfiguration 107,061 384,730 491,791 Rehabilitation of Water Wells 225,737 183,235 408,972 Upgrading and Maintenance of Wastewater Pumping 26,062 241,794 267,856 Stations Sub-Total 358,860 809,759 1,168,619 2. CMWU Capacity Building and Operational Support 2.1 Civil Work Operational Assistance for CMWU 139,096 384,975 524,071 2.3 Consultancy Services Technical Assistance for CMWU --- 142,880 142,880 Sub-Total 139,096 527,855 666,951 3. Project Management Monitoring and Evaluation 3.2 An External Audit --- 7,830 7,830 3.3 PMU’s Incremental Costs 160 216 376 Sub-Total 160 8,046 8,206 Total – Note (6) 498,116 1,345,660 1,843,776 13 6.3 Disbursements of TF 018268 World Bank (WB) Cumulative From January Cumulative Up to 1, 2016 to Up to December December 31, December 31, 31, 2015 2016 2016 1. Improving Water Supply and Wastewater Facilities 1.1 Civil Works Water Supply Network Rehabilitation and Reconfiguration 309,059 455,791 764,850 Upgrading and Maintenance of Wastewater Pumping 432,235 935,484 1,367,719 Stations 1.2 Goods Water Supply Network Rehabilitation and Reconfiguration --- 90,332 90,332 Upgrading and Maintenance of Wastewater Pumping --- 184,763 184,763 Stations Sub-Total 741,294 1,666,370 2,407,664 2. CMWU Capacity Building and Operational Support 2.2 Goods Operational Assistance for CMWU --- 278,428 278,428 2.3 Consultancy Services Technical Assistance for CMWU --- Utility Capacity 111,180 159,671 270,851 Building and Operational Support & CMWU Recurrent Costs(Technical Assistance for CMWU) Sub-Total 111,180 438,099 549,279 3. Project Management Monitoring and Evaluation 3.3 PMU’s Incremental Costs 154,918 666,661 821,579 Sub-Total 154,918 666,661 821,579 Total – Note (6) 1,007,392 2,771,130 3,778,522 7. Special Bank Account (World Bank) TF013564 TF018248 TF018268 Balance Per Bank Statement as at December 31, 2016 234,303 229,023 620,166 Balance Per Bank Statement as at December 31, 2016 234,303 229,023 620,166 Add: Amount Claimed by Not Yet Replenished 31,108 70,977 379,834 265,411 300,000 1,000,000 14 7.1 Reconciliation Between Client Connection and IFRS Figures as of December 31, 2016 TF 013564 Client connection Figures Amount Advanced Less Recovered 266,032.00 Add: Client connection balance by category 6,133,968.00 Cat.1- Works, Goods, consultants' services, including audit 2,568,469.00 Cat.2- Goods, consultants' services, including audit 544,820.00 Cat.3- Operating Costs 3,020,679.00 Total Client Connection Figures 6,400,000.00 IFR Figures Cash at Bank 234,303.00 Main Account in USD 234,303.00 Sub- account in ILS - Add: Disbursements 6,165,120.00 Cat.1- Works, Goods, consultants' services, including audit 2,747,836.00 Cat.2- Goods, consultants' services, including audit 366,650.00 Cat.3- Operating Costs 3,050,634.00 Amount not yet credit - Less: Increase in Reimbursable& Retroactive Financing 577.00 Less: Increase Account Payable - Add losses/ Less Gaines on ILS sub account DA/SA - Total IFR Figures 6,400,000.00 15 7.2 Reconciliation Between Client Connection and IFRS Figures as of December 31, 2016 TF 018248 Client connection Figures Amount Advanced Less Recovered 300,000.00 Add: Client connection balance by category 1,772,799.37 Cat.1- Works, Goods, consultants' services, including audit 1,097,697.12 Cat.2- Goods, consultants' services, including audit 666,952.25 Cat.3- Operating Costs 8,150.00 Total Client Connection Figures 2,072,799.37 IFR Figures Cash at Bank 229,022.61 Main Account in USD 229,022.61 Sub- account in ILS - Add: Disbursements 1,843,772.76 Cat.1- Works, Goods, consultants' services, including audit 1,168,618.51 Cat.2- Goods, consultants' services, including audit 666,952.25 Cat.3- Operating Costs 8,202.00 Amount not yet credit - Less: Increase in Reimbursable& Retroactive Financing - Less: Increase Account Payable - Add losses/ Less Gaines on ILS sub account DA/SA - Total IFR Figures 2,072,795.37 * The difference between client connection figures and total IFR figures is (4.00 USD). 16 7.3 Reconciliation Between Client Connection and IFRS Figures as of December 31, 2016 TF 018268 Client connection Figures Amount Advanced Less Recovered 1,000,000.00 Add: Client connection balance by category 3,398,689.00 Cat.1- Works, Goods, consultants' services, including audit 3,398,689.00 Cat.2- Goods, consultants' services, including audit - Cat.3- Operating Costs - Total Client Connection Figures 4,398,689.00 IFR Figures Cash at Bank 620,166.00 Main Account in USD 620,166.00 Sub- account in ILS - Add: Disbursements 3,778,515.00 Cat.1- Works, Goods, consultants' services, including audit 2,407,664.00 Cat.2- Goods, consultants' services, including audit 549,279.00 Cat.3- Operating Costs 821,572.00 Amount not yet credit - Less: Increase in Reimbursable& Retroactive Financing - Less: Increase Account Payable - Add losses/ Less Gaines on ILS sub account DA/SA - Total IFR Figures 4,398,681.00 * The difference between client connection figures and total IFR figures is (8.00 USD). 17 8. Grant Contract a- Cancellation and refund request notification information a.1 On January 30, 2017, a notification letter was received from the World Bank related to declaration of mis-procurement, cancellation of funds and refund of ineligible expenditures for the Trust fund, grant agreements water supply and sewage system improvement project (TF018248 &TF 018268). According to the procurement post review (PPR) report of the World Bank ten contracts awarded under the project revealed a number of deviations in the procurement and implementation of the reviewed contracts. In noncompliance to the bank procurement guidelines, it was found mis-procurement of goods and works for USD 989,470.91 based on the value of these contracts; the amount of USD 848,070.91 will be cancelled from the proceeds of TF 018248 and the amount of USD 141,400 from the proceeds of TF018268. The following contracts were not awarded in accordance with the procedures set forth in section III, schedule 2, of the grant agreements. Contract description Contract amount (USD) Source of financing Repair & rehabilitation of water tank and booster stations in middle and southern area- package 1 323,999.06 TF 018248 Rehabilitation the administration and operation buildings of the CMWU besides CMWU warehouse 524,071.85 TF 018248 Subtotal 848,070.91 Procurement of well-equipped two leakage detection vehicles 141,400.00 TF 018268 Total 989,470.91  The total disbursed amount of (USD 848,070.91) against the two contracts must be refunded to the World Bank and will be cancelled from the grants.  In addition, the procurement post reviews (PPR) and the Procurement of well- equipped two-leakage detection vehicles amounting USD 141,400 will be cancelled from the grant. a.2 Accordingly, disbursed amount equivalent to these ineligible expenditures (USD 37,495) must be refunded to the World Bank. Amount Source of Equivalent to Contract description Financing Ineligible expenditures Ineligible Expenditures (USD) Supply to CMWU wooden TF 018268 Multiple items 21,495 furniture Construction of warehouse in TF 018268 Items 6 of the contract 16,000 Khanyounis 37,495 18 b- The effect of the cancellation and the refund on the current financial statements The effect of the above on the current financial statements will be as the following:  The effect on the Statement of Receipts and Disbursements for the Year Ended December 31, 2016 World Bank (WB) Islamic Development Bank (IDB) Adjustment From January Up to Up to Up to According to Revised 1, 2016 to December 31, December 31, December 31, World Bank Amounts December 31, 2016 2015 2016) Notification 2016 Receipts Transfers from Donors 11,956,932 --- 11,956,932 10,593,417 117,405 10,710,822 Direct Payments 914,555 --- 914,555 546,346 1,950,379 2,496,725 Total Receipts 12,871,487 --- 12,871,487 11,139,763 2,067,784 13,207,547 Disbursements Component (1) Improving Water Supply and Wastewater Facilities 6,324,119 (361,494) 5,962,625 7,055,092 836,001 7,891,093 Component (2) CMWU Capacity Building & Operational Support 1,582,880 (524,071) 1,058,809 3,481,820 1,261,134 4,742,954 Component (3) Project Management, Monitoring & Evaluation 3,880,419 --- 3,880,419 402,469 --- 402,469 Total Disbursements 11,787,418 (885,565) 10,901,853 10,939,381 2,097,135 13,036,516 Change in Net Assets During the Year 1,084,069 885,565 1,969,634 200,382 (29,351) 171,031 Net Assets, Beginning of the Year – Exhibit (A) --- --- --- --- 200,382 --- Adjustment an Beginning of the Year (577) --- (577) (382) (382) (382) Net Assets, End of the Year – Exhibit (B) 1,083,492 885,565 1,969,057 200,000 170,649 170,649 19  Effect on note number 6-1 Disbursements of TF 018248 World Bank (WB) Adjustment Up to According to Revised December 31, World Bank Amounts 2016 Notification 1. Improving Water Supply and Wastewater Facilities 1.1 Civil Works Water Supply Network Rehabilitation and Reconfiguration 491,791 (339,999) 151,792 Rehabilitation of Water Wells 408,972 ‫ــــ‬ 408,972 Upgrading and Maintenance of Wastewater Pumping Stations 267,856 ‫ــــ‬ 267,856 Sub-Total 1,168,619 (339,999) 828,620 2. CMWU Capacity Building and Operational Support 2.1 Civil Work Operational Assistance for CMWU 524,071 (524,071)* ‫ــــ‬ 2.3 Consultancy Services Technical Assistance for CMWU 142,880 ‫ــــ‬ 142,880 Sub-Total 666,951 (524,071) 142,880 3. Project Management Monitoring and Evaluation 3.2 An External Audit 7,830 ‫ــــ‬ 7,830 3.3 PMU’s Incremental Costs 376 ‫ــــ‬ 376 Sub-Total 8,206 ‫ــــ‬ 8,206 Total – Note (6) 1,843,776 (864,070) 979,706 * Adjustment According to World Bank Notification (524,071 USD) Consist of: 2015 139,096 2016 384,975 Total 524,071 20  Effect on note number 6-2 Disbursements of TF 018268 World Bank (WB) Adjustment Up to According to Revised December 31, World Bank Amounts 2016 Notification 1. Improving Water Supply and Wastewater Facilities 1.1 Civil Works Water Supply Network Rehabilitation and Reconfiguration 764,850 ‫ــــ‬ 764,850 Upgrading and Maintenance of Wastewater Pumping Stations 1,367,719 (21,495) 1,346,224 2,132,569 (21,495) 2,111,074 1.2 Goods Water Supply Network Rehabilitation and Reconfiguration 90,332 ‫ــــ‬ 90,332 Upgrading and Maintenance of Wastewater Pumping Stations 184,763 ‫ــــ‬ 184,763 275,095 ‫ــــ‬ 275,095 Sub-Total 2,407,664 (21,495) 2,386,169 2. CMWU Capacity Building and Operational Support 2.2 Goods Operational Assistance for CMWU 278,428 ‫ــــ‬ 278,428 2.3 Consultancy Services Technical Assistance for CMWU ‫ ـــ‬Utility Capacity Building and Operational 270,851 ‫ــــ‬ 270,851 Support & CMWU Recurrent Costs (Technical Assistance for CMWU) Sub-Total 549,279 ‫ــــ‬ 549,279 3. Project Management Monitoring and Evaluation 3.3 PMU’s Incremental Costs 821,579 ‫ــــ‬ 821,579 Sub-Total 821,579 ‫ــــ‬ 821,579 Total – Note (6) 3,778,522 (21,495) 3,757,027 21