Financial Statement and Independent Auditor's Report Social Fund for Development International Development Association (IDA) IDA Grant No. (TF 016529/ H 924 - RY) December 31, 2016 Social Fund for Development, IDA Grant No. (TF 016529/ H 924 - RY) Contents Page INDEPENDENT AUDITOR'S REPORT...........................................................................................0 STATEMENT OF SOURCES AND USES OF FUNDS...................................................................... 1 NOTES TO THE FINANCIAL STATEMENT ..................................................................................2 Independent Auditor's Report To: The Chairman and Board of Directors of Social Fund for Development Audit .Tax . Advisory Sana'a - Republic of Yemen Grant Thornton Yemen Algeria St. Sana'a - Republic of Yemen P.O. Box: 18045 Tel. + 967 1 465 024 / 5 Fax. + 967 1 465 026 www.gtyemen.com Opinion We have audited the statement of sources and uses of funds of the Social Fund for Development (SFD) relating to International Development Association (IDA) Grant No. (TF 016529/ H 924 - RY) for the year ended December 31, 2016, and notes to the financial statement (1-6), including a summary of significant accounting policies together “the financial statement”. In our opinion, the accompanying financial statement presents fairly, in all material respects, the fund balance of Social Fund for Development (SFD) relating to International Development Association (IDA) Grant No. (TF 016529/ H 924 - RY) as at December 31, 2016 and the sources and uses of funds for the year then ended in accordance with the cash receipts and disbursements basis of accounting described in note (2). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statement section of our report. We are independent of the SFD in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statement, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidences we have obtained are sufficient and appropriate to provide a basis for our audit opinion. Emphasis of Matter - Basis of Accounting and Restriction on Distribution and Use We draw attention to Note (2) to the financial statement, which describe the basis of accounting. The financial statement is prepared to provide information to the Social Fund for Development (SFD) relating to International Development Association (IDA) Grant No. (TF 016529/ H 924 - RY). As a result, the financial statement may not be suitable for another purpose. Our opinion is not modified in respect of this matter. Our report is intended solely for SFD and International Development Association (IDA) and should not be distributed to or used by other parties. Chartered Accountants & Consultants License No. 742 Member of Grant Thornton International Social Fund for Development, IDA Grant No. (TF 016529/ H 924 - RY) Notes to the Financial Statement For the year ended December 31, 2016 1. Background information The Social Fund for Development (SFD) is established under Yemeni Law No. (10) Of 1997. The SFD operates in the Republic of Yemen through its head office in Sana’a and nine branches in governorates of Aden, Hodeida, Mukalla, Taiz, Ibb, Amran, Dhamar, Sana’a and Hajja. SFD receives funds through loans, donations, subsidies and grants obtained from Yemeni and international governments, local and international agencies and financial institutions. The main objectives of SFD to contribute efficiently in the execution of government social and economic plans and programs through the empowerment of families, small projects, poor and low income people to get work and production opportunities through providing loans, facilities and services to help them implementing services or productivity projects. As well as the restraint of unemployment, fight against poverty and mitigate the side effects caused by the government's economic redemption programs on low- income people. These objectives are being achieved through the following three major programs:  Community development.  Capacity building.  Development of small and micro-enterprises. During the year 2009, a fourth program was established, that involves labour intensive work (LIW). SFD implements the following to achieve its objectives: 1. Provides direct or indirect finance to income-generating and services which are implemented by non- government organizations. 2. Provides the required finance for social development activities such as health care, education, environment and other services that are in line with the SFD objectives. 3. Assists local organizations to develop their abilities and enhance their efficiency in providing services. 4. Provides new opportunities for employment through special projects or assisting productive projects to enhance the standard of living of the poor in the rural and urban areas and to raise their levels of earnings. According to the agreement signed on April 11, 2014 between Yemeni Government and International Development Association (IDA), IDA agreed to grant the Social Fund for Development (SFD) an amount of USD 20,000,000 under the agreement No. (RY-924H) to support the private vouchers mother and newborn Fund Project distributed as follows: 1. An amount of SDR 6,600,000 (equivalent to USD 10,000,000) from IDA (RY-924H). 2. An amount of USD 10,000,000 from Trust Fund (TF 016529). 2 Social Fund for Development, IDA Grant No. (TF 016529/ H 924 - RY) 2. Significant accounting policies The accounting policies set out below have been applied consistently to all years presented in this financial statement. 2.1 Basis of preparation of financial statement 2.1.1 The financial statement is prepared according to the cash receipts and disbursements basis of accounting to record its transactions. On this basis, sources of funds are recognized when received and disbursements are recognized when paid. Moreover, the statement of cash receipts, disbursements and fund balance is not prepared using the going concern basis of accounting. 2.1.2 This financial statement represents only the statement of utilization of the grants received from the International Development Association and the other income that relate to the Grant No. (TF 016529 / H 924 - RY) and excludes all other transactions, assets and liabilities of the SFD. 2.1.3 The financial statement was approved by the SFD Management on March 30, 2017. 2.2 Functional and presentation currency The financial statement is presented in US Dollars in accordance with the donor's currency. 2.3 Foreign currency transaction The SFD records the transactions of the donor in US Dollars. Transactions in non-US Dollars currencies are recorded at the rates of exchange prevailing on the dates of the transactions. Fund balances denominated in non-US Dollars currencies are translated at the rates prevailing at the year end. Gains and losses arising on exchange are reported in the statement of sources and uses of funds. The unrealized profit and loss arising from changes in foreign currency exchange rate are not the receipts or cash payments, but the effect of changes in exchange rate on cash held in foreign currency is reported in the Statement of Sources and Uses of Funds as to settle the cash at the beginning and the end of the year and present the amount separately from cash receipts and payments and includes the differences, if any. 2.4 Bank's interest Interest on banks current account and deposits are recognized when received. 2.5 Fixed assets Fixed assets procured are expensed on the date of payment for the purchase and when sold it is recognized as resources. 2.6 Government contribution Government Contribution are recorded and added to the fund account at Central Bank of Yemen when confirmed by the Ministry of Finance. 2.7 Project expenditures (sub-grants) SFD’s management preforms and implements some of its projects (Community Contracting, Pay Against Work, Works Directly Implemented) which categorized under the main programs (Community Development & Labour Intensive Works) either directly as pay against work and works directly implemented or through forming community committees to implement the community contracting projects under SFD’s management supervision on these projects. 3 Social Fund for Development, IDA Grant No. (TF 016529/ H 924 - RY) SFD opens a sub-bank account for each project and feeds these accounts through the main banks accounts of SFD and all amounts transferred to those sub-accounts are recognized as expenses directly in the SFD records at the same date of transfer. These amounts paid as an advance in order to start implementing the projects and then the remaining amounts will be paid as per the progress reports according to the approved budget. SFD’s management keeps separate monitoring records to follow -up the clearance of these amounts and records the retrieved amounts after the completion of the implementation of these projects, if any, as refund of expenditure disbursed earlier in the statement of sources and uses of funds. 2.8 Funds received According to the agreement signed on April 11, 2014 between Yemeni Government and International Development Association (IDA), IDA agreed to grant the Social Fund for Development (SFD) an amount of USD 20,000,000 under the agreement No. (RY-924H) to support the private vouchers mother and newborn Fund Project distributed as follows: 1. An amount of SDR 6,600,000 (equivalent to USD 10,000,000) from IDA (RY-924H). 2. An amount of USD 10,000,000 from Trust Fund (TF 016529). 3. Funds received from IDA (TF- 016529) During the year ended December 31, 2016, SFD received the following amounts: Application No. Date of receipt USD IDA (TF- 016529) Fund received - - For the year ended December 31, 2016 - For the year ended December 31, 2015 250,000 Accumulated balance up to December 31, 2016 250,000 4. Funds received from IDA (H 924 - RY) During the year ended December 31, 2016, SFD received the following amounts: Application No. Date of receipt USD IDA ((H 924- RY) Fund received - - For the year ended December 31, 2016 - For the year ended December 31, 2015 - Accumulated balance up to December 31, 2016 250,000 5. The uses of funds (project expenditures) The details of the project expenditures, according to the disbursements categories and main programs of SFD, are as follows: Community Capacity Operating Development Building Costs Total Note USD USD USD USD Vehicle and equipment for sub-project - - - - Consultancy services and training 5.1 - 77,536 - 77,536 For the year ended December 31, 2016 - 77,536 - 77,536 For the year ended December 31, 2015 6,670 248,177 - 254,847 Accumulated balance up to December 31, 2016 7,430 485,287 182 492,899 4 Social Fund for Development, IDA Grant No. (TF 016529/ H 924 - RY) 5.1 Consultancy services and training The details of Consultancy services and training expenditure, according to the disbursement categories and main programs of SFD, are as follows: Community Capacity Development Building Total USD USD USD Administration expenses - 77,357 77,357 Consultant - 179 179 For the year ended December 31, 2016 - 77,536 77,536 For the year ended December 31, 2015 3,835 243,937 247,772 Accumulated balance up to December 31, 2016 4,595 476,176 480,771 6. Fund balance at the end of the year This item consists of the following as at December 31: 2016 2015 USD USD Cooperative and Agricultural Credit Bank (Account No. 1004609572) 25,012 99,235 25,012 99,235 5