COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT NHA TRANG CITY SUB-PROJECT Loan Number 8745 - VN and Credit Number 6027 - VN AUDITED FINANCIAL STATEMENTS For the fiscal year ended 31 December 2020 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Loan Number 8745 - VN and Credit Number 6027 - VN 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 Statement of Designated Account 8 Statement of Withdrawals and Reconciliation of Funds 9 Notes to the Financial Statements 10-14 PART II INDEPENDENT AUDITORS' REPORT ON 15-16 THE INTERNAL CONTROL SYSTEM PART III INDEPENDENT AUDITORS' REPORT ON 17-18 THE COMPLIANCE PART IV MANAGEMENT LETTER 19-23 2 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Loan Number 8745 - VN and Credit Number 6027 - VN REPORT OF THE PROJECT MANAGEMENT UNIT Khanh Hoa Development Project Management Unit ("the Project Management Unit") presents this report and the Financial Statements of Coastal Cities Sustainable Environment Project Nha Trang City Sub-project ("the Project") for the fiscal year ended 31 December 2020. The Project Coastal Cities Sustainable Environment Project is implemented under the Loan Number 8745 - VN and Credit Number 6027 - VN dated 27 October 2017 between the Government of the Socialist Republic of Vietnam and the International Bank for Reconstruction and Development ("IBRD") and the International Development Association ("IDA"). The Project Management Unit Members of the Project Management Unit in the year and to the reporting date are: Mr. Chau Ngo Anh Nhan Director Mr. Ho Tan Quang Deputy Director Mr. Huynh Tuan Vo Chief Accountant 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, Statement of Designated Account and Statement of Withdrawals and Reconciliation of Funds, 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 a f the Proje Management Unit Chau Ngo Anh Nhan Director Khanh Hoa, 28 May 2021 3 No.: 280521.002/BCTC.FIS2 INDEPENDENT AUDITORS' REPORT ON THE FINANCIAL STATEMENTS To: Khanh Hoa Development Project Management Unit Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Opinion We have audited the accompanying financial statements of the Coastal Cities Sustainable Environment Project - Nha Trang City Sub-project which comprise Statement of Funds balance as at 31 December 2020, Statement of Funds and Expenditures, Statement of Designated Account, Statement of Withdrawals and Reconciliation of Funds, and Notes to the Financial Statements for the year then ended, including a summary of significant accounting policies. In our opinion: The accompanying financial statements give a true and fair view of the financial position of the Project, including the balance of the Designated Account as at 31 December 2020, funds received and expenditures incurred, movements of the Designated Account for the year then ended in accordance with the basis of the principal accounting policies described in the Notes to the Financial Statements and the provisions of the Loan Number 8745 - VN and Credit Number 6027 - VN; In addition, with respect to Statements of Expenditure, adequate supporting documents have been fully maintained to support to the replenishment requests submitted to the World Bank. The expenditures are eligible and in right purposes of the Loan Number 8745 - VN and Credit Number 6027 - VN. 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 4 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: 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. AASQ Limited Do Manh Cuong Nguyen Pham Hung Deputy General Director Auditor in-charge CPA Registered No.: CPA Registered No.: 0744-2018-002-1 2893-2020-002-1 Hanoi, 28 May 2021 5 Coastal Cities Sustainable Environment Project - Nha Trang City Sub-project Financial Statements Loan Number 8745 - VN and Credit Number 6027 - VN Year ended 31 December 2020 STATEMENT OF FUNDS AND EXPENDITURES For the fiscal year ended 31 December 2020 Accumulated to 31/12/2019 Year ended Accumulated Note (Adjusted) 31/12/2020 to 31/12/2020 VND VND VND L Funds 1 Funds received from the World Bank 3 69,691,418,976 111,179,030,263 180,870,449,239 2 Counterpart funds of Vietnam Government 21,728,240,888 4,229,294,098 25,957,534,986 3 Exchange rate differences (136,761,662) 96,998,438 (39,763,224) 91,282,898,202 115,505,322,799 206,788,221,001 Il. Expenditures 4 1. Works 7,353,080,255 184,434,487,648 191,787,567,903 2. Consulting services 12,451,320,234 15,509,152,409 27,960,472,643 3. Incremental operating costs 5,041,349,689 3,164,056,032 8,205,405,721 4. Others 176,033,254 7,803,853 183,837,107 25,021,783,432 203,115,499,942 228,137,283,374 III. Surplus/(Deficit) 66,261,114,770 (87,610,177,143) (21,349,062,373) 6 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Financial Statements Loan Number 8745 - VN and Credit Number 6027 - VN Year ended 31 December 2020 STATEMENT OF FUNDS BALANCE As at 31 December 2020 31/12/2019 Note 31/12/2020 (Adjusted) VND VND CURRENT ASSETS 14,207,820,337 66,769,088,764 Cash at bank, treasury 5 5,990,823,614 28,129,409,019 Advances to contractors 6 8,216,996,723 38,639,679,745 NON-CURRENT ASSETS 228,137,283,374 25,021,783,432 Project Implementation Expenditures 4 228,137,283,374 25,021,783,432 TOTAL ASSETS 242,345,103,711 91,790,872,196 CURRENT LIABILITIES 35,556,882,710 507,973,994 Payables to contractors 7 35,556,882,710 507,973,994 FUNDS 206,788,221,001 91,282,898,202 Project Implementation Funds 206,827,984,225 91,419,659,864 - Funds received from the World Bank 3 180,870,449,239 69,691,418,976 - Counterpart funds of the Vietnamese Government 25,957,534,986 21,728,240,888 Foreign exchange differences (39,763,224) (136,761,662) TOTAL RESOURCES 242,345,103,711 91,790,872,196 7 7 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Financial Statements Loan Number 8745 - VN and Credit Number 6027 - VN Year ended 31 December 2020 STATEMENT OF DESIGNATED ACCOUNT For the period: From 01/01/2020 to 31/12/2020 Account number: 60110370041571 Bank: Joint Stock Commercial Bank for Investment and Development of Vietnam - Khanh Hoa Branch Address: No. 35, 2/4 street, Van Thanh, Nha Trang city, Khanh Hoa Credit No.: 8745-VN and 6027-VN PART A: ACTIVITIES Note USD USD Opening balance 1,090,859.30 Add: Amounts deposited by the World Bank 8,968,830.60 Deduct: - Total amounts withdrawn (5,765,062.85) - Amount refunded to the World Bank (4,170,000.00) (9,935,062.85) Closing balance 124,627.05 PART B: RECONCILIATION 1. Amount advanced by the World Bank 3,022,245.00 2. Add: Amount supplemented by the World Bank 8,968,830.60 3. Deduct: Amount recovered by the World Bank (6,824,431.65) 4. Deduct: Amount refunded to the World Bank (4,170,000.00) 5. Present outstanding amount advanced to 996,643.95 6. Closing balance 124,627.05 7. Add: - Amounts claimed but not yet approved (i) 838,114.02 - Amounts withdrawn for Consulting services 33,902.88 and not yet claimed 8. Total advances accounted for 996,643.95 (i) Documentation prior advance in Withdrawal Applications No. 03-IBRD/NT dated 15/12/2020, No. 08- IDA/NT dated 9/12/2020, No. 09-IDA/NT dated 15/12/2020 approved by the World Bank in 2021. 8 Coastal Cities Sustainable Environment Project - Nha Trang City Sub-project Financial Statements Loan Number 8745 - VN and Credit Number 6027 - VN Year ended 31 December 2020 STATEMENT OF WITHDRAWALS AND RECONCILIATION OF FUND Loan Number 8745 - VN and Credit Number 6027 - VN For the fiscal year ended 31 December 2020 Withdrawal applications Amount claimed Amount received Goods, Works, Consulting services, Non - consulting No. Date Currency Advance services Total Date Amount Variances Note (a) (b) (b-a) Designated account Loan Number 8745 - VN 351,155.82 51,774.48 402,930.30 351,155.82 (51,774.48) 02-IBRD/NT 29/07/2020 USD 351,155.82 43,276.82 394,432.64 14/08/2020 351,155.82 (43,276.82) (i) 03-IBRDINT 15/12/2020 USD - 8,497.66 8,497.66 07/01/2021 - (8,497.66) (ii) Credit Number 6027 - VN 8,617,674.78 7,610,771.19 16,228,445.97 8,617,674.78 (7,610,771.19) 02-IDA/NT 10/06/2020 USD 2,556,438.00 2,595,873.08 5,152,311.08 26/06/2020 2,556,438.00 (2,595,873.08) (i) 03-IDA/NT 03/08/2020 USD 6,061,236.78 2,063,594.70 8,124,831.48 20/08/2020 6,061,236.78 (2,063,594.70) (i) 04-IDA/NT 09/09/2020 USD - 1,139,308.73 1,139,308.73 15/09/2020 - (1,139,308.73) (i) 05-IDA/NT 09/09/2020 USD - 501,814.23 501,814.23 20/09/2020 - (501,814.23) (i) 06-IDA/NT 11/10/2020 USD - 250,559.22 250,559.22 22/10/2020 - (250,559.22) (i) 07-IDA/NT 06/11/2020 USD - 230,004.87 230,004.87 20/11/2020 - (230,004.87) (i) 08-IDA/NT 08/12/2020 USD - 681,067.22 681,067.22 11/01/2021 - (681,067.22) (ii) 09-IDA/NT 15/12/2020 USD - 148,549.14 148,549.14 07/01/2021 - (148,549.14) (ii) Total amounts 8,968,830.60 7,662,545.67 16,631,376.27 8,968,830.60 (7,662,545.67) (i) The Worldbank recovered in 2020 of USD 6,824,431.65 (ii) The Worldbank recovered in 2021 of USD 838,114.02 9 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Financial Statements Loan Number 8745 - VN and Credit Number 6027 - VN Year ended 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS For the fiscal year ended 31 December 2020 1. Background Coastal Cities Sustainable Environment Project is implemented under the Loan Number 8745 - VN and Credit Number 6027 - VN dated 27 October 2017 between the Government of the Socialist Republic of Vietnam and the International Bank for Reconstruction and Development ("IBRD") and the International Development Association ("IDA"). The main objective of the Project is to increase access to sanitation services and improve the operational performance of sanitation utilities in the Project Cities. The Project includes the following components: Component 1:Sanitation infrastructure Expansion; Component 2: Urban connectivity Improvement; Component 3: Compensation and site clearance; Component 4: Implementation Support and Institutional Reform The Project officially came into operation since 18 January 2018 and is expected to close on 31 December 2022. The Project is managed by Khanh Hoa Development Project Management Unit, and its office is located at No. 204, Thong Nhat Street, Nha Trang City, Khanh Hoa Province. 2. Principal Accounting Policies a. Basis of accounting The annual accounting period commenced from 1st January to 31st December. The first accounting period commenced from 27 October 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), except for the Statement of Designated Account and Statement of Withdrawals and Reconciliation of Funds, which are prepared in United State Dollar (USD). The principal accounting policies are summarized as below: b. Foreign currencies Funds received from the World Bank in foreign currencies are translated into VND using exchange rates announced by the Ministry of Finance at dates of funds received or at dates of direct payments made to contractors/suppliers. Transactions in foreign currencies are translated to VND under actual exchange rates of the serving bank on their transaction dates. All exchange differences from these transactions are recorded as "Exchange rate differences" account and presented as "Exchange rate differences" on the Statement of Funds and Expenditures. c. Funds and Expenditures Funds: Funds received from the World Bank are recorded when remittance made into Designated Account or direct payment made to contractors/suppliers. In which, interest expenses on capitalization, commitment fees and loan arrangement fee are recognized in accordance with the announcement from People's Committee of Khanh Hoa province. 10 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Financial Statements Loan Number 8745 - VN and Credit Number 6027 - VN Year ended 31 December 2020 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 for settlement of the Project's activities. Expenditures: Expenditures are recorded when they are actually incurred, except "Incremental operating costs" which is allocated from general operating costs of Khanh Hoa Development Project Management Unit according to Decision of Khanh Hoa Provincial People's Committee. d. Designated account Designated Account is the deposit account in USD opened at Joint Stock Commercial Bank for Investment and Development of Vietnam - Khanh Hoa Branch for the Project's activities. Payments made via the Designated Account are for eligible expenditures of the Project in accordance with the provisions of the Loan Number 8745 - VN and the Credit Number 6027 - VN. There is no interest with this account under prevailing rule. 3. Funds received from the World Bank Year ended 31/12/2020 Accumulated to 31/12/2020 USD Equivalent to VND USD Equivalent to VND Loan Number 8745 - VN Designated account 81,155.82 1,874,441,907 165,966.82 3,802,195,937 - Advance (USD) 351,155.82 8,139,791,907 435,966.82 10,067,545,937 - Refund (USD) (270,000.00) (6,265,350,000) (270,000.00) (6,265,350,000) Credit Number 6027 - VN Designated account 4,717,674.78 109,304,588,356 7,655,108.78 177,068,253,302 - Advance (USD) 8,617,674.78 199,804,088,356 11,555,108.78 267,567,753,302 - Refund (USD) (3,900,000.00) (90,499,500,000) (3,900,000.00) (90,499,500,000) 111,179,030,263 180,870,449,239 4. Expenditures Expenditures by categories and funds Year ended 31/12/2020 Loan Number Credit Number Counterpart 8745 - VN 6027 - VN Fund Total VND VND VND VND Works - 182,879,600,648 1,554,887,000 184,434,487,648 Consulting services 3,352,575,000 11,851,013,099 305,564,310 15,509,152,409 Incremental operating - 3,164,056,032 3,164,056,032 costs Others - 7,803,853 7,803,853 3,352 575000 194,730,613,747 5032311195 203115499942 11 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Financial Statements Loan Number 8745 - VN and Credit Number 6027 - VN Year ended 31 December 2020 Accumulated to 31/12/2020 Loan Number Credit Number Counterpart 8745 - VN 6027 - VN Fund (*) Total VND VND VND VND Works - 190,232,680,903 1,554,887,000 191,787,567,903 Consulting services 3,352,575,000 11,851,013,099 12,756,884,544 27,960,472,643 Incremental operating - 8,205,405,721 8,205,405,721 costs Others - 183,837,107 183,837,107 3,352,575,000 202,083,694,002 22,701,014,372 228,137,283,374 (*) Including VND 12,451,320,234 of Consultant's services and VND 1,000,000,000 of operating costs are financed by the Counterpart Fund arising before the effective date of the Agreement. The Project's 100% eligible expenditures (including tax) are financed by the Loan Number 8745 - VN and Credit Number 6027 - VN. 5. Cash at bank, treasury 31/12/2020 31/12/2019 VND VND Designated account (USD) 2,888,229,335 24,862,758,708 Treasury (VND) 3,102,594,279 3,266,650,311 5,990,823,614 28,129,409,019 6. Advance to contractors 31/12/2020 31/12/2019 VND VND Works 5,671,708,163 37,846,792,345 HUDI Investment and Construction JSC 1,839,741,800 15,343,844,800 Ha Noi Water Project Construction JSC 1,905,471,541 14,612,764,145 Bach Dang No.6 Infrastructure Development Investment 1,926,494,822 and Construction JSC Ngu Thuong Manufacture - Trading - Construction CO. - 7,890,183,400 Consultant's services 1,386,554,160 Viet Nam Water, Sanitation and Enviroment JSC 573,457,750 - Viet Nam Vinacee Construction and Enviromental 237,424,110 - Engineering JSC Institute of Investment and Construction Management 114,668,000 - GTO Media JSC 461,004,300 - Compensation and resettlement assitance 1,158,734,400 792,887,400 Nha Trang City Fund Development Center 792,887,400 792,887,400 319 Bom, Mins, Uxo One Member Co., Ltd 365,847,000 - 8,216,996,723 38,639,679,745 12 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Financial Statements Loan Number 8745 - VN and Credit Number 6027 - VN Year ended 31 December 2020 7. Payable to contractors 31/12/2020 31/12/2019 VND VND Works 29,188,026,345 507,973,994 Ha Noi water project Construction JSC 12,239,401,772 - HUD1 Investment and Construction JSC 11,550,248,400 - Ngu Thuong Manufacture - Trading - Construction CO. 2,832,664,700 - Bach Dang No.6 Infrastructure Development Investment 2,221,580,760 - and Construction JSC Construction Investment and Rural Development JSC 344,130,713 - Nguyen Vy Consulting and Construction Co., Ltd - 507,973,994 Consultant's services 6,368,856,365 - Viet Nam Water, Sanitation and Enviroment JSC 5,992,800,000 Black&Veatch International Company 376,056,365 - 35,556,882,710 507,973,994 8. 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. 9. Corresponding figures The corresponding figures are the financial statements for the period ended 31 December 2019 which were audited by AASC Limited, in which some items are adjusted to accommodate the Project's operation as follows: Item Presented Adjusted Variances VND VND VND STATEMENT OF FUNDS AND EXPENDITURES 1. Funds 101,006,366,847 91,282,898,202 9,723,468,645 2. Counterpart funds of Vietnam 31,451,709,533 21,728,240,888 9,723,468,645 Government III. Surplus 75,984,583,415 66,261,114,770 9,723,468,645 STATEMENT OF FUNDS BALANCE CURRENT ASSETS 76,492,557,409 66,769,088,764 9,723,468,645 Cash on hand 74,396,275 - 74,396,275 Cash at bank, treasury 37,778,481,389 28,129,409,019 9,649,072,370 FUNDS 101,006,366,847 91,282,898,202 9,723,468,645 Project Implememtation Funds 101,143,128,509 91,419,659,864 9,723,468,645 - Counterpart funds of the 31,451,709,533 21,728,240,888 9,723,468,645 Vietnamese Government 13 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Financial Statements Loan Number 8745 - VN and Credit Number 6027 - VN Year ended 31 December 2020 10. Approval of the Financial Statements nancial statements were proved by Project Management Unit for issuance on 28 May 2021. C hau _Ngo Anh Nhan Huynh Tuan Vo Director Chief Accountant Khanh Hoa, 28 May 2021 14 No.: 280521.002/BCTC.FIS2 INDEPENDENT AUDITORS' REPORT ON THE INTERNAL CONTROL SYSTEM To: Khanh Hoa Development Project Management Unit Coastal Cities Sustainable Environment Project Nha Trang City Sub-project We have audited, in accordance with International Standards on Auditing, the financial statements January to of the Coastal Cities Sustainable Environment Project - Nha Trang City Sub-project ("the Project") for the year ended 31 December 2020 and issued the auditors' report thereon dated 28 May 2021 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 year ended 31 December 2020. 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. 15 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 year ended 31 December 2020. V AASCLnfed HM (', lN -1 Do5Manh Cuong Nguyen Pham Hung Deputy General Director Auditor in-charge CPA Registered No.: CPA Registered No.: 0744-2018-002-1 2893-2020-002-1 Hanoi, 28 May 2021 16 No.: 280521.002/BCTC.FIS2 INDEPENDENT AUDITORS' REPORT ON THE COMPLIANCE To: Khanh Hoa Development Project Management Unit Coastal Cities Sustainable Environment Project Nha Trang City Sub-project We have audited, in accordance with International Standards on Auditing, the financial statements January to of the Coastal Cities Sustainable Environment Project - Nha Trang City Sub-project ("the Project") for the year ended 31 December 2020 and issued the auditors' report thereon dated 28 May 2021 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 Loan Number 8745 - VN and the Credit Number 6027 - VN, law and regulations that have a direct and material effect on the Project's financial statements for the year ended 31 December 2020 ("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 involves performing procedures to obtain evidence about whether the Project's activities are free of 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. &~ I ., Phi 17 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 year ended 31 December 2020. imited JD6 M a'nh Cuong Nguyen Pham Hung Deputy General Director Auditor in-charge CPA Registered No.: CPA Registered No.: 0744-2018-002-1 2893-2020-002-1 Hanoi, 28 May 2021 18 COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT NHA TRANG CITY SUB-PROJECT Loan Number 8745-VN and Credit Number 6027-VN MANAGEMENT LETTER For the fiscal year end 31 December 2020 Hanoi, 28 May 2021 To: Khanh Hoa Development Project Management Unit Coastal Cities Sustainable Environment Project Nha Trang City Sub-project We have conducted the audit of the financial statements of Coastal Cities Sustainable Environment Project - Nha Trang City Sub-project ("the Project") for the year ended 31 December 2020. During the course of our engagement, we reviewed the accounting procedures and internal controls, and examined the compliances with laws, regulations of the Loan Number 8745 - VN and Credit Number 6027 - 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 the Board of Directors, the Chief Accountant 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 slnch ely, DA Manh Cuong Deputy General Director 19 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Management Letter Loan Number 8745-VN and Credit Number 6027-VN Year ended 31 December 2020 CONTENT 1. Project im plem entation and disbursem ent progress ........................................................................ 21 2. Recognition of Loan Interest, Commitment Fee and Loan Arrangement Fee ................................. 22 3. Implementation of the auditor's recommendations in the previous years........................................ 23 20 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Management Letter Loan Number 8745-VN and Credit Number 6027-VN Year ended 31 December 2020 1. Project implementation and disbursement progress Observation and Implication As at 31 December 2020, the Project's disbursement rate of IDA and IBRD funds was much lower than the total investment while the loan will be closed on 31 December 2022: Accumulated disbursement Total investment up to 31/12/2020 Proportion USD USD % IDA fund 7,644,674 44,220,000 17.29 IBRD fund 51,774 16,380,000 0.32 7,696,448 60,600,000 12.70 In which, two main packages NT-1.7 Construction of Wastewater Treatment Plant in the North (13.9 million USD) and NT-2.1 Construction of road and embankments along Cai river (10.3 million USD) have not been implemented yet. Throughout discussions, we understand that the main reason is due to difficulties in compensation and site clearance, and slow capital arrangement in the early stages of the Project. Recommendation We recommend the Project Management Unit ("PMU") should closely monitor the Project progress so that it can promptly address causes of the delay. In addition, the PMU also needs to work with the competent authorities and the World Bank to provide timely solutions in case the Project cannot be completed by 31 December 2022. The PMU's response Agree with the auditors' opinion. 21 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Management Letter Loan Number 8745-VN and Credit Number 6027-VN Year ended 31 December 2020 2. Recognition of Loan Interest, Commitment Fee and Loan Arrangement Fee Observation and Implication In accordance with the Project's accounting policy, "Interest expenses, Commitment fees and Loan arrangement fees" are recognized upon announcements from People's Committee of Khanh Hoa province. However, we understand that there is no such official announcement for the period from the beginning of the Project to 31 December 2020 to timely recognize in the Financial Statements. This was because of the discrepancy between what calculated by this local body and the Ministry of Finance's one. A written clarity request has been submitted to the Ministry of Finance for the difference by the Department of Finance of Khanh Hoa province, however an official response is not received yet. Recommendation We recommend the PMU to continue working with Khanh Hoa Department of Finance and the Ministry of Finance to determine the mentioned fees and promptly record them in the Financial Statements. The PMU's response Agree with the auditors' opinion. 22 Coastal Cities Sustainable Environment Project Nha Trang City Sub-project Management Letter Loan Number 8745-VN and Credit Number 6027-VN Year ended 31 December 2020 3. Implementation of the auditor's recommendations in the previous years No Recommendation Implementation 1 Project implementation and disbursement progress The disbursement rate of the Project in the 2016- Still exist. Detail in Section 1. 2019 period is much slower than the planned plan. The main reason is due to delay in contract implementation, bidding as well as implementation of bidding packages. This delay can have consequences such as: inability to complete the project on schedule or a portion of the budget may be considered for cancellation if no significant improvements are made in the near term. 2 Loan Interest, Commitment Fee and Loan Arrangement Fee According to Clause 2, Article 16 of Circular No. Still exist. Detail in Section 2. 11 1/2016/TT-BTC dated 30 June 2016: "Interest during the grace period, commitment charge and other fees based on the agreement with the donor is accounted for as follows: In case the program, project or project component applies the on re-lending, the Ministry of Finance shall carry out the re-lending accounting procedures and notify the principal amount and time for the sub-borrower to receive debt. " However, we realize that the PMU has not received the notice from the Ministry of Finance as the basis to recognize the Loan Interest, Commitment Fee and Loan Arrangement Fee on the Financial Statements ended 31 December 2019. 23