VNG INTERNATIONAL ETHIOPIA PROMOTION OF BASIC SERVICES SOCIAL ACCOUNTABILITY PROJECT (ESAP2) AUDIT REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Table of Contents Statem ent of the M anagem ent Agency's responsibility.....................................................................1 Report of the independent auditor to Management Agency on the audit of the Ethiopia Promotion of Basic Services Social Accountability Project (ESAP2) ......................................................................2 Statem ent of incom e and expenditure ...............................................................................................4 Statem ent of financial positio n ........................................................................................................... 5 N otes to the financial statem ents.......................................................................................................6 Appendix I - A summary of activity in the Project Designated Account...........................................12 Appendix II - A listing of w ithdraw al applications ............................................................................13 Appendix III - Summary of the World Bank Designated account by category..................................14 Appendix V - Income and expenditure summaries for SAIPs ...........................................................15 Appendix VI - Cumulative statement of income and expenditure ...................................................16 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Statement of the Management Agency's responsibility The Management Agency (MA) accept responsibility for the preparation and fair presentation of these financial statements, of Ethiopia Promotion of Basic Services Social Accountability Project Phase 2 (ESAP2) for the year ended 31 December 2017. The MA accepts responsibility for the financial statements and is of the opinion that the financial statements have been prepared using appropriate accounting policies in conformity with the Terms and Conditions of the ESAP2 Grant Agreement, ESAP2 accounting policies as detailed in ESAP Financial Management Manual and generally accepted accounting practices. The MA further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Peter Knip Director, VNG International 1 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Report of the independent auditor to Management Agency on the audit of the Ethiopia Promotion of Basic Services Social Accountability Project (ESAP2) Certification of the Financial Statements We have audited the accompanying financial statements of the Ethiopia Promotion of Basic Services Social Accountability Project Phase 2 (ESAP2) as set out on pages 4 to 11 of this report. These financial statements comprise the statement of income and expenditure for the year ended 31 December 2017, the statement of financial position as at 31 December 2017, a summary of significant accounting policies and other explanatory notes. Management Agency responsibilities The Management Agency (MA) is responsible for the preparation and fair presentation of these financial statements in accordance with the Terms and Conditions of the ESAP2 Grant Agreement and accounting policies set out in Note 2 of this report, this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor's responsibility Our responsibility is to express an independent opinion on the financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial statements whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the preparation of the project's financial statements 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 organization's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, if any, made by project management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying financial statements of the Ethiopia Promotion of Basic Services Social Accountability Project phase 2 (ESAP2), presents fairly, in all material respects the financial position as at 31 December 2017 and the results of operations for the year then ended, in accordance with the accounting policies set out in Note 2 of this report, and the Terms and Conditions of the ESAP2 Grant Agreement. 2 VNG InternatIonal ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Basis of accounting and restriction on distrlbon and use Without modifying our opinion, we draw attention to the accounting policies of the ESAP2 financial statements as set out in Note 2 of this report, which describe the basis of accounting. These financial statements have been prepared for purposes of providing information to the MA, the Government of Ethiopia and the World Bank. As a result, the financial statements may not be suitable for another purpose. Our report is intended solely for the MA, the Government of Ethiopia and the World Bank and should not be distributed to or used by other parties. The engagement partner responsible for the audit resulting in this independent auditor's report is CPA Edwin wagwil- P/ges Kago Kagwi & Associates 2018 Certified Public Accountants Applewood Office Park Nairobi, Kenya 3 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Statement of income and expenditure Notes For the period ended 31 December 2017 Amount in USD Income Opening balance 3 691,312.98 Funds received from the World Bank 4 2,917,850.85 Total income 3,609,163.83 Expenditure Goods 5 (a) 98,350.85 Consultants' Services 5 (b) 310,563.67 Management and Coordination Services Fee 5 (c) 903,680.33 Training & Workshops 5 (d) 335,480.33 Grants for Sub-Projects 5 (e) 1,600,886.71 Total expenditure 3,248,961.89 Surplus of income over expenditure 360,201.94 4 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Statement of financial position Notes As at 31 December 2017 Amount in USID Assets Current assets Bank balances 6 64,549.03 Prepayments 7 880,108.74 Receivables 8 122,097.00 Total assets 1,066,754.77 Reserves 9 360,201.94 Current Liabilities Payables 10 706,552.83 Total current liabilities and reserves 1,066,754.77 The financial statements above and the accompanying notes on pages 4 to 11 were approved by Management Agency on 2 2018 and signed on its behalf by: Peter KNp Director, VNG International 5 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Notes to the financial statements 1. Project background General overview The Promotion of Basic Services (PBS) II Sub-Program Part C2- Social Accountability Program (SAP), here after referred to as 'the Project', strives to strengthen and deepen social accountability (SA) initiatives and mechanisms which were initiated under PBS 1. The objectives are to work further towards enhancement of transparency around public budgeting and monitoring procedures (planning, budget preparation, expenditures and audits, performance monitoring), and to enhance and scale up activities to engage civil society (citizens and citizen representative groups) on basic services planning, budgeting, implementation, and monitoring to ensure that public basic services delivery reflect citizens' needs and preferences. The overall budget envelope for the Project is currently USD 29,882,896. The funds, coming from a Multi- Donor Trust-Fund, will be allocated for implementation of several components, including (a) the Services of the Management Agency; (b) grants to Social Accountability Implementing Partners (SAIPs) for implementation of the social accountability program at woreda level; (c) training and capacity building activities; and (d) surveys, monitoring, evaluation, and financial audits. Project implementation arrangements A consortium led by VNG International (represented in Ethiopia by its branch office "VNG INTERNATIONAL B.V. Plc.") will act for the period specified in the grant agreement, as the Management Agent (MA) of Government of Ethiopia's PBS II Sub Program C2 -Social Accountability Project (the project). As such, the MA is responsible for administering such grant funds for the furtherance of the activities to be carried out in respect of the project. There are 22 Social Accountability Implementing Partners (SAIPs) involved in the project implementation for the period covered by the financial audit, 1 January 2017 to 31 December 2017. Project financing The overall budget envelope for the Project is currently USD 29,882,896. 2. Summary of accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. a) Basis of preparation The financial statements have been prepared in accordance with the requirements of the ESAP2 accounting policies as detailed in ESAP Financial Management Manual and the Terms and Conditions of the ESAP2 Grant Agreement. The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. 6 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Notes to the financial statements (Continued) b) Income recognition Income represents funds received from Multi-Donor Trust-Fund managed by the Word Bank. Income is recognized when the funds are received in the VNG International, in The Netherlands bank account. c) Foreign currency translation Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The financial statements are presented in United States Dollars ("USD") which is the Project's functional currency. Transactions Foreign currency transactions are translated into the functional currency of the MA using the actual exchange rates prevailing at the dates of the transactions for the income and using the average exchange rates of USD for the expenditure items. d) Expenditure recognition Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in funds. Expenses are recognized when incurred rather than paid. In the IFR, expenses are translated from Ethiopian Birr to USD at a quarterly average rate benchmarked by the National Bank of Ethiopia monthly rates. e) Prepaid expenses Prepaid expenses are amounts that are paid in advance to a supplier or creditor for services provided. Prepayments are recognized when the MA pays for goods or services in advance. They are classified as assets, because the entity will receive economic benefits from the amount of expenses paid in advance. f) Accruals Accruals are monies put aside to fund certain activities before the creation or collection of the underlying documents such as invoices, purchase orders, among others and before those committed funds are paid out. Accruals are recognized when the entity issues contracts or purchase orders for the supply of goods or services. 7 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Notes to the financial statements (Continued) 3. Opening balance The opening balance of USD 691,312.98 was the balance reported as the closing balance in the financial year 2017 audit report. 4. Income During the Financial Year ended 31 December 2017, the following funds were received by VNG International, in The Netherlands, from the World Bank as indicated the table below: 09-Jan-17 WA - 066 245,004.21 01-Mar-17 WA - 067 921,962.30 23-Mar-17 WA - 069 29,704.26 24-Mar-17 WA - 068 478,595.76 22-Jun-17 WA - 070 519,604.10 28-Jun-17 WA - 071 667,773.80 27-Dec-17 WA - 072 55,206.42 Total 2,917,850.85 The amount received agrees with the with the amount request by the MA. Detailed WA that have been is provided as Appendix II to this report. 8 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Notes to the financial statements (Continued) 5. Expenditure The table below outlines the expenditure (by MA headquarters, MA Branch office and SAIPs) during the period 1 January to 31 December 2017: 5 (a) Goods Office equipment, vehicles, web tools, goods, supplies 90,272.96 Printed training and visibility materials 8,077.89 Total 98,350.85 5 (b) Consultants' Services Consultants' Services Capacity Building 61,146.82 Consultants' Services M&E 103,246.51 Consultants' Services General Operations 146,170.34 Total 310,563.67 5 (c) Management and Coordination Services Fee Management fee 390,530.24 Coordination Services fee 513,150.09 Total 903,680.33 5 (d) Training & Workshops Travel costs in Ethiopia 16,976.86 Logistics for events, workshops etc. 26,273.17 Reimbursable costs participants trainings and workshops 89,615.60 Project Manager Wessel Kremer(VNG) 40,531.76 Project Director Rolf Swart (VNG) 75,480.00 Other - Tax, insurance, visibility, bank costs and training 82,600.42 Ministry of Finance and Economic Development (MoFED) 4,002.52 Total 335,480.33 5 (e) Grants for Sub-Projects - (As detailed in Appendix V) 1,600,886.71 9 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Notes to the financial statements (Continued) 6. Cash and bank balances Details Amount in USD The amount represents the closing bank balance at the ABN-AMRO Bank, VNG 64,549.03 International, in the Netherlands, as at 31 December 2017. 7. Prepayments Prepayments represent the amounts disbursed to SAIPs, as detailed in Appendix V, that had not been accounted for as at 31 December 2017 as presented in the table below: 1 Hiwot Integrated Development Association 36,961.94 2 Union of Ethiopian Women Charitable Association 20,795.61 3 Rohi Weddu Pastoral Women Development Organization 26,320.82 4 Redeem the Generation 6,933.91 5 Women Support Association 75,371.42 6 Addis Development Vision 68,996.51 7 Migbare-Senay Children and Family Support Org. 8,221.35 8 Ethiopian Catholic Church - Social and Development Commission Nekemte 31,965.50 9 Hope For Children 62,588.33 10 Ogaden Welfare and Development Association 30,321.67 11 Ilu Women and Children Integrated Development 11,080.14 12 Love in Action 64,829.34 13 Ethiopia Orthodox Church Development and Inter-Church Aid Com 31,039.65 14 Rift Valley Children and Women Development Org 64,542.63 15 HUNDEE Oromo Grassroots Development Initiative 66,437.40 16 Cheshire Foundation Action for Inclusion 58,201.07 17 Action For Development 55,993.10 18 Action for Self-Reliance Organization 43,475.65 19 Oromia Development Association 24,703.20 20 KMG Ethiopia 13,663.32 21 Addis Development Vision 22,742.38 22 Alliance of Civil Society Organizations of Tigray 54,923.80 Total 880,108.74 10 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 8. Receivables The receivables amount is represented by: Advance Housing allowance Rolf Hunink (2013) 1,500 Settlement of Action Professional Association for the People (APAP) costs 10,030 Balance of amount advanced to the MA Branch office 110,567 Total 122,097 9. Reserves The reserves amount is represented by: Details Amount in USD Surplus of income over expenditure for year ended 31 December 2017 360,201.94 10. Payables The payable amount is made up of mainly quarter No.4, 2017 expenditure and cross charges incurred by the MA Branch Office and was paid in quarter No.1, 2018. Details Amount in USD Total per the payable listing as at 31 December 2017 706,552.83 11 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Appendix I - A summary of activity in the Project Designated Account Amount in USD Opening balance as at 1 January 2017 691,312.98 Funds received from the World Bank during the year 2,917,850.85 Total funds available for use 3,609,163.83 Expenditure Goods 98,350.85 Consultants' Services 310,563.67 Management and Coordination Services Fee 903,680.33 Training & Workshops 335,480.33 Grants for Sub-Projects 1,600,886.71 Total expenditure 3,248,961.89 Closing balance as at 31 December 2017 360,201.94 The closing balance consists of cash and bank balances of USD 64,549.03, balances with SAIPs of USD 880,108.74 and a net liability of USD 584,455.83. We reviewed the activities of the Designated Bank Account No. NL98ABNA0535182813 held at ABN AMRO Bank associated with the project and confirmed that: * Advance deposits were received from the World Bank. * Replenishments substantiated by Withdrawal Applications. * No interest income that has been earned on the account. * Withdrawals related to project expenditures. 12 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Appendix II - A listing of withdrawal applications During the course of our financial audit, we verified all Statements of Expenditures (SOEs) used as a basis for the submission of withdrawal applications to the World Bank. We applied such tests and auditing procedures as considered necessary under the circumstances. Below is a schedule listing individual SOE withdrawal applications by specific reference number and USD amount paid to VNG International bank account number NL98ABNA0535182813: WB/ Application Application Deducted Paid / Date Value Date Date Trans Borrower Payment /Documented Received Closed No Reference Documented Amount USD Amount AmountUS USD 0068 WA - 066 350,006.01 105,001.80 245,004.21 06-Jan-17 09-Jan-17 09-Jan-17 0069 WA - 067 1,317,089.00 395,126.70 921,962.30 24-Feb-17 01-Mar-17 01-Mar-17 0070 WA - 069 29,704.26 - 29,704.26 21-Mar-17 23-Mar-17 23-Mar-17 0071 WA - 068 478,595.76 - 478,595.76 21-Mar-17 24-Mar-17 24-Mar-17 0072 WA - 070 519,604.10 - 519,604.10 16-Jun-17 22-Jun-17 22-Jun-17 0073 WA - 071 667,773.80 - 667,773.80 27-Jun-17 28-Jun-17 28-Jun-17 0074 WA - 072 162,392.94 - 55,206.42 01-Dec-17 26-Dec-17 26-Dec-17 0075 WA - 073 281,029.90 - - 26-Jan-18 30-Jan-18 30-Jan-18 Total 3,806,195.77 500,128.50 2,917,850.85 13 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Appendix III - Summary of the World Bank Designated account by category The summary below presents status of the designated account at the World Bank, extracted from the 'Client Connection' system. The analysis provides the disbursed amount which tallies with the amount received by that MA presented in Appendix VI. IS 1 Goods 588,660.00 466,268.73 122,391.27 2 Consultant Services 2,943,300.00 2,630,032.96 313,267.04 3 Management and Coordination Fees 7,946,910.00 7,727,206.43 219,703.57 4 Training and Workshops (inc media) 1,177,320.00 898,935.41 278,384.59 5 Grants for Sub-projects 16,776,810.00 16,495,629.87 281,180.13 DA-A Designated Account 0.00 814,775.79 -814,775.79 Totals 29,433,000.00 29,032,849.19 400,150.81 14 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Appendix V - Income and expenditure summaries for SAIPs 1 Hiwot Integrated Development Association 34,412.67 63,082.31 60,533.04 36,961.94 2 Union of Ethiopian Women Charitable Association 55,201.98 55,369.81 89,776.18 20,795.61 3 Rohi Weddu Pastoral Women Development Orgn 31,715.86 33,572.99 38,968.03 26,320.82 4 Redeem the Generation 22,367.34 30,623.48 46,056.91 6,933.91 5 Women Support Association 65,711.18 67,886.62 58,226.38 75,371.42 6 Addis Development Vision 70,955.89 67,944.79 69,904.17 68,996.51 7 Migbare-Senay Children and Family Support Org. 22,750.86 29,616.38 44,145.89 8,221.35 8 Ethiopian Catholic Church 48,327.62 101,017.09 117,379.21 31,965.50 9 Hope for Children 52,309.94 91,639.53 81,361.14 62,588.33 10 Ogaden Welfare and Development Association 49,102.99 82,406.83 101,188.15 30,321.67 11 Ilu Women and Children Integrated Development 10,835.40 41,315.50 41,070.76 11,080.14 12 Love in Action 51,164.00 75,286.91 61,621.57 64,829.34 13 Ethiopia Orthodox Church Dev. 55,129.69 71,259.05 95,348.99 31,039.75 14 Rift Valley Children and Women Development Org 44,440.53 68,524.39 48,422.29 64,542.63 15 HUNDEE Oromo Grassroots Development Initiative 35,211.31 68,993.96 37,767.87 66,437.40 16 Cheshire Foundation Action for Inclusion 50,582.84 70,082.89 62,464.66 58,201.07 17 Action for Development 46,119.66 86,233.22 76,359.78 55,993.10 18 Action for Self-Reliance Organization) 34,691.00 50,667.62 41,882.97 43,475.65 19 Oromia Development Association 31,566.26 51,006.42 57,869.48 24,703.20 20 KMG Ethiopia 28,647.01 73,210.42 88,194.11 13,663.32 21 Addis Development Vision 28,402.68 79,143.97 84,804.27 22,742.38 22 Alliance of Civil Society Organizations of Tigray 124,267.58 128,196.85 197,540.73 54,923.70 Grand Total 993,914.29 1,487,081.03 1,600,886.58 880,108.74 15 VNG International ESAP2 Audit Report and Financial Statements For the year ended 31 December 2017 Appendix VI - Cumulative statement of income and expenditure Income Cumulative as at 31 December 2017 Amount in USD Funds received from the World Bank 29,032,849.19 Total income 29,032,849.19 Expenditure Goods 542,346.97 Consultants' Services 2,884,643.90 Management and Coordination Services Fee 8,308,068.94 Training & Workshops 1,122,019.90 Grants for Sub-Projects 15,815,567.54 Total expenditure 28,672,647.25 Surplus of income over expenditure 360,201.94 16