HLB Yemen Certified Public Accountants BASIC EDUCAION DEVELOPMENT PROJECT SECOND PHASE SANA'A-REPUBLIC OF YEMEN IDA GRANT(H8250-RY) SOURCES &USES OF FUNDS AS OF JULY 31,2017 together personalised Inspired Around the World BASIC EDUCAION DEVELOPMENT PROJECT SECOND PHASE SANA'A-REPUBLIC OF YEMEN IDA GRANT(H8250-RY) SOURCES &USES OF FUNDS AS OF JULY 31,2017 Contents Page INDEPENDENT AUDIIOR'S REPORT 1-2 STATEMENT OF PROJECT'S SOURCES &USES OF FUNDS AS OF JULY 31, 2017 3 NOTES TO THE FINANCIAL STATEMENTS FROM (1) TO (15) 4-14 HLB YEMEN Certified Public Accountants INDEPENDENT AUDITOR'S REPORT TO: Basic Education Development Project-Second Phase (BEDPII) Sana'a, Republic of Yemen We have audited the accompanying statement of sources and uses of funds of Basic Education Development Project-Second Phase (BEDPII) IDA GRANT (H8250) that financed by International Development Associated (IDA) and the Government of Yemen and implemented by Ministry of Education — Project Administration Unit PAU and Public Works Project PMU for the period from January 1, 2017 to July 31, 2017 and the summary of significant accounting policies and other explanatory information for the period then ended. MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The management is responsible for the preparation and fair presentation of this Financial Statement in accordance with International Financial Reporting standards (IFRS), this includes determining that the cash receipts and disbursements basis of accounting is an acceptable basis for the preparation of the Financial Statement in the circumstances, and for such internal controls as management determines is necessary the preparation of the Financial Statement that is free from material misstatement, whether due to fraud or error. AUDITOR'S RESPONSIBILITY Our responsibility is to express an 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 the audit to obtain reasonable assurance about whether the financial statements is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Grant's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Grant's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, if any, made by 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. Inspired Around the World hlbyemen.com Alnoman Tower ,Al-Zubiry Street , Sanaa - Republic of Yemen Telephone: +967-1-408379 Fax: +967-1-210518 E-mail: alycons.co@y.net.ye Web: www.hlbyemen.com HLB & Halderwala Co. is a member of International. A world-wide network of independent accounting firms and business advisers OPINION In our opinion, the financial statements presents fairly, in all material respects, the sources and uses of fund of Basic Education Development Project-Second Phase (BEDP) IDA GRANT (H8250) for the period ended July 31, 2017., in accordance with International Financial Reporting standards (IFRS) and the policies and procedures followed by project's Units management (PAU & PMU). IN ADDITION: We have obtained all information and disclosures that we believe necessary for auditing purposes and the project's Units (PAU & PMU) maintain accounting system records which concordant with the attached financial statements. All expenditures from the Designated Accounts are supported by adequate and appropriate documentation and the project maintains adequate and appropriate supporting documents of the Statements Of expenditures (SOEs) attached to the withdrawal applications for reimbursement or documentation Designated Accounts' expenditures. Partner in charge Ali M. AI-Haj Certfied Public Accountant, license number (1255) For HLB Yemen Member of HLB International August 13, 2017 Sana'a, Republic of Yemen 2 Basic Education Development Project-Second Phase(BEDPII) IDA GRANT (H8250) Notes to the Financial statement For the Year Ended July 31, 2017 Total accumulative up December 31, 2015 During 2016 Sources Of Fund Notes to December 31, 2015 USD USD USD IDA Grant(H8250-YR) (3) 20,623,405 20,623,405 Government Contribution (4) 619,628 619,628 Exchange Rate Differences 401 ( 401) Total Sources Of Fund 21,243,434 (401) 21,243,033 Uses Of Fund Goods , Consultancy Services & Training 10,994,816 287,498 11,282,314 (5) Civil Works (6) 5,140,384 14,956 5,155,340 Conditional Cash Transfer 2,650,314 (7,683) 2,642,631 (7) Operational Costs (8) 1,559,629 162,855 1,722,484 Exchange Rate Differences 32,694 32,694 (9) Total Uses Of Fund 20,345,143 490,320 20,835,463 Surplus / (Deficit) Balances 898,291 ( 490,721) 407,570 Opening Surplus/(Deficit) Balance 898,291 Closing Surplus (Deficit) Balance (10) 898,291 407,570 407,570 Independent auditors report is set out on pages 1 and 2. The attached notes on n integral part of this financial statement. 3 Basic Education Development Project-Second Phase(BEDPII) IDA GRANT (H8250) Notes to the Financial statement For the Year Ended July 31, 2017 1. Project Background: Introduction: This project is considered to be the extension of the first phase of the Basic Education Development Project number (P076185) which closed on December 31,2012 , the approval for financing a project to develop the second basic education no.(P130853) provided by the International Development Association. IDA Grant was signed with the Yemeni Govemment on 27/2/2013 and came into force on July 1,2013. A- General Data : Project Name Basic Education Development Phase 2 No.(P130853) Project Period Five Years Date of approval 14/2/2013 Beginning of the project 1/7/2013 The expected closing date 31/8/2018 Actual Closing Date January 17, 2017 Donor International Development Association( IDA) Original Amount of Funding SDRs 43,100,000 Amended amount of Funding SDRs 13,964,362.28 Beneficiary Ministry Of Education Implementing agencies PAU of BEDP PMU-PWP Works performs by PMU-PWP Implementation of civil works activities under component 2 Project Address Southern 60th Road — Bait Mieyaad Zone-Sana'a B- Funding : Funding Agency Amount of USD IDA 66,300,000 Government of Yemen 5,700,000 Total 72,000,000 C- The Project's objectives: The development objective of the Basic Education development Project-2nd Phase in Yemen is to help the Yemeni government in raising the quality of education of students and the possibility of fair access to basic education in the provinces and selected schools, the project aims achieve the objectives of the education sector with special emphasis on quality . Development objective of the project is to help the Yemeni government in improving student learning and achieve parity in access to basic education opportunities in the provinces and selected schools. This goal will be achieved through a combination of interventions, some of them at the national level and in some regions or targeted schools. D- Components of the project: The project compounds of four components: 1. Improve the quality of basic education and enhance students achievement. 2. Promote equitable access to high quality education in eight provinces targeted and Sana'a city and about 200 schools. 3. The development of the institutional capacity of the sector through the capacity building of the Ministry of Education to manage resources in a manner effective and efficient so that it can provide high quality educational services. 4. Support project management activities for the implementation of project activities and the preparation of reports on the progress of its timely manner and effective as required by the financial agreements between the World Bank and the Government of Yemen. 4 Basic Education Development Project-Second Phase(BEDPII) IDA GRANT (H8250) Notes to the Financial statement For the Year Ended July 31, 2017 E- Provisions of the grant, according to the project components: Project Cost And Financing According To Components FINANCING (USD M LL.) No. PROJECT COMPNENT IDA LOCAL TOTAL 1 Improve the quality of basic education and enhance student 23.5 2.4 25.9 1.1 Reading and writing skills 17.5 1.7 19.2 1.2 Teaching learning practices 5.0 0.5 5.5 1.3 Assess student learning 1.0 0.2 1.2 2 Promote equitable access to high quality education 32.7 2.8 35.5 2.1 To improve the physical environment of schools 19.4 1.7 21.1 2.2 Promote equitable access through demand-side 10.7 0.9 11.6 2.3 Support for schools, parent councils 2.6 0.2 2.8 3 Development of the institutional capacity of the sector 5.2 0.4 5.6 3.1 Updated Education sector Management 0.6 0.1 0.7 3.2 Educational Management Information System(EMIS) 1.8 0.2 2.0 3.3 Education Planning and Policy 2.8 0.1 2.9 4 Support Project management activates 3.5 0.3 3.8 Total Baseline Costs 64.9 5.9 70.8 Physical contingency 1.1 0.0 1.1 Emergency Price 0.1 0.0 0.1 Total Project Costs 66.1 5.9 72.6 2. Accounting Policies A- Basis of Preparation of the statement of Sources and Uses of Funds: The statement of the Sources and Uses of funds and expenditures. According to this basis the sources of financing are recognized upon receipt of the money, as we as expenses when fully effective payment process. The sources and uses are displayed in USD in accordance with the requirements of financiers. B- The Contribution: It is recognized at the time of funded receipt. C- Fixed assets : Fixed assets are recorded as expenses at the date of purchase within the project uses. D- Project Expenses: The project expenses is recognized under the project in the date of the expenses disbursement and upon receipt of the goods, services and works....ect. E- Currency: • All transactions are recorded in the accounting records of the unit project in USD and are recognized withdrawn from the grant in USD and Special Drawing Rights and disbursed. • Funding and expenses in local currency (YR) are recognized and paid at the price equivalent of the USD, according to the prevailing exchange rate at the date of the transaction. • The re-evaluation of cash balances by the end of the year in local currency to the USD at the exchange rate in the 31/07 and calculating the differences either income or expenses as a result of the evaluation. 5 Basic Education Development Project-Second Phase(BEDPII) IDA GRANT (H8250) Notes to the Financial statement For the Year Ended July 31, 2017 F- Withdrawals from the Designated accounts: Withdrawals from the special account for the grant at the Central Bank to cover various expenses of the project under the withdrawal applications under the signature of the Director- General and Chief Financial Officer of the project. G- Withdrawal from the grant: Withdrawal from the grant account by the Authority (IDA) on behalf of the project implementation unit and the aim of the replenish the special account for the project on the Central Bank to meet the project expenses or to pay direct costs to beneficiaries , by withdrawal applications issued by the project and based on the documents, also IDA shall submit to the PIU account statement for the amount disbursed or withdrawn from the grant account, whether direct payments or replenishments to the special account ,according to a statement of expenditure on the balance in USD and the SDRs. 6 Basic Education Development Project-Second Phase(BEDPII) IDA GRANT (H8250) Notes to the Financial statement For the Year Ended July 31, 2017 3. List of Withdrawals from IDA Grant No.(H8260-RY) Goods, Works, Conditional Operating DA Non-CS,CS & Cash TOTAL Costs Training Transfer USD USD USD USD USD A: Project Administration Unit PAU, Ministry of Education: Date Reference Number 16-Feb-17 PAU-31 (59,365) 46,575 12,790 13-Mar-17 PAU-32 (26,492) 23,288 3,204 31-May-17 PAU-33 (108,256) 108,256 11-Jul-17 Transfer from PWP 31,508 31,508 Total withdrawal during 2017 (162,605) 178,119 - 15,994 31,508 Total withdrawal up to 31Dec.2016 460,450 10,849,987 2,642,631 768,004 14,721,072 Total withdrawal up to July 31,.2017 297,845 11,028,106 2,642,631 783,998 14,752,580 B: Public Works Project PWP : 15-Mar-17 MOPIC 49 (163,827) 3,435 160,392 01-Jun-17 MOPIC 50 (24,458) 24,458 25-May-17 Adjustment to revers By WB 33,298 ( 23,298 ) ( 10,000) 11-Jul-17 Transfer to PAU (31,508) (31,508) 15-Mar-17 MOPIC 49 (163,827) 3,435 160,392 Total withdrawal during 2017 (186,495) 4,595 150,392 (31,508) Total withdrawal up to 31Dec.2016 188,190 5,403,954 310,189 5,902,333 Total withdrawal up to July 31,.2017 1,695 5,408,549 - 460,581 5,870,825 Grand Total up to July 31,2017 299,540 16,436,655 2,642,631 1,244,579 20,623,405 7 Basic Education Development Project-Second Phase(BEDPII) IDA GRANT (H8250) Notes to the Financial statement For the Year Ended July 31, 2017 4. Total Withdrawal from Government Contribution as July 31,2017 Goods. Works. Conditional Operating DA Non-CS,CS & Cash TOTAL Costs Training Transfer USD USD USD USD USD A: Project Administration Unit PAU, Ministry of Education: Total withdrawal during 2017 Total withdrawal up to 31Dec.2016 619,628 619,628 Total withdrawal up to 31 July.2017 619,628 619,628 B:Public Works Project PWP : Total withdrawal during 2017 Total withdrawal up to 31Dec.2016 Total withdrawal up to 31 July.2017 Total 619,628 619,628 8 Basic Education Development Project-Second Phase(BEDPII) IDA GRANT (H8250) Notes to the Financial statement For the Year Ended July 31, 2017 5. Goods, Consultancy Services & Training Accumulated up Accumulated up During 2017 to Dec 31,2016 to Jul 31,2017 USD USD USD MOE-PAU 11,028,109 142,643 11,170,752 PWP-PMU 254,205 3,770 257,975 Total 11,282,314 146,413 11,428,727 6. Civil Works Accumulated up Accumulated up to During 2017 to Dec 31 2016 Jul 31 2017 USD USD USD Construction, extension and rehabilitation of 5,155,340 3,628 5,158,968 schools by the Public Works Project Total 5,155,340 3,628 5,158,968 7. Conditional Cash Transfer Accumulated up Accumulated up During 2017 to Dec31,2016 to Jul 31,2017 USD USD USD Conditional Cash Transfer 2,642,631 2,642,631 Total 2,642,631 2,642,631 9 Basic Education Development Project-Second Phase(BEDPII) IDA GRANT (H8250) Notes to the Financial statement For the Year Ended July 31, 2017 8. Operational Costs Accumulated up Accumulated up During 2017 to Dec 31,2016 to Jul 1,2017 USD USD USD MOE-PAU 1,349,864 (8,227) 1,341,637 PWP-PMU 372,620 80,248 452,868 Total 1,722,484 72,021 1,794,505 9. Others: Accumulated up Accumulated up During 2017 to Dec 31,2016 to Jul 31,2017 USD USD USD Staff Advances 1,100 (1,100) Amounts to be refund from Government of Yemen according to Finance Agreement: - Amount deducted and paid to third party by CBY 26,313 26,313 as per Court Order. - Exchange rate differences 31,594 533 32,127 Sub-Total 31,594 26,843 58,440 Total 32,694 25,746 58,440 The advance represents the amount disbursed to the coordinator of the basic education development project. Mr. Riyad Al-Yamani as advance on his salary for the month of January 2016. His salaries for the period from January 2016 to January 17, 2017 were issued to the Ministry of Finance for approval and disbursement but have not paid until the date of the report. As a result, the advance payment was documented and charged to expenditures (PAU staff salaries) in July 2017. The amount deducted by the Central Bank is the amount paid directly to a former employee of the project (the former financial manager) as per a court order issued by the Court of Appeal, which stated to pay a compensation of end service to the former financial officer equal to a total monthly salary for each for each year of his service In the Project Administration Unit - PAU. These payment is considered Ineligible expenditure as per finance agreement and the Government under the Financing Agreement is obliged to refund it. Exchange rate differences — PAU 31,564 $, PMU 563 $- were arisen as a result of the revaluation of cash balances held by PAU and PMU in local currency Yemeni riyal YR using the official exchange rate of USD against YR. Under BEDPII Disbursement Letter and the Financing Agreement, the government of Yemen bears the exchange rate risk arising from transferring fund to sub-account maintained in local currency YR. Accordingly Government under the Financing Agreement is obliged to refund it. 10 Basic Education Development Project-Second Phase(BEDPII) IDA GRANT (H8250) Notes to the Financial statement For the Year Ended July 31, 2017 10.Cash Accumulated up Accumulated up During 2017 to Dec31,2016 to Jul 312017 USD USD USD MOE-PAU DA at CBY 110,836 (110,034) 802 Current Account at CBY 174,702 (17,538) 157,164 Cash in Hand 1,894 (549) 1,345 Total 287,432 (128,121) 159,311 PWP-PMU DA at CBY 120,048 (119,597) 451 Cash in Hand 90 (90) — Total 120,138 (119,687) 451 GRAND TOTOAL 407,570 (247,808) 159,762 11.Accumulated Summary For the Sources and Uses of Funds by Donors as of July 31,2017 Government of Sources of Fund IDA Grant Total Yemen USD USD USD Direct Payments and Replenishments as per SOEs. 20,623,405 619,628 21,243,033 Total Sources of Fund 20,623,405 619,628 21,243,033 USES OF FUNDS Goods, Consultancy Services & Training 11,289,646 139,081 11,428,727 Civil Works 5,158,968 5,158,968 Conditional Cash Transfer 2,642,631 2,642,631 Operational Costs 1,313,958 480.547 1,794,505 Other 58,440 58,440 Total Uses 20,463,643 619,628 21,083,271 Surplus Resources for Uses 159,762 — 159,762 Closing Balance as of July 31,2017 159,762 159,762 11 Basic Education Development Project-Second Phase(BEDPII) IDA GRANT (H8250) Notes to the Financial statement For the Year Ended July 31, 2017 12.Accumulated Summary for the Sources & Uses of Funds by Units as of July 31,2017 E-PAU PWP-PMU Total Ju 31,2017 Jul 31,2017 Jul 31,2017 USD USD USD SOURCES OF FUNDS IDA Grant (H8250-RY) 14,752,580 5,870,825 20,623,405 Government Contribution 619,628 619,628 Total Sources of Fund 15,372,208 5,870,825 21,243,033 USES OF FUNDS Goods, Consultancy Services & Training 11,170,752 257,975 11,428,727 Civil Works 5,158,968 5,158,968 Conditional Cash Transfer 2,642,631 2,642,631 Operational Costs 1,341,637 452,868 1,794,505 Other 57,877 563 58,440 Total Uses 15,212,897 5,870,374 21,083,271 Surplus Resources for Uses 159,311 451 159,762 Cash Balance — Ending Period 159,311 451 159,762 12 Basic Education Development Project-Second Phase(BEDPII) IDA GRANT (H8250) Notes to the Financial statement For the Year Ended July 31, 2017 13.Summary of Bank Accounts Movement as of July 31,2017 MOE —PAU PWP- PMU Designated Account Sub— Current Account Designated Account Account No. 01-1226-0010235 00-1055-0010033 01-1225-00110235 Depositary Bank Central Bank Of Yemen Central Bank Of Yemen Central Bank Of Yemen Address Sana'a , ROY Sana'a , ROY Sana'a , ROY Currency USD YR USD USD YR USD Opening Balance as on1/1/2016 110,836 174,702 120,048 Replenishments Amounts to Account During 2016 Returned Amount to Account Amount Transferred to Sub-account( Local Currency) Returned Amount to Account 31,508 (31,508) Amount Transferred to Sub-account( Local Currency) Total 142,344 174,702 88,580 Deduct Withdrawals as on Dec 31,2016 141,542 16,193 88,129 Total withdrawals as on Dec 31,2016 141,542 16,193 88,129 Bank Accounts Balance as on Dec 802 157,164 451 31,2016 Petty Cash Balance 1,345 Total 802 158,509 451 13 Basic Education Development Project-Second Phase(BEDPII) IDA GRANT (H8250) Notes to the Financial statement For the Year Ended July 31, 2017 14.World Bank suspension notice of the project: On March 11, 2015, the World Bank informed the Yemeni government represented by the Ministry of Planning and International Cooperation that the project has been affected by the political and security situation prevailing in Yemen since January 29, 2015. In light of this development the bank has determined that an extraordinary situation has arisen which will make it improbable that Bank will be able to adequate supervise its programs or Yemen will be able to perform its obligations under the respective agreements because of many reasons (as stated in the suspension notice). In light of the reasons mentioned in suspension letter, the right of the government of Yemen to make further withdrawals out of proceeds of any IDA Credits and Grants is suspended as of March 11, 2015. Accordingly, as per suspension mechanism, no replenishments will be made to DA after that date. However PAU and PMU might be able to do the following: Submit direct withdrawal requests to pay project's commitments for expenses and services that were conducted and received on or before 11 March 2015. )-• Submit withdrawal requests to document the disbursement of DA for expenses and services that were conducted and received on or before 11 March 2015. Submit withdrawal requests to document the payment of PAU staff salaries and operating cost after March 11, 2015 until the suspension left or depletion of the available cash balances whatever come first. 15.World Bank Notice of Cancellation of Grant(H8250) unwithdrawn balance and adjusted closing date of the project: As of December 29, 2016 The association has in according with section 6.03(a) of the IDA General Conditions of Credits and Grants (the General Conditions) reviewed the status of the respective projects of the Republic of Yemen that are financed through IDA Grants. Accordingly IDA submit a Notice of Cancellation, that inform government in Yemen that the association will cancelled in full and/or reduce of the amount of the respective grants referred to in the Notice of Cancellation. BEDPII IDA grant number (H8250) was one of those grants that have been cancelled. According to the Notice of Cancellation, the total unwithdrawn Grant(H8250) balance in amount of (SDR 29.135.637.72) has been cancelled. The table of grand proceeds in the finance agreement has been adjusted to be 13,964,362.28 SDR instead of 43,100,000 SDR . Subsequently, the Government has been notified of the new closing date of the project, which was set as of 17 January 2017, with a grace period of four months ended on May 17, 2017. During the grace period PAU and PMU will be able to pay project's commitments for expenses and services delivered and received on or before 11 March 2015 and PAU and PMU operating cost and staff salaries until 17 January 2017. That will be within the limits of the funds available in PAU and PMU DAs. The grace period was extended for two months until 17 July 2017. 14 HLB Yemen Certified Public Accountants Alnoman Tower , Al-Zubiry Street , Sanaa - Republic of Yemen T: +967-1-408379 F: +967-1-210518 E: alhajcons.cogy.net.ye W: www.hlbyemen.com HLB AI-Haj & Halderwala Co. is a member of HLB International. A world-wide network of independent accounting firms and business advisers