Financial audit of program, cash receipts and disbursements for "Egypt Sustainable Rural Sanitation Services Program", project no. P154112 for the period from July 1, 2019 to June 30, 2020 Background I Independent auditor report 3 Statement of program cash receipts and disbursements current year 5 Statement of program cash receipts and disbursement prior year 6 Cumulative statement of program cash receipts and disbursement 7 Statement of program cash balance reconciliation 8 Notes to program cash receipts and disbursements 8-9 Director of Program Management Unit Ministry of Housing, Utilities, and Urban Communities Cairo, Egypt Dear Dr. Sayed Ismail, This report presents the results of our financial audit of Program cash receipts and disbursements prepared by program management unit (PMU) of the ministry of housing, utilities, and urban communities (MHUUC), under "Egypt Sustainable Rural Sanitation Services Program", project No. P154112 for the period from July 1, 2019 to June 30, 2020 On October 41h, 2015 loan agreement no. P154112 was signed between Arab republic of Egypt represented by minister of international cooperation Ms. Sahar Nasr and International Bank for Reconstruction and Development, and amended on May 20th, 2019, to implement the "Egypt Sustainable Rural Sanitation Services Program". The MHUCC got the presidential ratification on December 3 1st, 2015, and the World Bank transferred the first advance payment on the 30th of March 2016, furthermore the MHUUC transferred this advance in another MHUUC bank account on May 23rd, 2016, 2nd withdrawal on April 1Ith, 2018, 3rd withdrawal on 27th of June 2018, 4th withdrawal on Ist of October 2019, 5th withdrawal on 23rd of February 2020, 6th withdrawal on 12th of April 2020.The objective of the program is to strengthen institutions and policies for increasing access and improving rural sanitation services in the governorates of Beheira, Dakahliya and Sharkiya in the Arab Republic of Egypt. The Program is a part of the Borrower's National Rural Sanitation Program and consists Of the following activities: Part A: Improved Sanitation Access 1. Provision of access to sanitation to about 833,000 people living in highly polluted villages and satellite areas within the program area in the three participating governorates of Dakahliya, Sharkiya, and Beheira, through the construction by the respective WSCs of about 167,000 new connections from household to a sewer network that is linked to a wastewater treatment facility or other effective wastewater treatment system. 2. Constructing or upgrading of wastewater treatment facilities to appropriate standards. 3. Utilization of performance-based capital grants made by MHUUC to WSCs to carry out priority rural sanitation investments identified through the master plans and included in the annual capital investment plan of the WSCs. 4. Preparation of procurement documents for the new WSCs and data collection for the preparation of the pre-feasibility studies and detailed engineering designs. Part B: Improved Operational Systems and Practices of WSCs 1. Strengthening the capacities of the WSCs to improve their performance in the operational, financial, institutional, and citizen engagement areas, including in the planning and implementation of infrastructure investments and in their operational and maintenance requirements, improving efficiency and reducing costs, and designing and implementing performance improvement plans. 2. Preparation of performance improvement action plans (PIAPs), annual performance assessments (APAs) and related planning and data collection activities for the new WSCs. Part C: Strengthened National Sector Framework I. Carrying out a program of activities for strengthening the enabling environment for more efficient and accountable rural sanitation service delivery including: (i) development of a tariff structure for sanitation services that would enable cost recovery; (ii) formulation of a National Rural Sanitation Strategy; and (iii) finalization of the standard operating procedures for land acquisition for rural sanitation services. 2. Carrying out policy and analytical studies to inform the policy making process in the rural sanitation sector including, building and sustaining an effective regulatory and oversight Framework, and improving the capacity to conduct regular and timely financial and Performance audits of WSCs, aimed at providing a strong enabling framework for empowering the WSCs to become efficient and accountable service delivery institutions. Loan settlement The loan will be settled as the below: Principal Payment Date Installment Share (Expressed as a Percentage) On each September 15 and March 15 1,67% Starting from September 15, 2020 through September 15, 2049 On March 15, 2050 1,47% To: Program Management Unit (PMU) of the Ministry of Housing, Utilities, and Urban Communities (MHUUC) In our opinion, the financial statement for "Egypt Sustainable Rural Sanitation Services Program (SRSSP- Project No. P154112) for the period from July 1, 2019 to June 30, 2020 are prepared, in all material respects in accordance with cash basis of accounting as described in note (2) to the program, statement. * Statement of program cash receipts and disbursements * The notes to the program statement which include significant accounting policies and other explanatory information. We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the program statement of cash receipts and disbursements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the program management unit "PMU" in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code). and other independence requirements relevant to our audit of the program statement in Egypt We have fulfilled our other ethical responsibilities in accordance with the IESBA Code and the ethical requirements of Egypt. We draw attention to note (2) to the program statement, which describes the basis of accounting. The program statement are prepared for the purpose of providing information to PMU's management. As a result, the program, statement may not be suitable for another purpose. This report has been prepared in accordance with our Agreement with the Ministry of Housing, Utilities, and Urban Communities (MHUUC)], and has been prepared solely for Ministry of Housing, Utilities, and Urban Communities (MHUUC) and World Bank (WB), and should not be distributed to or used by parties other than PMU's management, Ministry of Housing, Utilities, Urban Communities (MHUUC) and World Bank. To the extent permitted by law, PricewaterhouseCoopers, Egypt (PwC) does not accept or assume any liability, responsibility or duty of care for any use of or reliance on this document by anyone, other than the intended recipient to the extent agreed in the Agreement. Accordingly, regardless of the form of action, whether in contract, tort or otherwise, and to the extent permitted by applicable law, PwC accepts no liability of any kind and disclaims all responsibility for the consequences of any person acting or refraining to act in reliance on the contents of this report or for any decisions made or not made which are based upon the contents of this report. -3- Management is responsible for the preparation and fair presentation of the program statement in accordance with cash basis of accounting described in note (2) and for such internal control as management determines is necessary to enable the preparation of the program statement that are free from material misstatement, whether due to fraud or error. Those charged with governance are responsible for overseeing the program management unit financial reporting process. Our objectives are to obtain reasonable assurance about whether the program statement are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this statement of cash receipts and disbursements. 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 program statement, 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 PMU's internal control. * Evaluate the appropriateness of accounting policies used and related disclosures made by management. We communicate with those charged with governance 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. Yours sincerely, PwC Partner PricewaterhouseCoopers 14 January 2021 -4- Statement ofprogram cash receits an/d disbursements "Egypt Sustainable Rural Sanitation Services Program" From July 1, 2019 to June 30,2020 Program Cash Opening Balance 174,133,714 22,268,554 3,588,388 9,213,720 Proaram Cash Receipts (A) Receipts from international bank for 57,568,250 Note (4) reconstruction and development Transfers from MHUUC- PMU to WSCs (180,940,176) 82,157,209 75,224,955 23,558,012 Note (5) Transfer deposited in WSC transferred by 3,388,998 Note (6) PMU in the prior period Wrong Cash deposits 542,479 Note (9) Refunded Expenses 621,891 Note (10) Interest received 2,313,051 1446,576 405,420 Procram Cash Expendituires (B Contractors (61,900,538) (51,198,840) (15,701,765) Consultants (1,715,859) (27,176) (627,716) (51,286) Independent verification agency (207,759) - - - Project sludge analysis - (2,918) - - Workshops - (37) (4,353) - Office Equipment & Vehicles - (960,086) (79,494) (317,552) Note (11) Reimbursable Expense (293,583) - - - Note (7) Licensing - - (23,530) (1,018) Advertising - (1,480) (4,845) (10,673) Printings - - (7,425) - Bank charges (3,438) (302) (552) (90) Rewards - (16,773) (18,103) (15,755) Error Adjustment - 9,503 Total program cash expenditures (2,220,639) (62,909,310) (31,964,858) (16,088,636) Proaran Cash Revaluation (C) Foreign currency revaluation " EGP to 7,276,190 899,409 17,622 326,883 USD" 72610 8949 1,2 2,8 The accompanying notes on page 8-9 form an integral part of the program cash receipts and disbursements statement and to be read with. Auditor's report attached PMU management signature &aement ofprogram cash receips and disbursements "Egypt Sustainable Rural Sanitation Services Program" From July 1, 2018 to June 30,2019 Program Cash Opening Balance 253,885,759 6,770,121 4,603,276 3,082,098 Program Cash Receipts (A) Receipts from international bank for reconstruction and development Transfers from MHUUC- PMU to WSCs (86,327,643) 30,446,757 40,851,994 15,028,891 Transfer not yet deposited in WSC (3,389,003) - - - Transfers from MHUUC- PMU to Holding Company of WSC (35,792) Interest received - 2,725,500 250 232,860 Program Cash Expenditures (B) Contractors - (16,990,486) (41,072,807) (8,728,736) Consultants (2,307,943) (954,744) (479,286) (326,502) Independent verification agency (216,477) - - - Workshops - (7,762) (5,884) (5,005) Office Equipment & Vehicles - (291,653) (1,026,278) (384,837) Furniture - (10,610) - Improvements laboratory - (2,416) - Electrical Improvements - (10,318) Accommodation - (114) - Reimbursable Expense (142,157) - - - Office Supplies - (2,844) - - Licensing - (265) - Advertising - (15,670) (17,754) (8,295) Bank charges (2,952) (25) (32) (62) Rewards (43,875) (7,090) (14,014) (7,323) Total Program cash expenditures (2,713,403) (18,270,539) (42,629,196) (9,471,077) Program Cash Revaluation (C) Foreign currency revaluation " EGP to 12,713,797 596,715 762,063 340,949 USD'* Statement ofprogram cash receits and disbursements "Egypt Sustainable Rural Sanitation Services Program" From July 1, 2017 to June 30,2020 Program Cash Opening Balance 137,499,987 - - - Program Cash Receipts (A)l Receipts from international bank for reconstruction 207,143,250 - - - and development Transfers from MHUUC- PMU to WSCs (294,899,646) 126,469,805 123,599,441 41,830,399 Transfer not yet deposited in WSC (3,389,003) - - Transfer deposited in WSC transferred by PMU in 3,388,998 the prior period Transfers from WSCs main accounts to deduction 6,028,238 1,599,190 1,345,610 accounts Transfers from MHUUC- PMU to Holding (35,792) - Company of WSC Interest received - 5,113,553 1,446,826 797,261 Cash Deposit - - - 14,644 Proeram Cash Expenditures (8) Contractors - (87,347,114) (94,286,487) (24,430,501) Consultants (9,019,357) (1,331,731) (1,671,223) (488,476) Transfers from WSCs main accounts to deductions (6,028,238) (1,599,190) (1,345,610) accounts Independent verification agency (974,969) - - - Project sludge analysis (3,029) - - Workshops - (8.725) (10,565) (5,005) Office Equipment & Vehicles - (1,251,739) (1,105,772) (702,389) Furniture - - (30,393) - Electrical Improvements - (10,318) Improvements to Rehabilitation laboratory - - (2,416) - Accommodation - - (114) (519) Reimbursable Expense (435,740) - - - Ofnce Supplies - (2,844) - - Licensing - (265) (23,530) (1,018) Advertising (3,279) (37,640) (54,740) (25,329) Printings - - (28,433) - Interest transferred - (74,985) - - Bank charges (9,794) (365) (629) (194) Rewards (48,305) (35,098) (39,688) (24,781) Error adjustment "Wrong cash deposit" - 542,479 - (4,477) Total program cash expenditures (10,491,444) (95,579,331) (98,853,190) (27,038,617) Prorram Cash Revaluation (C) Foreign currency revaluation " EGP to USD' 19,989.987 239,127 J20,4 15 466,101 -7- PMU management signature Statement ofprogram cash balance reconciliation "Egypt Sustainable Rural Sanitation Services Program" From July 1, 2019 to June 30,2020 Cash balance per program books 150,827,700 212,593,379 Cash balance per program banks 150,827,700 209,204,376 Difference - 3,389,003 (6) Notes to the program cash receipts and disbursements statements The program cash receipts and disbursements statements are the representation and the responsibility of Program Management Unit (PMU) of the Ministry of Housing, Utilities, and Urban Communities (MHUUC). The statement of program cash receipts and disbursements represents the cash receipts and disbursements of Sustainable Rural Sanitation Services Program (SRSSP) financed with Loan No. 8527-EG, administrated by Program Management Unit (PMU) of the ministry of Housing, Utilities, and Urban Communities (MHUUC) and implemented by water and sanitation companies (WSCs) "ElDakahlia, EISharkia and ElBehera" The statement of program cash balance reconciliation represents the reconciliation between the program cash balance per PMU and WSCs books with the PMU and WSCs Banks as at June 30, 2020 Program Management Unit (PMU) of the ministry of Housing, Utilities, and Urban Communities (MHUUC) policy is to prepare the program cash receipts and disbursements statement in accordance with cash basis of accounting. The program management unit "PMU recognizes transactions and events only when cash is received or paid". Statement of receipts and expenditures produced under the cash basis of accounting cover cash receipts, cash disbursements. and opening and closing cash balances. Egypt sustainable rural sanitation services program cash receipts and disbursements statements are presented in United States Dollars "USD", International bank for reconstruction and development cash transfers are received in "USD", and expenditure are incurred in USD, EUR and Egyptian Pounds, Expenditure incurred in EGP and EUR have been converted to USD using the average exchange rate. Cash balances in EUR and EGP are translated to USD using the closing rates at the end of each financial period. International bank for reconstruction and development transferred an amount of USD 57,568,250 during the period from July 1, 2019 to June 30, 2020 to the ministry of Housing, Utilities, and Urban Communities (MHUUC), Program management unit (PMU) The program management unit of Egypt sustainable rural sanitation services program transferred USD 180,940,176 during the period from July 1, 2019 to June 30, 2020 to the implementing water sanitation companies based on the provided investment plans. The program management unit of Egypt sustainable rural sanitation services program transferred USD 3,388,998on June 24", 2019 to Dakahlia WSC for the implementation of the program. However, since the amount being transferred was requested in USD not in EGP, it took longer than usual for the CBE to secure the amount required, "noting that the PMU bank account was in EGP only then", therefore the bank statements of the PMU shows a deduction of this amount, and later during the 2" of July 2019 the amount was added to the WSC statement. The program has disbursed an amount of USD 293,583 from the loan phase I to renew the contracts to avoid any delaying tasks and projects, the PMU obtained approvals from the world bank to support those expenditures and to be reimbursed later from the second phase of the loan those amounts were reimbursed in the subsequent period. At the 9th of April 2020 the PMU management approved the opening of new subsidiary bank accounts to the companies for tax/other deductions payments purpose, going forward the companies shall deduct any tax/other deductions payments from those accounts. And so, the companies transferred cash from their main accounts to those deductions bank accounts to be used for tax payments during the period. The Holding Company for Water and Wastewater deposited an amount of USD 542,479 to the loan related bank account by mistake and then refunded them at the subsequent period at the 8' of July 2020, also the PMU management sent a letter to The Holding Company for Water and Waste Water to not use the loan's bank account as an intermediate account for its transfers to El Dakhlia water company. To avoid the occurrence of the same action again. The Refunded expenses represent the amount transferred back to WSC sharkia program bank account from its operation bank account. The refunded amount is part of the retention amounts (621k out of 4M) that were not paid yet by WSC of Sharkia to its contractors and were kept in the WSC operation bank account till the end of the project. The Dakahlia WSC has purchased six vehicles (two vacuum trucks and four ejector cleaning tracks by an amount of USD 958,345, this amount also includes an amount of USD 1,741 related to the purchase of printers.