FUNDO PARA O FOMENTO DE HABITAÇÃO (FFH), FP PDUNM – Northern Mozambique Urban Development Project Financial Audit Report For the Year ended as at 31 December 2023 0 Audit.Tax.Accounting.Advisory TABLE OF CONTENT DIRECTORS’ RESPONSIBILITIES DECLARATION ................................................................. 2 Introduction ............................................................................................................................... 3 INDEPENDENT AUDIT REPORT.............................................................................................. 5 INDEPENDENT AUDIT REPORT.............................................................................................. 6 REPORT OF THE FINANCIAL STATEMENTS ......................................................................... 6 Statement of Comprehensive Income and Expenses ............................................................ 9 Statement of Financial Position ............................................................................................. 10 Statement of Budget Control ................................................................................................ 11 NOTED OF THE FINANCIAL STATEMENTS ........................................................................ 12 1 Introduction The Implementation Agent The World Bank is a financial institution based in Washington (United States), which makes various transactional contributions, especially cash loans, mainly to developing countries. This organization plays a key role in financing public policies and infrastructure works in various countries, which make use of the financial loans offered by the institution on advantageous terms compared to the private sector. The World Bank is also known as the International Bank for Reconstruction and Development (IBRD). There are four categories of financial products used in Mozambique, and in most IDA beneficiary countries in sub-Saharan Africa, as follows:  Investment Project Financing (IPF): disburses finance to governments for activities that create the necessary physical and social infrastructures to reduce the hunger and create sustainable development.  Multiphase Programmatic Approach (MPA): allows the countries to structure a long, significant or complex involvement as a set of smaller connected operations (or phases), under the same program.  Development Policy Financing (DPF): provides budgetary support to governments for political and institutional reforms through general uncommitted budgetary funding that is subject to the beneficiary country's own implementation processes and systems.  Program-for-Results Financing (PforR): introduced in 2012 links the development of World Bank funds directly to the achievement of defined results, helping countries to improve the design and implementation of their own development programs and achieve lasting results by strengthening their intuitions, systems and increasing their capacity. The Government of Mozambique (GoM), through the Ministry of Public Construction, Housing and Water Resources, is carrying out the Northern Mozambique Urban Development Project (PDUNM) to be implemented in the municipalities of Nampula, Nacala-Porto, Pemba and Montepuez in the provinces of Nampula and Cabo Delgado respectively, financed by the World Bank (WB) through the International Development Association (IDA). Implemented in compliance with the environmental and social standards of the Government of Mozambique and the World Bank, financing for the PDUNM was approved by the World Bank for a total amount of SDR 70,700,000, equivalent to USD 100,000,000, through the financing agreement (GRANT NUMBER D943-MZ) signed on December 28, 2021. The PDUNM project will be implemented over a period of five (5) years, starting from March 2022, and initially the plan included the implementation of activities subdivided into four (4) components, namely:  Urban Infrastructure and Primary Services;  Housing and Urban Land;  Urban Policy and Institutional Strengthening; and 3  Project Implementation Support. With the passage of Tropical Cyclone Freddy through the southern region of the Indian Ocean between February and March 2023, affecting ten (10) of Mozambique's eleven (11) provinces, with the exception of Cabo Delgado province, including important cities and municipalities of Maputo, Matola, Quelimane and Lichinga, causing damage to critical infrastructure and services, the Government of Mozambique has identified the urgent need to implement activities to restore damaged infrastructure called (CERC) – Contingency Emergency Response Components, namely: transportation, education, health, energy and water supply and sanitation infrastructures, as well as the resumption of agricultural activities. In this context, the Government of Mozambique requested funding for CERC's activities from the World Bank. In response, the World Bank proposed the activation of the Immediate Response Mechanism (IRM), for an amount of USD 150,000,000 through CERC in four (4) projects, of which PDUNM contributed USD 20,000,000, thus creating component five (5), called CERC. The CERC activities covered by the PDUNM fund are implemented in the cities of Maputo, Quelimane, Inhambane and Gaza, through the Maputo City Council (CMM), the National Road Administration (ANE) and the National Directorate of Water Supply and Sanitation (DNAAS). Source of Finance The funds are channelled by the World Bank to the project's bank account at the Bank of Mozambique. 4 INDEPENDENT AUDIT REPORT Introduction NEXIA BKSC was contracted by Fundo para o Fomento de Habitação, FP to carry out a financial audit of the accounts of the Northern Mozambique Urban Development Project (PDUNM) for the year ended as at 31 December 2023. st Scope of the work The scope of the financial audit is to perform an audit in accordance with International Standards on Auditing in order to express an opinion on whether the Financial Statements for the year ended 31 December 2023 have been prepared, in all st material respects, in accordance with the accounting basis adopted by the entity. Additionally, assess the design of internal controls over key transaction flows and confirm that the controls were effectively operational during the year, as well as assessing whether receipts and payments are in accordance with the terms of the Agreements, Laws and Regulations relevant to the project, with the appropriate attention to economy and efficiency, and exclusively for the purposes for which the financing was granted - Financing Agreement between the Republic of Mozambique and the International Development Association, initiated on 28 December 2021, with reference th GRANT NUMBER D943-MZ. Report and summary of findings Our report is presented as following:  Audit Financial Statements – our report for the year ended as at 31 December 2023 has an unqualified opinion. st  Our report indicates that there are some deficiencies seen in the course of our work which are dealt with in a separate management letter. 5 Fundo para o Fomento de Habitação (FFH), FP (“PDUNM Project”) Notes of Financial Statements ended as at 31 December 2023 (Amount expressed in US dollars) NOTED OF THE FINANCIAL STATEMENTS 1. MAIN ACCOUNTING POLICIES a) Basis of Accounting Income and expenses are recorded on a petty cash basis. Under the petty cash regime, income and expenses are recognized when the respective amount has been received or paid, respectively, in the period to which it relates. The financial management standards applied by the Mozambican State and World Bank standards were also observed. b) Basis of preparation of Financial Statements The statement of comprehensive Income and Expenses was prepared based on accounting records, of which were maintained in a excel spread sheet. c) Function Currency and Presentation Currency The project's functional currency is the US dollar. Funds are received in designated accounts opened with Banco de Moçambique (BdM) in foreign currency (USD). Transactions are carried out in Meticais and converted to USD at the BdM exchange rate on the date of the transaction. d) Incomes The funds received comprise donations received from the World Bank and are recorded as income/receipts in the bank account. e) Expenses Expenses are recorded in the project ledgers as soon as they are disbursed. f) Balances in Banks The closing balances shown in note 4 represent the bank balances as at December 31, 2023 according to the accounting records reconciled with the bank statements as at the same date, with the exception of the bank accounts of the National Road Administration - ANE, Maputo Municipal Council - CCM and the National Directorate of Water Supply and Sanitation - DNAAS, which balances from the bank statements include funds from other financing not linked to PDUNM, but intended for the implementation of CERC. In addition to PDUNM funds, CERC is also implemented with funds linked to other financing contracts. 12 Fundo para o Fomento de Habitação (FFH), FP (“PDUNM Project”) Notes of Financial Statements ended as at 31 December 2023 (Amount expressed in US dollars) g) Fixed Assets Fixed assets are classified as capital goods and recorded as an expense in the period in which they are acquired. 2. Incomes The amounts disbursed by the World Bank for the year 2023 can be presented as follows: Beneficiary 2023 CCM – Maputo Municipal Council 7.303.000 ANE – National Road Administration 6.023.570 DNAAS – Directorate of Water Supply and Sanitation 6.673.430 Total 20.000.000 3. Expenses 3.1. COMPONENT 1 – Urban Infrastructures and basic services 2023 Other services 7.145 Domestic Flight Tickets 24.912 Domestic allowances for civilian staff 20.623 Non-resident consultancy and technical assistance - legal person 7 Staff transport 6.395 Total 59.082 3.2. COMPONENTE 2 – Housing and Urban Land 2023 Other services 5.721 Domestic Flights tickets 696 Non-resident consultancy and technical assistance – legal person 124 Total 6.541 3.3. COMPONENTE 3 – Urban Policy and Institutional Strengthening 2023 IT equipment 161.221 Domestic flights tickets 4.587 Domestic allowances for civilian staff 30.727 Non-resident consultancy and technical assistance – legal person 40.000 Foodstuffs 43 Total 236.578 13 Fundo para o Fomento de Habitação (FFH), FP (“PDUNM Project”) Notes of Financial Statements ended as at 31 December 2023 (Amount expressed in US dollars) 3.4. COMPONENTE 4 – Project Implementation Support 2023 Other services 3 IT equipment 37.927 Domestic flight tickets 107.173 General communication 13.086 Domestic allowances for civilian staff 28.990 Non-resident consultancy and technical assistance – legal person 59.654 Maintenance and repair of real estate 29.238 Resident consultancy and technical assistance - natural person 149.119 Office consumables 280 Staff transport 11.062 Furniture in general 22.442 Foodstuffs 0 Total 458.972 3.5. COMPONENTE 5 – CERC - Contingency emergency response 2023 Water supply and sanitation infrastructures 764.132 Total 764.132 The level of implementation of CERC by each of the implementing entity is as follows: Level of Entity Activity Budget Expenses Variation Execution % Replacing and repairing damage to CMM streets, bridges and drainage lines in the 7.303.000 0 7.303.000 0% municipality of Maputo Replacement and repair of damage to ANE streets, bridges and drainage lines in the 6.023.570 0 6.023.570 0% municipality of Quelimane Repair of damaged dikes, replacement and DNAAS installation of critical equipment and 6.673.430 764.132 5.909.298 11% replacement of hydrological monitoring lines Total 20.000.000 764.132 19.235.868 4% The execution of the funds received for the implementation of CERC is very low, and by December 31, 2023, only DNAAS had started executing the funds. This situation was partly due to the delay in the disbursement of funds and, consequently, the process of contracting the companies providing the services began in the last quarter of the year, following all the steps defined under the terms of Decree No. 79/2022 approving the Regulations for Contracting Public Works Contracts, Supplying Goods and Providing Services to the State. 14