uHY Auditing and Consulting Co Ltd COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT DONG HOI CITY SUB-PROJECT Financing Agreement No.6027-VN and Loan Agreement No.8745-VN AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 AjLAjAjLA&AjLjAAjL rTTTTTTTTrTT!lt .933CE23E1133133 j3=23=13333CE03C jQEK33CZ33K33I13QKXM AJOCC/CK<33CE133C333,O CK3C[C[3OZ3CK3EK3113C3CK3K3j>CK3L JECE330EN33ECE33CE33C1333313 C[33E3CK3EZ3CZ3CE3C[3CK3C3CK3K333 PICE3C[33[33EK3CK3CK13CZ30C23CK IOCK3CE3C[3CE3CK33E33F30C33r930 13C33C3CKOEZCI3EK3CK3L3CKZLZ3.I - 3K3CK3IZOE3C3C33CIOK3C[ rJVK3/433K33C3Q1ZQK13l=ll=lll - An ind3epend3et3embr3f3UY ntenaionl Hlpng ouprope COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT - DONG HOI CITY SUB-PROJECT Financing Agreement No.6027-VN and Loan Agreement No.8745-VN TABLE OF CONTENTS CONTENT PAGE(S) PART I FINANCIAL STATEMENTS I Statement of the Project Management Unit 2 Independent Auditors' report 3-4 Balance Sheet 5 Statement of Funds and Expenditures 6 Statement of Receipts and Disbursements 7 Statement of Designated Account 8 Statement of Loan Withdrawal 9 Notes to the Financial Statements 10 - 15 PART II AUDITORS' REPORT ON THE COMPLIANCE 16 - 18 PART III AUDITORS' REPORT ON THE INTERNAL CONTROL OVER PREPARATION OF THE FINANCIAL STATEMENTS 19-21 PART IV MANAGEMENT LETTER 22 -27 o* PART I FINANCIAL STATEMENTS COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT - DONG HOI CITY SUB-PROJECT Financing Agreement No,6027-VN and Loan Agreement No.8745-VN STATEMENT OF THE PROJECT MANAGEMENT UNIT Dong Hoi City Environment and Climate change Project Management Unit (hereinafter referred to as the 'PMU") submits its report together with the audited financial statements of Coastal Cities Sustainable Environment Project - Dong Hoi City Sub-project (hereinafter referred to as "the Project") for the year ended 31 December 2023. Project Management Unit as Members of the Project Management Unit who held office during the period and to the date of this report include: Mr. Le Thanh Tinh Director Mr. Doan Thanh Son Vice Director Mr. Le Duo Man Chief Accountant Responsibilities of the Project Management Unit The PMU is responsible for preparing Financial Statements which give a true and fair view of balance of assets, liabilities and funds as at 31 December 2023 as well as the funds received and disbursements made for the year ended 31 December 2023 in accordance with the accounting policies as stated in Note 2 and Note 3 of the Notes to the Financial Statements and provisions of the Financing Agreement No.6027-VN and Loan Agreement No.8745-VN. In preparing those financial statements, the PMU is required to: * Select suitable accounting policies and then apply them consistently; * Make judgments and estimates that are reasonable and prudent; * State whether applicable accounting principles have been followed, subject to any material departures disclosed and explained in the financial statements; and * Design and maintain an effective internal control system for the purpose of proper preparation and presentation of the financial statements to minimize risks and frauds. The PMU is responsible for ensuring that proper accounting records are kept which disclose, with reasonable accuracy at any time, the financial position of the Project and to ensure that the financial statements comply with the accounting systems as described in Notes to the Financial Statements as well as laws and other provisions applicable to the Project. They are also responsible for safeguarding the assets of the Project and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The PMU confirms that they have complied with the above requirements in preparing the Financial Statements. For and ofrbehalf of the Project Management Unit, Le Thanh Tinh Director Quang Binh, 26 June 2024 2 H AUDITING AND CONSULTING COMPANY LIMITED my No: 6512024/UHY- BCKT INDEPENDENT AUDITORS' REPORT To: The Project Management Unit Coastal Cities Sustainable Environment Project - Dong Hoi City Sub-project Auditor's Opinion We have audited the financial statements of Coastal Cities Sustainable Environment Project - Dong Hol City AR Sub-project (the Project), which were prepared on 26 June 2024 as set out on pages 05 to 15, which comprise the Balance Sheet as at 31 December 2023, the Statement of Funds and Expenditures, the Statement of Receipts and Disbursements, the Statement of Designated account, and the Statement of withdrawal applications for the year ended 31 December 2023, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying Financial Statements present fairly, in all material respects, the financial position of the project as at 31 December 2023 as well as the fund receipts, disbursements, project management expense and loan withdrawal for the year ended 31 December 2023, in accordance with the basis of the principal accounting policies set out in Note 2 and Note 3 of the Notes to the financial statements. Basis for 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, Responsibility of The Project Management Unit for the Financial Statements The Project Management Unit is responsible for the preparation and presentation, in a true and fair view, of the financial statements in accordance with the accounting policies set out in Note 2 and Note 3 of the Notes to the financial statements and for such internal control as the Management determines is necessary to enable the preparation and presentation of the financial statements that are free from material misstatement, whether due to frauds of errors. Auditor's Responsibility 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 auditors 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 these financial statements. Head Office 5th Floor. B2 Tower Roman Plaza. To Huu Street. Dai Mo Ward, Nam Tu Liem District, Hanoi, Vietnam. Phone 84 24 5678 3999 www uhy.vn 3 An independent member ofLHY International INDEPENDENT AUDITORS' REPORT (CONT'D) Auditor's Responsibility for the Audit of the Financial Statements (cont'd) 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 matenal 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. - 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 communicated with those charged with governance regarding, among other matters, the planned scope and timingo udit and significant audit findings, including any significant deficiencies in internal control that we a::amde; ud t Pha Pham Thi Thao Deputy General Director Auditor Auditor's Practicing Certificate Auditor's Practicing Certificate No. 0798-2023-112-1 No. 2465-2023-112-1 For and on behalf of UHY Auditing and Consulting Company Limited Hanoi, 26 June 2024 am 4 COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT FINANCIAL STATEMENTS DONG HOI CITY SUB-PROJECT For the year Financing Agreement No.6027-VN and Loan Agreement No.8745-VN ended 31/12/2023 BALANCE SHEET As at 31 December 2023 31/1212023 31/1212022 Note VND VND ASSETS 1. Current assets 91,870,387,560 45,361,294,590 Cash 61,669,971,445 26,636,709,137 Cash at bank, State treasury 6 61,669,971,445 26,536,709,137 Receivables 30,200,416,115 18,824,585,453 Advances to suppliers 7 30,159,428,943 17,782,561,321 Other receivables 40,987,172 1,042,024,132 - II. Fixed assets - - Cost 221,540,000 221,540,000 Accumulated depreciation (221,540,000) (221,540,000) Ill. Project's expenditures 8 662,432,595,011 514,008,324,670 Project implementing expenditures 662,432,595,011 514,008,324,670 TOTAL ASSETS 754,302,982,571 559,369,619,260 RESOURCES 1. Liabilities 39,241,619,725 26,094,665,534 Payables to suppliers 9 38,295,548,215 25,151,436,442 Taxes and other payables to the State Budget 2,842,509 91 Other payables 10 943,229,001 943,229,001 1l. Funds 715,061,362,846 533,274,953,726 Funds for Project's implementation 714,494,552,677 532,813,058,869 WB fund 11 628,940,419,480 462,880,925,672 IBRD fund 140,493,783,200 130,844,024,450 IDA fund 488,446,636,280 332,036,901,222 Counter-part fund 12 85,554,133,197 69,932,133,197 Other funds (*) 566,810,169 461,894,857 Foreign exchange difference 547,688,799 446,323,328 Bank interests 19,121,370 15,571,529 TOTAL RESOURCES 754,302,982,571 559,369,619,260 (*) Other funds- Balance after offsetting against bank interest and fees: gain or loss of foreign exchange rate. Le Thanh Tinh Le Due Man Director Chief Accountant Quang Binh, 26 June 2024 The accompanying notes are an integral part of the Financial Statements 5 COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT DONG HOI CITY SUB-PROJECT FINANCIAL STATEMENTS Financing Agreement No.6027-VN and Loan Agreement No.8745-VN For the year ended 31/12/2023 STATEMENT OF FUNDS AND EXPENDITURES For the year ended 31 December 2023 (*) Year 2023 Accumulated to 31112/2023 IBRD fund IDA fund Counterpart Other funds Total IBRD fund IDA fund Counterpart Other funds Total fund fund VND VND VDND VND VND VND VND VND VND VND . FUNDS 9.649,758.750 156,409,735,058 15,622,000,000 4,209,841 181,685,703,649 140,493,783,200 488,446,636,280 85,554,133,197 431,830,267 714,926,382,944 18RD fund 9,649,758,750 - 9,649,758,750 140,493,783,200 --- 140,493,783,200 Coerpart fund 156,409,735,058 1 - 156,409,735,058 1 488,446,636,280 -488446,836,280 Bnntertf 15,622,000,000 - 15,622,000,000 - 85,554,133.197 - 85,554,133,197 Bank interest - 4,209,841 4,209,841 - 20,830,267 20,830,267 Sale of bidding documents - 411,000,000 411,000,000 II. EXPENDITUREs 22,130,971,005 108,406,347,139 17,886,952,197 660,000 148,424,930,341 137,317,427,868 438,610,667,997 86,504,499,146 412,708,897 662,845,303,908 Sanitation Infrastructure Expansion - 108,406,347,139 8,868,059,967 - 117,274,407,106 - 438,610,667,997 8,868,059,967 - 447,478.727,964 Urban Connectivity Improvement 22,130,971,005 1,883,226,098 24,014,197,103 137,317,427,868 - 2,477,765,772 - 139,795,193,640 Compensation and Site Clearance - 23,431,817,828 - 23,431,817,828 Implementation Support and 7,135,666,132 7,135,666,132 - 51,724,065,579 51,724,065,579 Institutional Reform Bank fee 660,000 660,000 - 2,790,000 1,708,897 4,498,897 Bidding expenses - 411,000,000 411,000,000 SURPLUSI(DEFICIT) ( 481,212,255) 48.003,3a7,919 (2,264,952,197) 3,549,841 33,260,773,308 3,176,355,332 49,835,968,283 (950,365,949) 19,121,370 52,081,079,036 Ill. FOREIGN EXCHANGE DIFFERENCE (590,511,852) 691,877,323 - 101,365,471 (234,711,441) 782,400,240 547,688,799 IV. OPENING BALANCE 16,013,367,998 1,923,103,281 1,314,586,248 15,571,529 19,266,629,056 - - V. ENDING BALANCE 2,941,643,891 50.618.368.523 9503659 19121370 5262877835 2 941643.891 50.618.368.523 1950.365.949) 19,121,370 52 628.767 835 Represented by: Cash Cabs 61,669,971,445 Receivables 30,200,416,115 Liabilties (39,241,619,725) 52,628.767,835 The em nt includes VND 14,465,690,000 of counterpart fund and VND 12,742,300,000 of Project related expenditures financed by counterpart fund incurred before 27 October 2017 (the date of t FinIancing Agreemnt) Dec Ti%nhTLe Duc Man Director Chief Accountant Quang Binh, 26 June 2024 The accompanying notes are an integral part of the Financial Statements6 J"6 COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT DONG HOI CITY SUB-PROJECT FINANCIAL STATEMENTS Financing Agreement No.6027-VN and Loan Agreement No.8745-VN For the year ended 31/1212023 STATEMENT OF RECEIPTS AND DISBURSEMENTS (*) For the year ended 31 December 2023 Year 2023 Accumulated to 31112/2023 IBRD fund IDA fund Counterpart Other funds Total IBRD fund IDA fund Counterpart Other funds Total fund fund VND VND VND VND VND VND VND VND VND VND 1. RECEIPTS 9,649,758,750 156,409,735,058 16,623,036,960 4,209,841 182,686,740,609 140,493,783,200 488,446,636,280 85,513,146,025 431,830,267 714,885,395,772 IBR fund 9,649,758,750 - 9,649,758,750 140,493,783,200 - - 140,493,783,200 IDA fund 156,409,735,058 - - 156,409,735,058 488,446,636,280 - - 488,446,636,280 Counterpart fund- - 16,623,036,960 - 16,623,036,960 - - 85,513,146,025 - 85,513,146,025 Bank interest - 4,209,841 4,209,841 - - - 20,830,267 20,830,267 Sale of bidding documents - - 411,000,000 411,000,000 II. DISBURSEMENTS 24,538,173,998 107,054,323,292 16,064,528,900 660,000 147,657,686,190 134,503,130,112 435,905,407,477 83,887,938,150 412,708,897 654,709,184,636 Sanitation Infrastructure Expansion - 107,054,323,292 8,051,887,209 - 115,106,210,501 - 435,905,407,477 8,051,887,209 - 443,957,294,686 Urban Connectivity Improvement 24,538,173,998 1,681,283,652 26,219,457,65 134,503,130,112 42,275,823326 136,778,953,438 Compensation and Site Clearance - 21,750,755,243 - 21,750,755,243 Institutional Reform -an 6,331,358,039 - 6,331,358,039 - - 51,806,682,372 - 51,806,682,372 Bank fee - - 660,000 660,000 - - 2,790,000 1,708,897 4,498,897 - - 411,000,000 411,000,000 Ill. FOREIGN EXCHANGE DIFFERENCES (590,511,852) 691,877,323 - - 101,365,471 (234,711,441) 782,400,240 - 547,688,799 IIl. OPENING BALANCE 21.234.68747 3,276.339,954 1066699,815 15,571.529 25593.480045 - IV. ENDING BALANCE 5.755.941.647 53,323629,043 1,625207875 19121370 60.723.899.935 5755941,647 53.323629 043 1 625207,875 19121370 60723, 99 935 Represented by: Cash 61,669,971,445 Taxes and other payables to the State Budget (2,842.509) Other payables not related to expenditures (943,229,001) 60,723,899935 (*) The tement includes VND 14,465,690,000 of counterpart fund and VND 12,742,300,000 of Project related expenditures financed by counterpart fund incurred before 27 October 2017 (the date of th Financing Agreement) Le Thanh Tinh Ie Due Man Director Chief Accountant Quang Binh, 26 June 2024 The accompanying notes are an integral part of the Financial Statements 7 M COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT FINANCIAL STATEMENTS DONG HOI CITY SUB-PROJECT For the year Financing Agreement No.6027-VN and Loan Agreement No.8745-VN ended 31/12/2023 STATEMENT OF DESIGNATED ACCOUNT For the year ended 31/12/2023 Account No.: 53110370134073 m Bank: Joint Stock Commercial Bank for investment and Development of Vietnam - Quang Binh Branch Year 2023 Year 2022 USD USD PART A: ACCOUNT ACTIVITIES Opening balance of designated account 988,200.27 2,748,696.41 Add Total amount advanced by the World Bank to the Designated Account in 6,899,980.00 4,739,960.00 the year Bank charges refund 40.00 Deduct Total amount withdrawn 5,457,955.30 6,500,496.14 Total amount refunds - Bank charges Ending balance of designated account 2,430,224.97 988,200.27 PART B: RECONCILIATION Opening balance of advances by the World Bank 2,393,345.97 4,115,014.83 Add Total amount advanced by the World Bank to the Designated Account in 6,899,980.00 4,740,000,00 m the year Deduct Total amount applied for advance clearance and approved by the World 5,767,001.70 6,461,668.86 Bank Total amount advanced by the World Bank to the designated account at 3,526,324.27 2,393,345.97 the year end Ending balance of designated account 2,430,224.97 988,200.27 Add Amount withdrawn but not yet claimed 1,096,099.30 1,405,145.70 Total advance accounted for at the year end 3,526,324.27 2,393,345.97 Le Thanh Tinh Le Duc Man Director Chief Accountant Quang Binh, 26 June 2024 The accompanying notes are an integral part of the Financial Statements 8 111lll 1I 1I 1I 1I1l11I111luul Ihiiiiii COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT DONG HOI CITY SUB-PROJECT FINANCIAL STATEMENTS Financing Agreement No.6027-VN and Loan Agreement No.8745-VN For the year ended 31/1212023 STATEMENT OF LOAN WITHDRAWAL For the year ended 31/12/2023 Withdrawal Applications cAimeor Amount claimed for advance clearance Amount disbursed/ accepted for advance Difference ______claimed_______for__ clearance Dfeec disbursement (Advance) Sanitation Urban implementati Amount No. Date Currency Infrastructure Connectivity Cornpensati on Support Refunds Total (b) Date Amount approved for (a-c) Expansion Improvement on and Site and Application disbursed (c) advance (b-d) Clearance institutional clearance (d) Accumulated to 0110112023 USD 19,385,000.00 10,887,185.97 4,661,677.97 - - 2,478,000.00 18,026,863.94 19,385,000.00 18,026,863.94 - Increases during the year USD 6.900,000.00 5,007,696.53 867,744.07 - - - 5,875,440.60 6,899,980.00 5,875,440.60 20.00 Designated Account 6,900,000.00 4,899,257.63 867,744.07 - - - 5,767,001.70 6,899,980.00 5,767,001.70 20.00 1I1-IBRDH 13/03/2023 USD - - 293,607,65 - - - 293.607.65 23/03/2023 293,607.65 12-IBRDDH 07/11/2023 USD - - 287,043.75 - - - 287,043.75 21/11/2023 287,043.75 13-IBRDDH 06/12/2023 USD 400,000.00 - 287,092.67 - - - 287,092.67 21/12/2023 399,990.00 287.092.67 10.00 27-IDADH 06/01/2023 USD 3,500,000.00 1,287,626.81 - - - - 1,287,626.81 17/01/2023 3,500,000.00 1,287,626.81 - 28-IDADH 13/03/2023 USD - 2,076,219.38 - - - - 2,076,219.38 27/03/2023 - 2,076,219.38 - 30-IDADH 07/11/2023 USD - 1,535,411.44 - - - - 1,535,411.44 06/12/2023 - 1,535,411.44 - 32-IDADH 06/12/2023 USD 3,000,000.00 - - - - - 18/12/2023 2,999,990.00 - 10,00 Direct payment - 108,438.90 - - - - 108,438,90 - 108,438.90 - 31-IDADH 05(11/2023 USD - 108,438.90 - - - 108,438.90 04112/2023 - 108,438.90 - Accumulated to 3111212023 28,285,000.00 15,894,882.50 5,529,422.04 - - 2Z478,000.00 23902304.54 26,284,980.00 23 902304.54 20.00 Differenes due to bank fees Le Thanh Tinh Le Duc Man Director Chief Accountant Quang Binh, 26 June 2024 The accompanying notes are an integral part of the Financial Statements COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT FINANCIAL STATEMENTS DONG HOI CITY SUB-PROJECT For the year Financing Agreement No.6027-VN and Loan Agreement No.8745-VN ended 31/1212023 NOTES TO THE FINANCIAL STATEMENTS (These notes are an integral part of and should be read in conjunction with the accompanying financial statements) 1. PROJECT BACKGROUND 1.1 Coastal Cities Sustainable Environment Project Coastal Cities Sustainable Environment Project was approved by the Prime Minister under Decision No. 582/QD-TTg dated 06/04/2016. Total estimated project cost of the Project is USD 273.6 million, which is financed by IBRD, IDA and counterpart fund under Financing Agreement No.6027-VN dated 27/10/2017 between Vietnamese Government and International Development Association (IDA) and Loan Agreement No.8745-VN dated 27/10/2017 between Vietnamese Government and International Bank for Reconstruction and am4 Development (IBRD). The Project will be implemented over a period of five years and will finance priority investments in the four participating project cities (Dong Hoi, Quy Nhon, Nha Trang and Phan Rang-Thap Cham). The Project development objective (PDO) is to increase access to sanitation services and improve the operational performance of sanitation utilities in selected cities. The project objectives will be achieved through (i) supporting the construction plan for flood risk control and rehabilitating the rivers; (ii) improving the wastewater collection and treatment systems; (iii) construction of new landfill cell, upgrading leachate treatment facilities, purchase of solid waste collection vehicles and equipment; (iv) Construction of school toilets and public toilets; (v) revolving funds for household connections; (vi) construction of priority roads and bridges along canals, drains and rivers to support urban development; and (vii) a capacity strengthening program for the PMUs and relevant agencies. The project has 4 components: Component 1: Sanitation Infrastructure Expansion - This component will contribute to PDO achievement (increase access to sanitation services) Component 2: Urban Connectivity Improvement - This includes priority roads and bridges along canals, drains and rivers - over 7km of strategic roads and five bridges. Component 3: Compensation and Site Clearance - This component will provide funding for compensation, site clearance and resettlement site works. Component 4: Implementation Support and Institutional Reform - This component will contribute to PDO achievement (improve the operational performance of sanitation utilities in select cities) through a capacity strengthening program for the PMUs and relevant agencies, and reform activities related to implementation of Decree 80 (institutional reorganization, household connection policy, service contracts and private sector participation, tariffs/cost recovery). 1.2 Dong Hoi City Sub-project Coastal Cities Sustainable Environment Project - Dong Hoi City Sub-project has a total investment cost of USD 58.128 million, including IDA credit of USD 35.88 million, IBRD loan of USD 14.34 million and counterpart fund of USD 7.91 million. Financing schedule by category is as follow: Unit: USD Category WB Counter- Total IDA IBRD part Component 1: Sanitation Infrastructure Expansion 26,831,419 - - 26,831,419 Component 2: Urban Connectivity Improvement - 9,873,510 - 9,873,510 Component 3: Compensation and Site Clearance - - 3,413,708 3,413,708 Component 4: Implementation Support and - - 2,991,220 2,991,220 Institutional Reform Sub-total 26,831,419 9,873,510 6,404,928 43,109,857 Contingency 5,366,284 1,974,702 1,280,986 8,621,972 Total 32,197,703 11,848,212 7,685,914 51,731,829 VAT (10%) 3,219,770 1,184,821 224,086 4,628,677 Total investment cost 35,417,473 13,033,033 7,910,000 56,360,506 Interest and fee 458,527 1,308,967 - 1,767,494 TOTAL 35,876,000 14,342,000 7,910,000 58,128,000 COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT FINANCIAL STATEMENTS DONG HOI CITY SUB-PROJECT For the year Financing Agreement No.6027-VN and Loan Agreement No.8745-VN ended 31/12/2023 NOTES TO THE FINANCIAL STATEMENTS (CONT'D) (These notes are an integral part of and should be read in conjunction with the accompanying financial statements) 1. PROJECT BACKGROUND (CONT'D) 1.2 Dong Hoi City Sub-project (Cont'd) According to Decision No. 3520/QD-UBND dated 31 October 2016 approving the construction investment projects of Coastal Cities Sustainable Environment Project - Dong Hoi City Sub-project, Quang Binh province: Coastal Cities Sustainable Environment Project - Dong Hoi City Sib-project has a total investment of USD 58,113,688. According to Decision No. 3060/QD-UBND dated November 8, 2022 on approving adjustmert of feasibility study report on construction investment of Coastal Cities Sustainable Environment Project - Dong Hoi city subproject, Quang Binh province: Coastal Cities Sustainable Environment Project - Dong Hoi City Sub- project has a total investment of USD 49,505,507. According to Decision No. 3703/QD-UBND dated December 21, 2023 on approving adjListment of feasibility study report on construction investment of Coastal Cities Sustakiable Environment Project - Dong Hoi city subproject, Quang Binh province: Coastal Cities Sustainable EnvIronment Proiect - Dong Hoi City Sub-project has a total investment of USD 49,505,507. 2. BASIS OF PREPARATION The financial statements have been prepared under the historical cost convention. The financial statements are prepared in accordance with WB's financial reporting requirements, Vietnamese Accounting Standards and Circular 79/2019[TT-BTC dated 14/11/2019 by Ministry of Finance. The financial statements are presented in Vietnam Dong (VND), except for the Statemrent of Designated Account and Statement of Loan Withdrawal, which are presented in US dollar (USD) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies, which have been adopted by the Project Management Unit in the preparation of these financial statements, are as follows: Receivables Receivables are recognised based on the amounts actually arisen and those advanced to suppiers in accordance with the terms of the contract. Payables Payables are recognised based on the amounts actually incurred. Foreign currency Funds received from International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD) in foreign currency is translated into VND usi-g the exchange rates announced by the Ministry of Finance at the date of receiving the funds or at the date of direct payment made to contractors/suppliers. Payment transactions incurred from the Advance account in foreign currencies are converted into Vietnam Dong at the buying rate announced by the services Bank at the date of transaction. Al! exchange differences from these transactions are recorded into "Exchange rate difference" account and presented as "Exchange rate difference" on the Balance sheet. Funds * IDA fund and IBRD fund is recognized when being credited to the Designated account and payment made directly to the suppliers during the year. * Counterpart fund is recognized when incurred. Funds are managed and used in accordance with the objectives of the project. COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT FINANCIAL STATEMENTS m DONG HOI CITY SUB-PROJECT For the year Financing Agreement No.6027-VN and Loan Agreement No.8745-VN ended 31/12/2023 NOTES TO THE FINANCIAL STATEMENTS (CONT'D) (These notes are an integral part of and should be read in conjunction with the accompanying financial statements) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) Expenditures Project costs are recognised on the accrual basis including expenses actually paid and payables owed to the supplier. The above loan interest amount is not shown in the project's financial statements because current regulations of Vietnam do not require accounting for this interest. 4. DESIGNATED ACCOUNT The Project opens its designated account at Joint Stock Commercial Bank for Investment and Development of Vietnam - Quang Binh Branch. Payments out of Designated accounts are made in accordance with Financing Agreement 6027-VN dated 27/10/2017 and Loan Agreement 8745-VN dated 27/10/2017 and other relevant covenants of the World Bank (WB). 5. STATEMENT OF RECEIPTS AND DISBURSEMENT Statement of Receipts and Disbursement is prepared based on actual cash flows; specifically: Cash inflow is the actual cash flow received from the World bank (WB), counterpart fund and other funds. Cash outflow is the actual cash outflow from the Project management unit for the project's cost items of this year and the amount paid to the supplier during the current year and those brought forward. Closing balance is based on the opening balance of cash flow plus cash inflows and minus cash outflow for the year. This balance is reconciled with the balance sheet items as at the end of the fiscal year as disclosed in Note 10. Accumulated figures are presented on the accrual basis from the commencement date of the Project to the end of the reporting period. 6. CASH AT BANK 31/12/2023 3111212022 USD Equivalent to VND USD Equivalent to VND Designated Account 2,430,224.97 59,082,646,299 988,200.27 24,511,441,892 VND Account 2,587,325,146 2,025,267,245 2,430,224.97 61,669,971,445 988,200.27 26,536,709,137 12 COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT FINANCIAL STATEMENTS DONG HOl CITY SUB-PROJECT For the year Financing Agreement No-6027-VN and Loan Agreement No.8745-VN ended 31/12/2023 NOTES TO THE FINANCIAL STATEMENTS (CONT'D) (These notes are an integral part of and should be read in conjunction with the accompanying financial statements) 7. ADVANCE TO SUPPLIERS 31/12/2023 31/12/2022 VND VND - ADB Trading Company Limited 1,126,103,347 2,679,827,604 Transport Science and Technology Center 266,296,923 532,593,847 Construction Quality Inspection Center of Quang Binh Province - 230,181,358 Hoang Hung Company Limited - 2,226,803,165 SNo 471 Joint Stock Company - 1,273,818,034 Urban Architecture Development Construction and Investment - 259,038,106 Hoang Dan Construction and Investment One Member Co., Ltd 28,475,500,277 10,000,000,000 Other 291,528,396 580,299,207 Total 30,159,428,943 17,782,561,321 8. PROJECT IMPLEMENTING EXPENDITURES Year 2023 Accumulated to 31/1212023 VND VND Sanitation Infrastructure Expansion 117,274,407,106 447,478,727,964 Urban Connectivity Improvement 24,014,197,103 139,795,193,640 Compensation and Site Clearance () - 23,431,817,828 Implementation Support and Institutional Reform 7,135,666,132 51,724,065,579 Bank fee - 2,790,000 148,424,270,341 662,432,595,011 (*) Including the cost of demining under the package "DH-3.1: Clearing mines and explosives", in which the value of drilling and hole-making item was recorded at VND 5,169,156,300. Regarding this bidding package, the Investigation Police Agency of Quang Binh province Public Security determined the construction volume value of drilling and hole-mak ng item of the package to be VND 2,289,109,000/VND 5,169,156,300 and issued a Conclusion of the investigation of the case and transferred the case file to the People's Procuracy of Quang Binh province and proposed to prosecute related accused for the crime of "Violating regulations on construction investment, causing serious consequences". This expense belongs to the counter-part fund and the Project Management Unit will make adjustments to the cost of drilling and hole-making item and other costs (if any) on the project's financial statements after an official decision by the court and competent authorities was made regarding the handling of the value paid but not accepted. rm 13 COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT FINANCIAL STATEMENTS DONG HOI CITY SUB-PROJECT For the year Financing Agreement No.6027-VN and Loan Agreement No.8745-VN ended 31/12/2023 NOTES TO THE FINANCIAL STATEMENTS (CONT'D) (These notes are an integral part of and should be read in conjunction with the accompanying financial statements) 9. PAYABLES TO SUPPLIERS 31/12/2023 3111212022 VND VND Truong Son Construction Company 1,681,062,585 1,681,062,585 479 Hoa Binh Joint Stock Company 3,900,821,664 4,701,319,650 Haskoning DHV Nederland B.V 3,181,893,967 2,062,508,284 Van Cuong Construction Union Company Limited 1,151,467,871 1,699,676,530 Binh Nguyen Technicality Company Limited 6,391,225,410 6,146,492,964 m Hoang Hung Company Limited 2,500,063,830 Newstech., JSC 2,048,286,240 Urban Architecture Development Construction and Investment 6,313,078,237 Hoang Huy Toan Company Limited 1,384,884,058 3,129,940,924 No 471 Joint Stock Company 1,720,048,684 Urban Infrastructure Development Investment Corporation - 4,049,932,269 4,700,551,452 Company Limited Other 3,972,783,400 1,029,884,053 Total 38,295,548,215 25,151,436,442 10. OTHER PAYABLES 3111212023 31/12/2022 VND VND Contract performance guarantee 943,216,000 943,216,000 Other payables 13,001 13,001 ON Total 943,229,001 943,229,001 11. WB FUND Year 2023 Accumulated to 31/1 212023 USD VND equivalent USD VND equivalent Designated Account 6,900,000.00 163,522,023,530 23,807,000.00 554,239,531,040 Advance 6,899,980.00 163,521,541,037 26,284,860.00 611,509,078,547 Refunds - - (2,478,000.00) (57,272,820,000) Bank fees 20.00 482,493 140.00 3,272,493 Direct payment 108,438.90 2,537,470,278 3,221,240.52 74,700,888,440 7,008,438.90 166,059,493,808 27,028,240.52 628,940,419,480 12. COUNTER-PART FUND Year 2023 Accumulated to 31/12/2023 VND VND Vietnam Government Fund 15,622,000,000 85,554,133,197 15,622,000,000 85,554,133,197 14 COASTAL CITIES SUSTAINABLE ENVIRONMENT PROJECT FINANCIAL STATEMENTS DONG HOI CITY SUB-PROJECT For the year Financing Agreement No.6027-VN and Loan Agreement No.8745-VN ended 31/12/2023 NOTES TO THE FINANCIAL STATEMENTS (CONT'D) (These notes are an integral part of and should be read in conjunction with the accompanying financial statements) 13. RECONCILIATION BETWEEN PROJECT IMPLEMENTATION COST IN THE STATEMENT OF RECEIPTS AND DISURSEMENTS AND IMPLEMENTING EXPENDITURES IN THE BALANCE SHEET AS AT 31 DECEMBER 2023 3111212023 VND Project implementing expenditures as per Balance sheet as at 31/12/2023 662,432,595,011 Payments accumulated to 31/12/2023 as per Statement of Receipts and 654,296,475,739 Disursements Payments IBRD funds 134,503,130,112 Payments IDA funds 435,905,407,477 Payments from counterpart funds 83,887,938,150 Difference 8,136,119,272 Including: Payables and receivables related to expenditures as at 31/12/2023 8,136,119,272 Advances to suppliers (30,159,428,943) Payables to suppliers 38,295,548,215 8,136,119,272 14. COMPARATIVE FIGURES Tka-comparative figures are from audited financial statements for the year ended 31 December 2022 by LH Y Au-ing and Consulting Company Limited. Le Thanh Tinh Le Duc Man Director Chief Accountant Quang Binh, 26 June 2024 15 gas PART || AUDITORS' REPORT ON THE COMPLIANCE P3 U AUDITING AND CONSULTING COMPANY LIMITED INDEPENDENT AUDITORS' REPORT ON THE COMPLIANCE To: The Project Management Unit Coastal Cities Sustainable Environment Project - Dong Hoi City Sub-project We have audited the accompanying financial statements of Coastal Cities Sustainable Environment Project - Dong Hoi City Sub-project (hereinafter referred to as the "Project") for the year ended 31 December 2023 in accordance with International Standards on Auditing and issued Independent Auditors' Report dated 26 June 2024 with an unqualified opinion. In connection with the audit of the Financial statements, we also performed procedures on the Project's compliance with the Financing Agreement No. 6027-VND and Loan Agreement No. 8745-VN, laws and regulations that could have a direct and material financial effect on the Project's Financial statements for the year ended 31 December 2023 (hereinafter referred to as "Requirements"). Responsibilities of the Project Management Unit The Project Management Unit is responsible for complying with the Financing Agreement No. 6027-VND and Loan Agreement No. 8745-VN, laws and regulations 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 Financing Agreement No. 6027-VND and Loan Agreement No. 8745-VN, rather than test of compliance with all laws and regulations applicable to the Project. We performed our work in accordance with International Standard on Assurance Engagements (ISAE 3000). 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. We apply Intemational Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior. An assurance engagement to report on the compliance with the Requirements at the Project involves performing procedures to obtain audit evidence about whether the Project activities are free of material noncompliance 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 noncompliance could have a direct and material financial Implications on the Project's Financial statements. Our procedures included testing the compliance with the requirements that we consider necessary to provide reasonable assurance that the Requirements are complied by the Project. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Head Office 5th F'oor, 82 Tower, Roman Plaza, To Huu Street, Dai Mo Ward, Nam Tu Hem District, Hanoi, Vietnam, Phone 84 24 5678 3999 www. uhy vn 17 An independent member ofLUHY internato l INDEPENDENT AUDITORS' REPORT ON THE COMPLIANCE (CONT'D) Auditors' opinion In our opinion: * The Project has complied, in all material respects, with Financing Agreement No. 6027-VND, Loan Agreement No. 8745-VN, laws and regulations that could have a direct and material financial effect on the Project's financial statements for the year ended 31 December 2023; * The Project's receipts and disbursements via the designated account for the year ended 31 December 2023 are in accordance with the relevant covenants of Financing Agreement No. 6027-VND, Loan Agreement No. 8745-VN and prevailing relevant regulations established by the World Bank; * The withdrawal applications were adequately reconciled to the statements of expenditure (SOEs) prepared by the Project Management Unit for the year ended 31 December 2023 and those SOEs were adequately supported; * The proceeds of the loan were used only for the purposes of the Project; * The Project Management Unit has complied with the financial covenants of the Credit Agreement. Other matter Our audit works include assessing the PMU's compliance in the past at a specific point in time. Therefore, our examination does not give an assurance for the future periods because of the risk that the Project's requirements mam the degree of compliance with the requirements may deteriorate. P Ba- Pham Thi Thao Deputy General Director Auditor Auditor's Practicing Certificate Auditor's Practicing Certificate No. 0798-2023-112-1 No. 2465-2023-112-1 For and on behalf of UHY Auditing and Consulting Company Limited Hanoi, 26 June 2024 mm 18 PART III AUDITORS' REPORT ON THE INTERNAL CONTROL OVER PREPARATION OF THE FINANCIAL STATEMENTS 19 UIHU AUDITING AND CONSULTING COMPANY LIMITED AUDITORS' REPORT ON THE INTERNAL CONTROL OVER PREPARATION OF THE FINANCIAL STATEMENTS To: The Project Management Unit Coastal Cities Sustainable Environment Project - Dong Hoi City Sub-project We have audited the accompanying financial statements of Coastal Cities Sustainable Environment Project - Dong Hoi City Sub-project (hereinafter referred to as the 'Project") for the year ended 31 December 2023 in accordance with International Standards on Auditing and issued Independent Auditors' Report dated 26 June 2024 with an unqualified opinion. In connection with our audit of the Project's 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 of internal control over financial reporting. The internal control was set up for purpose of managing risks to the achievement of the Project's objectives, including the reasonable prevention and detection of errors, irregularities and fraud. The internal control is the responsibility of the PMU. Auditors' Responsibility Our responsibility is to express an opinion, based on our audit, on the effectiveness of the internal control that could have a financially direct and material effect on the financial statements of the Project for the year ended 31 December 2023. We conducted our audit in accordance with the principles of International Standard on Assurance Engagements 3000 - Assurance Engagements other than Audits for Reviews of Historical Financial Information ("IASE 3000) insofar this standard could be usefully applied in this audit and in its specific compliance context. This standard requires that we comply with ethical requirements and that we plan and perform the audit to obtain reasonable assurance about whether the internal control for the Project is adequately designed for the purpose of the Project and was operating effectively during the period covered by the audit. Our audit included obtaining a sufficient understanding of the Project and the internal control for the Project; assessing the risk that a material weakness exists that could have a financially direct and material effect on the financial statements of the Project; testing and evaluating, on the sample basis, the design and operating effectiveness of internal control based on the assessed risk; and performing such other procedures as we considered necessary in the circumstances. We considered the following criteria in evaluating the effectiveness of the internal control: - The requirement for design and implementation of the internal control in the Project's Operations Manual ("POM"); - The appropriateness of the internal control for the Project's activities and objectives; - The implementation of the internal control by the Project Management Unit to achieve its objective of prevention and detection of errors, irregularities and fraud that could have a financially direct and material effect on the financial statements of the Project; - The significance to the financial statements where one control or several controls did not operate as designed, if any; and - That a weakness or a deficiency existed where a control or several controls did not reasonably prevent or detect risks that could have an adverse impact on the objectives of those internal controls which are to provide reasonable assurance that the financial statements are prepared, in all material respects, in accordance with the adopted accounting policies and POM, that the funds are utilized for the purpose defined in the Grant Agreement between the Government of the Socialist Republic of Vietnam and the World Bank and that the Project complies with the Grant Agreement, POM and other laws and regulations applicable for the Project. We believe that our audit provides a reasonable basis for our opinion. Head Office Sth Floor, B2 Tower, Roman Plaza, To Huu Street, Dai Mo Ward, Nam Tu Lien District, Hanoi, Vietnam. Phone: 84 24 5678 3999 waw uhy vn 20 An independent member of UHY Interratioral AUDITORS' REPORT ON THE INTERNAL CONTROL OVER PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) Auditors' Opinion In our opinion, the Project Management Unit has maintained, in all material respects, effective internal control over compliance with requirements that could have direct and material financial implications on the financial statements as well as the internal control over the Project's financial reporting for the year ended 31 December 2023. No Other matter We would like to draw your attention to Part IV - Management letter dated 26 June 2024, in which we discussed findings from the internal control which have no direct and material financial effect on the Financial Statements of the Project, but may put the Project's internal control effectiveness at risk. Our audit works include assessing the PMU's internal control system in the past at a specific point in time. Therefore our examination does not give an assurance for the future periods because of the risk of changes in condf the degree of compliance with the policies or procedures may deteriorate. Phami latat Pham Thi Thao Deputy General Director Auditor Auditor's Practicing Certificate Auditor's Practicing Certificate a No. 0798-2023-112-1 No. 2465-2023-112-1 For and on behalf of UHY Auditing and Consulting Company Limited Hanoi 26 June 2024 m21