SUPREME AUDIT ISLAMIC REPUBLICOFFICE OF AFGHANISTAN

IT RPORT OFif ATOR GENERA

Volume - 26PROJECT ID GRANT NUMBERS PROJECT NAME

TF93664 and Second Education Quality ImprovementH-3540F program Project

WORLD BANK PROJECTS

YEAR ENDED 20 DECEMBER 2016

SPEE AUDIT OFFICEDIECORT OF THE GRANTS AUDIT

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Supreme Audit OfficeGovernment of Islamic Republic of Afghanistan

Auditors' Report

To, Date:08/08/2017HEMinister of Finance,Government of Islamic Pepubli AfghanistanKabul A h

mndpendenrt'M.rs' Report on the Financial Statements

1 We have audited the accompanying statements of Cash Receipts and Payments (the FinancialStatements") of the Second Education Quality Improvement Program Project bearing World BankProject ID number P106259 financed under Grant Nos.H-3540 and H-93962 (hereinafter referredto as the "Project") for the year ended 30 Qaws of Solar Year 1395 (21 December 2015 to 20December 2016), and a summary of significant accounting policies and other explanatory notesforming part of the Financial Statements.

The Ministry of Finance's Responsibility for the Financial Statements and Compliance withGrant Agreement2. The Ministry of Finance (the "Ministry") is responsible for preparation and fair presentation of the

Financial Statements in accordance with International Public Sector Accounting StandardFinancial Reporting under the Cash Basis of Accounting-" This responsibility includes designing,

implementing and maintaining internal control relevant to the preparation and fair presentation ofthe financial statements which are free from material misstatement, whether due to fraud or error;selecting and applying appropriate accounting policies; and making accounting estimates that arereasonable in the circumstances.

3, In addition, the Ministry is also responsible for ensuring that the activities, financial transactionsand information reflected in the financial statements are in compliance with the Project's GrantAgreement. The Grant Agreement Number H-3540F and H-93962 entered into between theIslamic Republic of Afghanistan and the International Development Association for the provision ofUnited States Dollars 408 Million (USD 408,000,000) .

Auditor's Responsibility4 Our responsibility is to express an opinion on these Financial Statements based on our audit. We

have conducted audit of the financial statements, project operations and related internal controls inaccordance with International Standards of Supreme Audit Institutions ("ISSAls") ThoseStandards require that SAO comply with ethical regulations and plan and perform the audit toobtain reasonable assurance of the financial statements being free from material misstatement.Those standards require that SAO express its opinion on whether the financial statements presentfairly, in all material respects, the cash receipts and payments of the project.

5. In addition to the responsibility to express an opinion on the financial statements described above,our responsibility includes expressing an opinion on whether the activities, financial transactions

and information reflected in the financial statements are, in all material respects, in compliancewith the Project's Grant Agreement. This responsibility includes performing procedures to obtainaudit evidence about whether all payments and receipts are in compliance with the terms andconditions of Grant Agreement.

6. An audit involves performing procedures to obtain reasonable and appropriate audit evidenceabout the amounts and disclosures in the financial statements. The procedures selected dependon the auditor's judgement, including the assessment of the risks of material misstatement of thefinancial statements, whether due to fraud or error. In making the risk assessments, internalcontrols relevant to the entity's preparation and presentation of financial statements are consideredin order to design audit procedures that are appropriate in the circumstances, but not for thepurposes of expressing an opinion on the effectiveness of internal controls. An audit also includesevaluating the appropriateness of accounting policies used, the reasonableness of accountingestimates made by management, as well as evaluating the presentation of the financialstatements.

7 We believe that the audit evidence we have obtained is reasonable and appropriate to provide abasis for our opinion.

Opinion8 In our opinion the Financial Statements present fairly, in all material respects, cash receipts and

payments of the Second Education Quality Improvement Program Project, bearing World BankProject ID No. P1 06259 for the year ended 30 Qaws of Solar Year 1395 (21 December 2015 to20 December 2016) in accordance with International Public Sector Accounting Standard'Financial Reporting under the Cash Basis of Accounting.'

9. In our opinion, in all material respects, the activities, financial transactions and informationreflected in the financial statements are in compliance with the terms and conditions of Project'sGrant Agreement.

10, Management Letter, attached to this Audit Report, highlights areas of improvement in financialmanagement including compliance with financial covenants of the Grant Agreements and ofresults of its operations for the 30 Qaws of Solar Year 1395 (21 December 2015 to 20 December2016). These observations and recommendations have been communicated to and discussedwith the Project and are intended to improve internal controls and result in other operatingefficiencies of the Project

Dr. Moham 'adhi SharifiAudltor Go7 I,lff ni

S u I - diK gh is

Islamic Republic of Afghanistan

Second Education Quality Improvement ProjectWorld Bank Reference: Project ID P106259; Grant ID H3540 & 93962

Financial Statemnerts for the year ended

30t' Qaws 1395 d'Decem' 9er2o16)

Second Education Quality improvement ProgramWorld Bank Reference: Project 11) P106259; Grant ID 113540 & 93962

STATEMENT OF CASH RECEIPTS AND PAYMENTSFOR THE YEAR ENDED 30 QAWS 1395 (20 DECEMBER 2016)

1395 1394 CumulativeReceiptsf To Date

PaymentsControlled by Payments by

entity Third Parties Total TotalUSD USD USD USD USD

RECEIPTS

'nitl Av rance - 22,000,000Replenishmrents 35.834,412 35,834,412 37,439,214 291,084,760

irect Payments - - 157,051 73,518,498Faxes collected/transferred (Net) - - 129

TOTAL RECEIPTS 35,834,412 - 35,834,412 37,596,265 386,603,387

PAYMENTS

Disbursement Category:

Goods, Works, Consultants' Services, SchoolGrants, Training and incremental Operating Costs 45,462,624 45,462,624 43,668,320 381,705740Baik Charges 125 125 150 4,750

TOTAL PAYMENTS 45,462,749 - 45,462,749 43,668,470 381,710,490

FXCESS OF RECEIPTS OVER PAYMENTS (9,628,337) _ (9,628,337) (6,072,205) 4,892,897

Taminat (net) 821,273 821,273 432,582 2,531,611Exchrange gainf(loss) 39,293 39,293 37,614

nerease/(Decrease) in Cash & Cash Equivalents (8,767,771) - (8,767,771) (5,639,623) 7,462,122

ash and Cash Equivalents at the beginning ofhe vear 16,229.893 16,229,893 21,869,516

ncrease/(Decrease) in Cash & Cash Equivalents (8,767,771) (8,767.771) (5,639,623)

ish and Cash Equivalents at the end of the year ,46 2 7,462,122 16,229,893

The accompanying notes form an integral part of this financialstatemet.

SMustafa MastoorDep uty Minister for FinanceMinistry of Finance, Islamic Republic of Afghanistan

Dated: July 26, 2017

Second Education Quality Improvement ProiectWorld Bank Reference: Project ID P106259; Grant ID H3540 & 93962

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 QAWS 1395 (20 DECEMBER 2016)

1) LEGAL STATUS AND ACTIVITY

a) The Second Education Quality Improvement Project was set up'to assist the Governmert of IslamicRepublic of Afghanistan (the recipient) in increasing equitable access to quality basic education

especially for girls.

b) The project consists of the following parts:i) School grants;ii) Teacher and Principal Training and Education *

iii) Project Management, Monitoring and Evaluation

c) The project is funded by a grant bearing reference number H3540 from the International

Development Association in the amount of Special Drawing Rights (SDR) 18,900,000 and by

another grant from the Afghanistan Reconstruction Trust Fund bearing reference number 93962

initially in the amount of USD 35,000,000 which was later increased to USD 283,000,000.

d) The significant terms and conditions that determine or affect the availability of the funding assistance

are primarily the presentation of eligible expenditures to donor within the period as per and in

accordance with the financing agreement.

e) These financial statements have been prepared in accordance with the requirements of the

Development Grant Agreements signed between the Government of the Islamic Republic of

Afghanistan and the International Development Association.

2) SIGNIFICANT ACCOUNTING POLICIES

a) Basis of PreparationThe financial statements are prepared under the historical cost convention and in accordance with

Cash Basis IPSAS - Financial Reporting under the Cash Basis of Accounting issued by International

Federation of Accountants (IFAC).

b) Reporting EntityThese financial statements are for the Project referred to in para 1(a) which is funded by the grant(s)

as specified in para 1(c) and encompass the operations of the project to the extent funded by those

grant(s).

c) ReceiptsThese represent grants and aid received during the period and taxes collected but not transferred

into the government's revenue account.

d) PaymentsPayments made from Special Account are recognised in the financial statements based on the date

the cheque is issued and direct payments by World Bank are recognised on the date on which the

withdrawal application for the payment is submitted to the World Bank. However, cheques or

withdrawal applications that were ultimately rejected by the bank or the World Bank are reversed in

the reporting period.

Second Education Quality Improvement ProjectWorld Bank Reference: Project ID P106259; Grant ID H3540 & 93962

e) Currency translationsTransactions in currencies other than the reporting currency are tcapslated into US Dollar at the rateof exchange at which the transaction is actually executed.

3) NOTES TO THE FINANCIAL STATEMENTS .

a) Initial AdvanceInitial advance represents the advance given by the World E Aigtospects account(s) of theproject.

b) Reporting CurrencyThe reporting currency is US Dollars. Since US Dollars is the principal disbursement currency of thedonor, the financial statements are not prepared in the Afghani which is the currency of Afghanistan.

c) TaminatThe amount of Taminat reported in the Financial Statements represents net flow arising fromdeduction/repayment of security deposit (retention money) during the reporting period.

d) Payments made by third partiesThese represent payments directly made by the World Bank, on basis of requests submitted by theMinistry of Finance in form of a withdrawal application, towards settlement of the claims, liabilitiesand contractual obligations against contracts and agreements for eligible expenditures of the projectas per the financing agreement. These payments do not constitute cash receipts or payments by theentity and as such are disclosed in the "Payments by Third Party" column in the statement of CashReceipts and Payments,

e) Bank ChargesThe Ministry of Finance has negotiated with Da Afghanistan Bank that bank charges will not becharged on the transactions in the US Dollar Special bank account of the grant. Bank Charges maybe levied by intermediary banks on deposits into the Special Account and balances returned to theWorld Bank.

f) Comparison of Budget and Actual AmountsThe Project, being the reporting entity for the purpose of these financial statements, in its capacityas such does not make its annual approved budget publicly available nor is its budget explicitlyavailable publicly in the compiled approved budget in a manner purposeful to the context of thesefinancial statements. Thus, the requirement of presenting a comparison of budget and actualamounts is not considered contextually applicable.

g) Authorisation DateThese Financial Statements are authorised by the Deputy Minister for Finance, Ministry of Financeor any official acting on his behalf who has been so authorised to act on the date endorsed on theStatement of Cash Receipts and Payments.

h) AppendicesThe accompanying appendices provide additional information and analysis and form an integral part

of these notes, except as indicated otherwise.

Second Education Quality Improvement ProgramWorld Bank Reference: Project II) P106259; Grant II) 113540 & 93962

APPENDIX Al

SUMMARY OF WITHDRAWAL APPLICATIONSFOR THE YEAR ENDED 30 QAWS 1395 (20 DECEMBER 2016)

ApplicationDescription / Number Initial Advance Amount

7 \USD USD

93962:DA-B 285 7,283,439DA-B V 284 8,337,801DA-B 2F3 6,044,888DA-B / ' 2 4,000,128

DA-B , 281 / 10.168,155

Second Education Ouality Improvement ProgramWorld Bank Reference: Project ID P106259; Grant ID H3540 & 93962

APPENDIX A2

US Dollar SPECIAL ACCOUNT SUMMARYFOR THE YEAR ENDED 30 QAWS 1395 (20 DECEMBER 2016)

Depository Bank: d' 7 Da Afghanistan Bank (DAB)Address: Kabul

A/C 27249 A/C 27313

Opening Balance as per Bank Statement 14,111 14,923,486

Add:

World Bank Replenishments 35,834,412Credits against refunds deposited into other accounts in last year 1,302,003

Total Additions 37,136,415

Deduct:Payment for Project Expenditure 44,619,728Refund pertaining to this grant not deposited into this account 849,427

Bank Charges 125

Total Deductions _ 45,469,280

Closing Balance as per B.S 30 QAWS 1395 (20 DECEMBER 2016) 14,111 6,590,621

Second Education Quality Improvement ProgramWorld Bank Reference: Project ID P106259; Grant ID H3540 & 93962

APPENDIX A3US Dollar SPECIAL ACCOUNT RECONCILIATION

FOR THE YEAR ENDED80 QAWS 1395 (20 DECEMBER 2016)

Depository Bank: Da Afghanistan Bank (DAB)Address: Kabul

USD

Closing Balance as per bank statement - 30 QAWS 13( 0qEQGE lt R 2016)

A/C 27249 14,111

A/C 27313 6,590,621 6 604,732

Add:Refund pertaining to this grant deposited in other accounts 857,390

Closing balance as per financial statements - 30 QAWS 1395 (20 DECEMBER 2016) 7,462,122

Second Education Quality Improvement ProgramWorld Bank Reference: Project ID P106259; Grant ID H3540 & 93962

APPENDIX A4COMPONENT-WISE DISBURSEMENTS

FOR THE YEAR ENDED 30 QAWS 1395 (20 DECEMBER 2016)

.c' 1394 Actual 1395 Actual CumulativeComponents to Date

USD USD USD

School Grants - 27,759,873 17,855,432 136,391,935Teacher and Principal Training and Education 4,098,373 16,382,124 137,540,336Project Management, Monitoring and Evaluation 11,810,074 11,225,068 107,773,469Bank Charges 150 125 4,750

TOTAL PAYMENTS 43,668,470 45,462,749 381,710,490

,Second Education Ouality Improvement ProgramWorld Bank Reference: Project ID P106259; Grant ID 113540 & 93962

Appendix ASSTATEMENT OF ESTIMATED GRANT AMOUNT

FOR THE YEAR ENDED 30 QAWS 1395 (20 DECEMBER 2016)(Memorandum Statement- not an integralpar of the Financal Statements)

AmountH354 93962 Total

In currency of commitmentAmount of Grant XDR 18,900,000 USC 408,000,000Amount disbursed by World Bank untill the end of 1395 XDR 18,396.951 USD 357,746,264Cancelled Amount XDR 503,049 USC -Undisbursed Balance XDR - USD 50,253,736

In reporting currencyAmount disbursed by World Bank untill the end of 13952 USD 28,856,992 USC 357,746,264 USD 386,603,256Cancelled Amount USD 729,420 USC - USD 729,420Equivalent US Dollars for undisbursed amount USD - USD 50,253,736 USD 50,253,136

Total estimated amount of Grant Funds available USD 29,586,412 USD 408,000,000 USD 437,586,412

Cumulative payments for Expenditure as per the Statement of Cash Receipts & Payments USD 374,248,368

1 Actual amounts of total disbursement made by the World Bank since the beginning of the project as available from Client Connection in XDRs

2 Actua amounts of total disbursement made by the World Bank since the beginning of the project as available from Client Connection in USDDollars

3 The amount of equivalent US Collars for undisbursed bq nf1of the grant where the currenct of commitment of the grant is XDR (in thecurrency of commitment) has been calculated at the excha rat,of 1.34 USD per XDRwhiph is the rate published by the World Bank as atlast day of the financial year

IF

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