SECOND RURAL INVESTMENT PROJECT AND ADDITIONAL …documents.worldbank.org/.../pdf/AZ-P122944-AzRIP-2-Audit-Report-2017.pdf · Subhan As2 rove Khayal Zaidov 4 PMU Director PMU Finance

SECOND RURAL INVESTMENT PROJECTAND ADDITIONAL FINANCING

INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT (IBRD)

LOAN 8189-AZ AND LOAN 8403-AZREPORT OF INDEPENDENT AUDITORS

ANDSPECIAL PURPOSE FINANCIAL STATEMENTS

FOR THE YEAR ENDED31 DECEMBER 2017

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

SECOND RURAL INVESTMENT PROJECT

CONTENTS

Page

Statement of Management Responsibilities 3

Report of Independent Auditors 4-5

Balance Sheet 6

Statement of Sources and Uses of Funds 7

Statement of Uses of Funds by Project Activities 8

Statement of Designated Account 9-10

Statement of IBRD Expenditure Withdrawal Schedule 11

Notes to the Special Purpose Financial Statements 12-16

I

STATEMENT OF MANAGEMENT RESPONSIBILITIES

Management has prepared and is responsible for the special purpose financial statements and relatednotes of the Second Rural Investment Project and Additional Financing,(the "Project") financed by theInternational Bank for Reconstruction and Development Loans No. 8189-AZ and No. 8403-AZ, and theGovernment of Azerbaijan. They have been prepared in accordance with the basis of accountingdescribed in Note 2 of the accompanying special purpose financial statements.

The Project maintains internal accounting control systems and related policies and procedures designedto provide reasonable assurance that assets are safeguarded, that transactions are executed inaccordance with management's authorisation and properly recorded, and that accounting records may berelied upon for the preparation of financial statements and other financial information. The system containsself-monitoring mechanisms that allow management to be reasonably confident that controls, as well asthe Project's administrative procedures and internal reporting requirements operate effectively. There areinherent limitations in the effectiveness of any system of internal control, including the possibility of humanerror or the circumvention or overriding of controls. Accordingly, even an effective internal control systemcan provide only reasonable assurance with respect to financial statements preparation.

Subhan Asg oKhayal ZaidovPMU Director PMU Finance Ilanager

28 June 2018

Baku, Azerbaijan

3

MOORE STEPHENS

Moore Stephens Azerbaijan Limited13, Zeynalabdin Taghiyev StreetBaku AZ1005, Azerbaijan

+994 12 490 77 47/48/49+994 12 490 77 50

REPORT OF INDEPENDENT AUDITORS

To the management of the Second Rural Investment Project and Additional Financing

Opinion

We have audited the accompanying special purpose financial statements of the Second Rural InvestmentProject and Additional Financing (the "Project") financed under the International Bank for Reconstructionand Development ("IBRD") Loans No. 8189-AZ and No. 8403-AZ that comprise the balance sheet as of31 December 2017, statement of sources and uses of funds, statement of uses of funds by projectactivities, statement of designated account, statement of expenditure ("SOE") withdrawal schedules forthe year then ended and a summary of significant accounting policies and other explanatory notes. Wehave also audited the Project's compliance with conditions of the relevant Loan Agreements, the WorldBank guidelines, laws and regulations of the Azerbaijan Republic.

In our opinion,the accompanying special purpose financial statements referred to above, present fairly, inall material respects, the financial position of the Project and of the special and project accountsas of 31December 2017 and related sources and uses of funds,Project activities by components and movementsin special and project accounts for the year then ended, in accordance with the basis of accountingdescribed in Note 2 to the accompanying special purpose financial statements andthe Project is in allmaterial respects, in compliance with the conditions of the relevant Loan Agreement and the World Bankguidelines and laws of the Republic of Azerbaijan during the year ended 31 December 2017.

Basis for opinion

We have conducted our audit in accordance with International Standards on Auditing (ISAs) applicable tothe audit of financial statements and to compliance auditing, with special reference to ISA 800. Ourresponsibilities under those standards are further described in the Auditor's Responsibilities for the Auditof the Financial Statements section of our report. We are independent of the Company in accordance withthe ethical requirements that are relevant to our audit of the financial statements in Azerbaijan, and wehave fulfilled our other ethical responsibilities in accordance with these requirements. We believe that theaudit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Management's responsibility for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements inaccordance with the basis of accounting described in Note 2 of the accompanying special purposefinancial statements. This responsibility includes: designing, implementing and maintaining internalcontrols relevant to the preparation and fair presentation of financial statements that are free frommaterial misstatement, whether due to fraud or error; selecting and applying appropriate accountingpolicies; and making accounting estimates that are reasonable in the circumstances.

In preparing the financial statements, management is responsible for assessing the Company's ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using thegoing concern basis of accounting unless management either intends to liquidate the Company or tocease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reportingprocess.

S)Irnb,rfiII , f - %' ' I It I N,IJIM -ot r,i prmr-PJ 'z 4I L 'S T.9-,ghox ,I

4

MOORE STEPHENS

Auditor's responsibility for the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole arefree from material misstatement, whether due to fraud or error, and to issue an auditor's report thatincludes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that anaudit 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 theaggregate, they could reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.

28 June 2018

5

SECOND RURAL INVESTMENT PROJECT AND ADDITIONAL FINANCINGIBRD LOAN 8189-AZ AND IBRD LOAN 8403-AZBALANCE SHEETAS AT 31 DECEMBER 2017(Expressed in US dollars)

Note 2017 2016ASSETS AND CUMULATIVE EXPENDITURE

Cash at bankGovernment Project Account 4 1,141,727 717,974IBRD Loan Designated Account No. 8189 4 - 40,272IBRD Loan Designated Account No. 8403 4 576 1,056,772Transit Account 4 .

1,142,303 1,815,018

Cumulative project expenditure IBRD No. 8189 53,957,553 49,628,408Cumulative project expenditure IBRD No. 8403 83,038,313 65,251,897

TOTAL ASSETS AND CUMULATIVEEXPENDITURE 138,138,169 116,695,323

SOURCES OF FUNDS

Project financingIBRD Loan Designated Account No. 8189 30,000,000 30,000,000IBRD Loan Designated Account No. 8403 48,465,013 48,465,013Government Counterpart Financing 36,613,532 29,743,808Communities' Contribution 10,278,131 9,082,494Other Income 13,387,387 490

138,744,063 117,291,805

Accumulated foreign exchange difference (605,894) (596,482)

TOTAL SOURCES OF FUNDS 138,138,169 116,695,323

Subhan Asg rov Khayal ZaidovPMU Direct :r PMU Finance Nanager

The notes set out on pag 12-16 form an integral part of these financial statements6

SECOND RURAL INVESTMENT PROJECT AND ADDITIONAL FINANCINGIBRD LOAN 8189-AZ AND IBRD LOAN 8403-AZSTATEMENT OF SOURCES AND USES OF FUNDSFOR THE YEAR ENDED 31 DECEMBER 2017(Expressed in US dollars)

Note 2017 2016 CumulativeOPENING BALANCES

Government Project Account 717,974 245,365IBRD Loan Designated Account No. 8189 40,272 32,013IBRD Loan Designated Account No. 8403 1,056,772 1,543,253Transit Account - 4,454

1,815,018 1,825,085ADD: FUNDS RECEIVED BY SOURCES

IBRD Loan Designated Account No. 8189 - - 30,000,000IBRD Loan Designated Account No. 8403 - 20,979,910 48,465,013Government Counterpart Financing 6,869,724 11,366,309 36,613,532Communities' Contribution 1,195,637 3,623,840 10,278,131Other Income 13,386,897 - 13,387,387

21,452,258 35,970,059 138,744,063

LESS: EXPENDITURE BY CATEGORIESIBRD Loan Designated Account No. 8189

Grants 4,290,179 4,562,819 45,390,057Consultant Services - - 3,339,919Incremental Operating Costs 22,588 33,928 3,843,353Goods - - 510,152Training 16,378 - 761,550Civil Works . - 37,522Front-end fee - - 75,000

4,329,145 4,596,747 53,957,553- IBRD Loan Designated Account No. 8403

Grants 15,150,271 28,157,999 74,483,509Consultant Services 1,424,825 1,744,346 4,252,885Incremental Operating Costs 1,046,137 1,324,826 3,449,788Goods 64,008 91,061 365,456Training 100,864 93,992 326,168Civil Works 311 12,772 35,507Front-end fee - - 125,000

17,786,416 31,424,996 83,038,313TOTAL EXPENDITURE 22,115,561 36,021,743 136,995,866

ADJUSTMENTSForeign exchange gain(+)/loss(-) (9,412) 41,617 (605,894)

(9,412) 41,617 (605,894)CLOSING BALANCES

Government Project Account 4 1,141,727 717,974IBRD Loan Designated Account No. 8189 4 - 40,272IBRD Loan Designated Account No. 8403 4 576 1,056,772Transit Account 4 - -

1,142,303 1,815,018

Subhan As2 rove Khayal Zaidov 4PMU Director PMU Finance anager

The notes set out on pa es 2-16 form an integral part of these financial statements7

i

i�

� � А г 00 lf! � � О О 1' � �б М г СО О R С4у+ М i0 г е,� tD ,� ,. � � О ! О О � ab+ t"7 � С4 О СО �.L7р cD И т N цЭ р а0 О � � n. р � N Ф 'д� оо~- цi сз 00 г 4'1 � Р'1 �л tD сС �к- F- 4 б ц i С tV и7S7'1 С? М С7 т N Ц i N �с' iV� г ас н г ао гг� ы с г� � т о о rnN rn сд оо rnг т � N �.. М т CV М о 1� О ФО � tD

i � м � М-

Т I � +......

h

'."� i4 .р � � � � о � и ' h� - � � - рр � И ' 6 О(э f� Hi� О м М цз М � 'р о rn сп

� о аэ и r. � о т сз с'�v оАо_I � � � с.р �л сд д! р и7 об ei tL р tci сп п i г� ,--^ i. � � � (О � � �L Cf) Р ь� i N SV 'тt С 1 д� . � .,� ,у ,О � � И р сга м м N� у "' а+ cv г v 1

�. d J d J � J � �[1 �

,� С � С ц � 111, 1, ' г�is( 41 � и � � t� 1G7 L Ч! � {' � i о �.

� � � � � � � �1 и и и и с� т и

С �� ' С � N с С' С � t L � +� + � LL N

j � и и й и и г, � Е� . }._ � � � � � .� � Ш

е _� _� *� д и(- т.�с

с� А оо м С ' � �*. г� - un С! � 'i I М 'ct м Q С i ' N о ' U'} N Q1 . � � � � N ч=бS 'i б f`., о 06 д �L ц ? � Т'_ � � i Т .. � й1?� G� i .� 1� о оо � О о Со о_i са Ш � а�о м о N и1� . tV N г N а� Ш

--- FЛ �С м И 07 LЛ ' С � � �fl eSh � ,С И г .г- рр �� р � � � р fV N С © г (р tf Э N ,FR � � � т О

� � � ' И ' �- � +и- � '� а_� а + = NV 3 +' и � f1

I и �

.а � ,о � �о � �� а � � а а�с с

' � � � �� оо

(9 f т� г_ �

� V э, и r- r.. � ш о 5, и о � � � оо о], и h. цл м гд �� ='G С7 О ) У И � '' ' а � Cf? � :У''. ' � } М т �Ci CfD СО �.I '' т с а со со � � о оо г- с� оо � р ~- и �о о и � 'Z р О �n сп цэ о � О м а� ю о = р аз м N rn rл '- � � ;� оа c.i � вt � ; � eW со с� сч � � r- о м и м �т r- и � t to и иэ г. cV ~ иэ м ао и4 ц

�! р г_ r

� ° Я о �_ ''` � г �+ N �у а �л � cv а�

��J

_Z � U J � Ci J г r М 'U ._1 � V N � т�Q_ 3 � � � � � � Q

I 1- i С i С � С�

� � ��

а7 N 7 R 4

© sx ` L � � �р а' Е- +р+ � +, � ��L7 f� f U с� и и � . ш

z 4 ш r,r L ` w ��,,_ (` �

_ � � о 0 о � й � 1. �ш °� �' а � с � с с°

i � z у, ш А со - ��- Q '� С О9 т " г г� + о

� а а С] ш ` ` г г---- +- � г V � � о _. Г'�ш т ,�i � � � L � �

�' � г � м� L Q а ,С � о � � Q �

ш е� R1? ш !а ,у,,, � а г �� Q � � QI �! fV щ i� �D М � `°` }_

��_ � rn м " � �� ш аэ м ы � а сз� м � 1

, J с� ш fЛ � а � � ао - д � � ю � � с с °� ° '4v� � °г� '0 � � � U U о о �с �j о ао оо м � о аз ао ,? ," �

� � Z � г7 ее � е е с � v � Z Z Q � � Z Zp L � ' � � 9� :� ал at �-

- � � t ш ш й л � Е о о р �� г�и т � � '� � � � �°,г � ш = � ы � с � 1 J � � С '-� .1 J в � С J- р,.1 � Ф

Qa � ~ Q � � � ° ® � � � � � ° R � � ; ° ° � � °ш � 1'� - О ' � о U С7 °Q т �-° о U с� '� т � � с� С7 °° т ы � �и °_° и ш � ш ш сз и n.

i

1

SECOND RURAL INVESTMENT PROJECT AND ADDITIONAL FINANCINGIBRD LOAN 8189-AZ AND IBRD LOAN 8403-AZSTATEMENT OF DESIGNATED ACCOUNTFOR THE YEAR ENDED 31 DECEMBER 2017(Expressed in US dollars)

IBRD-8189DA:Account number AZ381BAZ38190038409330164120

Depository Bank International Bank of Azerbaijan

2017 2016 Cumulative

Balance at the beginning of reporting period 40,272 32,013

40,272 3 2,013ADD:

Advances and replenishments - - 30,000,000

DEDUCT: 30,000,000

Eligible expenditure (37,067) (22,528) (29,572,805)Bank charges (139) (3,717) (296,200)Transaction loss (912) (162) (130,995)

Total expenditures (38,118) (26,407) (30,000,000)

ADJUSTMENTS:Foreign Exchange loss (1,454) 1,776 700Due to Government Counterpart funds (700) 32,890 (700)

(2,154) 34,666 -Balance at the end of reporting period 40,272

Subhan Asg ov_ e 7 Z Khayal Zaidov--.L -. L- -PMU Director PMU Finance Manager

The notes set out 2-16 form an integral part of these financial statements9

SECOND RURAL INVESTMENT PROJECT AND ADDITIONAL FINANCINGIBRD LOAN 8189-AZ AND IBRD LOAN 8403-AZSTATEMENT OF DESIGNATED ACCOUNT (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017(Expressed in US dollars)

IBRD-8403DA:Account number AZ041BAZ38190058409330164120Depository Bank International Bank of Azerbaijan

2017 2016 Cumulative

Balance at the beginning of reporting period1,056,772 1,543,2531,056,772 1,543,253

ADD:Advances and replenishments - 20,979,910 48,465,013

DEDUCT: - 20,979,910 48,465,013

Eligible expenditure (1,206,163) (20,417,625) (48,102,768)Bank charges (419) (93,176) (374,317)Transaction loss 5,337 (205,605) (325,382)

Total expenditures (1,201,245) (20,716,406) (48,802,467)

ADJUSTMENTS:

Foreign Exchange gain (11,477) 40,032 181,504Due to Government Counterpart funds 156,526 (790,017) 156,526

145,049 (749,985) 338,030Balance at the end of reporting period 576 1,056,772 576

Subhan Asge01v - Khayal Zaidov ePMU Director"1 PMU Finance anager

TIThe notes set out on pages 12-16 form an integral part of these financial statementsI1

l

-,-,��-

-

!

SECOND RURAL INVESTMENT PROJECT AND ADDITIONAL FINANCINGIBRD LOAN 8189-AZ AND IBRD LOAN 8403-AZNOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2017(Amounts are expressed in US dollars unless indicated otherwise)

NOTE 1. BACKGROUND

IBRD Loan Designated Account No. 8189Second Rural Investment Project ("AzRIP-2" or "the Project") is a project established and Projected by theGovernment of Azerbaijan and World Bank and implemented by the State Service on Management ofAgricultural Projects and Credits under the Ministry of Agriculture of Azerbaijan Republic for ruralcommunities to organize and build infrastructure projects in five areas of our country.

The Project Development Objective is to improve access to and use of community-driven ruralinfrastructure and expand economic activities for rural households. This would be achieved through: (i)financing demand-driven, comm unity- identified priority rural infrastructure investments; (ii) strengtheningthe capacity of communities in partnership with municipalities and local support institutions to effectivelyidentify, plan and implement their development priorities; (iii) building opportunities for rural employmentand livelihood support services; and, (iv) supporting project management capacity in order to coordinate,plan, monitor, program and supervise a wide range of community driven activities.

The project is a multi-sector investment loan with a total investment cost estimated at $53.6 million, ofwhich $30 million will be financed by IBRD. It will scale up AzRIP-2 both geographically into currently un-serviced regions and vertically through the inclusion of pilot livelihood support services and secondgeneration institutional support in current AzRIP-2 active project areas.The Project has threecomponents:

Component A - Rural Community InfrastructureThree categories of micro-project grants will be supported under Component A: (i) micro projects inpreviously un-serviced regions which meet eligibility criteria set out in the Operational Manual (OM); (ii)second generation micro-projects in active AzRIP-2 communities with high performance ratings fromprevious micro-project implementation and which meet eligibility criteria set out in the OM, and; (iii) micro-projects submitted by Common Interest Groups supported under the pilot scheme in Component B whichmeet eligibility criteria as established in the OM.

Component B - Technical Assistance for Rural InfrastructureThis component will fund technical support services for micro-project implementation and pilot livelihoodsupport services. There are two sub-components, namely: (i) sub-component BI on Supporting Micro-Project (MP) Development and (ii) sub-component B2 on Piloting Livelihood Support Services.

Component C - Project Management and Results MonitoringThis component will finance the administrative and operational project implementation and managementcosts, including overheads of Project Management Unit (PMU) professional staff as well as PMU andRegional Operations Office (ROO) support staff, project outreach and support to Regional Grant ApprovalCommittees (RGACs).The withdrawal of proceeds from the IBRD loan will be made in accordance withthe following schedule:

(1) Goods, works, non-consultingservices, and consultants' 8,925,000 100%services, Training, and IncrementalOperating Costs for the Project(2) Grants 21,000,000 90%

Amount payable pursuant toSection 2.03 of the Loan

(3) Front-end Fee 75,000 Agreement in accordance withSection 2.07 (b) of the General

Conditions(4) Interest Rate Cap or Interest Amount due pursuant to SectionRate Collar premium 2.07(c) of the Loan AgreementTOTAL AMOUNT 10,000

12

SECOND RURAL INVESTMENT PROJECT AND ADDITIONAL FINANCINGIBRD LOAN 8189-AZ AND IBRD LOAN 8403-AZNOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS (CONTINUED)

. FOR THE YEAR ENDED 31 DECEMBER 2017(Amounts are expressed in US dollars unless indicated otherwise)

NOTE 1. BACKGROUND (CONTINIUED)

Government Contribution. The Government's contribution of US$20 million to finance projectexpenditures will be disbursed from budget allocations through the Treasury system of the MoF andmanaged by the PMU. Funds will be released to the project to finance project expenditures asexpenditures are incurred and the Project Account shall be replenished regularly to minimize delays inproject implementation.

Beneficiary Contribution. The beneficiary contribution to finance project expenditures is US$3.6 million.

Retroactive financing.Withdrawals up to an aggregate amount not to exceed US$4.2 million equivalentmightbe made for payments made on or after April 1, 2012, for eligible expenditures.

IBRD Loan Designated Account No. 8403Additional Financing for the Second Rural Investment Project ("AzRIP-2" or "the Project") is a projectestablished and Projected by the Government of Azerbaijan and World Bank and implemented by theState Service on Management of Agricultural Projects and Credits under the Ministry of Agriculture ofAzerbaijan Republic for rural communities to organize and build infrastructure projects in six areas of ourcountry.

The objectives of the Project are to improve access to, and use of community driven rural infrastructureand to expand economic activities for rural households.

The Project consists of the Original Project as modified as follows

Part A: Rural Community Infrastructure and Livelihoods

Provision of grants to finance eligible demands-driven Micro-projects: (1) in rural infrastructure, includingthe connector roads pilot, and (2) in livelihoods support, in accordance with the Operational manual.

Part B: Technical Assistance for Rural Infrastructure and Livelihoods

1. Provision of training and consultants' services to support micro-project development by enhancingthe capacity of engaged local stakeholders, including communities, local authorities, Regional GrantApproval Committees and staff in the ROOs, in all aspects of micro-project program developmentrelated to contracting, procurement, financial management and participatory monitoring andevaluation.

2. Provision of training and consultants' services to carry out livelihood support services in twenty-six(26) communities, that have already implemented successfully, Micro-projects focused on economicinfrastructure for the purpose of developing the capacity of involved stakeholders, such as localcommunities, groups and individuals to identify, plan and implement income-generating Micro-projects.

Part C: Proiect Management and Results Monitoring

Provision of goods and consultants' services to assist the PMU and its ROOs for the purpose of effectivemanagement and implementation of Project activities, including the monitoring and evaluation of theProject.

13

SECOND RURAL INVESTMENT PROJECT AND ADDITIONAL FINANCINGIBRD LOAN 8189-AZ AND IBRD LOAN 8403-AZNOTES TO THE SPECIAL PURPOSE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2017

(Amounts are expressed in US dollars unless indicated otherwise)

NOTE 1. BACKGROUND (CONTINIUED)

The withdrawal of proceeds from the IBRD loan will be made in accordance with the following schedule:

(1) Goods, works, non-consultingservices, and consultants'services,Training, and IncrementalOperating Costs for the Project(2) Grants 31,075,000 90%

Amount payable pursuant toSection 2.03 of this Loan

(3) Front-end Fee 125,000 Agreement in accordance withSection 2.07 (b) of the GeneralL I_ Conditions

(4) Interest Rate Cap or Interest Amount due pursuant to SectionRate Collar premium 2.07(c) of the Loan AgreementTOTAL AMOUNT 50,000,000

The registered address of the Project is 80 U.Hajibeyli Street, Government House,Baku, Azerbaijan.

NOTE 2. ACCOUNTING POLICIES

a) Basis of Accounting

These special purpose financial statements are prepared in accordance with the International PublicSector Accounting Standard ("IPSAS") Financial Reporting under the Cash Basis of Accounting issued bythe International Public Sector Accounting Standards Board ("IPSASB"), an independent standard-settingbody within the International Federation of Accountants ("IFAC") and incorporate the following principalaccounting policies, which have been consistently followed in all material respects and comply with the"Guidelines: Annual Financial Reporting and Auditing for World Bank - Financed Activities" issued by theWorld Bank's Financial Management Sector Board. Project financing is recognised as a source of projectfunds when the cash is received. Project expenditure is recognised as a use of project funds whenpayment is made.

b) Period of accounts

These special purpose financial statements cover the year ended 31 December 2017.

c) Transactions and balances in foreign currencies

The Project is domiciled in the Republic of Azerbaijan where the local currency is the Azerbaijani manat("AZN"). Because the majority of the Project's transactions are funded and expended in United Statesdollars and in accordance with the requirements of the World Bank, these special purpose financialstatements are presented in United States dollars ("US dollar", "USD" or "US$"), which is the reportingcurrency of the Project. Transactions in other currencies are treated as transactions in foreign currencies.Cash receipts and payments arising from transactions in a foreign currency are recorded in the Project'sreporting currency by applying to the foreign currency amount the exchange rate between the reportingcurrency and the foreign currency at the date of receipt and payment. Cash balances held in a foreigncurrency are reported using the closing rate, which is the spot exchange rate at the reporting date.Unrealised gains and losses arising from changes in foreign currency exchange rates are not cashreceipts and payments. However, the effect of exchange rate changes on cash held in a foreign currencyis reported in the statement of sources and uses of funds and other statements in order to reconcile cashat the beginning and the end of the period. These amounts are presented separately from cash receiptsand payments and include the differences, if any, had those cash receipts and payments and balancesbeen reported at end-of-period exchange rates. On 31 December 2017, the official AZN/USD exchangerate set by the Central Bank of Azerbaijan ("CBAR") was 1.7001 (31 December 2016:1.7707).

14



NOTE 3. DESIGNATED ACCOUNT

The Designated Account is a disbursement account of the Project maintained in US dollars with theInternational Bank of Azerbaijan in order to effect payment of eligible expenditure within defined limits,which do not require individual authorisation from IBRD, in accordance with the Agreement.

NOTE 4. CASH IN BANK

2017 2016IBRD Loan 8189 AZ Designated, US$ - 40,272IBRD Loan 8403 AZ Designated, US$ 576 1,056,772Government Project Account, US$ 1,141,727 717,974Transit account

1,142,303 1,815,018

NOTE 5. EXPENSES BY SOURCES OF FINANCING

Year ended 31 December 2017

IBRD Loan Designated Account No. 8189

lBRD Loan - - - 21,740 16,378 - 38,118GovernmentCounterpart 3,698,696 - - 848 - - 3,699,544Communities'Contribution 591,483 - - - - - 591,483Total 4,290,179 - - 22,588 16,378 - 4,329,145


IBRD Loan 515,616 311 460,146 197,766 15,905 11,501 1,201,245GovernmentCounterpart 14,030,501 - 964,679 848,371 84,959 52,507 15,981,017Communities'Contribution 604,154 - - - - - 604,154Total 15,150,271 311 1,424,825 1,046,137 100,864 64,008 17,786,416

Year ended 31 December 2016


lBRD Loan - - - 26,407 - - 26,407GovernmentCounterpart 4,351,856 - - 7,521 - - 4,359,377Communities'Contribution 210,963 - - - - - 210,963Total 4,562,819 - - 33,928 - - 4,596,747

15



NOTE 5. EXPENSES BY SOURCES OF FINANCING (CONTINUED)


IBRD Loan 17,528,217 12,772 1,674,168 1,326,458 93,992 80,799 20,716,406GovernmentCounterpart 7,216,905 - 70,178 (1,632) - 10,262 7,295,713CommunitiesContribution 3,412,877 - - - - - 3,412,877Total 28,157,999 12,772 1,744,346 1,324,826 93,992 91,061 31,424,996

NOTE 6. METHODS OF WITHDRAWAL

The methods of withdrawal used from the inception of the IBRD Loan up to 31 December 2017 were asfollows:

(a) Designated account

Available amounts were drawn from time to time within limits determined by the loan agreements for thedirect payment of eligible expenditure for sub-projects from the designated account.

(b) Project account

The Project maintains a separate account where the Government counterpart funds are accumulated. Thefunds are further disbursed to contractors based on the shares of expenditure to be incurred by eachcontractor.

(c) Statement of expenditure (SOE)

Under the SOE method, the Project submits to the World Bank an application for reimbursement ofpayments already made using an Application for Withdrawal (Form 2380E) with SOE forms, bankreconciliation forms and the bank account statement.

NOTE 7. OPERATING ENVIRONMENT

The Project's principal activities are within the Azerbaijan Republic. Laws and regulations affecting entitiesoperating in Azerbaijan are subject to rapid changes and the Project's assets and operations could be atrisk due to negative changes in the political and economic environment.

NOTE 8.POST BALANCE SHEET EVENTS

There were not any adjusting or significant non-adjusting events that occurred between the reporting dateand the date of authorization of these financial statements.

16

SECOND RURAL INVESTMENT PROJECT AND ADDITIONAL …documents.worldbank.org/.../pdf/AZ-P122944-AzRIP-2-Audit-Report-2017.pdf · Subhan As2 rove Khayal Zaidov 4 PMU Director PMU Finance

Documents