COMMUNITY AGRICULTURAL RESOURCE MANAGEMENTAND COMPETITIVENESS PROJECT

IDA Credit No. 4891-AM

IMPLEMENTED BY"AGRICULTURAL PROJECTS IMPLEMENTATION UNIT"

STATE AGENCYUNDER THE MINISTRY OF AGRICULTURE OF THE REPUBLIC OF ARMENIA

SPECIAL PURPOSE FINANCIAL STATEMENTS

AND

SFoINDEPENDENT AUDITOR'S REPORT

For the period from January 1, 2016 to January 13,2017

YEREVANFebruary 2017

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CONTENT

Page

INDEPENDENT AUDITOR'S REPORT ............... ............. ......................... 3

STATEMENT OF CASH RECEIPTS AND PAYMENTS ........... .................. 5

STATEMENT OF USES OF FUNDS BY PROJECT ACTIVITY................................................. 7

NOTES TO THE PROJECT SPECIAL PURPOSE FINANCIAL STATEMENTS......................... 8

ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE PROJECT AND

DISBURSED BY THE W ORLD BANK ................................................................................. 15

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"SOS-AUDIT" LTD

INDEPENDENT AUDITOR'S REPORT

On the special purpose financial statements ofthe"Community Agricultural Resource Management and Competitiveness Project"

for the period from January 1, 2016 to January 13, 2017

To the Management of the "Agricultural Projects Implementation Unit" State Agency

Opinion

We have audited the accompanying special purpose financial statements of the "Community AgriculturalResource Management and Competitiveness Project" (hereafter: the Project) financed by IDA CreditNo. 4891-AM, and implemented by the "Agricultural Projects Implementation Unit" State Agency (theAPIU), which comprise the statement of cash receipts and payments, the statement of uses of funds byProject activity for the period from January 1, 2016 to January 13, 2017, and a summary of significantaccounting policies and other explanatory notes.

In our opinion,1. the special purpose financial statements present fairly in all material respects the cash receipts

and payments of the Project for the period from January 1, 2016 to January 13, 2017 inaccordance with International Public Sector Accounting Standard: Financial Reporting Under theCash Basis ofAccounting, (IPSAS-Cash Basis);

2. funds have been used in accordance with the conditions of the Credit Agreement No. 4891-AMdated I April 2011 between the International Development Association (IDA) and the Republicof Armenia, and World Bank related guidelines, with due attention to economy and efficiency,and only for the purposes for which the financing was provided;

3. supporting documents, records and accounts have been maintained to support claims forreimbursement of expenditures incurred. Expenditures included in the withdrawal applicationsand reimbursed against are eligible for financing under the IDA Credit No. 4891-AM;

4. The Designated account used has been maintained in accordance with the provision of the IDACredit No. 4891-AM, and World Bank related guidelines.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) as issued byInternational Auditing and Assurance Standards Board (IAASB) of the International Federation ofAccountants (IFAC). Our responsibilities under those standards are further described in the Auditor'sResponsibilities for the Audit of the Financial Statements section of our report. We are independent of theProject and APIU in accordance with the International Ethics Standards Boardfor Accountants' Code ofEthics for Professional Accountants (IESBA Code), and we have fulfilled out other ethical requirementsin accordance with IESBA Code. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion.

Emphasis of matters

Without qualifying our opinion we draw your attention to Note 9 of these special purpose financialstatements which disclosed that the Project was completed as at the reporting date.

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38155 A. Tigranyan, 0037 Yerevan, RA; Tel: (+37410) 20 11 51; www. sosauditam; E-mail: info@sosaudit.am

"SOS-AUDIT" LTD

Management's Responsibility for the Special Purpose Financial Statements

The management of APIU is responsible for the preparation and fair presentation of these special purposefinancial statements in accordance with IPSAS-Cash Basis issued by the International Public SectorAccounting Standards Board (IPSASB) within the International Federation of Accountants (IFAC), andFinancial Management Manual for World Bank Financed Investment Operations (WB Guidelines), andfor such internal control as management determines is necessary to enable the preparation of specialpurpose financial statements that are free from material misstatements, whether due to fraud or error.

Auditor's Responsibility for the Audit of the Special Purpose Financial Statements

Our objectives are to obtain reasonable assurance about whether the special purpose financial statementsas a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor'sreport that includes our opinion. Reasonable assurance is high level of assurance, but is not a guarantythat an audit conducted in accordance with ISAs will always detect a material misstatement when itexists. Misstatements arise from fraud and 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 special purpose financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain

professional skepticism throughout the audit. We also:* Identify and assess the risks of material misstatement of the special purpose financial statements,V Lwhether 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 riskof not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride 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 anopinion on the effectiveness of the internal control.

* Evaluate the overall presentation, structure and content of the special purpose financial

statements, including the disclosures, and whether the special purpose financial statementsrepresent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with management regarding, among other matters, the planned scope and timing of theaudit and significant audit findings, including any significant deficiencies in internal control that weidentify during our audit.

"SOS-Audit" LLC3 February 2017

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NOTES TO THE PROJECT SPECIAL PURPOSE FINANCIAL STATEMENTS

Community Agricultural Resource Management and Competitiveness ProjectIDA Credit 4891-AMFor the periodfrom January 1, 2016 to January 13, 2017

1. General Information

I. L The Project

On I April 2011 credit agreement IDA Credit No. 4891-AM was signed between the Republicof Armenia and International Development Association (IDA), according to which IDAprovided to the Republic of Armenia credit in the total amount of 10,300,000 Special DrawingRights (SDR).The credit was provided for implementation of Community Agricultural ResourceManagement and Competitiveness Project (the Project).The closing date of the Project is 30 September 2016. The Grace Period for submittingwithdrawal applications for the expenditures incurred before the Closing date is four monthsfollowing the Closing date.

1.2. The Project's objective

The objective of the Project is to improve productivity and sustainability of pasture/livestocklivelihood systems in selected communities of the Republic of Armenia.

The Project consists of the following components.Community Pasture/Livestock Management System,Strengthening Support Services,Competitive Grants Program,Project Management and Monitoring and Evaluation.

1.3. Project Budget

The Project is financed from the following sources:- International Development Association (IDA),- The Government of the Republic of Armenia (GoA),

Beneficiaries,Governm Benefi-

IDA Credit ent of the ciaries4891-AM RA updated Total

USD USDCategou SDR Original _ updated* USD USD USD

Works, goods,consultants' services,training, operatingcosts 3,000,000 4,660,000 4,277,164 1,313,000 16,000 52606,164Community grants 6,300,000 9,786,000 9,949,419 2,590,000 3,700,000 16,239,419

I Competitive grants 110009000 1,554,000 1,248,429 - 570,000. 1,818,429

Total 10,300,0001 16,000,000 15,475,012 1 3,903,000 4,286,000 23,664,012Budget USD equivalent of SDR underlined loan is calculated based on cumulative funds received in USD plus

USD equivalent of undisbursed funds (if any) in SDR as at reporting date. SDRIUSD rate at 13.01.2017 is set ISDR= 1.3 513 USD (in 31.12.2015 1.3 85 7).

1.4. Project implementation

The Project is implemented by "Agricultural Projects Implementation Unit" State Agencyunder the Ministry of Agriculture of the Republic of Armenia (the APIU) that was establishedin accordance with the Republic of Armenia Government decree #765 dated 22 DecemberI999.The APIU's legal address is: 54B/15 Komitas Avenue, Yerevan, Republic of Armenia.

2. Summary of significant accounting policies

2.1. Preparation and presentation offinancial statements

The special purpose financial statements are prepared in accordance with the InternationalPublic Sector Accounting Standard (IPSAS): Financial Reporting Under the Cash Basis ofAccounting, (IPSAS-Cash Basis) issued by the International Public Sector AccountingStandards Board (1PSASB) within the International Federation of Accountants (IFAC), andpresented in accordance with Financial Management Manual for World Bank FinancedInvestment Operations: RM 3 - Financial Reporting and Auditing (March 2010).

The special purpose project financial statements consist of:

- Statement of cash receipts and payments,- Statement of uses of funds by project activity,- Summary of significant accounting policies and other explanatory notes.

The principal accounting policies applied in the preparation of these special purpose financialstatements are set out below. These policies have been consistently applied to all the periodspresented.

2.2 Cash basis of accounting

The special purpose financial statements are prepared and presented using the cash basis ofaccounting.Cash basis means a basis of accounting under which transactions and other events arerecognized only when cash or its equivalent is received or paid.Financial statements prepared under the cash basis provide information about the sources ofcash raised during the period, the purpose for which cash was used and the cash balances at thereporting date.

23. Presentation currency

The presentation currency of these special purpose financial statements is United States Dollar(USD).

2.4. Foreign currency transactions

Foreign currency is a currency other than the presentation currency of the Project.Transactions in foreign currencies are translated to functional currency at exchange rates at thedates of the transactions. Settlement rate of foreign currency over presentation currencyestablished by the Central Bank of the Republic of Armenia is taken as the exchange rate.

Project accounts are maintained and transactions are made in USD and Armenian Dram(AMD). Transactions denominated in local currency are translated into USD as follows:

- Contributions of the Republic of Armenia expressed in AMD are presented in USD at theofficial exchange rate defined by the Central Bank of Armenia at the date of transfer.

- Payments to contractors and suppliers expressed in AMD are presented in USD at theexchange rates defined by the CBA at the date of payment.

The currency exchange rate defined by the CBA as at 31.12.2015 is: USD I = 483.75 AMD.The currency exchange rate defined by the CBA as at 13.01.2017 is: USD 1 = 485.68 AMD.

2.5. Taxes

All applicable taxes are paid in accordance to common tax regulations of the Republic ofArmenia.

3. Summary of summary reports and SOEs

For the periodfrom January 1, 2016 to January 13, 2017

IDA Credit No. 4891- AM

Application Value date 1.Works, goods, 2.Community 3.Competitive Totalnumber consultants' Grants under Grants under

services, training part A.2 part Cand operating costs,

including auditUSD USD USD USD

52 1 1-Mar-2016 67,101.40 4,868.98 11,628.53 83,598.9153 21-Apr-2016 71,930.04 6,955.00 6,364.59 85,249.6354 05-May-2016 48,641.56 51,580.49 5,078.41 105,300.4655 08-Jun-2016 37,608.46 126,107.79 5,262.40 168,978.6556 28-Jun-2016 45,801.39 36,523.18 9,359.09 91,683.6657 12-Aug-2016 88,059.35 61,576.35 6,961.67 156,597.3758 26-Aug-2016 40,102.13 122,564.15 1,325.83 163,992.1159 15-Sep-2016 49,525.24 158,402.16 12,048.72 219,976.1260 28-Sep-2016 32,567.69 213,559.80 3,434.80 249,562.2961 05-Oct-2016 39,578.09 35,380.25 3,274.92 78,233.2662 20-Dec-2016 4,304.63 25,600.88 860.15 30,765.6663 13-Jan-2017 5,220.85 - - 5,220.85

Total 530,440.83 843,119.03 65,599.11 1,439,158.97

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4. Statement of designated account

Designated Account IDA Credit No.4891-AM

Currency USD

Account number 900000915018

Bank Central Treasury4 Tigran Mets str., 1-st floor,

Yerevan, 0010Location Republic of Armenia

For the period fromJanuary 1, 2016 toJanuary 13, 2017

UJSD1. Opening balance as at 01.01.2016 1,000,000.00

Add:2. Cumulated opening discrepancy

3. IDA Fund advance/replenishment 576,811.31

[: Less:4. Refund to IDA from DA (137,652.34)

[ 5. Present outstanding amount advanced to DA 1,439,158.97

6. SA closing balance as at 13.01.2017

Add:7. Amount of eligible expenditures paid 1,433,938.12

[. Less:8. Interest earned (if credited into DA)

9. Total advance accounted for 1,433,938.12

10. Discrepancy (5)-(9)* 5,220.85

(*) Balance at escrow account for paying audit service (Note 6).

5. Statement of financial position

The Statements of Financial Position discloses assets, liabilities and net assets of the Project as atreporting date. It is prepared in accrual basis that is transactions are recognized when they occur (andnot only when cash is received or paid).

13.01.2017 01.01.2016USD USD

ASSETSCash 6 42,948.55 1,137,561.44Prepayments - 176,334.00

Total assets 42,948.55 1,313,895.44

LIABILITIESPayables 12,892.15 85,369.00Total liabilities 12,892.15 85,369.00

NET ASSETSCumulative incomeIDA credit No. 4891-AM 15,333,394.07 14,894,235.10GoA fund 3,919,512.75 3,657,799.04Community fund 3,789,369.92 3,678,850.03Other beneficiaries 566,910.66 351,424.17Bidding fund 14,952.55 16,937.89Other 6,460.61 1,772.90

23,630,600.56 22,601,019.13

Cumulative expensesProject expenses (23,501,453.93) (21,268,880.17)

129,146.63 1,332,138.96

Foreign exchange gain/(loss) (99,090.23) (103,612.52)

Total net assets 30,056.40 1,228,526.44

6. CashAccount Underlying 13.01.2017 01.01.2016held at Currency USD USD

Designated Account (IDA 4891- Treasury USDAM) - 1,000,000.00Government Co-financing Account Treasury AMD - 93,207.58Community Co-financing Account Treasury AMD 36,030.41 41,102.02Current account (Bidding) Treasury AMD - 3,251.84Escrow account (IDA 4891-AM) Treasury AMD 5,220.85 -Escrow account (Government Co- Treasuryfinancing) AMD 1,697.29 -

Total 42,948.55 1,137,561.44

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8. Financing

8.1. IDA Credit 4891-AMReporting Cumulative as

period at 13 Jan 2017USD USD

Advances/ (advance recovery) (1,000,000.00) 0.00SOE and Summary Report 1,439,158.97 15,333,394.07Total 439,158.97 15,333,394.07

1 Total financing budget 15,475,012.00Percentage of finance provided as at 13 Jan 2017 99%

'1 8.2. Government of RoAReporting Cumulative as

period at 13 Jan 2017USD USD

Financed 261,713.71 3,919,512.75

Total financing budget 3,903,000.00Percentage of finance provided as at 13 Jan 2017 100%

8.3. Beneficiary fundsReporting period Cumulative as

at 13 Jan 2017USD USD

Community grants 110,519.89 3,789,369.92Other 215,486.49 566,910.66

326,006.38 4,356,280.58

Total financing budget 4,286,000.00Percentage of finance provided as at 13Jan 2017 102%

9. Project completion

The Project was completed as at September 30, 2016 (Closing Date), and the transactions werecompleted as at January 13, 2017 (the Reporting Date).As at the date of signing these special purpose financial statements:

a. No expenses related to the Project were incurred after the Closing Date; the payments madeduring the Grace period related to expenses incurred before the Closing Date;

b. No withdrawals from IDA Credit 4891 AM were made after Closing date;c. No expenditures related to the Project were submitted to the WB after the Reporting date;d. There were no uncovered prepayments to contractors related to the Project;e. There are construction works guarantee liability payable to contracts in the total amount of USD

12,892.15 (Note 5) that will be settled through the Government financing.f. The cash balance outstanding as at Reporting date consists (Note 6):

- Balance at Community account at the amount of USD 36,030.41 to be refunded tocommunities;

- Balance at escrow account at the amount of USD 6,918.14 for paying final audit service;g. We are not aware about any pending or existing litigations against the Project.

14

ANNEX 1. RECONCILIATION BETWEEN THE AMOUNTS SUBMITTED BY THE[ -PROJECT AND DISBURSED BY THE WORLD BANK

Community Agricultural Resource Management and Competitiveness ProjectIDA Credit No. 4891- AMFor the periodfrom January 1, 2016 to January 13, 2017in USD

Category Appl. N PIU WB DifferenceAdvance (repayment) 57 (156,597.37)

58 (121,992.11)59 (219,976.12)60 (249,562.29)61 (78,233.26)62 (30,765.66)

refund (137,652.34)63 (5,220.85)

(1,000,000.00)1.Works, goods, consultants' services, 52 67,101.40 67,101.40 -training and operating costs, including audit 53 71,930.04 71,930.04 -

54 48,641.56 48,641.56 -

55 37,608.46 37,608.46 -

L 56 45,801.39 45,801.3957 88,059.35 88,059.3558 40,102.13 40,102.13 -

59 49,525.24 49,525.24 -60 32,567.69 32,567.69 -

61 39,578.09 39,578.09 -

62 4,304.63 4,304.63 -63 5,220.85 5,220.85 -

530,440.83 530,440.832. Community Grants under part A.2 52 4,868.98 4,868.98 -

53 6,955.00 6,955.00 -54 51,580.49 51,580.49 -55 126,107.79 126,107.79 -56 36,523.18 36,523.18 -57 61,576.35 61,576.35 -58 122,564.15 122,564.15 -59 158,402.16 158,402.16 -60 213,559.80 213,559.80 -61 35,380.25 35,380.25 -62 25,600.88 25,600.88 -

843,119.03 843,119.033. Competitive Grants under part C 52 11,628.53 11,628.53 -

53 6,364.59 6,364.59 -54 5,078.41 5,078.41 -55 5,262.40 5,262.40 -56 9,359.09 9,359.09 -57 6,961.67 6,961.67 -58 1,325.83 1,325.83 -59 12,048.72 12,048.72 -60 3,434.80 3,434.80 -61 3,274.92 3,274.92 -62 860.15 860.15 -

65,599.11 65,599.11TOTAL 1,439,158.97 439,158.97

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