INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AUDIT REPORT AUDIT OF THE INTERNATIONAL BANK GRANT RECIPIENT

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1 Public Disclosure Authorized Audit of the World Bank grant recipient Management and Protection of Key Biodiversity Areas in Belize Project INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AUDIT REPORT Public Disclosure Authorized AUDIT OF THE INTERNATIONAL BANK GRANT RECIPIENT Key Biodiversity Areas in Belize Project (KBA) FUNDED BY THE GLOBAL ENVIRONMENT FACILITY TO STRENGTHEN NATURAL RESOURCE MANAGEMENT AND BIODIVERSITY CONVERVATION IN KEY BIODIVERSITY AREAS (KBA'S) OF BELIZE Public Disclosure Authorized Public Disclosure Authorized World Bank Grant Agreement number: Project number: Country: Auditor: TF BZ P Belize Moore Stephens Magafa LLP Period subject to audit: 26 January 2015 to 31 March 2016 This report is established by request of the International Bank. The views expressed in this report are those of the external auditor and in no way reflect the official opinion of the International Bank. This report has been prepared solely for use of the Intemational Bank for the purpose of the control of the use of funds of the project concerned by the audit. It may be disclosed to those official authorities having regulatory right of access to it. This report should not be used by any other party or for other than its intended purpose.

2 EXECUTIVESUMA M THE AUDIT ENGAGEMENT...4 A UDIT OPINIONS STATEMENT OF EXPENSES STATEMENT OF DESIGNATED ACCONTS STATEMENTOF COMPL ANCE MANAGEMENT LETTER REV1EW OF GRANT RECIPIENT'S EFFECTIVENESS $N THE MANAGEMENT OF FNs ASSESSMENT OF THE GRANT RECIPIENT'S INTERNAL CONTROL SYSTEM ORGANIZATION AND STAFFING REVEW ON TiE MANAGEMENT Of FUNDS PROCURE ETE CONTROL EC ANISMS OF EXPENDITURES DESIGNATED AccouNT ACCOUNTING SYSTEM FOLLOW UP ON PREvms AuWT GENERAL INFRMATON ANNEXES ANNEX 1: SUMMARY OF WORLD BANK FuNDs AmEx 2: STATEMENT OF CUMULATIVE INVESTMENTS ANNEX 3, DESIGNATED ACCOUNT RECONCILIATIOmN STATEMENT Annex4, STATEMENT OP SOURCES AND USES OF FUNDS ANNEX 5: BALANCE SEET Annex 6: FXED ASSET REGa5TER ANNEx 7: AuDrr AREA RATINGS ANNqEx 8: AUDIT FINDING PRIORITY RAINGS Page 2

3 EXECUTIVE SUMMARY Moore Stephens Magafia LLP entered into an Engagement Agreement with the Protected Areas Conservation Trust ("The Implementing Partner") on 19 May to carry out an audit of International Bank Grant recipient which is funded by the Global Environment Facility to strengthen natural resource management and biodiversity conservation in key biodiversity areas (KBA's) of Belize. The Grant recipient (Management and Protection of Key Biodiversity Areas in Belize Project) KBA was selected for audit as part of World Bank's 2016 audit plan. The period subject to audit was 26 January 2015 to 31 March We have issued audit opinions as summarised in the table below and as detailed in the Audit Opinions section: Statement of expenses Statement of designated account Statement of Compliance Unqualified Unqualified Unqualified The audit findings are summarised in the table below: A naea vea r cto - i p p Fa Pr6cutfehett. -- of. - o6d - iiftd - Satisfactory ~,.. ** a :CotfdilMichaidsibsI for - -l E*penditures a osatisfactory - IDesignated.Accotint Management Sitisfactory Accounitiig SysterWsif Partially satisfactor -' - - Follow-up on, Previous Audits Not applicable Generi IntormAtIorn.aii satisifactory Page 3

4 THE AUDIT ENGAGEMENT Audit Objective The main purpose of the audit was to enable the auditors to express an opinion on the grant recipient's (Management and Protection of Key Biodiversity Areas in Belize Project) financial statements as of 26 January 2015 to 31 March The project's accounting system (books and records) provides the basis for the preparation of the PFS, was established to record the financial transactions of the project, and is maintained by the project's implementing partner, the Protected Areas Conservation Trust (PACT). Scope of the Audit The audit was conducted in accordance with International Standards on Auditing (ISA) as published by the International Auditing and Assurance Standards Board of the International Federation of Accountants (IFAC), with special reference to ISA 800 (Auditor's Report on Special Purpose Audit Engagements) and to relevant World Bank guidelines. In conducting the project audit, special attention was paid to the following: * Whether external funds have been used in accordance with the conditions of the relevant general conditions, relevant financing agreements and disbursement letter, with due attention to economy and efficiency, and only for the purposes for which the financing was provided. * Whether counterpart funds have been provided and used in accordance with the relevant general conditions, relevant financing agreements and disbursement letter, and only for the purposes for which they were provided. * Whether the goods and services financed have been procured in accordance with the relevant general conditions, relevant financing agreements and disbursement letter. * Whether necessary supporting documents, records, and accounts have been kept in respect of all Project ventures including expenditures reported via Summary Report or Statements of Expenditures (SOEs) or Designated Accounts (DAs). Clear linkages should exist between the accounting records and the financial reports presented to the Bank. * Whether designated Accounts have been maintained in accordance with the provisions of the relevant general conditions, relevant financing agreements and disbursement letter. * Whether the Project's Financial Statements (PFS) have been prepared in accordance with International Financial Reporting Standards and practices and relevant World Bank guidelines, and give a true and fair view of the financial position of the projects as of 31 March 2016 and of the resources and expenditures for the period 26 January 2015 (KBA) then ended 31 March * Whether there is compliance on each of the financial covenants in the Financial Management section of the Grant Agreement in Section II.B.4 of Schedule 2 Page 4

5 Our assessment of the internal control system covered the following areas as applicable: Summary Reports or Statement of Expenditures As part of the audit of the Project's Financial Statements (PFS), the auditor is required to audit all Summary Reports or SOEs used as the basis for the submission of withdrawal applications. These Summary Reports should be compared for project eligibility with the relevant general conditions, relevant financing agreements, and disbursement letter, and with reference to the Project Appraisal Document for guidance when considered necessary. Where ineligible expenditures are identified as having been included in withdrawal applications and reimbursed against, these should be separately noted in separate note disclosures and also in the management letter, by the auditor. The Project Financial Statements (or included within the notes to the project financial statements) should be a schedule listing individual Summary Reports or SOEs (used as the basis of disbursement) withdrawal applications by specific reference number and amount. The auditor should pay particular attention as to whether: * The Summary Reports or SOEs have been prepared in accordance with the provisions of the relevant financing agreement. * Expenditures have been made wholly and necessarily for the realization of project objectives. * Information and explanation necessary for the purpose of the audit have been obtained; * Supporting records and documents necessary for the purpose of the audit have been retained, and * The Summary Reports or SOEs can be relied upon to support the related withdrawal applications. Designated Accounts In conjunction with the audit of the Project Financial Statements, the auditor is also required to audit the activities of the Designated Accounts associated with the Project. The Designated Accounts usually comprises: Deposits and replenishments received from the Bank; Payments substantiated by withdrawal applications; Interest that may be earned from the balances and which belong to the Recipient; and The remaining balances at the end of each fiscal year. The auditor should pay particular attention as to the compliance with the Bank's procedures and the balances of the Designated Accounts at the end of the fiscal year (or period). The auditor should examine the eligibility of financial transactions during the period under examination and fund balances at the end of such a period, the operation and use of the DAs in accordance with the relevant general conditions. relevant financing agreements and disbursement letter, and the adequacy of internal controls for this type of disbursement mechanism. For this Project, the designated accounts are referred to in the Disbursement Letter attached to the Grant Agreement, and Disbursement Guidelines, Page 5

6 Audit Reports The auditors will issue an audit opinion on the MANAGEMENT AND PROTECTION OF KEY BIODIVERSITY AREAS IN BELIZE PROJECT (refer to the "Project Financial Statements" paragraph above for a definition of the statements included therein). In addition to the audit opinion, the auditor will prepare a "management letter," in which the auditor will: * Give comments and observations on the accounting records, systems, and controls that were examined during the course of the audit; * Identify specific deficiencies and areas of weakness in systems and controls and make recommendation for their improvement. These should be reported in accordance with the following elements: condition, criteria, cause and effect. It is important that the findings also include a recommendation to help correct the cause; * Report on the lack of compliance of each financial covenant in the relevant financing agreement; * Communicate matters that have come to their attention during the audit which might have a significant impact on the implementation of the project; * Bring to the recipient's attention any other matters that the auditor considers pertinent; and include managements comments in the final management letter. The financial statements, including the audit opinion, and management letter should be received by the Project's implementing partner, PACT, no later than July 15th after the end of the audited fiscal year. The Project's implementing partner should then promptly forward two copies of the audited project financial statements (including audit opinion) and management letter to the Bank. General The responsibility for the preparation of financial statements including adequate disclosure is that of the management of the implementing partner of the project (PACT). This includes the maintenance of adequate accounting records and internal controls, the selection and application of accounting policies, and the safeguarding of the assets of the entity. As part of the audit process, the auditor will request from management written confirmation concerning representations made to the auditor in connection with the audit. The PROTECTED AREAS CONSERVATION TRUST will co-operate fully with the auditor and will make available to the auditor whatever records, documentation and other information is requested by the auditor in connection with the audit. The auditor should be given access to all legal documents, correspondence, and any other information associated with the project and deemed necessary by the auditor. Confirmation should also be obtained of amounts disbursed and outstanding at the Bank and of amounts disbursed under other donor partner. It is highly desirable that the auditor becomes familiar with the relevant World Bank guidelines, which explain the Bank's financial reporting and auditing requirements. Page 6

7 These guidelines include: Guidelines: Annual Financial Reporting and Auditing for World Bank-Financed Activities dated June 30, 2003; Anti-Corruption Guidelines, dated October 2006; Disbursement Handbook for World Bank Clients, dated May 2006; Disbursement Guidelines for Projects, dated May The auditor should understand that working papers under World Bank project can be subject to the review by Client's andlor World Bank designated staff. Page 7

8 MOORE STEPHENS Moore Stephens Magaila LLP New Horizon Building 3 Y Phillip S. W. Goldson Highway Belize City, Belize AUDIT OPINIONS T F E rfmagana@moorestephens.bz www mooresteohens bz Independent Auditor's Report to WORLD BANK - Financial Audit Statement of Cumulative Investments Unqualified Opinion We have audited the expenses recorded in QuickBooks as set out in Annex 2 [Statement of Cumulative Investments] "the Statement" totalling BZD 1,001,085 66/ USD 500, for the Management and protection of Key Biodiversity Areas of Belize Project (KBA) "the Grant recipient"; representing the expenses reported under World Bank Grant number TF BZ Project number P for the period 26 January 2015 to 31 March This Statement of Cumulative Investments reflects all disbursements listed in the yearly financial reports submitted by the Grant recipient's implementing partner Protected Areas Conservation Trust (PACT)- In total these amounts represent the actual expenses incurred by the Grant recipient in accordance with the Grant Agreement. Expenses have been classified according to the component for which the resources were utilized- As set out in the relevant grant agreement signed between the government of Belize and the World Bank on 26 " January 2015, the proper utilization of these funds will aid in strengthening natural resource management and biodiversity conservation through the mitigation of threats to Key Biodiversity Areas (KBA's) in Belize. This will be achieved by implementing the different components over a period of five years. Respective responsibilities of the Grant recipient's implementing partner and auditors The staffs assigned by the implementing partner is responsible for the preparation of requisition forms and other financial records and documents for the Grant recipient's activities and for such internal control as management determines is necessary to enable the preparation of a statement that is free from material misstatement, whether due to fraud or error. Our responsibility is to express an opinion on the statement based on our audit. We conducted our audit in accordance with International Standards on Auditing insofar as these standards can be usefully applied in this financial audit and its specific compliance context. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. Page 8 Ret Idnt.Adi sal r tia di cr ctfitlini,tutrchtc h daciaurttntsultel,.mnd dulyduithe l 'derstaryloiop.f milwashbrelts An indeierflnt memin, fism of 2a.aor tlphens Ii.tuIcn Umned membeti In prmo;p43 thu I ho uitthno wou-ik

9 MOORE STEPHENS A financial audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statement. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the grant recipients preparation of its financial reports 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. A financial audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management. Scope of the Audit The scope of our audit was as set out in our terms of reference and included obtaining evidence for the amounts and disclosures in the statement sufficient to express an opinion on it within the scope of our audit. We have taken into account all the available evidence presented to us during our fieldwork which took place from the 2 3 d May 2016 and concluded the 10 June 2016, and any subsequent information received. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Unqualified Opinion In our opinion, the attached Statement of Cumulative Investments presents fairly, in all material respects, the expenses of BZD 1,001,085.66/ USD 500, incurred by the Grant recipient under the Grant Agreement for the period 26 January 2015 to 31 March 2016 in accordance with World Bank requirements. The expenses incurred were, 1) in conformity with approved budget allocation for each component specified in the grant agreement. (ii) used wholly and necessarily for the realisation of the project's objectives: (iii) in compliance with the relevant regulations and rules, policies and procedures specified in the grant agreement; and (iv) are supported by properly approved vouchers and other supporting documents. Sufficient information and necessary explanations for the purpose of the audit have been obtained and the summary of expenses can be relied upon to support the related withdrawal applications. Chartered Accountants Belize City, Belize 18 September 2016 Page 9

10 MOORE STEPHENS Moore Stephens Maga5a LLP New Horizon Building 3 Y Phillip 5. W. Goldson Highway Belize City, Belize T F E rfmagana@moorestephens.bz independent Auditors Report to WORLD BANK - Financial Audit Statement of Designated Accounts We have audited the cash and cash equivalents recorded in QuickBooks as set out in Annex 3 [The Statement of Designated Accounts] "the Statement" totalling BZD 320,575.68/ USD 160, for use by the Management and protection of Key Biodiversity Areas of Belize Project (KBA). ('the Grant recipient") representing the cash and bank balances reported under World Bank Grant number TF BZ, Project number P for the period 26 January 2015 to 31 March This Statement of Designated Account reflects all transactions listed in the yearly financial reports submitted by the Grant recipient's implementing partner, the Protected Areas Conservation Trust (PACT). This balance represents the ending balance for the designated account Belize Bank AC# for which all related bank transactions including, replenishment of funds, payments made and interest earned on the designated account are assigned. Respective responsibilities of the Grant recipient's implementing partner and auditors The implementing partner's accounting staff are responsible for the preparation of monthly bank reconciliations and other financial records for the Grant recipientrs activities and for ensuring that internal control are in place as management determines is necessary to enable the preparation of a Statement that is free from material misstatement, whether due to fraud or error. Our responsibility is to express an opinion on the Statement based on our audit. We conducted our audit in accordance with International Standards on Auditing insofar as these standards can be usefully applied in this financial audit and its specific compliance context. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Statement is free of material misstatement. A financial audit involves performing bank procedures in order to obtain audit evidence about the amounts and disclosures in the Statement. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the Statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the grant recipient's preparation of its financial reports 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. A financial audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management. Page 10 An Independent menbes lamot inooo 5tr.heni InWran.al4 lmited membetin wwrmpsi chet throu(hou: the wari

11 MOORE STEPHENS Scope of the Audit The scope of our audit was as set out in our terms of reference and included obtaining evidence for the amounts and disclosures in the Statement sufficient to express an opinion on it within the scope of our audit. We have taken into account all the available evidence presented to us during our fieldwork which took place from the 23 May 2016 and concluded the 10 June 2016, and any subsequent information received. We believe that the substantial audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Unqualified Opinion In our opinion, the attached Statement of Designated Account presents fairly, in all material respects, the designated account balance of BZD 320,575.68/ USD 160, and is in accordance with the World Bank accounting requirements, for the period 26 January, 2015 to 31 March, The Designated Bank Account (i) has adequate internal controls in place; (ii) Designated accounts are used in accordance with the relevant general conditions, relevant financing agreements and disbursement letter; (iii) Designated account was in compliance with the bank procedures; (iv) End of period bank balances were properly presented; (v) transactions were recorded for the appropriate periods. Sufficient supporting records and documents necessary for the purpose of the audit have been retained and the summary report can be relied upon. gd,a SI4. Chartered Accountants Belize City, Belize 18 September 2016 b LP. Page 11

12 MOORE STEPHENS Moore Stephens Magafia LLP New Horizon Building 3 Y. Phillip S. W. Goldson Highway Belize City, Belize T F E rfmagana@moorestephens.bz Independent Auditor's Report to WORLD BANK - Financial Audit Statement of Compliance Unqualified Opinion We have examined Key Biodiversity Areas in Belize Project's compliance with procurement guidelines; guidelines on withdrawal of grant proceeds; Anti.Corruption guidelines; project monitoring, reporting and evaluation; and other obligations as specified in Schedule II of the grant agreement for the fiscal year ended 31 March Respective responsibilities of the Grant recipient's national implementing entity and auditors Management is responsible for Key Biodiversity Areas in Belize Projects compliance with those requirements. Our responsibility is to express an opinion on Key Biodiversity Areas in Belize Project's compliance based on our examination. We conducted our audit in accordance with International Standards on Auditing, Those standards require that we comply with ethical requirements, plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement due to fraud or error. Our audit accordingly included examining on a test basis, evidence about Key Biodiversity Areas in Belize Project's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the Key Biodiversity Areas in Belize Project's compliance with specified requirements. In our opinion. The Key Biodiversity Areas in Belize complied, in all material respects, with the aforementioned requirements for the year ended March lij 4 crk. Chartered Accountants Belize City, Belize 18 September 2016 o:,, LLPO Page 12 teyaii40 PiJg.ai..urn.rd rachkrl r br.,s str *. CIa,trred A, un.f.. el. r J.d,.1h H.. 4,,lert,ed to rry a..t com'panramist.a n lcar An hd.etrde Mrfitibe bm, Il I1-1le 5tbIe. wernaomil tnmied rr -br -n pr ncipal O.t.e. lhrogho-t lne.. rd

13 Annexes Annex 1 Summary of World Bank Funds BZD USD Project No: TF BZ Total Funds available for Disbursement 12,171, ,085, Documented Disbursement 1,320, , Total Available Funds to date 10,851, ,425, Annex 2 Statement of Cumulative Investments Categories Current Year Current Period Cumulative Actual US$ Actual US$ 1. Goods, Works, nonconsulting services, training and monitoring 502, , and compliance activities except for part two of the project 2. Goods, Works, nonconsulting services and.. training for part two of the project Total 502, , Page 19

14 Annex 3 Designated Account Reconciliation Statement BZD USD Project No: TF BZ Total Advance by World Bank/Co-Financier 1,000, , Less: Eligible Expenditures for the year 31 March Less: Cumulative Eligible Expenditure Present Outstanding Amount Advanced to Designated Account 1,000, , Balance of Designated Account as of 31 March 2016 Balance of Project Account as of 31 March , , Plus: Expenditures for current year documented after year end 31 March, 2016 (WA PACT 5) 684, , Plus: Total amount withdrawn not yet claimed Reason: Plus: Amounts claimed in previous applications not yet credited Application Number: WA #xx WA #xx Subtotal of previous applications not yet credited Less: Interest Earned) Total advance accounted for (no. 4 through no. 9) 1,004, , Difference: (3-9) (4,660.60) (2,330.30) EXPLANATION OF ANY DIFFERENCE SHOWN IN LINE 10: The difference of USD which Is an overage due to the following: There was a loss in exchange of USD 950 upon receiving the initial amount from World Bank. Upon reimbursing the retro and non-retro expenses the World Bank reimbursed USD 1, in excess because USD 158,500 was claimed and USD 160, was actually disbursed. The project also received cash from three other sources which are: Sale of bid USD 500, deposit from Belize Social Security for sickness benefit of BZD and a deposit received from an insurance claim of USD A non-reconciled difference of USD is also pending to be resolved and will be paid by PACT at the end of the project if not reconciled. Page 20

15 Annex 4 Statement of sources and use of funds USD USD Project No: TF Z Current Period Cumulative Receipts from World Bank Designated Account 500, , Direct Payment Reimbursement 160, , Total ReceIpts 660, , Expenditures by Project Component 1 Supporting Forest protection and sustainable forest management activities 102, , in Key Biodiversity areas Component 2 Promoting effective management of Key Biodiversity Areas 85, , Component 3 Institutional strengthening and Capacity building for enhanced enforcement of 110, , Environmental regulations Component 4 Project management, monitoring And assessment 201, , Total Expenditures 500, , Adjustments on foreign exchange Bank Balances Opening Cash Balances Designated Account Project Account Total Opening Balance Closing Cash Balances Designated Account Project Account 160, , Total Closing Balance 160, , Page 21

16 Annex 6 Balance Sheet BZD USD Project No: TF BZ Bank Balances 320, , Total Assets 320, , KBA Accounts Payable Total Equity (retained earnings) 320, , Total Liabilities and Equity 320, , Page 22

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19 Audit of the World Bank grant recipient Management and Protection of Key Blodiversity Areas in Belize Project Annex 7 Audit area ratings Standard Rating Satisfactory Partially Satisfactory Unsatisfactory Definition Internal controls and risk management practices were adequately established and functioning well. No high risk areas were identified. Overall, the GR's objectives are likely to be achieved. Internal controls and risk management practices were generally established and functioning, but needed improvement. One or more high and medium risk areas were identified that may impact on the achievement of the GR's objectives. Internal controls and risk management practices were either not established or not functioning well. The majority of issues identified were high risk. Hence, the overall GR objectives are not likely to be achieved. Annex 8 Audit finding priority ratings The following categories of priorities are used: High Medium Low Prompt action is required to ensure that the International Bank is not exposed to high risks. Failure to take action could result in major negative consequences and issues. Action is required to ensure that the International Bank is not exposed to risks that are considered moderate. Failure to take action could contribute to negative consequences for the International Bank. Action is desirable and should result in enhanced control or better value for money.

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