REPUBLIC OF , on...... No...2.. /LVEMPII/2017 Public Disclosure Authorized

RWANDA ENVIRONMENT MANAGEMENT AUTHORITY (REMA) P.O. BOX 7436 KIGALI TEL +250 252 580101

Country Manager World Bank KIGALI

Public Disclosure Authorized Dear Sir,

Re: Submission of the Audit Report for the period ended 30Lh June 2017

Please find enclosed the Audit Report for the project entitled Lake Victoria Environmental Management Project Phase II (LVEMPII). This report is for the period ended 30t June 2017.

Thank you for your usual collaboration.

Sincerely,

Public Disclosure Authorized Eng. Coletha U. RUHAMYA Director General

Cc: Permanent Secretary/ MoE. KIGALI Public Disclosure Authorized

LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II)

AUDIT REPORT

Forthe year ended30 June 2017

LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017

TABLE OF CONTENTS

1. INTROD UCTION ...... 2 2. STATEMENT OF RESPONSIBILITIES ...... 4 3. REPORT OF THE AUDITOR GENERAL ...... 5 4. FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017...... 10 5. REVIEW OF EX PENDITURE ...... 2 6. REVIEW OF INTERNAL CONTROL SMTEM ...... 22 7. REVIEW OF CORPORATEGOVERNANCE ...... 23 8. RESULTS FROM FIELD VISITS ...... 24 9. REVIEW OF PROJECT IMPLEMENTATION ACTIVITIES...... 33 10. IMPLEMENTATION OF PRIOR YEAR AUDIT RECOMMENDATIONS...... 35 A PPEN D IC ES ...... 37

Office of the Auditor General of State Finances 1 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 1. INTRODUCTION

Lake Victoria Environmental Management Project Phase 11 (LVEMP II) builds up from the achievements of LVEMP I and is part of the overall regional integrated approach aimed at conserving the Lake Victoria catchment basin. In Rwanda, LVEMP 11 activities are being coordinated under the Rwanda Environmental Management Authority (REMA) and the parent Ministry is the Ministry of Environment (MoE). The activities however, cut across several line Ministries and Agencies which include the Ministries of Agriculture, Ministries of Environment, Ministry of Infrastructures, Ministry of Local Government, Ministry of Trade and Industry, Water and Sanitation Corporation (WASAC) ltd and former Rwanda Natural Resource Authority (RNRA). The LVEMP II design is consistent with the World Bank's African Plan and is focused on improving governance, strengthening drivers of economic and social growth, enhancing effective public participation and building partnerships in response to the environmental stress. The design is a comprehensive programme aimed at rehabilitation of the lake ecosystem for the benefit of the people who live in the catchment, the national economies of which they are a part, and the global community.

1.1 Basic information

Project Name Lake Victoria Environmental Management Project II (LVEMPII) Agreement/Pr IDA CREDIT NUMBER 4973-RW oject Number Parent The Ministry of Environment (MoE) Ministry Districts Rulindo,Gakenke,Ngororero,Karongi,,Nyamagabe,Ruhango,Ny where anza,Huye,Bugesera, Ngoma, and Kamonyi LVEMP II is implemented Funding The project's total source of funds is summarized in the table below; sources Source of Amount in Exch. Amount in funds USS rate RWF IDA 15,000,000 599.798 8,996,970,000 GOR 750,000 599798 449,841,750 Project i) Date of signature of loan agreement: 02 09-2011 duration/peri ii) Date of effectiveness- 29 12/2011 od iii) Date of initial closure: 31 12/2016 iv) Expected end date.30 06 2017 extended to 31 December 2017 Reporting Rwanda Environment Management Authority (REMA) organization Lake Victoria Environmental Management Project (LVEMP II) and physical P. 0 Box 7436 address Kacyiru Kigali

Main The project key component activities are outlined below: Components/ activities Component 1' Strengthening institutional capacity for managing shared water and fisheries resources. This component will focus on building the capacity and increasing the effectiveness of the existing national institutions to improve the cooperative management of shared trans

Office of the Auditor Generalof State Finances 2 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 boundary natural resources and the lake Victoria Basin, and hence contribute to the achievement of the first project development objective.

Component 2: Point source pollution control and prevention. The main objective of this component is to reduce environmental stresses from point source pollution on the rivers, wetlands, and lakes in the Lake Victoria Basin portion of Rwanda, and thus contribute to the achievement of the second project development objective.

Component 3: Watershed management. This component seeks to reduce environmental stresses in the Lake Victoria Basin through integrated watershed management including the rehabilitation of degraded wetlands and river banks, and the adoption of on farm soil and water conservation programs on the hillsides

Component 4: Project coordination and management. The objective of this component is to provide complementary resources necessary for the effective coordination and communication, and monitoring and evaluation of the project activities.

1.2 Project Management

The management who held office during the 12 months period to 30 June 2017 was:

No. I Name Designation 1. Eng. Coletha U. RUHAMYA Director Generall REMA Chief Budget Manager) 2. Ms Alphonsine Sheri Coordinator/SPIU NTABANA 3. Ms. Annette Sylvie Project Coordinator / Sector Specialist MUHAYIMANA 4. Mr. Joseph MUGABO Finance Manager/SPIU 5. Mr. Guido SIBORUREMA Accountant Specialist

13 Funding Summary

The Project is for a duration of 5 years from 2012 to 2017 and with an approved budget of US$ 15,000,000 from World Bank-International Development Association (IDA). However, on 15 November 2016 it was restructured and became USD 13,098,366. For the year ended 30 June 2017; the remaining balance is shown in the table below:

Source of Donor Cumulative Cumulative Undrawn Undrawn funds Commitment Amount Amount received balance to 30 balance 30 received to 30 to 30 June 2017 June 2017 June 2017 June 2011 (in USD) (in 1/SD) (in Frw) (in USD) (in Frw) (A) (B) (A) -(B) Loan IDA 15,000,000* 8,337,833 6,076,444,574 6,662,167 2,920,525,426 Total 15,000,000 8,337,833 6,076,444,574 6,662,167 2,920,525,426

Office of lte Auditor General of State Finances 3 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017

2. STATEMENT OF RESPONSIBILITIES

Article 66 of the Organic Law No. 12/2013 of 12/09 2013 on State Finances and Property requires budget agencies to prepare and submit to the Ministry annual financial statements in a period of one month from the end of the fiscal year and submit their annual financial statements to the Auditor General of State Finances not later than 30' September of the following fiscal year.

Article 19 of the Organic Law N" 12/2013 further stipulates that the Chief Budget Manager is responsible for maintaining accounts and records of the budget agency, preparing reports on budget execution, managing revenues and expenditures, preparing, maintaining and coordinating the use of financial plans, managing the financial resources for the budget agency effectively, efficiently and transparently. ensuring sound internal control systems in the budget agency and safeguarding the public property held by the budget agency.

As Chief Budget Manager, I accept responsibility for the annual financial statements, which have been prepared using appropriate accounting standards applicable to Public entities as determined by Article 99 of the Ministerial Order No. 001 16 10 TC of 26/01/2016 relating to financial regulations.

These financial statements have been extracted from the accounting records of LVEMP 11 Project and the information provided is accurate and complete in all material respects. The financial statements also form part of the consolidated financial statements of the Government of Rwanda

In my opinion, the financial statements give a true and fair view of the state of the financial affairs of LVEMP II Project I further confirm that LVEMP II Project maintained proper accounting records which can be relied upon in the preparation of financial statements. I also confirm that adequate systems of internal control were maintained and operated effectively during the year to safeguard the assets of the budget agency

Nothing has come to the attention of Management to indicate that LVEMP II Project will not continue operating as a going concern for the foreseeable future.

Signature: ~4q

Name: Eng. Coletha U. RUHAMYA Director General of REMA and Chief Budget Manager

Date:

Office of the Auditor General of Stale Finances 4 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 3. REPORT OF THE AUDITOR GENERAL

REPORT ON THE FINANCIAL STATEMENTS

Eng. Coletha U. RUHAMYA Director General of REMA

3.1 Unqualified opinion on financial statements

As required by Article 165 of the Constitution of the Republic of Rwanda of 2003 revised in 2015, and Articles 6 and 14 of Law n0 79/2013 of 11/09/2013 determining the mission, organization and functioning of the Office of the Auditor General of State Finances (OAG), I have audited the financial statements of LVEMP II Project for the year ended 30 June 2017. These financial statements comprise of; the statement of financial position as at 30 June 2017, and the statement of revenue and expenditure, statement of cash flows and budget execution report for the year then ended, and a summary of significant accounting policies and other explanatory notes. These financial statements are set out on pages 10 to 19.

In my opinion, the accompanying financial statements give a true and fair view of the financial position of LVEMP II as at 30 June 2017 and of its financial performance and its cash flows for the year then ended in accordance with the guidelines provided by Ministerial Order n' 001/16/10/TC of 26(01/2016 relating to financial regulations and Organic Law N' 12/2013/OL of 1209/2013 on State Finances and Property. In addition, proper books of account have been maintained and are in agreement with the financial statements prepared.

3.2 Basis of opinion on financial statements

I conducted my audit in accordance with the International Standards of Supreme Audit Institutions (ISSAls). My responsibilities under ISSAls are described in section 3.4 of this report.

I am independent of LVEMP 11 and have fulfilled my ethical responsibilities in accordance with the ethical requirements that are relevant to my audit of financial statements of public entities as determined by the Code of ethics for International Organisation of Supreme Audit Institutions (INTOSAI). I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion

3.3 Responsibilities of management for the Financial Statements

According to Organic Law N 12/2013 OL of 12 09 2013 on State Finances and Property, management of LVEMP II is responsible for keeping accounting records and books of account, and preparation of financial statements in accordance with the financial regulations prescribed by the Minister in Ministerial order n 001 16 IO/TC of 26 01/2016 relating to financial regulations. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the LVEMP Il's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Government either intends to discontinue operations of the LVEMP II.

Office of the Auditor General of State Finances 5 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 3.4 Auditor General's responsibilities for the audit of the financial statements

My objective when conducting an audit is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes my opinion. Misstatements can arise from fraud or error and are considered material if individually or in aggregate, they could reasonably be expected to influence economic decisions of users taken on the basis of these financial statements.

An audit conducted in accordance with ISSAls requires an auditor to exercise professional judgment and maintain professional skepticism throughout the audit and involves:

* The identification and assessment of the risks of material misstatement of the financial statements, whether due to fraud or error; design and perform procedures responsive to those risks and to obtain sufficient and appropriate audit evidence to provide a basis for the auditor's opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls * Obtaining 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 purposes of expressing an opinion on the effectiveness of internal control * Evaluating the appropriateness of accounting policies used, the reasonableness of accounting estimates made by management. * Concluding on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained whether a material uncertainty exists related to events or conditions that may cast significant doubt on the LVEMP I's ability to continue as a going concern as well as evaluating the presentation of the financial statements * Evaluation of the overall presentation, structure and content of the financial statements, including disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieved fair presentation.

BI a AUD

KIGALI

Oeet.2017

Office of the Auditor Generalof State Finances 6 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 REPORT ON COMPLIANCE

Eng. Coletha U. RUHAMYA Director General of REMA

3.5 Qualified opinion on Compliance

In accordance with the Article 165 of the Constitution of the Republic of Rwanda of 2003 revised in 2015, and Articles 6 and 14 of Law n 79 2013 of 11/09/2013 determining the mission, organization and functioning of the Office of the Auditor General of State Finances (OAG), I carried out an audit of the activities, financial transactions and information reflected in the financial statements of LVEMP 11 for the year ended 30 June 2017.

In my opinion, except for the effects of the matters described under the Basis for Qualified Opinion in paragraph (1) to (2) below, in all material respects, the activities, financial transactions and information reflected in the financial statements are in compliance with the provisions of Organic Law N 12/2013 OL of 12 09 2013 on State Finances and Property and all relevant existing laws and regulations governing public financial management in Rwanda to enable proper accountability and realization of value for money for public funds.

3. 6 Basis of qualified opinion on compliance

REVIEW OF EXPENDITURE

(1) Noncompliance with Memorandum of understanding regarding implementation of CDD sub-projects

Community Driven Development (CDD) is one of the subcomponents of Component 3 of LVEMP 11 project. In implementing the activity of this component LVEMP 11 signed Memorandum of Understanding (MoU) with Districts where cooperatives implementing these activities were located. After signing the MoU the project transferred funds totaling Fny 296,450,164 to cooperatives through Distnct.

Article 8 of the MoU states that the Districts shall organize audits of the CDD sub projects al the end of every one year and submit the reports to REMA. Contrary to this requirement, I noted that no audits were conducted by Districts to ensure that the funds were utilized for the planned activities. There was no evidence that the Project management engaged the district authorities to ensure that the MoU is complied with as stipulated in article 8.

There is a risk that funds transferred for CDD projects may have been mismanaged or used for unplanned activities and remain undetected. Refer to section 5.1

RESULTS FROM FIELD VISITS

(2) Irregularities noted in activities implemented by Nyanza and Ruhango Districts

On 27 January 2016, LVEMP 11 signed a memorandum of understanding with Nyanza and Ruhango Districts of Fny 561,270,530 and Fny 463,143,425 respectiverly for implementation of project activities regarding rehabilitation of Mwogo catchment by creating progressive terraces and plantation and relining of agroforestrie trees, fruit trees and reeds in Cyabakamyi

Office of the Auditor General of State Finances 7 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 Sector in Nyanza District and in Kabagali sector in . LVEMP 11 had transferred Frw 526,102,667 and Frw 389,649,590 until 30 June 2017 to Nyanza and Ruhango districts respectiverly. However, during my physical verification in Nyanza and Ruhango District on 21 November 2017, 1 noted the following irregularties: r Reeds not relined

In some areas in Nyanza District,Cyabakamyi Sector, Kadaho Cell, Gahengeri and Nyabisazi Villages reeds were not relined/replaced.

> Anti-erosive ditches not maintained

In Nyanza District, Cyabakamyi Sector, Karama Cell in Gatongati Village, I noted cases of anti-erosive ditches that were not maintained. There was a lot of soil caused by erosion in those ditches that had not been removed.

> Reeds and agroforestry frees not relined

In Nyanza District. Cyabakamyi Sector, Karama Cell, GatongatiVillage in some areas reeds were not relined r Agroforestry trees and reeds were not maintained

I noted cases where agroforestry trees and reeds planted were not maintained. The trees and reeds were in bushes. As a result, this affects their growth. This was noted in Nyanza District,Cyabakamyi Sector, Kadaho Cell, Gahengeri and Nyabisazi Villages and in Ruhango District,Kabagali Sector Rwesero Cell, Remera Village.

Accordingly, failure to reline reeds on progressive terraces, maintain and reline agroforestry trees and reeds, and maintain anti-erosive ditches could hamper the achievement of the objective which was to rehabilitate Mwogo catchment and maintain anti-erosive ditches. Refer to section 8.2.1 and 8.2.2

3.6 Management's Responsibility for Compliance

In addition to the responsibility for the preparation and presentation of the financial statements, the Organic Law N 12 2013 OL of 1209 2013 on State Finances and Property specifies that management of LVEMP 11 is also responsible for the following

* Preparation of mid term plan, annual action plan, and annual budget for finds provided; * Exercising control over the execution of the budget, in compliance with all provisions of the Organic Law and applicable public financial management regulations; * Preparation and submission of reports to the Ministry of Finance and Economic Planning as provided for in the Organic Law and applicable public financial management regulations; " Preparation and implementation of cash flow plans in consultation with the Ministry; * Managing effectively, efficiently and in a transparent manner, all the public funds in accordance with relevant legal provisions; * Establishing and maintaining effective, efficient and transparent systems of internal controls and risk management;

Office of ite Auditor Generalof State Finances 8 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 * Ensuring proper use of pubhc funds at the disposal of subsidiary entities; * Providing any other information as may be required by the Ministry and Office of the Auditor General of State Finances; * Implementing the Audit recommendations of the Ministry and Auditor General of State Finances; and * Ensuring compliance with all the provisions of the Organic Law, applicable public financial management regulations and other laws relating to public finance.

3.7 Auditor General's Responsibility for Compliance

In addition to the responsibility to express an opinion on the financial statements, Article 166 of the Constitution of the Republic of Rwanda of 2003 as revised in 2015, requires the Auditor General to confirm that: Expenditure incurred was necessary and in conformity with the laws and regulations in force and sound management; * Controls to safeguard the receipt, custody and proper use of public funds were put in place and that the laws and regulations in force were duly observed to prevent misappropriation of public funds; and * LVEMP II Project acquired and utilized human, material and financial resources economically, efficiently and effectively to prevent squandering of public funds. My responsibility includes expressing an opinion on whether the activities, financial transactions and information reflected in the financial statements are, in all material respects, in compliance with the above provisions of the Constitution implemented through Organic Law N' 12/2013/OL of 12/09/2013 on State Finances and Property and other existing laws and regulations relating to public financial management in Rwanda. This responsibility includes performing procedures to obtain audit evidence about whether the entity's expenditure and income have been applied to the purposes intended by the Organic Law on State Finances and Property. Such procedures include the assessment of the risks of material non-compliance.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion on Compliance.

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Office of Use Auditor General of State Finances 9 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 4. FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017

4.1. STATEMENT OF REVENUE AND EXPENDITURE FOR THE YEAR ENDED 30 JUNE 2017

Description Notes 12 Months to 12 Months to 30 June 2017 30 June 2016 Fnv Fny REVENUES Proceeds from borrowings 2 1,492,736,939 2,834,581,078 Other revenue 3 22,979,388 20,902,870 Total revenue () 1,515,716,327 2,855,483,948 Expenses Operatingexpenses Compensation of employees 4 181,805,600 204,329,321 Use of goods and services 5 411,283,948 562,515,890 Transfers to Reporting Entities 6 1,259,995,808 1,555,676,874 Other expenses 7 - 2,897,811 Total operating expenses 1,853,085,356 2,325,419,896

Capital payments Capital expenditure 8 74,799,569 228,352,142 Total expenses (B) 1,927,884,925 2,553,772,038

Deficit/Surplus (C) = (A-B) (412,168,598) 301,711,910

The notes on pages 14 to 19 form an integral part of these financial statements.

Office of the Auditor General of State Finances 10 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 4.2. STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017

Description Notes Balances as at Balances as at 30 June 2017 30 June 2016 Frw Frw Financial Assets Bank balances 9 500,878,152 896,982,481 Cash balances 10 1,000 26,300 Total financial assets 500,879,152 897,008t781

Less: Financial liabilities Accounts payable 11 16,038,969 - Net Financial assets 484,840,183 897,008,781

Representing Accumulated surplus previous years 12 897,008,781 595,296,871 Net deficit/ surplus ror current year 412,168,598 301,711,910

Total closing balances 484,840,183 897,008,781

The notes on pages 14 to 19 form an integral part of these financial statements.

The financial statements for the year ended 30 June 2017 were approved by the Project Management ond ...... d...... and signed on its behalf by: Prepared by:

Guido SIBORUREMA Project Accountant Signature Date

Verified by:

Mr. Joseph MUGABO Finance Manager/SPIU Signature Date

Approved by:

Mr. MUHAYIMANA Annette Sylvie Project Coordinator /Sector Specialist gnutur& Date

Approved by:

Eng. Coletha U. RUHAMYA 2sFf Chief Budget Manager Signature Datg

Office of the Auditor General of State Finances LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 4.3. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2017

Description 12 months to 12 months to 30 June 2017 30 June 2016 Frw Frw Cash flow from operating activities Other revenue 22,979,388 20,902,870 Adjustments Changes in payables 16,038,969 - Total cash receipts from operating activities 39,018,357 20,902,870

Payments for operating expenses Compensation of employees (181,805,600) (204,329,321) Use of goods and services (411,283,948) (562,515,890) Transfers to reporting entities (1,259,995,808) (1,555,676,874) Other expenses - (2,897,811) Total payments for operating activities (1,853,085,356) (2,325,419,896) Net cash flow from operatin ex enses 1,814,066,999 (2 304,517,026)

Cash flows from investing activities Purchase of capital items (74,799,569) (228,352,142) Net cash flows from investing ictivitics (74,799,569) (228,352,142)

Cash flow from financing activities Proceeds from borrowings 1,492,736,939 2,834,581,078 Net cash flow from financing activities 1,492,736,939 2,834,581,078

Net increase in cash and cash equivalents -396,129,629 301,711,910 Cash and Cash equivalent at the beginning of the 897,008,781 595,296,871 year Cash and cash equivalent at the end of the period 500879,152 897,008,781

Office of the A uditor Generalof State Finances t 2 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 4.4. BUDGET EXECUTION REPORT

Budget line/activity Revised Actual Variance Performance Budget Expenditure (%) Frw Frw Frw a (bj a-b (bla)*100 Revenue Proceeds from borrowings 1,600,987,047 1,492,736,939 108.250,108 93 Other revenue - 22,979,388 (22,979,388) - Total Revenue 1,600,987,047 1,515,716,327 85,270,720 95 Expenses Compensation of 240,000,000 181,805,600 58,194,400 76 employces Use of goods and services 392,525,156 411,283.948 (18,758,792) 105 Transfers to Reporting 718,456,889 1,259,995,808 (541,38,919) 6175 Entities Capital expenditure 250,005,002 74,799,569 175,205,433 30** Total expenses 1,600,987,047 1,927,884,925 (326,897,878) 120

*Nev activities not initially planned were implemented by the districts through Atots regardingvalorisations that were signed with Districts " The low execution rate on capital expenditure was due to the remaining balance on rehabilitation of Kadahokwa and Yane not yet paid

Office of the Auditor Generalof State Finances 13 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 4.5. NOTES TO THE FINANCIAL STATEMENTS

1. Accounting policies

a) Basis of preparation

The Financial Statements have been prepared in accordance with the following policies, which have been applied consistently in all material aspects, unless otherwise indicated. However, where appropriate and meaningful, additional information has been disclosed to enhance the usefulness of the Financial Statements and to comply with the requirements of Article 66 of the Organic Law on State Finances and Property: Law No. 12/2013 of 12 September 2013 and Ministerial Order N 0001/16110/TC of 26/01/2016 relating to financial regulations. -

The Financial Statements have been prepared on a modified cash basis of accounting, except where stated otherwise. In the context of Ministerial Order N' 0 01/16/10/TC of 26/01/2016 relating to financial regulations, the modified cash basis of accounting means financial transactions which are recognized in the books of account as follows:

I Generally, transactions are recognized only at the time the associated cash flows take place; 2 The expenditure on acquisition of fixed assets is not capitalized. Thus fixed assets are written-off on acquisition and the wear and tear (depreciation) of those assets is not recorded in the books of account; and 3 Prepaid expenditure/advances are written-off during the period of disbursement.

The recognized "modification" is as follows

I Invoices for goods and services which are outstanding on the date of the closure of the fiscal year are recognized as liabilities for that specific fiscal year; 2 Loans and advances are recognized as assets liabilities at the time of disbursement and related interest is recognized only when disbursed. Interest payable on public debt is accrued; and 3 Book balances denominated in foreign currencies are converted into the Rwanda Francs at rates of exchange ruling on that date issued by the National Bank of Rwanda. The associated exchange losses are recorded as recurrent expenditure while the exchange gains are recorded as recurrent revenue.

b) Reporting entity

The financial statements are for Lake Victoria Environmental Management Project Phase 11 (LVEMP II).

c) Presentation Currency

The financial statements are reported in Rwanda Francs, being the currency of legal tender in Rwanda.

Office of the Auditor Generalof State Finances 14 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 d) Revenue

Loans from Development Partners

These are funds received from donors. These funds are recognised as revenue when the institution receives the cash from the donors.

Other income

Other income includes gain on foreign currency exchange. It is recognized when realized. e) Expenditure

Expenditure is classified according to major categories in line with Article 99 of Ministerial Order N 001 16 10/TC of 26 01-2016 relating to financial regulations. The main categories of expenditure include salaries and wages, and purchase of goods and services. Expenditure is recognized when payment is made and modified to include all invoices outstanding at year end. f) Cash

Cash comprises cash at hand and bank balances. g) Accounts payable

These mainly relate to invoices for goods and services which were outstanding on the date of the closure of the fiscal year. These are recognized as liabilities for that specific fiscal year. h) Foreign currencies

Transactions denominated in foreign currencies are translated to the Rwandan Franc at the rate of exchange issued by the National bank of Rwanda (BNR) applicable for the dates of the transaction. At the balance sheet date, book balances denominated in foreign currencies are converted into Rwandan Francs at the exchange rate ruling on that date as issued by BNR. The associated exchange losses/gains are recorded as expenditure/ income in the books of accounts.

2. Proceeds from borrowings

During the 12 months to 30 June 2017 we received loans/borrowings in cash as detailed in the table below:

Date Description Amount in Exchange 12 months to 12 months to USD rate 30 June 2017 30 June 2016 Frw Frw 26/07 2016 WA31 7,71729 795.053 6,135,655 26/07 2016 W.A 32 25,177.00 807322 20,325,946 16/09/2016 WA33 81,429 57 808876 65,866,425 22/09/2016 W.A 34 332,026.73 809.337 268,721,518 02/11 2016 W.A 35 139,84433 813.933 113,823,915 15/11 2016 W.A 36 89,263.32 815.162 72,764,066 15/112016 W.A 37 192,729.31 815.162 157,105,610

Office of the Auditor General of State Finances 15 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 Date Description Amount in Exchange 12 months to 12 months to USD rate 30 June 2017 30 June 2016 Frw Frw 19 12 2016 W.A 38 36,467.96 818.868 29,862,445 09 02 2017 W.A 39 33,909.09 822.429 27, 887,819 06 03 2017 W.A 40 17,159.39 824.073 14,140,573 16/03 2017 W.A 40 BIS 11,439.59 824.964 9,437,238 16032017 W.A 41 740,601.88 824.964 610,969,149 31 03 2017 W.A 42 45,756.43 826.091 37,798,994 31/03 2017 W.A 43 5,608.81 826.091 4,633,390 03 042017 W.A44 64,467.95 82621 53,264,196 Total 1,823,598.65 1,492,736,939 2,834,581,078

3. Other revenue

During the 12 months to 30 June 2017, we had exchange gain as other revenue as detailed in the table below:

Description 12 months to 12 months to 30 June 2017 30 June 2016 Frw Fw Exchange gain 22,979,388 20,902,870 Total 22,979,388 20,902,870

4. Compensation of employees

During the 12 months to 30 June 2017, we incurred expenditure to compensate employees as detailed in the table below:

Description 12 months to 12 months to 30 June 2017 30 June 2016 Frw Frw Net Salaries 104,291,011 Pay As You Earn (PAYE) 46,037,096 Contributions to RSSB for Pension, Professional risk 12,271,923 and maternity leave Contributions to RSSB for medical insurance 19,205,570 - Total 181,805,600 204,329,321

5. Use of goods and services

During 12 months to 30 June 2017, we consumed goods and services as detailed in the table below.

Description 12 months to 12 months to 30 June 2017 30 June 2016 Fnv Frw Office Supplies, Printing & 15 715,273 30,662,830 Consumables

Office of the Auditor General of State Finances 16 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 Description 12 months to 12 months to 30 June 2017 30 June 2016 Frw Frw Communication Costs 4,414,000 5,135,400 Insurance Costs 3,185,946 3,571,878 Bank Charges 534,980 878,866 Exhange loss 1,240,230 - Adverts and Announcements 2,220,668 3,233,034 Professional, Research Services 263,117,069 427,595,800 Transport and travel 118,435,004 89,787,382 Maintenance, Repairs and 'Spare parts 2,420,778 1,650,700 Total 411,283,948 562,515,890

6. Transfers to reporting entities

During 12 months to 30 June 2017, LVEMP II transferred funds to Government reporting entities as detailed in the table below.

Description 12 months to 12 months to 30 June 2017 30 June 2016 Frw Frw Transfers to Central government entities SPLU MINICOM 24,885,303 57,337,575 Sub-total 1 24,885,303 57,337,575 Transfers to Districts PROJECT LVEMPII REMA- 48,331,191 68,868,628 PROJECT LVEMPII REMA- 15,345,400 150,827,956 PROJECT LVEMPII REMA- 86,129,538 141,237,470 PROJECT LVEMPIl REMA- 83,790,661 39,158,145 PROJECT LVEMPII REMA- 44,567,430 160,419,189 PROJECT LVEMPII REMA- 28,381,468 97,873,759 PROJECT LVEMPII REMA 192,689,646 169,465,740 PROJECT LVEMPII REMA- 130,182,229 185,413,433 PROJECT LVEMPII REMA- 37,421,427 13,806,677 Project LVEMPII REMA - Ngomrero District 62,284,840 61,502,720 Project LVEMPII REMA - Nyanza District 301,594,455 224,508,212 PROJECT LVEMPII REMA - Ruhango District 204,392,220 185,257,370 Sub-total 2 1,235,110,505 1,498,339,299 Grand total 1,259,995,808 1,555,676,874

Office of the Auditor Generalof State Finances 1" LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 7. Other expenses

During the 12 months to 30 June 2017, LVE MP 11 did not incur other expenses as last year.

Description 12 months to 12 months to 30 June 2017 30 June 2016 Fny Fny Miscellaneous expenses - 2,897,811 Total 2,897,811

8. Capital expenditure

During the 12 months to 30 June 2017, LVEMP 11 incurred capital expenditure as detailed in the table below.

Description 12 months to 12 months to 30 June 2017 30 June 2016 Frw Frw Office Equipment, Furniture & Fittings 6,964,349 126,599,987 Rehabilitation of Kandahokwa and Yanze Watersheds 67,835,220 101,752,155 Total 74,799,569 228,352,142

9. Cash at bank

The bank amounts shown in the table below have been reconciled to the bank statement as at 30 June 2017

Bank Account Amount in Exchange Balance as Balance as name No. foreign rate at 30 June at 30 June currency USDIFrw 2017 2016 USD Frw Frw BNR 3207920 1000020938 603,306.46 830221761 500,878,152 896,982,481 Total 500,878,152 896,982,481

10. Cash in hand

The petty cash balance amounts as at 30 June 2017 shown in the table below has been reviewed by the Chief Budget Manager.

Description Balances as at Balances as at 30June2017 30June2016 Frw Frw Petty Cash 1,000 26,300 Total 1,000 26,300

Office of the Auditor Generalof State Finances I8 LAKE VICTORIA ENVIRONMENTAL MANAGEMENT PROJECT (LVEMP II) AUDIT REPORT FOR THE YEAR ENDED 30 JUNE 2017 11. Accounts payable

Description Balances as at Balances as at 30 June 2017 30 June 2016 Frw Frw RRA 16,032,609 Vivine Amariza 6,360 Total 16,038,969

12. Accumulated surplus from previous year

These include cash book reconciled bank balance and petty cash balances existing at the beginning of the year.

Description At 1" July 2016 At I" July 2015 Fr Frw Bank balances 896,982,481 595,196,871 Cash balances 26,300 100,000 Total 897,008,781 595,296,871

Office of the Auditor Generalof State Finances 19