Republic of Malawi

Republic of Malawi

MINISTRY OF AGRICULTURE, IRRIGATION AND WATER DEVELOPMENT

AGRICULTURAL COMMERCIALISATION PROJECT (AGCOM)

PROJECT ID NO: P158434

IDA CREDIT NO: 60480-MW

Project Financial Statements

For the year ended 30 June 2019

National Audit Office

P 0 Box 30045Lilongwe

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TABLE OF CONTENTS

CONTENTS PAGE

Contiolling Officer's Report 1

Statement of Management's Responsibilities 4

Independent Auditor's Report 5

Statement of Financial Position 8

Statement of Receipts and Payments 9

Designated Account Activity Statement 10

Notes to the Financial Statements 11



PROJECT ID NO: P158434 AND IDA CREDIT NO: 60480-MW

FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2019

CONTROLLING OFFICER'S REPORT

FOR THE YEAR ENDED 30 JUNE 2019

1.0 Introduction

The Ministry of Agriculture, Irrigation and Water Development is implementing the Malawi

Agriculture Commercialization Project (AGCOM) with funding from the International

Development Agency (IDA) amounting to US$95 million million (i.e. SDR70,100,000). The

Project was approved on 2 3 rd May 2017 while the Financing Agreement (FA) was signed on 2 nd

February 2018. The Project was declared effective on 1st June 2018. The closing date of the

Project is 3 1st May 2023 while the disbursement deadline date is 3 0 th September 2023.

1.2 Project Development Objective (PDO)

The Project Development Objective (PDO) is to increase commercialization of agriculture valuechain products selected under the project. The PDO refers explicitly to value chain products

selected under the project because the value chains to be supported are not determined in

advance; AGCOM is purposely designed to allow the market to decide which value chains and

buyers have strong prospective commercial linkages. This approach will prevent the project from

confining its impact at the outset to a small number of producers in particular value chains.

Agricultural value chain products are products of farms and agribusinesses, including crop,livestock, and fisheries products sold domestically or exported, with or without processing,

depending on market requirements. Commercialization refers to the proportion of marketed

production from targeted farms and the proportion of marketed agribusiness products from the

selected value chains.

1.3 PDO level indicators

The following Project indicators measure progress toward the PDO

i. Increase in yield of selected commodities by producer organizations participating in

productive alliances (crops, livestock, and fisheries, etc.)

ii. Selected agricultural value chain products linked to markets

iii. Producer groups that meet market specifications defined by off-takers (% of members

women)Increased value of gross sales by producer groups for products of agricultural value chains

supported by the project

1.4 Project Components

The above PDO are being achieved through the Project's four components, namely:

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i. Building Productive Alliance. This component is supporting integration of small-scale,emerging farmers (defined as farmers cultivating not more than 8 ha) into value chainsby improving their capacity to finance and execute productivity-enhancing investmentsand respond to the requirements of end-markets and buyers (off-takers).

ii. Support Investment Enabling Services. This Component is focusing on organisation ofProducer Organizations (POs), development of Productive Alliances (PAs), and advanceaccess to markets (especially for mature PAs). Further this component is supportingimprovements and trade environment that will both deepen and sustain market linkagesand improve financing for PAs and POs.

iii. Contingency Emergency Response. This Component focuses on establishment of adisaster recovery contingency fund that is triggered in the event of an eligible natural orhuman-induced crisis or emergency that has had (or is likely to have) major adversesocio-economic impacts during the life of the project.

iv. Project Coordination and Management. This Component is financing andcoordinating project implementation.

1.5 Key achievements during the year under review

The project's efforts and focus were mainly directed towards established of systems and

structures during this first year. During the year under review, the Project made the following

notable achievements:

i. One major activity undertaken in the period under review involved setting up projectsystems and the development of Operational Manuals, guidelines and Terms ofReferences (TORs) to guide project implementation and implementation of specificactivities. The systems and structures established so far include the setting up ofProject offices, Project Steering Committee (PSC), Project Technical Committee(PTC), development of manuals such as Financial Management Manual, MatchingGrants operational manual, Partial Credit Guarantee (PCG) manual, GrievancesRedress Mechanism (GRM) Manual, Contingent Emergency Response ComponentManual, Finance Management, Monitoring and Evaluation systems and proceduresmanuals. Independent Evaluation Committee (IEC) for proposals, InvestmentCommittee (IC) for Partial Credit Guarantee (PCG) were also set up;

ii. A number of procurements were initiated out of which some were completed whileothers are ongoing. Recruitment of the Project Specialists was amongst the majorcompleted procurements. During the period under review, the Project recruited the

National Project Coordinator and 15 Specialists, out of which 13 specialists are forAGCOM PIU while 2 specialists are for Land Reform Implementation Unit;

iii. Sensitization meetings were conducted across the country with diversity ofstakeholders along the agriculture value chain which included four RegionalSensitization meetings and two meetings with off takers (i.e. buyers);

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iv. AGCOM Call for Concept Notes was first announced on 2 8 th June 2019 following the

development of Concept Note Application guidelines and establishment of the

Independent Evaluation Committee (IEC) to evaluate concepts and proposals and

Matching Grant Manual to guide the Independent Evaluation Committee; and

v. A cumulative Budget of USD3,863,008, that is USD3,277,771 and USD 585,237 forthe first six months (July 2018 to December 2018) and the last six months (January2019 to June 2020) respectively was approved by World Bank. USD3,277,771 out ofUSD95 million was disbursed and advanced to the designated account representingdisbursement rate of 3.45%. USD1,229,176 was spent and documented in WorldBank Client Connection (Web based Portal) representing absorption rate of 23% ofthe disbursed amount and utilization rate of 32% of the approved budget. CERC wasactivated which resulted into the availability of USD20 Million for rehabilitation ofdamaged Irrigation Schemes and feeder roads and procurement of about 40,000metric tons of maize in the coming financial year.

The AGCOM PIU implemented key activities as well as fiduciary activities (including the

management of finances and associated checks and balances, procurement contract management)with full oversight support provided by the members of the Project Technical Committee, Project

Steering Committee, Ministry of Agriculture, Irrigation and Water Development and otherimplementing agencies such as Ministry of Industry, Trade and Tourism, MITC and MBS.

Agricultural CommercialisationProject (AGCOM)

2 4 DEC 2019P.O. Box 30134

Capital City, Lilong1 3

GRAY V.K NYANDULE PHIRI

SECRETARY FOR AGRICULTURE,

IRRIGATION AND WATER DEVELOPMENT

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Responsibilities of Management for the Project's Financial StatementsThe Management of Agricultural Commercialization Project (AGCOM) is responsible for thepreparation and fair presentation of the financial statements in accordance with International PublicSector Accounting Standards (IPSAS) Financial Reporting under the Cash Basis of Accounting, Donorterms of agreement and financial provisions, and for such internal control as they determine is necessaryto enable the preparation of financial statements that are free from material misstatement, whether due tofraud or error. This responsibility includes designing, implementing and maintaining internal controlsrelevant to the preparation of the financial statements that are free from material misstatements, whetherdue to fraud or error.

Auditor's Responsibilities for the Audit of the Project's Financial StatementsMy 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 my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an

audit conducted in accordance with International Standards of Supreme Audit Institutions (ISSAls) willalways detect a material misstatement when it exists. Misstatements can arise from fraud or error and areconsidered material if, individually or in the aggregate, they could reasonably be expected to influencethe economic decisions of users taken on the basis of these Project's Financial Statements.

As part of an audit in accordance with ISSAls, I exercise professional judgment and maintainprofessional scepticism throughout the audit. I also:

* Identify and assess the risks of material misstatement of the financial statements, whetherdue to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for my opinion.The risk of not detecting a material misstatement resulting from fraud is higher than forone resulting from error, as fraud may involve collusion, forgery, intentional omissions,misrepresentations, or the override of internal control.

* Obtain an understanding of internal control relevant to the audit in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the internal control.

* Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.

* Evaluate the overall presentation, structure and content of the financial statements,including the disclosures, and whether the financial statements represent the underlyingtransactions and events in a manner that achieves fair presentation.

I communicate with those charged with governance regarding, among other matters, the planned scope

and timing of the audit and significant audit findings, including any significant deficiencies in internal

control that I identify during my audit.

1 also provide those charged with governance with a statement that I have complied with relevant ethicalrequirements regarding independence, and to communicate with them all relationships and other matters

that may reasonably be thought to bear on my independence, and where applicable, related safeguards.

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STATEMENT OF FINANCIAL POSITION AS AT 3 0 TH JUNE 2019

Note MWK USD

Assets

Non-Current Assets

Property, Plant & Equipment 8.0 89,555,800 124,834

Project Operating Costs 9.0 678,008,518 1,104,342

Total Non-Current Assets 767,564,317 1,229,176

Bank Balances 3.0 1,583,905,321 2,048,595

Stocks -_-

Total Current Assets 1,583,905,321 2,048,595

Total Assets 2,351,469,638 3,277,771

Financed By:

World Bank IDA Financing 4.0 2,351,469,638 3,277,771

Total Financing 2,351,469,638 3,277,771

Project (AGCOM)

2 DEC 2019

. P.O. BoX 30134.Capital City, Llongwii

Secretary for Agriculture: Mr. Gray V.K Nyandule Phiri

National Project Coordinator (AGCOM) Teddie Nakhumwa, PhD.......................... ........

Financial Management Specialist (AGCOM) Mr. Boddingtone Munyenyembe.....

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STATEMENT OF RECEIPTS AND PAYMENTSFOR THE YEAR ENDED 30 JUNE 2019

June 2019 June 2019

Note MWK USD

RECEIPTS

Direct Payments 0 0

World Bank IDA Advance Receipts 2,351,469,638 3,277,771

Total Receipts 2,351469,63277.771

PAYMENTS

Establishment of Producer Org. and 199,716Productive Alliances 143,275,707Consulting Services to Producer 30,006Organizations 21,526,040

Facilitate access to land for actors in 306,557Agric.Value Chain 219,923,487

Facilitate access to Business Enabling 67,265Services for Agribusiness and Farmers 48,255,711

Project Management, Activities oversight 584,164and Results 419,078,572

41,470Sectoral and cross Sectoral Coordination 29,750,468

Exchange gains/losses 2.0 (114,245,669) 0

Total Expenditure 1,229,17

Cash Surplus/(Deficit) at the end of the 1.583,905,321 2,048.595Year

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DESIGNATED ACCOUNT ACTIVITY STATEMENT

BANK ACCOUNT NUMBER: 0013006240193MK USD

RECEIPTS

Opening balance 0

Cash Receipts 2,351,469,638 3,277,771

Less Transfers to Operating Account (932,618,700) (1,300,000)

TOTAL RECEIPTS 1,418,850,938 1,977,771

PAYMENTSBank Charges (10,761) (15)

TOTAL PAYMENTS (10,761) (15)

SURPLUS 1,418,840,177 1,977,756

10

NOTES TO THE FINANCIAL STATEMENTS

1.0 ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these project financial statements are setout below: -

1.1 Basis of preparing the Financial Statements

The Financial Statements have been prepared using the historical cost convention and in accordance withInternational Public Sector Accounting (IPSAS) with particular emphasis on cash basis financial reportingunder the cash basis accounting. The cash basis accounting recognizes transactions and events only whencash is received or paid by the project.

All receipts and payments received and made in the period are reflected in the financial statements.

1.2 Foreign Currency Translation/Exchange gains/(Losses)

Foreign currency translation for income and expenditure account items are converted using the actualexchange rate at the date of draw down. All local expenditures paid from the local accounts/currency aretranslated back to the US Dollar at the actual rate at which draw-down was converted at date of transferfrom special account to local account. Where the expenditure cannot be fully met from the proceeds of adraw down, and part of the expenditure should be met from the proceeds of the subsequent draw down,which may have come at a different rate, the conversion rate of the total expenditure from the localcurrency to the US dollar is on First in First out (FIFO) basis. Thus, the preceding draw down should beexhausted before the subsequent draw down. Current assets and special fund balances are translated usingthe rate at the closing date (Closing Rate Method). The closing exchange rate to one US Dollar wasMK775.1643 as at 30 th June 2019.

2.0 Foreign Exchange Gain/Loss

Designated Account Balances in ExchangeDescription USD Rate

Closing Designated Account Balance in $ asper Bank Rec 1,977,756

Closing Designated Account Balance in MKas GL using drawn down rate 1,418,840,177 717.3990

Translated DA closing Balances in MKusing Closing exchange rate 1,533,085,845 775.1643

Exchange Gains/(Losses) (114,245,669)

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3.0 Bank Balances

The bank balances are the amounts that remained in the bank balances as at 30 June 2019 for the threeproject bank accounts, namely, Foreign Currency Denominated Account, and Local CurrencyDenominated Account both of which are held at Reserve Bank of Malawi and the NBS (CCA)Operating Account. The breakdown of bank balances is as follows:

Closing Balance Closing BalanceAccount No. Account Name Bank (1VWK) (USD)

ForeignCurrencyDenominated Reserve Bank of

13006240193 Account Malawi 1,533,085,845 1,977,756

Local CurrencyDenominated Reserve Bank of

13006240191 Account Malawi 50,819,476 70,839

Operating18444321 Account NBS Bank Ltd - -

Total 1,583,905,321 2,048,595

4.0 Receipts

The receipts represent funds received from the World Bank. Income is recognized on receipt basis. Fundsare deposited into the Foreign Currency Designated Account with the Reserve Bank of Malawi fromwhere transfers are made to the Local Currency (MK) Designated account (LCDA). The LCDA acts as aholding account and is electronically linked to the NBS Credit Ceiling Authority (CCA) operatingaccount. During the year receipts from World Bank were as follows:

% ofcumulativedisbursedamount

Original Disbursed againstApproved Disbursed Amount to originalLoan Disbursement Amount to 30th June approvedAmount in Reference Disbursement Disbursement 30th June 2019 in loan amountUSD No. Type date 2019 in MK USD in USD

1st Advanceto RBM

WA- Designated95,000,000.00 AGCOM- 01 Account 12 Sep 2018 2,351,469,638 3,277,771 3.45

Total 2,351,469,638 3,277,771 3.45

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5.0 Payments

Project payments are done in both foreign currencies and Malawi Kwacha through the Foreign Currency(USD) Designated Account and the NBS Credit Ceiling Authority operating account. Costs arerecognized on actual payments. Foreign currency payments are accounted for at the exchange rate

prevailing at the date of payment. Principal authority in translating the currency is the Reserve Bank ofMalawi.

6.0 Depreciation

Depreciation is not charged on assets when the Cash Basis method is used. The objective is to show howproject funds have been utilized.

7.0 Taxation

The Project costs funded under IDA Credit No 60480 - MW are "inclusive of taxes according to theFinancing Agreement.

8.0 Property Plant & Equipment

Property, Plant and Equipment are expensed in the project's books of accounts in the year of purchase andshown in the notes to the financial statements at the cost to the Project. The cost is the amount of fundsactually paid. The breakdown of the cost of Property, Plant and Equipment for the year under review is asfollows:

MK USD

Motor Vehicles (0) (0)

Office Furniture 22,731,043 31,685

Office Equipment 56,572,757 78,858

Genset 10,252,000 14,291

Total non-Current Assets 89,555,800 124,834

9.0 Operating Costs

Total Expenses for the year 767,564,316 1,229,176

Total Assets 89,555,800 124,834

Operating Costs 678,008,517 1,104,342

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APPENDICES

Appendix I

Statement of Budget Comparison with Actual Expenditure

Explanations toBudget Period: (July 2018 - June, 2019 Budget Variances

MWK MWK MWK% of

ActualCOMPONENTS/SUBCOMIPO Approved Budget againstNENTS/ACTIVITIES Actual Budet Variance Budget

Building Productive Alliances 229,721 548,419 318,698 42

Establishment of Producerorganizations and ProductiveAlliances (Horizontal Alliances) 199,716 495,906 296,190 40

Communication Campaigns 179,320 406,340 227,020 44

Communication strategy 10,590 71,548 60,958 15

Call for proposals & CapacityBuilding for Productive Alliances 9,805 18,018 8,213 54

Consulting Services toProducer organizations(Productive Alliances) 30,006 52,513 22,507 57

Consulting Services to Producerorganizations 20,404 25,487 5,083 80

Sub Project Grants to Producerorganizations - 18,017 18,017 -

The overexpenditure arosedue to the technicalnature of PCGevaluation whichnecessitate theevaluators to spendmore days toproduce thetechnicalevaluation report

Provision of Partial Credit than the budgetedGuarantees (PCG) 9,602 9,009 (593) 107 days.

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Last Mile InfrastructureInvestments - - - -

Feasibility Assessment of LastMile Infrastructure - - - -

Investments in small scaleirrigation infrastructure - - - -

Investment in last mile ruralfeeder roads - - - -

investments to improve access toelectricity - - - -

Investment to improve access towater - - - -

Support Investment EnablingServices 373,822 1,446,821 1,072,999 49

2.1: Strengthening WarehouseReceipt System (WRS)Financing - 9,009 9,009 -

2.1.1: Engagement of aConsultant to conduct assessmentof the current WRS and developinterventions/solutions 9,009 9,009

2.1.2: Setting up andoperationalization of insuranceand/or an Indemnity Fund toprotect the value of storedcommodities from various risks - - - -

2.1.3: Strategies for increasingfarmers and SMEs access toWarehouses in Rural Areas - - - -

2.1.4: Implementation ofInterventions/Solutions identifiedfrom WRS Study

2.1.5: Facilitate the developmentof warehouse receipt systemstandards (Support to MBS)-Review of standards, initialinspection, and surveillance,quality audits and certification - . . .

2.1.6: Strengthening the capacityof MBS through procurement ofTesting Equipment forLaboratories - - - -

Facilitate access to land foractors in Agriculture ValueChain 306,557 1,135,957 829,400 27

One MVsprocured, delivered

2.2.1 - Land Reform but direct paymentImplementation Unit (LRIU) 77,034 590,756 513,722 13 not completed by

15

30th June 2019while variousEquipment notprocured

2.2.2 - Public Engagement 9,350 138,673 129,323 72.2.3 - MoLHUD CapacityBuilding & InstitutionalDevelopment 162,274 246,249 83,975 662.2.4 - Office Infrastructure,Equipment and Furniture 33,405 61,000 27,595 552.2.5 - Management of LandsRecords/Design, Develop andorganizations an InteroperableLand Information System 24,494 86,040 61,546 28

2.2.6 - Strengthening of MITC - 13,239 13,239 -

2.2.7 Gender Strategy - - -

Facilitate access to BusinessEnabling Services forAgribusiness and Farmers 67,265 301,855 234,590 22

Support Public Private DialogueForums and Agribusiness TaskForce 36,660 56,361 19,701 65TWG Meetings on BusinessReforms 13,356 89,330 75,974 15

Support to TWG for TPSWAP - - - -

Support National TradeFacilitation Secretariat - - - -

Two MVsprocured, deliveredbut direct payment

Business Environment and Inter- not completed byAgency Coordination 17,249 156,164 138,915 11 30th June 2019.

Contingent EmergencyResponse ---

Response to eligible crisis andemergency -_-_-

Project Management &Coordination 625,634 1,867,768 1,242,134 33

4.1 Project Management,Activities oversight and Results 584,164 1,793,133 1,208,969 33

4.1.1: Technical Assistance &Consultancies 249,277 357,424 108,147 70

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4.1.2: Project Planning,Monitoring and Evaluation 75,888 236,149 160,261 32

4.1.3: Finance and Audit 13,470 85,148 71,678 16

4.1.4: Procurement 53,442 74,575 21,133 72Twelve MVsprocured, deliveredbut direct payment

4.1.5: Office Equipment, not completed byfurniture and Vehicles 75,482 808,860 733,378 9 30th June 2019.

4.1.6: Office running costs 38,326 147,077 108,751 26

4.1.7: Vehicle and Gensetrunning costs 78,280 83,900 5,620 93

4.2 Sectoral and cross SectoralCoordination with key SectorAgencies 41,470 74,635 33,165 56

4.2.1: Project ImplementationSupervision 7,435 10,314 2,879 72

4.2.2: Project SteeringCommittee (PSC) meetings 21,010 21,861 851 96

3 out of thebudgeted 4 PTCMeetings tookplace. The 4th onepostponed to next

4.2.3: Project Technical quarter (July 19 to

Committee (PTC) meetings 13,024 42,460 29,436 31 Sept 19)

TOTALS 1,229,176 3,863,008 2,633,832 32

7(0)

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Republic of Malawi