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2 EAC- MRH PROJECT JUMUIYA YAAFRI KAMASHARIKI AUDITED FINANCIAL STATEMENTS OF MEDICINE REGULATORY HARMONIZATION PROJECT FOR THE YEAR ENDED 30 JUNE 2017 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized

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Page 1: World Bank Documentdocuments.worldbank.org/curated/en/445801519986205070/pdf/P128332-MRHP... · consider budgetary strategy, assess project outcomes, monitor risks, make policy and

2 EAC- MRH PROJECT

JUMUIYA YAAFRIKAMASHARIKI

AUDITED FINANCIAL STATEMENTS OF MEDICINE REGULATORY HARMONIZATION PROJECT FOR THE YEAR ENDED 30 JUNE 2017

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

Table of Contents

1. BACKGROUND OF THE PROJECT ............... ... ..... .............. .... .... ........ .. ... .... ......... 5

2. CORPORATE GOVERNANCE STATEMENT ... ................... ......... ...... ... .. ......... .. ... 9

3. RISK MANAGEMENT AND INTERNAL CONTROL ........ .. .............. .... ... ....... ... .. .. 10

4. STATEMENT OF THE SECRETARY GENERAL'S RESPONSIBILITIES ........ .. 13

5. REPORT OF THE AUDIT COMMISSION ON MEDICINE REGULA TORY HARMONIZATION PROJECT FOR THE YEAR ENDED 30 JUNE 2017 ... ...... .... .......... 15 6.1 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017 ......................... .............. 19

6.2 STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2017 ...... 20

6.3 STATEMENT OF CHANGES IN NET ASSETS/ EQUITY AT 30 JUNE 2017 ....................... 21

6.4 CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2017 .................................. 22

6.5 STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS FOR THE YEAR ENDED

30 JUNE 2017 23

6.6 STATEMENT OF SPEGAL ACCOUNT ACTlVIlY FOR THE PERIOD ENDED 30TH JUNE 201724

6.7 NOTES TO THE FINANCIAL STATEMENTS .................................................................... 25

GENERAL INFORMATION ........................................................................................................ 25

6.7.1 SUMMARY OF SIGNIFICANT ACCOUNTING POUGES .................................................. 25

6.7.2 ARTHIMETICAL NOTES TO THE FINANGAL STATEMENTS ....................•...................... 30

East African Community Audit Commission @2017 Page 2 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

ORGANISATION INFORMATION

CHIEF OFFICERS

REGISTERED OFFICE

AUDITORS

BANKERS

Dr. Stanley Sonoiya Jane Mashingia Patrick Mwesigye Daniel Murenzi Justine Katesigwa Nancy Cherotich

East Africa Community

P.O Box 1096 EAC Headquarters Afrika Mashariki Road Arusha Tanzania

AUDIT COMMISSION

Principal Health Officer Senior Health Officer Project Coordinator eHealth and Informatics Officer Project Accountant Pharmaceutical Program Assistant

Designated bank account Kenya Commercial Bank Ltd AccountNo.3300705770 P.O Box4605 Arusha, Tanzania

East African Comlllllnity Audit Commission @)Ol 7 Page 3 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

East African Commumty Audit Commission @)017 Page 4 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

1. BACKGROUND OF THE PROJECT

The East African Community Medicines Regulatory Harmonization (EAC-MRH) project aims at improving access to safe, efficacious, affordable and good quality medicines by harmonizing medicines regulation systems, requirements and procedures in accordance with national and international policies and standards. In addition, the initiative is in line with the provisions of the Treaty establishing the East African Community; in its chapter 21 article 118, which provides for Partner States to corporate and collaborate in health matters.

The East African Community MRH Programme was officially launched on 30th March, 2012, in Arusha, Tanzania with the purpose to improve access to safe, efficacious and good quality essential medicines for the treatment of conditions of public health importance

The Project goal is to have a harmonized and functioning medicines regulatory system within in accordance with national and internationally recognized policies and standards [WHO& ICH]

The Project Objectives are: • To implement an agreed common technical document for registration of

Medicines in the EAC Partner States • To implement a common information management system for medicines

registration in each of the EAC Partner States NMRAs this is linked in all Partner States and EAC Secretariat

• To implement a quality management system in each of the EAC Partner States NMRAs

• To build regional and national capacity to implement Medicines registration harmonization in the EAC

• To create a platform for information sharing on the harmonized medicines registration system to key stakeholders at national and regional level

• To develop and implement framework for mutual recognition based on Chapter 21 , Article 118 of the East African Community Treaty

The Project has several milestones listed below: a. An agreed CTD for registration of Medicines implemented in all 6 NMRAs by end

of year 5 b. A common integrated IMS established and linked in all NMRAs and EAC

Secretariat by end of year 4 c. QMS implemented in each NMRAs by end of year 5 d. Institutional, human and infrastructural capacity built by end of year 5 & capacity

building programmes institutionalized into the existing structures e. Governments commitment, industry buy-in & commitment and public awareness

created

East Africa11 Commu11ity Audit Commission @201 7 Page 5 of 33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

f. A framework for mutual recognition of regulatory decisions developed and implemented by end of year 5

1.1. Human Resource

As at 30th June 2017, the MRHP had the following human resource capacity:-

EAC-MRHP Project Staff Subtotal

1.2. The Budget

30/6/2017 3 3

30/6/2016 10 10

The Budget of the EAC - Medicine Regulatory Harmonization Project for the financial year 2016/17 was USO 2,897,461

1.3 Achievements during the year

The achievements on joint activities are fisted befow:

• At National levels a total of 5,095 Applications for registrations have been received and 2,796 applications have been approved for registration

• At regional level under joint procedures, 38 applications have been received and assessed; and 8 of them approved for registration at national levels

• Up to April 2017 a total of 13 pharmaceutical manufacturing sites were jointly inspected by EAC Inspectors with technical support from WHO and Swissmedic of which 10 have been issued with Certificates

• Industry is very exited about the joint inspections as it creates more time for working under reduced inspections.

• Under Integrated IMS implementation in NMRAs is ongoing starting with Uganda NDA, implementation started December 2016 and in March 2017 for Rwanda where import and export modules are in use

• Other NMRAs in the EAC, Zanzibar is ready for implementation and Burundi the portal is ready.

• All NMRAs have videoconference facilities and including EAC -Secretariat since Sept 2014 and by November 2016 all NMRAs received 2 data servers.

• TFOA has been the only ISO 9001 :2008 certified until 2015 version requirements while NOA, PPB and ZFOB have plans to acquire certification by June 2018

Pharmacovigilance

East African Community Audit Commission @2017 Page 6 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

• Harmonized system strengthening tools have been approved in March 2017. • PV National System assessed in Feb -March 2017 and results discussed

• With technicar read by AU -NEPAD, PV business pran is being deveroped and expected to be availed by Sept 2017

Capacity Building and institutional strengthening Programme - Twinning between NMRAs in capacity building exchanges and four sessions

have been conducted in areas of Medicine Evaluation and Registration (MER) the last in Burundi and one dossier was assessed

- QMS, Tanzania Food and Drugs Authority underwent assessment for ISO 9001 :2015 certification and obtained, while Kenya (PPB), Uganda (NOA) have concluded the external reviewers and are finalizing with the procurement for the auditors. For Tanzania (ZFDA) , external audits have been concluded and waiting for certification . 12 staff from Burundi and Uganda received training on the use and application of

the IMS - On the other hand each Partner State NMRA and EAC Secretariat were given 2

data servers - March 2017 training of 57 staff in advanced GMP and data integrity for medicines

registration

Institution and regulatory systems strengthening Three (3) Regional Centers of Regulatory Excellence (RCOREs) established and are operational a- Medicines Evaluation and Registration lead by TFOA & SOP-MU HAS, 1 O experts in Good Clinical Trial Practice in Addis Ababa at the end of June 2017; b- Pharmacovigilance systems strengthening and Harmonization lead PPB & University of Nairobi; we started negotiations with USAID and 900,000 USO has been secured for the first year 2017 /2018 and will be reviewed annually; c- GMP inspections lead by NOA & University of Makerere - licensing Tanzania Moshi -SLF-KSP & Purdue University (USA) - training in Core Regulatory sciences - Draft and costed Pharmacovigilance system strengthening business has developed and will be ready for consideration and approval by the 15th Sectoral Council as part of post current EAC-MRH Project implementation Regional policies towards reforming the regional pharmaceutical sector

- Regional Pharmaceutical Policy, Legal and Regulatory Reform, drafts are ready for consideration by the 15th Sectoral on Health;

- NMRAs Resource Mobilization and Financial Sustainability model, report availed with support from consultants hired by the WB is available;

East African Community A11dit Commission @201 7 Page 7 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

- NMRAs medicines regulatory decisions Information Sharing, Cooperation framework is ready;

- Plans to establish the East African Medicines and Food Safety Commission ; a draft concept note and proposal are available for consideration by the 15th Sectoral Council.

Activities planned for future implementation: • Continue with Joint Dossier Assessment under Partner States Joint Scheme • Continue with Joint GMP inspections into pharmaceutical plants in the region and

outside • Fast tracking of implementation of the Quality Management System in the

Republic of Kenya (PPB), Uganda (NDA), URT -Zanzibar (ZFDB) and later Rwanda MoH and Burundi (DMPL)

• Development and implementation of the standard treatment guidelines for the region

• To develop and implement a regional essential medicines and health technologies list

• Continue with approval and implementation processes of the regional pharmaceutical policies, its strategic plan and EAC Partner States NMRAs Cooperation Framework Agreement

• Establishment of a regional pooled bulk procurement for medicines and health technologies mechanisms

• Implementation and domestication of the regional pharmaceutical policy, its strategjc plan and Cooperation Framework Agreement across Partner States NMRAs

• Implementation of activities gearing toward strengthening of the pharmacovigilance system in the EAC Partner States

• Fully implementation of the Integrated Information Management System in all NMRAs

• Finalize development of EAC -MRH Project phase Ill and continue with resources mobilization

• Working towards establishment of the EAC -MRH Project into a Regional Programme

• Domestication of harmonised guidelines on regulation of Vaccines, Biotherapeutics and Biosimilars

• Build technical capacity in Bioequivalence studies, specialized medical products (Vaccines, Biologicals and Nouvelle Medical Products regulation

• Plan a 6 months transition period to enable finalization of the ongoing preparation of phase Ill

• Supporting countries to use existing platfonns for infonnation sharing • To start discussions with NMRA to have a focal person to follow up on activities

implementation and coordination at national level

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

2. CORPORA TE GOVERNANCE STATEMENT

The implementation of the project activities is vested with the Steering and Executive Committees. The MRHP Steering Committee is responsible for providing Policy and strategic oversight to the project, while the Executive Committee is responsible for overseeing project operations. Meetings of the two committees will continue to regularly consider budgetary strategy, assess project outcomes, monitor risks, make policy and resourcing decisions, and review requests for changes in project scope.

Internal Auditor reports to the Audit and Risk Committee on , among other things, the status of compliance risk management in EAC and significant areas of non-compliance. The impact of new and proposed legislation and regulations (if any) is assessed by management and material regulatory issues and legislative developments are escalated to the Audit and Risk Committee.

East African Community Audit Commission @2017 Page 9 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE . 2017

3. RISK MANAGEMENT AND INTERNAL CONTROL

Overview of EAC's risk management framework

The East African Community (EAC) is responsible for the risk management and internal control system of the project EAC is committed to a process of risk management that is aligned to the principles of sound corporate governance recognizing that the management of risk is an important strategy for the achievement of the EAC Mission and supporting objectives. The project management is task to ensure that the adequate internal financial and operational control systems are developed and maintained on an ongoing basis in order to provide reasonable assurance regarding:

• The effectiveness and efficiency of operations • The safeguarding of the project assets • Compliance with signed grant agreement and other applicable laws and

regulations • Reliability of accounting records • Responsible behavior towards all stakeholders

Approach to Risk Management

A description of EAC's approach to risk management covering a summary of the overall methodology and the management of individual types of risks is included in the EAC Risk Management Framework, Policy and Strategy (2011) and expounded as below.

The EAC's risk management framework is based on a well-established governance process, with different lines of defense and relies both on individual responsibility and collective oversight, supported by a comprehensive reporting and escalation process.

The EAC's internal audit function independently audits the adequacy and effectiveness of the EAC's risk management framework. The head of Internal audit reports and provides independent assurance on the same to the audit and Risk committee and has unrestricted access to the Secretary General and the chairman of the Audit and Risk Committee.

a) Operational risk

Operational risk is the potential for loss resulting from the inadequacy of, or a failure in internal processes, people, systems or external events. The Project recognizes the significance of operational risk, and the fact that it is inherent in all business units.

b) Occupational health and safety

The health and safety of our employees, our partners and other stakeholders continues to be a priority. The Project seeks to effectively identify, reduce or

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

control accidents or injuries to employees, contractors and clients. The Project continues to focus on ensuring compliance with current legal and regulatory framework and ensuring that occupational health and safety procedures are closely linked to the operational needs of the business.

c) Reputational risk

Safeguarding the Project's reputation is of paramount importance to its continued operations and is the responsibility of every member of staff. Reputationaf risks can arise from social , ethical or environmental issues, or as a consequence of operational risk events.

The Community's strong reputation is dependent upon the way in which it conducts its business, but it can also be affected by the way in which its clients, to whom it provides services, conduct themselves.

Effective management of all operating activities is required to establish a strong internal control framework to minimize the risk of operational and financial failure and to ensure that a full assessment of reputational implications is made before strategic decisions are taken.

Management structure

The Project Coordinating Team within the Health Department of the Secretariat, including financial management, procurement, health, accounting, and monitoring and evaluations and informatics specialists to assist the Secretariat carry out its tasks in the project. The current management team has been disclosed on page 3. Employees· welfare

Management - Employees' Relationship Currently the EAC MRH Project has ten employees. The relationship between the employees and management was good. There were no unresolved complaints.

EAC Secretariat is equal opportunity employer. It gives equal access to employment opportunities and ensures that the best available person is appointed to any given position free from discrimination of any kind and without regard to factors like gender, marital status, tribes, religion , nationality and disability which does not impair ability to discharge duties.

Medical Assistance The EAC Secretariat has arranged medical facility which is available to all recruited staff and their immediate family members. Currently this service is provided by AAR (T).

Persons with Disability The recruitment policy of the EAC Secretariat does not discriminate against persons with disabilities, rather the ability to discharge their responsibility.

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

Employee Benefit Plan EAC Secretariat employment contracts provides for gratuity benefit at a rate of 25% of the basic salaries for the tenn of employment at the end of the contract. Gender parity The EAC Secretariat has no gender bias. Men and women are equally eligible for holding any office of the EAC Secretariat provided that they possess the required qualifications and proven competence. Currently the EAC MRH Project team is made up of three females and seven males. Related party transactions Transactions with related parties are disclosed under Note 11 to the financial statements.

Accounting policies A summary of key accounting policies is in Note 2 to the financial statements and were consistently applied during the year under review.

Environmental control programme The East Africa Community (EAC) preserves the environment through tree planting within and outside its offices and is committed to making sure that all internal and external surroundings of its offices are clean .

Political and charitable donations The Medicines Regulatory Harmonization (MRH) project did not make any political and charitable donations.

Prejudicial issues In the opinion of the EAC Secretariat, there are no serious unfavourable matters that can affect the MRH project

Corporate social responsibilities The EAC encourages employees' initiatives on participating in corporate social responsibilities activities. However during the period under review the EAC Secretariat did not engage in any corporate social responsibility activities.

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

4. STATEMENT OF THE SECRETARY GENERAL'S RESPONSIBILITIES

The Treaty for the Establishment of the East African Community and the Financial Rules and Regulations require the Secretary General to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Community. These annual financial statements have been prepared in accordance with International Public Sector Accounting Standards, under the Accrual Basis of Accounting.

The financial statements are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgment and estimates. They have been presented to ensure comparability with the EAC annual financial statements of previous periods and with financial statements of other entities.

The statements have been prepared as general-purpose financial statements intended to provide information about the financial position, financial performance, and cash flows of the EAC that is useful to a wide range of users.

The Secretary General is responsible for establishing and maintaining a system of effective internal control designed to provide reasonable assurance that the transactions recorded in the books of accounts and reported in these annual financial statements are within the statutory authority and reflect with reasonable accuracy the receipt and use of public financial resources by the EAC.

The Secretary General is responsible for and acknowledge the ultimately responsibility for the system of internal financial control established by the EAC and place considerable importance on maintaining a strong control environment. To enable the Secretary General to meet these responsibilities, the Secretary General sets standards for internal control aimed at reducing the risk of error or deficit in a cost effective manner. These standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures, and adequate segregation of duties to ensure an acceptable level of risk. To ensure that theses controls are monitored throughout the EAC and all employees are required to maintain the highest ethical standards in ensuring the EAC business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the EAC is on identifying, assessing, managing and monitoring all known forms of risk across the Community. While operating risks can be fully eliminated, the Community endeavors to minimize it by ensuring that appropriate infrastructure, controls, systems and ethical behavior are applied and managed within predetermined procedures and constraints.

The Secretary General is of the opinion, based on the information and explanations given by management that the system of internal control provides reasonable assurance that financial records may be relied on for the preparation of the financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or deficit. To

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

the best of my knowledge, the system of internal control has operated adequately throughout the reporting period.

The financial statements set out on the pages below which have been prepared on a Going Concern Basis, were approved by the Secretary General on the date indicated below.

etary General accepts responsibility for the integrity of the financial statements ation conta·ned therein for the period under review.

Amb. Liberat Mfumu Ambassador SECRETARY GENERA

East Africa11 Community Audit Commission @2017

Hon. Jesc riyo Deputy Secretary General (Finance and Administration)

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

5. REPORT OF THE AUDIT COMMISSION ON MEDICINE REGULATORY HARMONIZATION PROJECT FOR THE YEAR ENDED 30 JUNE 2017

The RT. Honorable Speaker, East African Legislative Assembly

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

Opinion

We have audited the financial statements of the Medicine Regulatory Harmonization Project set out on pages 19 to 33 which comprise the statement of financial position as at 30 June 2017, and the statement of financial performance, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

In our opinion, the financial statements present fairly, in all material respects, the financial position of Medicine Regulatory Harmonization Project as at 30 June 2017, and of its financial performance and its cash flows for the year then ended, in accordance with International Public Sector Accounting Standards and comply with the Grant Agreement No. TF010846 and TFOA2289 dated 11 May 2016.

Basis Opinion

The audit was conducted in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Project in accordance with the ethical requirements of International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants and Article 134(4) of the Treaty for Establishment of the East African Community, 1999 and we have fulfilled our ethical responsibilities in accordance with these requirements and the ISAs. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements of the current year. These matters were addressed in the context of the audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, a description of how the audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor's ResponsibiUties for the Audit of the Financial Statements section of the report, including in relation to

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

these matters. Accordingly, the audit included the performance of procedures designed to respond to the assessment of the risks of material misstatement of the finandal statements. The results of the audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements. No. Key Audit Matter How the Audit Commission

addressed the key audit matter 2.0 Under absorption of Donor Revenue

Each project has a definite grant period within which the agreed activities must be completed.

The following audit procedures were performed in response to this matter: • Reviewed the financing

The Revised Grant Agreement dated 11 May 2016 for the Medicine • Regulatory Harmonization indicates the project will be completed by 29 December 2017. There is a risk that the project activities will not have been completed on time and donor money will be refunded to the donor. There is also a risk that the overall objectives for the project will not be achieved due to non-implementation of some project activities

agreement and annual work plans Reviewed the progress reports and compared the budgets and activities implemented during the period.

Responsibilities of Management for the Financial Statements

The Secretary General and the Project Coordinator are responsible for the preparation and fair presentation of the financial statements in accordance with International Public Sector Accounting Standards and Section II (C) of the Grant Agreement and for such internal control as the management determines is necessary to enable the preparation of financial statements that are fr~ from material misstatement, whether due to fraud or error. In preparing the financial statements, the management are responsible for assessing the Project'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 the management intends to cease operations of the Project, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Project's financial reporting process.

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

Audit Commission's Responsibilities for the Audit of the Financial Statements

The audit objectives are 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 our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: • rdentify and assess the risks of materi a( misstatement of the financial statements,

whether 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 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 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 an opinion on the effectiveness of the Project's internal control.

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

• Conclude on the appropriateness of the management' 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 Project's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our audit report. However, future events or conditions may cause the Project to cease to continue as a going concern.

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

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

Audit Commission's Responsibilities for the Audit of the Financial Statements

'The ::u:li: cLj~':ti'h', Lire tc1 obtair, 1e)!o.1abi,' ,·;;Jr-Jr1:e ,1l_}CL,t ,·-reth~·r tr,: fh,rncial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a hig,·, lt:-v2l of assurance, but is not a guarance-e that an auoit eu,·,aucted in accordance with ISAs will always detect a material misstatement when it exist s. Missta tc>mems c.an anse from fraud 01 erru, dna are considered rnat erial if, individually or in the aggregate, they coula reasonably be expected to influence t he economic aeci ions of users taken on the basis of these financial stacements.

As part d a'l audit in accordance with ISAs 1rve ex~rcise profess1,Jnal 1 udgernent and maintain professional skept cism tnroughout i:he au01t. We also : • Identify and assess the n sKs of material m1sscatement of ti e financial s~atements,

whetne' due to fraua or error. de.:,ign and perform auc;it procedures respons·ve to these risks, and obtain audit evidence that is sufficient and aporopriate to provide 2. basis for our opimon . Tne risk ot nm: deteccing a material misstai:ei11e-11t resulting fro11 ·fraud 1s I ·gher than for one r,2sult1119: from error, as fraLd may involve collusio1 , for~erv, ·:·i:en'cionat o'Tissions, r~1·sr2oresentations. c,r ~12 override of internal concroi.

• Obta;r an ,mderstanding of internal contr2t rele,,cn t to t he audii: in oraer to desi gn auci it crocedJres trat are apprn:iriate i11 ,~,e :::1rcumstanc2s. m.t not for the pur:;ose of 2;~x~ssing an opinic" on :r,e cf fee ~;veness of tr1e t".'rc_1eci:'s iriternal control

• E\al-Jat2 ~11e apcl:u.' ·ia,eress of :t:.:ccunt:;ng -10'. c12s usea and t.he "eascnableness of accc)uricim~ est 1mdl2s and retai.:el .. 01scio::. 1 •• '"es made by the management.

• Conclude on the appropriateness of the management' use of the going concern basis of accoL1ntin~ and based '.Jr the 2Ldit: evid.once obtained whether a material uncenair1ry 2xiscs rel3 ted rn evf·rit:s er condi11ons rhat may cast sign1f1 cant doubt o. tne i=>rnj=cc's abiiity to cont'nue 2.s a ~0in~ concern. 1.c we conclude that a materi3l uncertainty exists, we are required to draw attention in the auditor' s report to the related disclosures in the financial statements or, if such aisclosures are in~r\::c;L at:e. '::., rnoci"ry our o :irrio'L < 1ir ~cndusions are based on tre audi t ence,h.P ~D' ::1iricd UJ to the daie uf O'Y auc· · re:- 1 't. rlo .;evt=.; , i, r:.."·"'= cv.er1ts or ccnui 1.1ons r,,c1> c..au!>e che ?rojeCL i.u .:edSE tc., cor;t1,1ue as a going cu11c21, ,.

• EvaLuate the overall oresentatior, structure and content of the financial statement.s, H'cludhg i:re 01sctc,,ures, 3'ld "'r.etrier the f:nanc al scaternents rep,·ese,1t -::~-2 u1a2 .. v~ng transac:10'ls ana 2 '2rt~ 1~ a manne .. i:r2c ,?;ci,1eves fair presertatlO"

--. East A..fi·icrm Comnwnit1 -1 rulit Commi.Hio11 <a20 / 7 Page 17 of 38

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

6. FINANCIAL STATEMENTS FOR THE EAC- MRHP

6.1 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017

ASSETS CURRENT ASSETS Cash and Cash Equivalents Account receivable TOTAL CURRENT ASSETS NON CURRENT ASSETS

Property, Plant and Equipment

TOTAL NON CURRENT ASSETS TOTAL ASSETS

LIABILITIES AND NET ASSETS / EQUITY CURRENT LIABILITIES

Trade Payables Accruals and other Payable TOTAL CURRENT LIABILITIES TOT AL LIABILITIES Net Assets/Equity Total Net Assets/Equity

NOTES

1 2

3

5 4

2016/17 USD

196,929 81,570

278,499

8,818

287,317

17,550 19,861 37,411

249,906

2015/16 USD

6,289 711 ,575 717,864

28,812

746,676

523,475 194,389 717,864

28,812

746,676

Director of Finance

East African Community Audit Commissi.on @2017 Page 19 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

6.2 STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2017

REVENUE 2016/17 2015/16

Revenue from non-Exchange Transactions NOTES USO USO Special funds from Development Partners 6 1,407,174 1,635,232

Foreign exchange gain 44

Total Revenue 1,407,218 1,635,232

EXPENSES Salaries, Wages and Employee Benefits 7 435,949 581 ,144 Administrative, Meetings & Consultancy Expenses 8 926,495 670,670

Transfers to Partners States 9 0 362,428

Depreciation and amortization Expenses 10 44,774 20,990

TOTAL 1,407,218 1,635,232

SURPLUS / (DEFICIT) FOR THE PERIOD 0 0

Attributable to:

Development Partners (World Bank) 799,591 623,899

East African Community Audit Commission @2017 Page20 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

6.3 STATEMENT OF CHANGES IN NET ASSETS/ EQUITY AT 30 JUNE 2017

Capital Accumulated

Total Net Contribution /

Surplus Assets/

Notes Grant Equity

Description USO USO USO

At 1 July 2015 277,482 {50,799} 266,682 Prior year adjusbnent 5,827 67,863 (5,827) Surplus I ( deficit) for the year (237,273} {552.567} (789,839} At 30 June 2016 34,382 (603,366) (568,984) At 1 July 2016 34,382 (603,366) (568.984) Prior year adjusbnent 19,299 19,299 Surpfus I (deficit) for the year (to be transferred to Unutilized funds) (25,564} 825 ,155 799,591

At 30 June 2017 8,818 241,019 249,907

East African Commumty Audit Comm-ission @2017 Page 21 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

6.4 CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2017

Description

Cash flows from operating activities Surplus/ (Deficit) at the end of the year

Adjustment for: Depreciation and Amortization

Changes in working Capital (Increase)/ Decrease in Receivable Increase I (Decrease) in Other Current liabilities

Net Cash flows from operating activities Cash flow from investing activities Acquisition of fixed assets Transfer of fixed assets (prior year adjustment)

Cash generated from investing activities

Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

Note

8

2016/17 USO

799,591

44,774

(4,390)

(630,005)

209,970

(19,330)

(19,330}

190,640

6,289

196,929

2015/16 USO

(801,493)

15,606

(40,776)

587,756

{238,906}

(7,010)

240,330

233,319

(5,587)

11,876

6,289

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

6.5 STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS FOR THE YEAR ENDED 30 JUNE 2017

Difference:

Budgeted Amounts In USO Actual Amounts Final Budget

in USO and Actual (in Explanation of Description USO) variances REVENUE Orioinal Final

Special funds from Delay in the approval of Development Partners 2,897,461 2,897,461 2,206,765 690,696 NCE by the World Bank Total Revenue 2,897,461 2,897,461 2,206,765 690,696 EXPENSES

NMROs were paid only Salaries, Wages and for six months up to Emplovee Benefits 617,071 617,071 435 ,949 177,622 December 2016 Administrative, meetings Delay in the approval of & consultancy Expenses 2,238,300 2,238 ,300 926,495 1,311,805 NCE by the World Bank Financial costs (44)

Procured Computer tablets but delivered in 14th July 2017, cost to be

Capital Expenditure 42,090 42,090 42,090 reported FY02017/18 TOTAL 2,897,461 2,897,461 1,378,700 1,518,717 SURPLUS / (DEFICIT) FOR THE PERIOD 0 0 828,065

East African Community A udit Commission @2017 Page 23 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

6.6 STATEMENT OF SPECIAL ACCOUNT ACTIVITY FOR THE PERIOD ENDED 30TH JUNE 2017

Description

Opening balance as at 1st July 2016 ADD:

Total amount Deposited by World Bank DEDUCT

Total amount withdrawn

Closing Bank Balance as at 30th June 2017 as per Bank Statement DEDUCT Un-presented cheques

Balance as per cash book as at 30m June 2017

East African Community Audit Commission @2017

Note 2016/17 CUMMULATIVE

USO USO

6,289 6,289

2,206,765 2,206,765

(1 ,988,979) (1 ,988,979)

224,075 224,075

(27,144) (27,144)

196,929 196,929

Page 24 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

6.7 NOTES TO THE FINANCIAL STATEMENTS

General Information The East African Community (EAC) is a regional inter-governmental organization of the five Partner States, namely: the Republic of Kenya, the Republic of Uganda, the Republic of Burundi, the Republic of Rwanda and the United Republic of Tanzania. The East African Community is currently implementing a regional project on harmonization of Medicines Regulation (EAC-MRH) in collaboration with six (6) National Medicines Regulatory Authorities (NMRAs). The registered office is EAC Headquarters, Afrika Mashariki Road, and P.O Box 1096, Arusha, Tanzania.

6.7 .1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Statement of Compliance The financial statements have been prepared in accordance with International Public Sector Accounting Standards.

Basis of preparation The accompanying financial statements have been presented on an accrual basis of accounting while the budget has been prepared using cash basis of accounting. Accrual basis means a basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid) . Therefore, the transactions and events are recorded in the accounting records and recognized in the financial statements of the periods to which they relate. Accrual accounting allows for revenue to be recognized when earned and expenses to be recognized when goods or services are received , without regard to the receipt or payment of cash. Budgetary accounting allows for compliance with the requirements for and controls over the use of Development Partners budgeted funds.

a) Significant accounting policies The financial statements have been prepared on a going concern basis, they also comply with International Public Sector Accounting Standards for the accrual basis of accounting in as far as the IPSASs so far adopted are concerned ; otherwise IASs/lFRSs are still applicable". The following IPSASs which are applicable to the EAC have been adopted.

b) IPSAS1 : Preparation of financial statements IPSAS2: Cash flow statements. IPSAS3: Accounting policies, changes in accounting estimates and errors. IPSAS4: The effects IPSAS9: Revenue

East African Community A11dit Commission @2017

of from

foreign exchange rates exchange transactions .

Page 25 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

IPSAS12: Inventories. IPSAS17: Property and equipment. IPSAS19: Provisions, contingent liabilities and contingent assets. IPSAS20: Related party disclosures. IPSAS23: Revenue from Non-Exchange Transactions.

IPSAS24: Presentation of budget information in financial statements; IPSAS31 : Intangible assets. IPSAS25{Employee Benefits) has not been complied with in full because of the need to streamline the current policy on plan assets and obligations and the need to change the policy on the accounting treatment on interest earned on gratuity. The accounting policies have been applied consistently throughout the period.

c} Use of Estimates The financial statements in conformity with IPSAS 3 - Accounting Policies, Changes in Accounting Estimates and Errors, requires management to make estimates and assumptions that, affect the reported amounts of assets and liabilities and the disclosure of the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

d) Donations and Grants The financial statements in conformity with IPSAS 23 - Revenue from Non-Exchange Transactions, require management to recognize liabilities from transfers with restrictions (conditions) over the period of which economic benefits will be received from such transfers, with disclosure of such restricted contributions from Development Partners. Most of the assistance given to the Project by the Development Partners is in relation to specific projects or programmes. Hence, they are considered as restricted contributions. Restricted contributions are recognized as Revenue over the periods necessary to match them with the related costs, which they are intended to compensate on a systematic basis.

Grants related to assets are presented in the statement of financial position as deferred revenue, which is recognized as revenue on a systematic and rational basis over the useful life of the asset.

e} Foreign Currency Transactions The financial statements are prepared in conformity with IPSAS 4 - The Effects of Changes in Foreign Exchange Rates that requires management to disclose effects of foreign currency transactions in their financial statements. In accordance with IPSAS 4 and related definition, the presentation currency of the Project, currency in which its financial statements are prepared, is the United States Dollar.

The Project has its Presentation currency, the United States Dollar, and Tanzanian shillings as its functional currency and hence uses the following procedure to translate its foreign currency transactions into the Presentation currency for reporting purpose;

a. monetary assets/liabilities are translated at current exchange rate

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

b. Non-monetary assets/liabilities measured at historical cost are translated at historical exchange rate

c. Non-monetary assets/liabilities measured at current value are translated at the exchange rate at the date when the current value was determined. Owners' interest accounts are translated at historical exchange rate

Revenues/expenses other than those expenses related to non-monetary items (as in (I) (b) above) are translated at the exchange rate that existed when transactions took place (for practical reasons, average rates may be use) (b) expenses related to non-monetary assets, such as depreciation (fixed assets) and amortization (intangible assets) are translated at the Exchange rate used to translate the related assets. This procedure above is descriptive of the Temporal Method of translating foreign exchange transactions where the exchange translation adjustment gains/losses are shown in the financial statements usuafly under the Operating Income/Expenses or Non-operating Income/ Expenses section of the Statement of the financial Performance.

f) Interest earned The financial statements are prepared in conformity with IPSAS 9 - Revenue from Exchange Transactions, requires management to treat such revenue as revenue for the year. Such interest comprises mainly interest from banks, for operating accounts and fixed deposits.

g) Property, plant and equipment The financial statements in conformity with IPSAS 17 - Property, Plant, and Equipment, requires management to treat the assets of the Project as follows - Property and equipment are initially recorded at purchase cost plus direct attributable cost. Where an item of property and equipment comprises major components having different useful lives, they are accounted for separately.

Subsequent expenditures are capitalized only when they increase the current economic benefits and meet the recognition criteria. Expenditure incurred to replace a component of item of property and equipment is accounted for separately and capitalized while the major replaced component is derecognized. All other expenditure items, which do not meet recognition criteria, are recognized in the statement of financial performance as expenses as they are incurred. Property and equipment are derecognized when no economic benefits are expected from its use or disposal. The disposal methods applied include; sale, or scrapping . Gains or losses on disposal of property, plant and equipment are determined by comparing net disposal proceeds if any with the carrying amount These gains or losses are not considered in arriving at the operating surplus or deficit for the year, instead are taken to the statement of changes in statement of financial performance

h) Depreciation The financial statements in conformity with IPSAS 1 - Presentation of Financial Statement and IPSAS 17 - Property, Plant and Equipment recognize depreciation in the Statement of Financial Performance. Management charges depreciation to the

East African Community Audit Commission @2017 Page27 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

Statement of Financial Performance on a straight-line basis to write off the cost of property, plant and equipment to their residual values over their expected useful lives. No depreciation is provided on the land. Depreciation for Property and Equipment purchased during the year is apportioned proportionately to the remaining period of the year. Property and equipment acquired during the year is depreciated from the date when it is available for use and cease to be depreciated at earlier of the date that the asset is derecognized.

Annual depreciation rates applied during the financial year are as follows: Computer equipment Telecommunication equipment Office equipment Office furniture

i) Taxation

33.33%

33.33% 25.00% 12.50%

Article 4 Section (1) subsection (d) of the Headquarters Agreement between East African Community and the United Republic of Tanzania states that: "The Secretariat, its property, assets, income and transactions shall be exempt from all direct taxation including sales tax and from Customs Duties and prohibitions, restrictions on imports and exports in respect of articles imported or exported by Secretariat for its official use. The Secretariat shall also be exempt from any obligation relating to payments, withholding or collection of any tax or duty provided that such assets and other property shall not be sold within the United Republic of Tanzania except in accordance with conditions agreed to with the Govemmenr. The same treatment is expected to be accorded to property, assets, income and transactions of Projects implemented by EAC.

j) Presentation of the budget information The financial statements in conformity with IPSAS 24 requires management of a public sector entity to show comparison of budget amounts arising from execution of the budget to be included in the financial statements of the entity which are required to, or elect to, make publicly available their approved budget for which they are, therefore, held publicly accountable. The Project prepares its financial statements clearly indicating the actual expenditure in comparison with the approved budgetary provisions and in so doing fully complies with this Standard. The statement of comparison of budgeted and actual amounts has been presented using accrual basis of accounting.

k) Employee benefits Employment contracts provided for gratuity benefit at a rate of 25% of the basic total salaries for the term of employment. The gratuity benefit is charged to the statement of financial performance on accrual basis.

East African Comnumity A11dit Commission @2017 Page 28 of33

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

I) Cash and cash equivalents Cash and cash equivalents as referred to in the cash flow statement comprise, cash deposited at banks.

m) Related-Party Transactions Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions or if the related party entity and another entity are subject to common control . In the case of EAC- MRHP related parties have been taken to be:-

i. key Project management personnel, and close members of the family of these key management personnel,

ii. Key EAC management including the members of Executive and Steering Committees.

There was no material transactions with related parties during the financial year ended 30 June 2017.

n) Events after The Reporting Period There were no events after the reporting date that warrants disclosure in the financial statements.

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

6.7.2 ARTHIMETICAL NOTES TO THE FINANCIAL STATEMENTS

Note 2016/2017 2015/2016 # PARTICULARS (USO) (USO) 1 CASH AND CASH EQUIVALENTS

WB-MRHP 196,929 6,289

SUB-TOTAL - 196,929 6,289 2 TAXES RECOVERABLE

VAT Claims: EAC- MRHP is a tax-exempted entity. Where goods and 79,069 74,679 services are invoiced including tax, an Application for Tax Refund is filed with the relevant Revenue authority

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

3. Property, plant and Equipment ( United States dollars)

Computer & Communica Telecom mun icatlon tion Office Office fixture & Office Total

Cost: Equipment Equipment Equipment equipment furniture USO USO USO USO USO USO

As 1 July 2016 29,787 36,938 13,413 328 11 ,325 91 ,791 Additions 0 0 (90) (90) Disposal/Adjustmen t 0 As at 30 June 2017 29,787 36,938 13,413 238 11,325 91,701 Accumulated Depreciation:

7,203 55,491 As 1 July 2016 45,467 2,533 288 Depreciation for the year 11 ,068 32,497 (101) 0 1,310 44,774 As at 30 June 2017 41,157 35,030 187 6,509 82,883 Net carrying amount: As at 30 June 2017 (11,370) 1,908 13,226 238 4,816 8,818

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

2016/2017 2015/2016 Note# PARTICULARS (USO) (USO)

4 ACCRUALS AND OTHER PAYABLES Gratuity Payable 62,004

EAC - Current Account 1,137 Reimbursable Expenses Payable 13,660 CIA Secretariat I USAD Project 288 Medical and Life insurance 31 ,693 Zanzibar Foods and Drugs Agency 5,310 EAC Staff refunds 6,571

Activities Imprest Payable 5,913 72,672 EAC Secretariat 15,000 SUB TOTAL 19,861 194,387

2016/2017 2015/2016 Note# PARTICULARS (USO) (USO)

5 TRADE PAYABLES Char1eston travel ltd 10,962 18,871 Demo Interiors 90 Hotel des Mille Collines 3,201 Palace Hotel Arusha 1,234 2,066 Imperial Group of Hotels 6,443 lnnovex Auditors 7,000 MFI Document Solution Ltd 427,665 Uganda Travel Bureau 2004 Limited 5,354 33,258 RwandAir Ltd 5,158 One off suppliers 19,723 Benson & Company SUBTOTAL 17,550 523,475 SPECIAL FUNDS FROM DEVELOPMENT

6 PARTNERS

WB, MRHP 2,206,765 1,061 ,325 Total Income from Development Partner 2,206,765 1,061,325

7 SALARIES Basic Salaries 199,374 291,352 Housing allowances 74,600 112,800

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AUDITED FINANCIAL STATEMENTS OF EAC- MRHP FOR THE YEAR ENDED 30 JUNE 2017

2016/2017 2015/2016 Note# PARTICULARS (USD) (USD)

Transport allowances 19,250 28,800 Overtime 0 8 Medical cover 20,080 21,196 Life insurance 17,107 21 ,284 Gratuity 63,138 62,004 Education allowance 40,500 42,500 Spouse allowance 1,900 1,200 SUB TOTAL 435,949 581,144

8 TRAINING / WORKSHOP EXPENDITURE Internet connection 49,977

Conference facilities 13,662 27,452

Conference I workshop participation fee 8,269 12,1 58 Air ticket within EAC - Staff 61 ,989 29,905

Airticket within EAC - delegates 94,535 89,951 DSA and accommodation - staff 145,500 240,097 DSA and accommodation - delegates 545,329 206,428 Contracted professional services 256 Audit fee 6,978 7,000

SUB-TOTAL 926,495 670,670 9 FINANCE COST

Loss on exchange 44 0 SUB-TOTAL 44 0 DEPRECIATION AND AMORTIZATION

10 EXPENSES Computer & Telecommunication Equipment 11,068 15,135 Office Equipment 32,497 3,354 Office furniture 1,209 2,501

SUB TOTAL 44,774 20,990

East African Communfty Audit Commission @1017 Page 33 of33