Report of the Auditor General Part IV 2013 on Accounts of Public Authorities and Statutory Bodies and Government Owned Companies

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    Report on Public Bodies and their subsidiaries, National Government owned Companies and National Government Shareholdings in Other Companies and Projects

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  • Part 4
    Report of the Auditor-General 2013

    Part 4
    Report of the Auditor-General 2013

    Phone: (+675) 3012200 Fax: (+675) 325 2872 Email: agopng@ago.gov.pg Website:
    www.ago.gov.pg

    25 July 2014

    The Honourable Theodore Zurenuoc, MP The Speaker of National Parliament Parliament House
    WAIGANI
    National Capital District

    Dear Sir,

    In accordance with the provisions of Section 214 of the Constitution of the Independent State of
    Papua New Guinea, I forward herewith a copy of my report signed on 25th July 2014 upon the
    inspection and audit of the financial statements of the Public Bodies and their subsidiaries and
    National Government owned companies for tabling in the National Parliament. This Report (Part IV)
    also contains information on companies in which the Government does not hold majority interest.
    Section D of this Part of the Report contains information on the status of certain entities which

  • Page 2 of 305

  • have ceased operations and those entities audits of which have been in arrears. Further, the status
    of nine Project Audits are summarised and the details are covered in my Special Project Audits
    Report to the Parliament.

    Yours sincerely,

    PHILIP NAUGA
    Auditor-General

    Level 6 PO Box 423
    TISA Investment Haus WAIGANI, NCD
    Kumul Avenue, NCD Papua New Guinea

    2013 AUDITOR-GENERAL’S REPORT – PART IV
    TABLE OF CONTENTS

    PARA SUBJECT PAGE NO. NO.

    General iv
    A. Foreword iv
    B. Authority to Audit iv
    C. Audit of Public Bodies vi
    D. Appointment and use of Authorised Auditors vi
    E. Executive Summary vii
    Attachments A – E xv
    SECTION A – PUBLIC BODIES AND THEIR SUBSIDIARIES
    PARA SUBJECT PAGE NO. NO.
    1. Foreword 1
    2. Bank of Papua New Guinea 3
    3. Border Development Authority 5
    4. Civil Aviation Safety Authority of Papua New Guinea 7
    5. Cocoa Board of Papua New Guinea and its Subsidiary 8
    5A. Cocoa Stabilisation Fund 11
    6. Cocoa Coconut Institute Limited of Papua New Guinea 12
    7. Coffee Industry Corporation Limited and its Subsidiaries 17
    7A. Coffee Industry Fund 24
    7B. Patana No. 61 Limited 26
    8. Government Printing Office 29
    9. Independence Fellowship Trust 32
    10. Independent Consumer and Competition Commission 33
    11 Independent Public Business Corporation and its Subsidiaries 35
    11A. Aquarius No. 21 Limited 37
    11B. General Business Trust 38

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  • 11C. PNG Dams Limited 44
    11D. Port Moresby Private Hospital Limited 45
    12. Industrial Centres Development Corporation 46
    13. Investment Promotion Authority 49
    14. Kokonas Indastri Koporesen and its Subsidiaries 51
    14A. Papua New Guinea Coconut Extension Fund 52
    14B. Papua New Guinea Coconut Research Fund 53
    15. Legal Training Institute 54
    16. Mineral Resources Authority 57
    17. Motu Koitabu Council and its Subsidiary 62
    17A. Tabudubu Limited 64
    18. National Agriculture Quarantine and Inspection Authority 65
    19. National Agriculture Research Institute 67
    20. National AIDS Council Secretariat 69
    21. National Broadcasting Corporation 73
    22. National Capital District Commission and its Subsidiaries 80
    22A. National Capital District Botanical Enterprises Limited 82
    22B. Port Moresby City Development Enterprises Limited 84
    23. National Cultural Commission 85
    PARA SUBJECT PAGE NO. NO.
    24. National Economic and Fiscal Commission 88
    25. National Fisheries Authority 91
    26. National Gaming Control Board 93
    27. National Housing Corporation 94
    28. National Information and Communication Technology Authority (NICTA) 98
    29. National Maritime Safety Authority 104
    30. National Museum and Art Gallery 107
    31. National Narcotics Bureau 111
    32. National Research Institute 115
    33. National Road Safety Council 117
    34. National Roads Authority 121
    35. National Training Council 127
    36. National Volunteer Service 128
    37. National Youth Commission 131
    38. Office of Climate Change and Development 132
    39. Oil Palm Industry Corporation 134
    40. Ombudsman Commission of Papua New Guinea 135
    41. Pacific Games (2015) Authority 137
    42. Papua New Guinea Accident Investigation Commission 138
    43. Papua New Guinea Immigration and Citizenship Service Authority 140
    44. Papua New Guinea Forest Authority 143
    45. Papua New Guinea Institute of Medical Research 145
    46. Papua New Guinea Institute of Public Administration 147
    47. Papua New Guinea Maritime College 148
    48. Papua New Guinea National Institute of Standards and Industrial Technology 153
    49. Papua New Guinea Sports Foundation 154
    50. Papua New Guinea University of Technology and its Subsidiary 159
    50A. Unitech Development and Consultancy Company Limited 160
    51. Parliamentary Members’ Retirement Benefits Fund 163
    52. Public Curator of Papua New Guinea 164
    53. Security Industries Authority 165

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  • 54. Small Business Development Corporation 168
    55. Tourism Promotion Authority 171
    56. University of Goroka and its Subsidiary 173
    56A. Unigor Consultancy Limited 178
    57. University of Natural Resources and Environment 179
    58. University of Papua New Guinea and its Subsidiaries 184
    58A. Unisave Limited 185
    58B. Univentures Limited 186
    59. Water PNG 190
    SECTION B – NATIONAL GOVERNMENT OWNED COMPANIES
    PARA SUBJECT PAGE NO. NO.
    60. Foreword 199
    61. Air Niugini Limited 201
    62 Livestock Development Corporation Limited 206
    63. Mineral Resources Development Company Limited 207
    64. Motor Vehicles Insurance Limited 208
    65. National Airports Corporation Limited and its Subsidiaries 212
    65A. Airport City Development Limited 213

    PARA SUBJECT PAGE NO. NO.
    65B. PNG Air Services Limited 215
    66. National Petroleum Company of PNG (Kroton) Limited 216
    67. NCD Water and Sewerage Limited (Eda Ranu) 219
    68. Papua New Guinea Ports Corporation Limited 220
    69. PNG Power Limited 221
    70. Post PNG Limited 236
    71. Telikom PNG Limited and its Subsidiaries 239
    71A. Kalang Advertising Limited 244
    71B. PNG Directories Limited 247
    SECTION C – NATIONAL GOVERNMENT SHAREHOLDINGS IN OTHER COMPANIES
    PARA SUBJECT PAGE NO. NO.
    72. Foreword 251
    73. Bougainville Copper Limited 252
    74. CTP (PNG) Limited 254
    75. Gogol Reforestation Company Limited 255
    76. Ok Tedi Mining Limited 256
    77. Pacific Forum Line Limited 257
    78. PNG Sustainable Development Program Limited 258
    SECTION D– PROBLEM AUDITS
    PARA SUBJECT PAGE NO. NO.
    79. Foreword 261
    79.1 Exclusion of Entities from Future Reports 261
    80. Audits in Arrears 262
    80.1 General 262
    80.2 Responsibility for preparation of Financial Statements 262
    80.3 Legislative Requirements 262
    80.4 Current Year Audits (2013 Audits) 263
    80.5 Status of Current Year Audits 265
    80.6 Audits in Arrears (2012 and prior years) 267
    80.7 Long Outstanding Financial Statements 270
    80.8 Status of Audits as at 30 June 2013 273

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  • Acknowledgements 275
    Schedule A – Current Year Audits 278
    Schedule B – Status of Audits in Arrears 283
    Schedule C – Long Outstanding Financial Statements 286
    Schedule D – Non-Operational Entities and Others 288
    Schedule E – Prior year Audits completed during 2013/2014 289

    GENERAL

    A. FOREWORD

    My Annual Report to the National Parliament for the 2013 financial year is presented in four Parts.
    Part I deals with the Public Accounts of Papua New Guinea (PNG). Part II deals with National
    Government Departments and the Provincial Treasury Offices, whilst Part III deals with the audit of
    the Provincial Governments and Local-level Governments.

    Part IV (this Part) of my Report deals with Public Bodies and their Subsidiaries, Government Owned
    Companies and National Government’s shareholdings in Other Companies.

    This Report is divided into four sections:
    * Section A deals with Public Bodies and their subsidiaries;
    * Section B deals with National Government owned companies;
    * Section C deals with the Companies in which the National Government has shareholdings; and
    * Section D is an additional section which provides details of entities that have ceased operating
    and those other entities the audits of which have been in arrears due to non- submission of
    financial statements.

    The audit findings contained in Sections A and B of this Report have been reported to Management
    of the respective entities and to the responsible Ministers.

    B. AUTHORITY TO AUDIT

    B.1 Constitution

    Under Section 214(2) of the Constitution of the Independent State of Papua New Guinea, I am
    required to inspect and audit all bodies set up by Acts of the Parliament, or by Executive or
    Administrative Act of the National Executive for governmental or official purposes unless other
    provisions are made by law in respect of their inspection and audit.

    I am also empowered under Section 214(3) if I consider it proper to do so, to inspect and audit
    and report to the Parliament on any accounts, finances or property of a body, in so far as they
    relate to, or consist of, or are derived from public moneys or property of PNG.

    B.2 Audit Act

    By virtue of Section 214(4) of the Constitution, the Audit Act 1989, which became effective from 1
    May 1989, provides more details of my functions under Sub-sections (1), (2) and (3) of the
    Constitution. The Audit Act that was derived from the Constitution elaborates the functions and
    the duties of the Auditor-General. This Act was amended in 1995 and the relevant provisions of
    the amended Act are explained below.

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  • General

    B.3 Auditing and Reporting Requirements

    In Section 8, Sub-sections 2 and 4 of the Audit Act were amended to include provisions governing
    the auditing and the reporting requirements of public bodies including government owned
    companies incorporated under the Companies Act 1997.

    B.4 Matters of Significant Importance

    Under Section 8(2) of the Act, I am required to inspect and audit the accounts and records of
    financial transactions and the records relating to the assets and liabilities of these public bodies
    and their subsidiaries, and to report to the Minister vested with the responsibility for the public
    body and the Minister in charge of Finance any irregularities found during the inspection and
    audit.

    B.5 Audit Opinion on Financial Statements

    Section 8(4) of the Audit Act requires me to audit the financial statements of the public bodies and
    to report an opinion to the aforementioned Ministers on:

    * Whether the financial statements are based on proper accounts and records;

    * Whether the financial statements are in agreement with those accounts and records; and
    * Whether they show fairly the financial operations for the period which they cover and the state of
    affairs at the end of that period.

    B.6 Public Finances (Management) Act

    The submission of the financial statements of public bodies for audit is required under Section
    63(4) of the PFMA. The Section requires each public body to prepare and furnish to its Minister
    before 30 June each year, a report on its operations for the year ended on 31 December
    proceeding, together with financial statements in respect of that year duly audited by me.

    The Minister is then required to table the report on the operations and the financial statements,
    together with my report on the financial statements, at the first meeting of the Parliament after
    receiving them.

    B.7 Companies Act

    I am required to audit National Government owned companies and subsidiary companies under the
    provisions of the Companies Act.

    Though these companies are registered under the Companies Act, my responsibility to audit them
    is by virtue of Sections 48 and 63 of the PFMA and Section 3 of the Audit Act.

    C. AUDIT OF PUBLIC BODIES

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  • C.1 Scope of Audit

    Presently, the limited resources available to my Office are directed primarily towards financial
    attestation and compliance or regularity audit of Public Bodies. Due to resource constraints, I have
    not been able to venture into the audits of information systems.

    The full scope of my audit responsibility in respect of Public Bodies covers the Statutory Bodies and
    their subsidiaries, National Government owned companies and their subsidiaries, and the
    companies in which the government has minority interest.

    C.2 Audit Objectives

    Under the Companies Act I am required to ascertain whether proper accounting records have been
    kept; whether the financial statements comply with generally accepted accounting practice; and
    whether those financial statements give a true and fair view of the matters to which they relate.
    The Act also requires the auditor to report the instances of non-compliance with these
    requirements. More details on the audit responsibilities under the Companies Act are provided in
    Section B of this Report which covers the National Government owned companies.

    C.3 Reporting Framework

    My audits are conducted in accordance with the International Standards on Auditing to provide
    reasonable assurance that the financial statements are free of material misstatements. The audit
    procedures include examination, on a test basis, of evidence supporting the amounts and other
    disclosures in the financial statements, evaluation of accounting policies and significant
    accounting estimates, and ensuring that the financial statements are presented fairly and in
    accordance with the International Accounting Standards (IAS) and statutory requirements.

    D. APPOINTMENT AND USE OF AUTHORISED AUDITORS

    Section 8(5) of the Audit Act empowers me to employ registered company auditors to assist me in
    undertaking my Constitutional Duties, where such assistance is required.

    During the period covered in the Report, I engaged a number of registered company auditors to
    perform audits of numerous Statutory Bodies and National Government owned companies.

    E. EXECUTIVE SUMMARY

    E.1 Report Coverage

    This Report covers the audit reports issued by my Office on the audits of Public Bodies and their
    Subsidiaries, Government Owned Companies, and National Government’s shareholdings in Other
    Companies during the period July 2013 to June 2014 (2013/2014 Audit Cycle). The Report covers
    the audits of these entities’ financial statements for a number of years, not just 2013.

    In 2013 there were 89 public entities subject to audit by my Office, consisting of 74 Public Bodies
    and their Subsidiaries and 15 National Government Owned Companies. In addition, my Statutory
    Bodies Audit Division also carried out audits on 9 Projects managed by Public entities as
    implementing agencies:
    1. Civil Aviation Development Investment Program (CADIP)

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  • 2. Cocoa Pod Borer Project
    3. Cocoa Quality Promotion Project
    4. Japanese Fund for Poverty Reduction Project
    5. Lae Port Development Project
    6. National Agricultural Research Institute/PNG Incentive Fund Project
    7. National Capital District Commission Urban Youth Employment Project
    8. Port Moresby Sewerage System Upgrading Project (POMSSUP)
    9. Productive Partnership in Agriculture Project
    The results of these audits are presented in a separate Special Projects Audit report presented to
    the National Parliament.

    I am also responsible for reporting on the audits of 6 Companies, in which the National
    Government has a minority shareholding, that are audited by the private sector. These are reported
    under Section C of this Report.

    E.2 Consistency in audit findings over a number of years

    The Report’s findings are consistent with those in my previous years’ reports that have highlighted
    my concerns over the number of entities that do not submit current year financial statements for
    audit, and the overall poor state of the financial management structure in most public entities
    whose statements are subject to my audit and inspection.

    The overall purpose of financial statements is to provide information about the financial position
    and performance of an organisation. The information is useful to a wide range of stakeholders and
    the statements constitute a formal record of the financial and business activities of an
    organisation. As such, the statements are core component of an organisation’s governance and
    accountability. Non-submission of the financial statements for audits in a timely manner greatly
    limits the ability of stakeholders to monitor performance and make informed decisions regarding
    the organisation.

    Financial management in the public sector is the establishment and maintenance of polices,
    processes and procedures to achieve effective and efficient management of public funds in such a
    manner as to achieve the objectives of the organisation. It consists or planning, directing,
    monitoring, organizing and controlling the monetary resources of an organisation. Unfortunately
    many organisations have indicated they are incapable of managing their financial affairs.
    Weaknesses with financial management are contributing to significant wastage of financial
    resources and indicate a serious lack of transparency and accountability. Ultimately these
    weaknesses adversely impact upon the delivery of services to the citizens of PNG.

    E.3 Submission of current year Financial Statements

    Section 63 (4) of the PFMA requires a ‘… public body to prepare and furnish to its Minister before
    30 June each year, a performance and management report of its operations for the year ended 31
    December preceding, together with financial statements to enable the Minister to present such
    report and statements to the Parliament …’

    Before submitting the financial statements to the Minister, Section 63(4) requires a public body to
    submit the financial statements to the Auditor-General and for the Auditor-General to report to
    the Minister in accordance with Part II of the Audit Act.

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  • Despite these legislative requirements, 62 entities had not submitted their 2013 financial
    statements to be audited and overall some 54 financial statements for 2012 and prior years had
    not been submitted for audit (Refer Table A).

    The details of the audits in arrears and those entities whose financial statements have been
    outstanding for a number of years are shown in Attachment ‘B’.

    Table A

    STATUS OF AUDITS DURING THE YEAR 2013 (END OF 2013/2014 CYCLE)

    Year

    Audits Completed

    Audits Substantially Completed

    Audits in Progress

    Audits to Commence Shortly
    Financial Statements not Submitted

    Total 2013/2014

    Total 2012/2013
    2013
    14
    5
    5
    10
    62
    96

    2012
    31
    14
    3
    8
    30
    86
    90
    2011
    15
    18
    5
    5
    11
    54
    81

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  • 2010
    18
    6
    1
    3
    4
    32
    51
    2009
    9
    1

    1
    3
    14
    25
    2008
    5



    3
    8
    15
    2007
    3
    4


    1
    8
    12
    2006
    1
    3


    1
    5
    9
    2005
    1
    2


    1
    4
    8
    2004
    2
    2

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  • 4
    8
    2003
    2
    2



    4
    5
    Total
    101
    57
    14
    27
    116
    315
    304

    Table A also shows that 172 audits were either completed, substantially completed or still in
    progress as at 30th June 2014. The details are graphically depicted in Attachment ‘C’, which also
    included the arrears of prior years. Table A also shows that of the 101 audits completed, only 14
    were for the current year (2013), with 10 current year audits substantially completed or were in
    progress. A further 10 audits were to commence shortly. Graphical description of the status of
    current year 2013 audits (excluding arrears) is given in Attachment ‘A’. The list of entities is at
    Schedule ‘A’ (i), (ii), (iii) & (iv).

    E.4 Type of Audit Opinions Issued1

    In the period covered by the audit, 101 audit opinions were issued. Of the 101 audit opinions
    issued, 27were unqualified, 38were qualified and36 were Disclaimer Opinions.

    Of the 27 unqualified opinions issued, 15 related to prior years and only 12 were for 2013 as
    follows:
    1. Bank of PNG;
    2. Cocoa Stabilisation Fund;
    3. Independent Consumer and Competitive Commission;
    4. Kokonas Indastri Koporesen;
    5. PNG Extension Fund;
    6. PNG Coconut Research Fund;
    7. National Agriculture Research Institute;
    8. Tourism Promotion Authority
    9. Post (PNG) Limited;
    10. National Agriculture Research Institute/PNG Incentive Fund Project;
    11. National Capital District Commission Urban Youth Employment Project; and
    12. Productive Partnership in Agriculture Project.

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  • Two of the qualified opinions related to 2013 and others were for prior years. The high numbers of
    Disclaimer Audit Opinions issued are a reflection of the poor state of accounting, record-keeping
    and financial management practices in a number of public bodies.

    The list of entities and the type of audit opinions issued during the period July 2013 to June 2014
    are provided in Attachment ‘D’.

    Types of Audit Opinions issued for each entity over the period of four years from 2010 – 2013 are
    detailed on Attachment ‘E’.

    1 The types of audit opinions are: Unqualified Opinion – A Company’s financial statements are
    presented fairly, in all material respects in conformity with generally accepted accounting
    principles. Qualified Opinion – The financial statements “except for” certain issues fairly present
    the financial position and operating results of the firm. The except for opinion relates to inability
    of the auditor to obtain sufficient objective and verifiable evidence in support of business
    transactions of the Company being audited. Disclaimer Opinion – When insufficient competent
    evidential matter exists to form an audit opinion due to scope limitation or uncertainties. Adverse
    Opinion – The Company’s financial statements do not present fairly the financial position, results
    of operations, or changes in financial position or are not in conformity with generally accepted
    accounting principles.

    E.5 Key Findings

    The key findings from the audits centered primarily on the non-submission of the financial
    statements, non-compliance with the Salaries and Conditions Monitoring Committee (SCMC)
    regulatory mechanisms for salaries and wages, lack of basic accounting records and ineffective
    internal control systems. These issues are highlighted in the paragraphs below.

    E.6 Non-Submission of Financial Statements

    As stated earlier, Section 63(4) of the PFMA requires each public body to prepare and furnish to its
    Minister before 30 June each year, a report on its operations for the year ended 31 December
    preceding together with financial statements in respect of that year duly audited by me for tabling
    in Parliament.

    This legislative requirement has not been strictly adhered to by all respective public entities’
    management. To comply with this requirement, the financial statements are required to be
    submitted to my Office well before 30th June each year for my audit and inspection. Consequently,
    out of 89 public entities and 9 Projects only 34 (30 entities and 4 projects) have submitted their
    financial statements for 2013 (Refer Schedule A (i), (ii), (iii) & (iv) for my audit and inspection up to
    the time of preparing this Report. A total of 62 (57 entities and 5 projects) failed to comply with
    these provisions (Refer Schedule A (v)). The public entities and project audits referred to above
    does not include 6 Companies with minority Government shareholdings.

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  • The Status of Audits in Table A also includes the Project Audits. Refer to Schedule D (c)
    for status of Project Audits.

    The non-compliance of the public entities mentioned above has resulted in:
    * My Office not being able to report adequately on the accountability of the use of public resources
    in a timely manner;
    * A buildup of audits in arrears; and
    * The non-tabling of Annual Reports on performance and management by public entities in the
    Parliament.

    Responsibility for Submission of Financial Statements

    An entity’s management is responsible for preparing and presenting financial statements for my
    audit and inspection. It is also the responsibility of management to ensure that an adequate and
    effective internal control system is maintained to ensure that complete and accurate financial
    statements are produced on a timely basis.

    My Office recommendation

    There is vigorous enforcement of the provisions of Section 63 of the PFMA and a legislative
    requirement is established to make the renewal of contracts of Chief Executive Officers subject to
    submission of financial statements and implementation and maintenance of prudent financial
    management.

    These recommendations are to help achieve financial management accountability and good
    governance in the public sector.

    Details of audits that have gone into arrears due to non-submission of financial statements from
    2012 or earlier are given below in Table B and Schedule ‘C’.

    Table B
    Financial Statements not Submitted

    No.
    Section
    Para No.
    Entity
    No. of Audits
    1
    A
    8
    Government Printing Office
    1
    2
    A
    9
    Independence Fellowship Trust
    1
    3

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  • A
    12
    Industrial Centres Development Corporation
    1
    4
    A
    16
    Mineral Resources Authority
    1
    5
    A
    20
    National AIDS Council Secretariat
    1
    6
    A
    23
    National Cultural Commission
    1
    7
    A
    37
    National Youth Commission
    1
    8
    A
    43
    Papua New Guinea Immigration and Citizenship Service Authority

    1
    9
    A
    45
    Papua New Guinea Institute of Medical Research
    1
    10
    A
    46
    Papua New Guinea Institute of Public Administration
    1
    11
    A
    50
    Papua New Guinea University of Technology
    1
    12
    A
    52
    Public Curator of Papua New Guinea
    1
    13

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  • A
    58A
    Unisave Limited
    1
    14
    A
    58B
    Univentures Limited
    1
    15
    B
    63
    Mineral Resources Development Company Limited
    1
    16
    B
    65
    National Airports Corporation Limited
    1
    17
    B
    65A
    Airport City Development Limited
    1
    18
    B
    66
    National Petroleum Company of PNG (Kroton) Limited
    1
    19
    D
    82
    Cocoa Quality Promotion Project
    1
    20
    A
    38
    Office of Climate Change and Development
    2
    21
    A
    39
    Oil Palm Industry Corporation
    2
    22
    A
    44
    Papua New Guinea Forest Authority
    2
    23
    A

  • Page 16 of 305

  • 48
    Papua New Guinea National Institute of Standards and Industrial Technology
    2
    24
    A
    53
    Security Industries Authority
    2
    25
    A
    59
    Water PNG
    2
    26
    B
    62
    Livestock Development Corporation Limited
    2
    27
    A
    56A
    Unigor Consultancy Limited
    3
    28
    A
    22A
    National Capital District Botanical Enterprises Limited
    5
    29
    A
    22B
    Port Moresby City Development Enterprises Limited
    5
    30
    A
    49
    Papua New Guinea Sports Foundation
    8

    Arrears Reduction Strategies

    During the last Audit Cycle, I took steps as in the past to remind various entities of their
    responsibilities to submit the financial statements on a timely basis. These steps include but are
    not limited to the following:
    * Forwarding reminder letters to entities on a regular basis until the submission of the financial
    statements;
    * Copies of these reminder letters were forwarded to the Public Accounts Committee and to the
    Secretary for Finance for their necessary action;
    * My officers have visited various entities and had meeting with the Chief Executive Officers

  • Page 17 of 305

  • regarding non-submission of the financial statements and drew their attention to their
    responsibilities under the PFMA and the resultant breach of the that Act; and
    * Senior officers of the Division attended various audit committee meetings during the cycle and
    emphasised the importance of brining the audits up to date. My officers attended the following
    audit committee meetings during the cycle:
    ? National Capital District Commission;
    ? Civil Aviation Safety Authority of PNG;
    ? University of PNG;
    ? National Housing Corporation; and
    ? University of Goroka.

    I have set a goal to significantly reduce the arrears situation and the entities listed under
    Attachment ‘F’ indicate the arrears cleared during the audit cycle. This reduction largely reflects
    the collective efforts of all my staff members to better manage the audits in arrears.

    E.7 Non-Compliance of the Salaries and Conditions Monitoring Committee Act

    The SCMC was established as the regulatory mechanism for salaries and wages in the public
    sector. Sadly, some public bodies do not comply with the provisions of this Act because of
    legislative changes in their constituent Acts. As a result, these bodies pay salaries and allowances
    without any monitoring from this Committee. Consequently, they have contravened Section (3) of
    the SCMC Act which stipulates:
    “(a) The provisions of this Act apply notwithstanding anything in any other law relating to the
    determination of salaries and conditions or employment of employees of a public authority; and
    (b)Whereby or under any law, power is given to a public authority, to determine or vary the salaries
    and conditions of employment of employees of the public authority, that power shall be exercised
    subject to this Act.”

    E.8 Non-compliance with the Audit Act 1989

    Some entities owned by the State have amended their enabling Acts to exclude my Office from
    performing the audit of those entities and appointed their own auditors in contrary to the Audit
    Act. The following state owned entities have appointed their own Auditors:

    * Petromin Limited; and
    * National Development Bank Limited.

    E.9 Lack of Basic Accounting Records and Inadequate Control Systems

    As reported in previous years, during the course of audits I noted serious deficiencies in
    accounting and record keeping practices and the maintenance of internal controls. These
    deficiencies, which contributed to the limitation on the scope of my audit procedures, included:
    * Bank reconciliation statements not being prepared in a timely way or not being prepared at all;
    * Transactions not having supporting documentation;
    * Fixed asset registers not being properly kept or maintained;
    * No consistent and proper valuation of assets;
    * Physical asset stock-takes not being carried out;
    * Property being acquired or disposed of without proper procedures being followed;
    * Failure to comply with International Financial Reporting Standards in the preparation of the

  • Page 18 of 305

  • financial statements;
    * Travel and other allowances not being fully acquitted;
    * Internal Revenue Commission (IRC) regulations on payment of taxes not being followed;
    * Entities paying housing allowances and Boards members allowances without tax but allowing
    officers to pay the tax;
    * Accounting, administrative and procedural manuals not being available;
    * Public servants serving on Statutory Boards receiving Board allowances contrary to regulations;
    * Ineffective internal audit functions; and
    * Ineffective budget controls.

    The above factors contributed to the limitations on the scope of my audits which resulted in the
    issuance of Disclaimer Audit Opinions in respect of many of the Reports issued during the year, as
    shown in Attachment ‘D’.

    E.10 Poor Financial Management

    Over a number of years, I have expressed my concern about public bodies’ poor accounting
    records, weaknesses in internal controls and management information systems, and non-
    compliance with legislative requirements and the International Financial Reporting Standards. I also
    consider that a large number of Chief Executive Officers do not pay sufficient attention to financial
    management in their entities. In my view, the concept of effective, prudent and efficient financial
    management is yet to be understood and practiced by many Chief Executive Officers.

    E.11 Recommendations for Improvement

    Consistent with comments in previous years’ Reports, I will report to the Parliament in future that
    proper accounting records and adequate internal control systems must exist in all public entities
    subject to my audit.
    For that to be achieved, I believe that Chief Executive Officers are required to exercise proper
    leadership that provides an environment where there is:
    * Timely submission of financial statements;
    * Improved record keeping and documentation;
    * Maintenance and provision of quality information;
    * Effective implementation of internal control systems;
    * Sound financial management implemented and adopted by qualified and experienced
    accountants; and
    * Implementation of all my audit recommendations.

    E.12 Improvement Strategies

    In my view, for improvement to occur:
    * Chief Executive Officers must employ well trained and professionally qualified accounting staff to
    manage the financial affairs of the organisation;
    * Chief Executive Officers must understand the value of and how to implement a strong
    governance framework and their performance should be regularly assessed against
    implementation of the framework;
    * Parliament must increase its reviews of the management of public entities and provide Chief
    Executive Officers with incentives to improve their management structures; and the Department of
    Finance must exercise its discretion to invoke Section 63(8) of the PFMA by withholding funds for

  • Page 19 of 305

  • those entities that have not submitted their financial statements until the financial statements are
    submitted and/or completion of the audit.

    E.13 Structure of the Report

    This Report is structured as follows:

    Section A – Public Bodies and Their Subsidiaries; Section B – National Government Owned
    Companies;
    Section C – National Government Shareholdings in Other Companies; and Section D – Problem
    Audits.

    ATTACHMENT ‘A’

    STATUS OF CURRENT YEAR AUDITS 2013

    No.
    Status of Current Year Audits
    Number of Entities

    2013
    2012
    (A)
    Audits completed and reports issued thereon (Schedule A)
    14
    9
    (B)
    Audits substantially completed (Schedule A)
    5
    12
    (C)
    Audits in progress (Schedule A)
    5
    7
    (D)
    Audits to commence shortly (Schedule A)
    10
    11
    (E)
    Financial Statements not submitted (Schedule A)
    62
    51

    (F)
    Audit Portfolios transferred to Provincial Government Audit Branch (Schedule A)

    0

  • Page 20 of 305

  • 0
    (G)
    Ceased Companies (Schedule A)
    0
    0

    96
    90

    Please refer to Pages 273 to 284 for Schedules A to E.

    ATTACHMENT ‘B’

    STATUS OF AUDITS IN ARREARS BY NUMBER OF AUDITS (2012 AND PRIOR YEARS)

    No.
    Status of Audits in Arrears by No. of Audits (2012 and Prior Years)
    Number of Audits

    2013
    2012
    (A)
    Audits substantially completed (Schedule B)
    52
    52
    (B)
    Audits in progress (Schedule B)
    9
    23
    (C)
    Audits to commence shortly (Schedule B)
    17
    8
    (D)
    Financial Statements not submitted (Schedule B)
    54
    55

    132
    138

  • Page 21 of 305

  • ATTACHMENT ‘C’

    STATUS OF AUDITS AS AT 30 JUNE 2013

    No.

    Status of Audits
    Number of Audits

    2013/2014
    2012/2013
    (A)
    Audits completed and reports issued thereon (Schedule A and E)
    101
    85
    (B)
    Audits substantially completed (Schedule A and B)
    57
    64
    (C)
    Audits in progress (Schedule A and B)
    14
    30
    (D)
    Audits to commence shortly (Schedule A and B)
    27
    19
    (E)
    Financial Statements not submitted (Schedule A and B)
    116
    106

    315
    304

    ATTACHMENT ‘D’
    TYPES OF AUDIT OPINIONS ISSUED

    (i) UNQUALIFIED OPINION

    No.

  • Page 22 of 305

  • Section
    Para. No.

    Entity

    Year
    No. of Audits
    1
    A
    2
    Bank of Papua New Guinea
    2013
    1
    2
    A
    4
    Civil Aviation Safety Authority of Papua New Guinea
    2010 & 2011
    2
    3
    A
    5A
    Cocoa Stabilisation Fund
    2013
    1
    4
    A
    10
    Independent Consumer and Competition Commission
    2013
    1
    5
    A
    13
    Investment Promotion Authority
    2012
    1
    6
    A
    14
    Kokonas Indastri Koporesen
    2012 & 2013
    2
    7
    A
    14A
    Papua New Guinea Coconut Extension Fund
    2012 & 2013
    2
    8
    A

  • Page 23 of 305

  • 14B
    Papua New Guinea Coconut Research Fund
    2012 & 2013
    2
    9
    A
    19
    National Agriculture Research Institute
    2013
    1
    10
    A
    32
    National Research Institute
    2012
    1
    11
    A
    40
    Ombudsman Commission of Papua New Guinea
    2011 & 2012
    2
    12
    A
    51
    Parliamentary Members Retirement Benefits Fund
    2012
    1
    13
    A
    55
    Tourism Promotion Authority
    2012 & 2013
    2
    14
    B
    70
    Post (PNG) Limited
    2013
    1
    15
    B
    71B
    PNG Directories Limited
    2012
    1
    16
    D
    80
    Civil Aviation Development Investment Program (CADIP)
    2012

  • Page 24 of 305

  • 1
    17
    D
    83
    Japan Fund for Poverty Reduction Project
    2011 & 2012
    2

    18

    D

    85
    National Agriculture Research Institute/PNG Incentive Fund Project

    2013

    1

    19

    D

    86
    National Capital District Commission Urban Youth Employment Project

    2013

    1
    20
    D
    88
    Productive Partnership in Agriculture Project
    2013
    1
    27
    (ii) QUALIFIED OPINION

    No.

    Section
    Para. No.

    Entity

    Year
    No. of Audits
    1
    A

  • Page 25 of 305

  • 5
    Cocoa Board of Papua New Guinea
    2012 & 2013
    2
    2
    A
    5A
    Cocoa Stabilisation Fund
    2012
    1
    3
    A
    7
    Coffee Industry Corporation Limited
    2012
    1
    4
    A
    7A
    Coffee Industry Fund
    2012
    1
    5
    A
    7B
    Patana No. 61 Limited
    2012
    1
    6
    A
    11B
    General Business Trust
    2012
    1
    7
    A
    12
    Industrial Centres Development Corporation
    2010
    1
    8
    A
    15
    Legal Training Institute
    2012
    1
    9
    A
    23
    National Cultural Commission
    2010 & 2011

  • Page 26 of 305

  • 2
    10
    A
    24
    National Economic and Fiscal Commission
    2007 – 2013
    7

    No.

    Section
    Para. No.

    Entity

    Year
    No. of Audits
    11
    A
    29
    National Maritime Safety Authority
    2012
    1
    12
    A
    33
    National Road Safety Council
    2012
    1
    13
    A
    34
    National Roads Authority
    2011 & 2012
    2

    14

    A

    43
    Papua New Guinea Immigration and Citizenship Service Authority

    2011

    1
    15

  • Page 27 of 305

  • A
    45
    Papua New Guinea Institute of Medical Research
    2011
    1
    16
    A
    47
    Papua New Guinea Maritime College
    2009 & 2010
    2
    17
    A
    50A
    Unitech Development and Consultancy Company Limited
    2011 & 2012
    2
    18
    A
    53
    Security Industries Authority
    2010
    1
    19
    A
    54
    Small Business Development Corporation
    2011
    1
    20
    A
    57
    University of Natural Resources and Environment
    2011 & 2012
    2
    21
    B
    61
    Air Niugini Limited
    2012
    1
    22
    B
    64
    Motor Vehicles Insurance Limited
    2010
    1
    23
    B
    65B
    PNG Air Services Limited

  • Page 28 of 305

  • 2012
    1
    24
    B
    66
    National Petroleum Company of PNG (Kroton) Limited
    2010
    1
    25
    B
    71
    Telikom PNG Limited
    2012
    1
    26
    B
    71A
    Kalang Advertising Limited
    2012
    1
    38
    (iii) DISCLAIMED OPINION

    No.

    Section
    Para. No.

    Entity

    Year
    No. of Audits
    1
    A
    6
    Cocoa Coconut Institute Limited of Papua New Guinea
    2012
    1
    2
    A
    8
    Government Printing Office
    2010 & 2011
    2
    3
    A
    16
    Mineral Resources Authority
    2010

  • Page 29 of 305

  • 1
    4
    A
    20
    National AIDS Council Secretariat
    2009 & 2010
    2
    5
    A
    21
    National Broadcasting Corporation
    2012
    1
    6
    A
    22A
    National Capital District Botanical Enterprises Limited
    2003 – 2006
    4
    7
    A
    27
    National Housing Corporation
    2008 – 2010
    3

    8

    A

    28
    National Information and Communication Technology Authority (NICTA)

    2010 & 2011

    2
    9
    A
    30
    National Museum and Art Gallery
    2009 & 2010
    2
    10
    A
    31
    National Narcotics Bureau
    2008 & 2009
    2
    11
    A
    36

  • Page 30 of 305

  • National Volunteer Service
    2007 – 2010
    4
    12
    A
    49
    Papua New Guinea Sports Foundation
    2003 & 2004
    2
    13
    A
    56
    University of Goroka
    2009 & 2010
    2
    14
    A
    58B
    Univentures Limited
    2007 – 2011
    5
    15
    A
    59
    Water PNG
    2010
    1
    16
    B
    69
    PNG Power Limited
    2011 & 2012
    2
    36
    GRAND TOTAL 101

    ATTACHMENT ‘E’
    COMPARATIVE AUDIT OPINIONS ISSUED (2010 – 2013)

    No.
    Section
    Para. No.
    Entity
    2013
    2012
    2011
    2010

  • Page 31 of 305

  • 1

    A

    2
    Bank of Papua New Guinea

    Unqualified

    Unqualified

    Unqualified

    Unqualified

    2

    A

    3
    Border Development Authority

    Qualified

    3

    A

    4
    Civil Aviation Safety Authority of Papua New Guinea

    Unqualified

    Unqualified

    4

    A

    5

  • Page 32 of 305

  • Cocoa Board of Papua New Guinea

    Qualified

    Qualified

    Qualified

    Qualified

    5

    A

    5A
    Cocoa Stabilisation Fund

    Unqualified

    Qualified

    Qualified

    Qualified

    6

    A

    6
    Cocoa Coconut Institute Limited of Papua New Guinea

    Disclaimer

    Disclaimer

    Disclaimer

    7

    A

    7
    Coffee Industry Corporation Limited

  • Page 33 of 305

  • Qualified

    Qualified

    Qualified
    8
    A
    7A
    Coffee Industry Fund

    Qualified
    Qualified
    Qualified
    9
    A
    7B
    Patana No. 61 Limited

    Qualified
    Qualified
    Qualified

    10

    A

    8
    Government Printing Office

    Disclaimer

    Disclaimer

    11

    A

    9
    Independence Fellowship Trust

    Unqualified

    Unqualified

  • Page 34 of 305

  • 12

    A

    10
    Independent Consumer and Competition Commission

    Unqualified

    Qualified

    Unqualified

    Unqualified

    13

    A

    11
    Independent Public Business Corporation

    Disclaimer

    Qualified

    14

    A

    11A
    Aquarius No.61 Limited

    Disclaimer
    15
    A
    11B
    General Business Trust

    Qualified

  • Page 35 of 305

  • Qualified
    Unqualified
    16
    A
    11C
    PNG Dams Limited

    Disclaimer
    Disclaimer

    17

    A

    11D
    Port Moresby Private Hospital Limited

    Qualified

    18

    A

    12
    Industrial Centres Development Corporation

    Qualified

    19

    A

    13
    Investment Promotion Authority

    Unqualified

    Qualified

  • Page 36 of 305

  • Qualified

    20

    A

    14
    Kokonas Indastri Koporesen

    Unqualified

    Unqualified

    Unqualified

    Unqualified

    21

    A

    14A
    Papua New Guinea Coconut Extension Fund

    Unqualified

    Unqualified

    Unqualified

    Unqualified

    22

    A

    14B
    Papua New Guinea Coconut Research Fund

    Unqualified

    Unqualified

    Unqualified

  • Page 37 of 305

  • Unqualified
    23
    A
    15
    Legal Training Institute

    Qualified
    Unqualified
    Unqualified

    24

    A

    16
    Mineral Resources Authority

    Disclaimer

    No.
    Section
    Para. No.
    Entity
    2013
    2012
    2011
    2010

    25

    A

    18
    National Agriculture Quarantine and Inspection Authority

    Qualified

    Qualified

  • Page 38 of 305

  • Qualified

    26

    A

    19
    National Agriculture Research Institute

    Unqualified

    Unqualified

    Unqualified

    Unqualified

    27

    A

    20
    National AIDS Council Secretariat

    Disclaimer

    28

    A

    21
    National Broadcasting Corporation

    Disclaimer

    Disclaimer

    Disclaimer

    29

    A

    23
    National Cultural Commission

  • Page 39 of 305

  • Qualified

    Qualified

    30

    A

    24
    National Economic and Fiscal Commission

    Qualified

    Qualified

    Qualified

    Qualified

    31

    A

    25
    National Fisheries Authority

    Qualified

    Qualified

    32

    A

    26
    National Gaming Control Board

    Qualified

    Qualified

    Qualified

    33

    A

  • Page 40 of 305

  • 27
    National Housing Corporation

    Disclaimer

    34

    A

    28
    National Information and Communication Technology Authority (NICTA)

    Disclaimer

    Disclaimer

    35

    A

    29
    National Maritime Safety Authority

    Qualified

    Qualified

    Qualified

    36

    A

    30
    National Museum and Art Gallery

    Disclaimer

  • Page 41 of 305

  • 37

    A

    32
    National Research Institute

    Unqualified

    Unqualified

    Unqualified

    38

    A

    33
    National Road Safety Council

    Qualified

    Qualified

    Qualified

    39

    A

    34
    National Roads Authority

    Qualified

    Qualified

    Qualified

    40

    A

    36
    National Volunteer Service

  • Page 42 of 305

  • Disclaimer

    41

    A

    37
    National Youth Commission

    Qualified

    Qualified

    42

    A

    39
    Oil Palm Industry Corporation

    Qualified

    43

    A

    40
    Ombudsman Commission of Papua New Guinea

    Unqualified

    Unqualified

    Unqualified

    44

  • Page 43 of 305

  • A

    43
    Papua New Guinea Immigration and Citizenship Service Authority

    Qualified

    Unqualified

    45

    A

    45
    Papua New Guinea Institute of Medical Research

    Qualified

    Qualified

    46

    A

    46
    Papua New Guinea Institute of Public Administration

    Unqualified

    47

  • Page 44 of 305

  • A

    47
    Papua New Guinea Maritime College

    Qualified

    No.
    Section
    Para. No.
    Entity
    2013
    2012
    2011
    2010

    48

    A

    50A
    Unitech Development & Consultancy Company Limited

    Qualified

    Qualified

    Disclaimer

    49

    A

    51

  • Page 45 of 305

  • Parliamentary Members Retirement Benefits Fund

    Unqualified

    Unqualified

    Unqualified

    50

    A

    52
    Public Curator of Papua New Guinea

    Disclaimer

    51

    A

    53
    Security Industries Authority

    Qualified

    52

    A

    54
    Small Business Development Corporation

    Qualified

  • Page 46 of 305

  • Qualified

    53

    A

    55
    Tourism Promotion Authority

    Unqualified

    Unqualified

    Unqualified

    Unqualified
    54
    A
    56
    University of Goroka

    Disclaimer

    55

    A

    57
    University of Natural Resources and Environment

    Qualified

    Qualified

    Qualified
    56
    A
    58B
    Univentures Limited

  • Page 47 of 305

  • Disclaimer
    Disclaimer

    57

    A

    59
    Water PNG (Former PNG Water Board)

    Disclaimer
    58
    B
    61
    Air Niugini Limited

    Qualified
    Qualified
    Qualified

    59

    B

    63
    Mineral Resources Development Company Limited

    Qualified

    60

    B

    64
    Motor Vehicles Insurance Limited

    Qualified

  • Page 48 of 305

  • 61

    B

    65
    National Airports Corporation Limited

    Qualified

    62

    B

    65B
    PNG Air Services Limited

    Qualified

    Qualified

    Qualified

    63

    B

    66
    National Petroleum Company of PNG (Kroton) Limited

    Qualified

    64

    B

    67
    NCD Water and Sewerage Limited (Eda Ranu)

  • Page 49 of 305

  • Qualified

    Qualified

    Qualified

    65

    B

    68
    Papua New Guinea Ports Corporation Limited

    Qualified

    Disclaimer
    66
    B
    69
    PNG Power Limited

    Disclaimer
    Disclaimer
    Disclaimer
    67
    B
    70
    Post PNG Limited
    Unqualified
    Unqualified
    Unqualified
    Unqualified
    68
    B
    71
    Telikom PNG Limited

    Qualified
    Qualified

  • Page 50 of 305

  • Unqualified

    69

    B

    71A
    Kalang Advertising Limited

    Qualified

    Unqualified

    Qualified

    70

    B

    71B
    PNG Directories Limited

    Unqualified

    Unqualified

    Unqualified

    71

    D

    80
    Civil Aviation Development Investment Programme (CADIP)

    Unqualified

    Unqualified

    Qualified

    72

  • Page 51 of 305

  • D

    83
    Japan Fund for Poverty Reduction Project

    Unqualified

    Unqualified

    N/A

    No.
    Section
    Para. No.
    Entity
    2013
    2012
    2011
    2010

    73

    D

    84
    Lae Port Development Project

    Unqualified

    Unqualified

    74

    D

    85
    National Agriculture Research Institute/PNG Incentive Fund Project

    Unqualified

  • Page 52 of 305

  • N/A

    N/A

    N/A

    75

    D

    86
    National Capital District Commission Urban Youth Employment Project

    Unqualified

    Unqualified

    Unqualified

    N/A

    76

    D

    88
    Productive Partnership in Agriculture Project

    Unqualified

    Unqualified

    Unqualified

    N/A

    ATTACHMENT ‘F’
    AUDITS IN ARREARS (2012 AND PRIOR YEARS) COMPLETED DURING 2013/2014 AUDIT CYCLE

  • Page 53 of 305

  • No.

    Section
    Para No.

    Entity
    Audits Completed and Reports Issued
    Total Units
    Audits Substantially Completed
    Total Units
    1
    A
    3
    Border Development Authority

    2011
    1

    2

    A

    4
    Civil Aviation Safety Authority of Papua New Guinea

    2010 – 2011

    2

    3
    A
    5
    Cocoa Board of Papua New Guinea
    2012
    1

    4
    A
    5A
    Cocoa Stabilisation Fund
    2012
    1

    5

    A

  • Page 54 of 305

  • 6
    Cocoa Coconut Institute Limited of Papua New Guinea

    2012

    1

    6
    A
    7
    Coffee Industry Corporation Limited
    2012
    1

    7
    A
    7A
    Coffee Industry Fund
    2012
    1

    8
    A
    7B
    Patana No. 61 Limited
    2012
    1

    9
    A
    8
    Government Printing Office
    2010 – 2011
    2

    10

    A

    11
    Independent Public Business Corporation

    2012

  • Page 55 of 305

  • 1
    11
    A
    11A
    Aquarius No.61 Limited

    2011 – 2012
    2
    12
    A
    11B
    General Business Trust
    2012
    1

    13
    A
    11C
    PNG Dams Limited

    2012
    1
    14

    A

    11D
    Port Moresby Private Hospital Limited

    2011 – 2012

    2
    15

    A

    12
    Industrial Centres Development Corporation

    2010

    1

    2011

  • Page 56 of 305

  • 2
    16
    A
    13
    Investment Promotion Authority
    2012
    1

    17
    A
    14
    Kokonas Indastri Koporesen
    2012
    1

    18

    A

    14A
    Papua New Guinea Coconut Extension Fund

    2012

    1

    19

    A

    14B
    Papua New Guinea Coconut Research Fund

    2012

    1

    20
    A
    15
    Legal Training Institute
    2012
    1

    21
    A

  • Page 57 of 305

  • 16
    Mineral Resources Authority
    2010
    1

    22
    A
    17
    Motu Koitabu Council

    2003 – 2007
    5
    23
    A
    17A
    Tabudubu Limited

    2003 – 2007
    5
    24
    A
    20
    National AIDS Council Secretariat
    2009 – 2010
    2

    25
    A
    21
    National Broadcasting Corporation
    2012
    1

    26
    A
    22
    National Capital District Commission

    2010
    1

    27

    A

  • Page 58 of 305

  • 22A
    National Capital District Botanical Enterprises Limited

    2003 – 2006

    4

    2007

    1

    28

    A

    22B
    Port Moresby City Development Enterprises Limited

    2006 – 2007

    2
    29
    A
    23
    National Cultural Commission
    2010 – 2011
    2

    30

    A

    24
    National Economic and Fiscal Commission

    2007 – 2012

    6

    No.

    Section

  • Page 59 of 305

  • Para No.

    Entity
    Audits Completed and Reports Issued
    Total Units
    Audits Substantially Completed
    Total Units
    31
    A
    25
    National Fisheries Authority

    2012
    1
    32
    A
    27
    National Housing Corporation
    2008 – 2010
    3

    33

    A

    28
    National Information and Communication Technology Authority (NICTA)

    2010 – 2011

    2

    34

    A

    29
    National Maritime Safety Authority

    2012

    1

  • Page 60 of 305

  • 35
    A
    30
    National Museum and Art Gallery
    2009 – 2010
    2
    2011 – 2012
    2
    36
    A
    31
    National Narcotics Bureau
    2008 – 2009
    2
    2010 – 2012
    2
    37
    A
    32
    National Research Institute
    2012
    1

    38
    A
    33
    National Road Safety Council
    2012
    1

    39
    A
    34
    National Roads Authority
    2011 – 2012
    2

    40
    A
    35
    National Training Council

    2010 – 2012
    3
    41
    A

  • Page 61 of 305

  • 36
    National Volunteer Service
    2007 – 2010
    4
    2011 – 2012
    2

    42

    A

    40
    Ombudsman Commission of Papua New Guinea

    2011 – 2012

    2

    43

    A

    43
    Papua New Guinea Immigration and Citizenship Service Authority

    2011

    1

    44

    A

    44
    Papua New Guinea Forest Authority

    2009

    1

    45

    A

    45
    Papua New Guinea Institute of Medical Research

  • Page 62 of 305

  • 2011

    1

    46

    A

    46
    Papua New Guinea Institute of Public Administration

    2011

    1
    47

    A

    47
    Papua New Guinea Maritime College

    2009 – 2010

    2

    2011 – 2012

    2

    48

    A

    48
    Papua New Guinea National Institute of Standards and Industrial Technology

    2010

    1
    49

  • Page 63 of 305

  • A

    49
    Papua New Guinea Sports Foundation

    2003 – 2004

    2

    50

    A

    50A
    Unitech Development and Consultancy Company Limited

    2011 – 2012

    2

    51

    A

    51
    Parliamentary Members Retirement Benefits Fund

    2012

    1

    52

    A

    52
    Public Curator of Papua New Guinea

    2011

    1
    53
    A

  • Page 64 of 305

  • 53
    Security Industries Authority
    2010
    1

    54

    A

    54
    Small Business Development Corporation

    2011

    1

    55
    A
    55
    Tourism Promotion Authority
    2012
    1

    56
    A
    56
    University of Goroka
    2009 – 2010
    2
    2011
    1

    57

    A

    57
    University of Natural Resources and Environment

    2011 – 2012

    2

    58
    A
    58A
    Unisave Limited

  • Page 65 of 305

  • 2011
    1
    59
    A
    58B
    Univentures Limited
    2007 – 2011
    5

    60
    A
    59
    Water PNG
    2010
    1

    61
    B
    61
    Air Niugini Limited
    2012
    1

    No.

    Section
    Para No.

    Entity
    Audits Completed and Reports Issued
    Total Units
    Audits Substantially Completed
    Total Units

    62

    B

    63
    Mineral Resources Development Company Limited

  • Page 66 of 305

  • 2011

    1
    63
    B
    64
    Motor Vehicles Insurance Limited
    2010
    1

    64
    B
    65B
    PNG Air Services Limited
    2012
    1

    65

    B

    66
    National Petroleum Company of PNG (Kroton) Limited

    2010

    1

    2011

    1

    66

    B

    68
    Papua New Guinea Ports Corporation Limited

    2012

    1
    67
    B
    69

  • Page 67 of 305

  • PNG Power Limited
    2011 – 2012
    2

    68
    B
    71
    Telikom PNG Limited
    2012
    1

    69
    B
    71A
    Kalang Advertising Limited
    2012
    1

    70
    B
    71B
    PNG Directories Limited
    2012
    1

    71

    D

    80
    Civil Aviation Development Investment Programme (CADIP)

    2012

    1

    72
    D
    81
    Cocoa Pod Borer Project

    2010 – 2012
    3
    73

  • Page 68 of 305

  • D
    82
    Cocoa Quality Promotion Project

    2011
    1
    74

    D

    83
    Japan Fund for Poverty Reduction Project

    2011 – 2012

    2

    75
    D
    84
    Lae Port Development Project

    2012
    1
    76

    D

    87
    Port Moresby Sewerage System Upgrading Project (POMSSUP)

    2010 – 2012

    3

    87

    51

  • Page 69 of 305

  • SECTION A

    PUBLIC BODIES AND THEIR SUBSIDIARIES

    1. FOREWORD

    This Section of my Report deals with the audit of public bodies and their subsidiaries.

    The auditing and reporting requirements of the public bodies and their subsidiaries are stipulated
    in Section 8 of the Audit Act. My findings in that regard are detailed in paragraphs 2 to 59 of this
    part of my Report.

    2. BANK OF PNG

    2.1 INTRODUCTION

    2.1.1 Legislation and Objectives of the Bank

    The Bank of PNG was established under the Central Banking Act (Chapter 138). This Act was in
    operation until 16 June 2000 when it was repealed and replaced by the Central Banking Act 2000.

    The main objectives of the Bank of PNG as stipulated in the new Act are:
    * To formulate and implement the monetary policy with a view to achieving and maintaining price
    stability;
    * To formulate financial regulation and prudential standards to ensure stability of the financial
    system in PNG;

  • Page 70 of 305

  • * To promote an efficient national and international payments system; and
    * Subject to the above, to promote macro-economic stability and economic growth in PNG.

    2.1.2 Functions of the Bank

    The primary functions of the Bank are to:
    * Issue currency;
    * Act as banker and agent of the Government;
    * Regulate banking, credit and other financial services as empowered by the Act or by any other
    law of the Independent State of PNG;
    * Manage the gold, foreign exchange and other international reserves of PNG;
    * Perform any function conferred on it by or under international agreement to which PNG is a
    party;
    * Perform any other functions conferred on it by or under any other law of PNG; and
    * Advise the Minister as soon as practicable where the Bank considers that a body regulated by the
    Central Bank is in financial difficulty.

    2.1.3 Structural Reforms at the Bank

    In addition to the Central Banking Act three other Acts were legislated in 2000 which gave
    enormous responsibilities to the Bank. These other Acts are:
    1. Banks and Financial Institutions Act 2000;
    2. Superannuation Act 2000; and
    3. Life Insurance Act 2000.

    Each of these Acts provides additional responsibilities to the Bank.

    2.2 AUDIT OBSERVATIONS

    2.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act on the financial statements of the
    Bank for the year ended 31 December 2013 was issued on 30 May 2014. The report did not
    contain any qualification.

    2.2.2 Audit Observation Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act on the inspection and audit of the
    accounts and records of the Bank for the year ended 31 December 2013 was issued on 30 May
    2014. The report contained the following matter:

    Net Asset Deficiency – Going Concern

    The Bank had a net capital deficiency as at 31 December 2013 where the Bank’s total liabilities
    exceeded its total assets by K593 million. The capital deficiency along with other matters set forth
    in Note 1(a) indicated the existence of a material uncertainty that may cast doubt about the Bank’s
    ability to continue as a going concern and therefore the Bank may be unable to realise its assets
    and discharge its liabilities in the normal cause of business.

  • Page 71 of 305

  • The Bank brought this matter to the attention of the Minister for Treasury and submitted a letter
    dated 2 May 2014 to the Minister requesting a promissory note for the net asset deficiency. At the
    time of issuing this report the promissory note had not been provided to the Bank.

    3. BORDER DEVELOPMENT AUTHORITY

    3.1 INTRODUCTION

    3.1.1 Legislation

    The Border Development Authority was established under the Border Development Authority Act
    2008. This Act came into operation on 7 October 2008.

    3.1.2 Objectives of the Authority

    The objectives of the Authority are to manage and fund development activities in the Border
    Provinces of PNG and to make provision for the functions and powers of the Authority and for
    related purposes.

    3.1.3 Functions of the Authority

    The functions of the Authority generally are to consult with relevant agencies and to supervise and
    co-ordinate all development activities in each of the border provinces and, without prejudice to the
    generality of the foregoing, are:
    * The co-ordination of the planning and implementation of capital works, infrastructure and socio-
    economic programs in respect to:
    – Education, health care, road networks, communications, transport system, electricity, water,
    sewerage and all activities relevant to the improvement of basic living standards in the border
    provinces;
    – Liaison with public bodies, non-government organisations and private enterprise in identifying
    and negotiating sources of funding for short to medium-term activities;
    – The co-ordination of the development of specifications for contracts for all capital and
    infrastructure works and the advertising, evaluation and awarding of such contracts;
    – The supervision and monitoring of the implementation of all contracts relating to such capital
    and infrastructure works;
    – The transformation of border provinces into agro-financial sectors by developing their respective
    natural resources; and
    – The promotion of investors, both foreign and local, into the border provinces and to encourage
    and facilitate international cross-border and inter-border trade.
    * The establishment of programs and regulatory framework for immigration including the
    monitoring of immigrants and immigrant activity along the border with respect to:
    – Establishment of proper state of the art offices and facilities for relevant government agencies,
    including customs, immigration, quarantine, police, defence force, such as security monitoring
    systems, communications, transport, electricity, water, sewerage, staff accommodation, computers
    and all other facilities that would be relevant to the administration of border activities;

    – Establishment of dialogue and co-operation with the respective cross-border authority or
    government for the prevention of diseases, drug trafficking, human smuggling, money laundering
    and other illicit activities; and

  • Page 72 of 305

  • – The development of long-term activities for the establishment of infrastructure and other
    facilities.

    * Such other functions as are likely to assist in the border administration activities.

    3.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the inspection and audit of the accounts and records and
    examination of the financial statements of the Authority for the year ended 31 December 2011
    was completed and the findings were reported to Management on 4 March 2014. However,
    Management had not responded to my findings to enable me to issue the Report.

    The financial statements for the year ended 31 December 2012 had been submitted for my
    inspection and audit and arrangements were being made to commence the fieldwork without
    delay.

    The financial statements of the Authority for the year ended 31 December 2013 had not been
    submitted for my inspection and audit.

    4. CIVIL AVIATION SAFETY AUTHORITY OF PNG

    4.1 INTRODUCTION

    4.1.1 Legislation

    The Civil Aviation Safety Authority of PNG was established on 1 January 2010 after the enactment
    of the Civil Aviation Act 2000.

    4.1.2 Functions of the Authority

    The principal functions of the Authority are to:
    * Undertake activities that promote safety in civil aviation at a reasonable cost;
    * Ensure the provision of air traffic services, aeronautical communications services and
    aeronautical navigation services;
    * Ensure the provision of meteorological services and science; and
    * To own, operate, manage and maintain airports.

    4.2 AUDIT OBSERVATIONS

    4.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8(4) of the Audit Act on the financial statements of the
    Authority for the years ended 31 December 2010 and 2011 were issued on 12 May 2014. The
    reports did not contain any qualification.

    4.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the
    accounts and records and the examination of the financial statements for the year ended 31
    December 2012 was in progress.

  • Page 73 of 305

  • The financial statements for the year ended 31 December 2013 had been submitted for my
    inspection and the audit will commence shortly.

    5. COCOA BOARD OF PNG

    5.1 INTRODUCTION

    5.1.1 Legislation

    The Cocoa Board of PNG was established under the provisions of the Cocoa Act 1981.

    5.1.2 Functions of the Board

    The principal functions of the Board are:
    * To control and regulate the growing, processing, marketing and export of cocoa and cocoa
    beans and the equalisation and stockholding arrangements within the cocoa industry;
    * To promote research and development programmes for the benefit of the cocoa industry; and
    * To promote the consumption of PNG cocoa beans and cocoa products.

    5.1.3 Subsidiary of the Board

    The Cocoa Coconut Institute Limited of PNG (formerly PNG Cocoa and Coconut Research Institute)
    was amalgamated with PNG Cocoa and Coconut Extension Agency Limited in 2003. The Institute is
    owned equally by the Cocoa Board and the Kokonas Indastri Koporesen (KIK) of PNG. Comments in
    relation to the Cocoa Coconut Institute Limited of PNG are contained in paragraph 6 of this Report.

    5.1.4 Stabilisation Funds and Projects

    The Board as a Trustee administers the Cocoa Stabilisation Fund as required under Part IV and VI
    of the Cocoa Act. Comments in relation to the Fund are contained in paragraph 5A of this Report.

    The Board also administers the operations of the Cocoa Pod Borer Project, Cocoa Quality
    Promotion Project and the Productive Partnership in Agriculture Project. Comments in relation to
    the projects are contained in the Special Project Audits Report to Parliament.

    5.2 AUDIT OBSERVATIONS

    5.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8(4) of the Audit Act on the financial statements of the
    Board for the years ended 30 September 2012 and 2013 were issued on 16 December 2013 and
    22 May 2014 respectively. The reports contained similar Qualified Opinions, hence only the 2013
    audit report is reproduced.

    Cocoa Board of Papua New Guinea

    “BASIS FOR QUALIFIED OPINION

    Going Concern

  • Page 74 of 305

  • The Board has prepared its financial statements on a going concern basis. However, as per Note 8
    to the financial statements, the National Court in its ruling of 19 March 2010 awarded Agmark
    Pacific Limited K4,885,260 plus 8% interest and costs allegedly for collections of the Stabilisation
    Bounty illegally without the Minister’s approval. Furthermore, the Board continuously makes a loss
    in its operations and its current Net Liability stands at K7,390,498. Should the appeal made in
    2010 fail, the Board will not be able to pay the K4,885,260 within its current financial position
    unless an agreement is reached with Agmark Pacific Limited to pay the award over a period of
    time, or the State agrees to bail out the Board by paying the award. Otherwise the Board may be
    considered as insolvent and may be placed under receivership.

    QUALIFIED OPINION

    In my opinion, except for the effects on the financial statements of the matters referred to in the
    Basis for Qualified Opinion paragraph:
    (a) The financial statements of the Board are based on proper accounts and records; and
    (b) The financial statements are in agreement with those accounts and records, and show fairly the
    state of affairs of the Board as at 30 September 2013 and the results of its financial operations and
    cash flows for the year then ended.”

    5.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8(2) of the Audit Act on the inspection and audit of the
    accounts and records of the Board for the years ended 30 September 2012 and 2013 were issued
    on 16 December 2013 and 22 May 2014 respectively. These reports contained similar comments,
    hence, only the 2013 report is reproduced as follows:

    MYOB Accounting System

    My review on the general computer controls revealed that there was no security mechanism
    established to control the accessibility of the accounting system. I noted that authorised and
    unauthorised personnel had access to the system as there were no password controls in place. I
    further noted that there was no segregation of duties over the functions of data entry, posting of
    transactions and independent checks by authorised personnel. Regular checks on the General
    Ledger Reconciliations were not performed. As a result, many transactions were posted to wrong
    general ledger accounts that resulted in incorrect account balances disclosed in the financial
    statements at year end.

    MYOB Trade Creditors Ageing

    I noted that the Board did not maintain a system generated Trade Creditors Ageing listing from the
    MYOB Accounting System. I was only provided with a manual schedule as supporting
    documentation.

    Cocoa Board of Papua New Guinea

    An age analysis report is an important tool as it allows the Board to analyse the outstanding
    amounts owed to suppliers (creditors) in specified periods such as in 30, 60 and 90 plus days.
    These reports are vital for cash flow control and can also be used to schedule payments to
    creditors to optimise cash flow management.

  • Page 75 of 305

  • Travel Advance Register

    I noted that the Board acquitted all its travel related expenses during the year. However, it did not
    maintain a Register to record all of its travel advances. As per the PFMA an authorising officer shall
    keep a Register of all travel advances and make sure that all advances are acquitted regularly. The
    Register shall record the date of issue, amount advanced, and purpose for the advance. I
    recommended Management comply with the requirements of Act and the Finance Instruction
    Manual. Management informed me that the Board will ensure a Register is maintained to record all
    advances paid to officers.

    5A. COCOA STABILISATION FUND

    5A.1 INTRODUCTION

    5A.1.1 Legislation

    The Cocoa Stabilisation Fund was established under Section 19 of the Cocoa Act 1981. The Fund is
    administered by the Cocoa Board of PNG with the objective of establishing price stabilisation, price
    equalisation and stockholding arrangements within the cocoa industry.

    5A.2 AUDIT OBSERVATIONS

    5A.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8(4) of the Audit Act on the financial statements of the
    Fund for the years ended 30 September 2012 and 2013 were issued on 16 December 2013 and 23
    May 2014 respectively. The 2012 report contained a Qualified Opinion and the 2013 report did not
    contain any qualification.

    5A.2.2 Audit Observations Reported to the Ministers

    In accordance with Section 8 (2) of the Audit Act I have a duty to report on significant matters
    arising out of the financial statements to which this report relates. However, no significant matters
    were noted during my audit.

    6. COCOA COCONUT INSTITUTE LIMITED OF PNG

    6.1 INTRODUCTION

    6.1.1 Legislation

    The Cocoa Coconut Institute Limited of PNG (formerly PNG Cocoa and Coconut Research Company
    Limited) was amalgamated with PNG Cocoa and Coconut Extension Agency Limited in 2003. The
    Company is owned equally between the PNG Cocoa Board and the Kokonas Indastri Koporesen
    (KIK) of PNG.

    6.1.2 Functions of the Company

    The principal functions of the Company are:
    * To conduct research into all aspects of Cocoa and Coconut growing and production and all
    aspects of the Cocoa and Coconut industries;

  • Page 76 of 305

  • * To promote research and beneficial programs for these industries;
    * To provide assistance to all persons and bodies engaged in any aspect of the Cocoa and Coconut
    industries;
    * To produce planting materials for the Cocoa and Coconut industries; and
    * To provide consultancy services.

    6.2 AUDIT OBSERVATIONS

    6.2.1 Comments on Financial Statements

    In accordance with the provisions of the Companies Act my report on the financial statements of
    the Company for the year ended 31 December 2012 was issued on 25 April 2014. The report
    contained a Disclaimer of Opinion.

    “BASIS FOR DISCLAIMER OPINION

    Year End Adjustments – K3,352,974

    Year End Adjustments amounting to K3,352,974 related to prior year transactions taken up in the
    current year. I noted that there was no proper supporting documentation, listings or register for all
    year-end adjustments maintained by the Institute. As such, I was unable to ascertain the validity
    and accuracy of the year-end adjustments.

    Cash at Bank and on Hand Balances – K955,955

    In 2012, the Institute maintained fifty-four bank accounts and seven petty cash floats. My
    examination revealed that bank account reconciliations were not properly prepared in a timely
    manner. I noted that only two officers were responsible for all fifty-four bank accounts from data
    entry to reconciliations and there were no independent verification performed by any other
    officers. Thus mistakes and errors were never rectified on time, which resulted in un- reconciled
    variances at year end.

    As a result, I was unable to comment whether the bank balances have been fairly stated in the
    financial statements.

    Fixed Assets – K8,099,542

    The Institute did not maintain a proper, complete and accurate Fixed Assets Register to record
    necessary details of assets such as date of purchase, assets serial numbers, depreciation schedule
    and movement of assets under its custody. I was unable to physically inspect certain assets against
    the records to confirm the existence and condition of these assets due to the absence of a proper
    register. I further noted that the Institute did not conduct an annual stock- take of its assets to
    verify the existence, ownership and valuation of assets. As a result of these discrepancies, I was
    unable to verify and confirm the fixed assets balance of K8,099,542 disclosed at 31 December
    2012.

    Trade Creditors – K124,024

    The financial statements disclosed Trade Creditors as K124,024 at 31 December 2012. My review
    of the trade creditor’s account revealed that payments made during the year in settling the

  • Page 77 of 305

  • creditors were not properly updated against each respective creditors account. I noted invoices
    totalling K32,643 were showing as payable when in fact they were already paid. As such, I was
    unable to satisfy myself as to the completeness and accuracy of the total trade creditors balance
    stated at the year end.

    Statement of Equity

    I noted that the net adjustments balance of K60,558 (debit) made against retained earnings was
    brought forward without any supporting documentation and schedules. As a result, I was not able
    to verify the validity and the measurement of the adjustments for the year ended 31 December
    2012.

    Payroll Variances

    In Note 21 to the financial statements, salaries and wages were stated as K3,594,143 and
    K2,626,016 respectively for the year ended 31 December 2012. In my review, I noted material
    variances of K312,297 and K827,499 respectively between the financial statements and the payroll
    summary. As a result of the unreconciled variances, I was not able to verify the validity of salaries
    and wages balances disclosed in the financial statements at year end.

    Payment Vouchers

    During my review of expenses, I noted that on several instances payment vouchers totalling
    K833,960 were missing and could not be located. As a result, I was not able to verify the validity
    and the correctness of these payments.

    DISCLAIMER OF OPINION

    Because of the significance of the matters referred to in the Basis for Disclaimer of Opinion
    paragraphs, I have not been able to obtain sufficient appropriate audit evidence to provide a basis
    for an audit opinion. Accordingly, I do not express an opinion on the financial statements of PNG
    Cocoa Coconut Institute Limited for the year ended 31 December 2012.”

    6.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records for the year ended 31 December 2012 was issued on 25 April 2014. The
    report contained the following observations.

    Accounting System (Attaché Software)

    In my review of the Institute’s Accounting Software (Attaché Software), I noted weakness over the
    access control to the software. Access control is the control that allows only authorised personnel
    to have direct access into the system. The Institute did not segregate the functions under access
    control thus resulting in posting errors. I further noted that Accounts Staff are not competent in
    using the software as no proper training was conducted in order for staff to be familiar with
    relevant technical know-how of the system application and the interfaces of the software.

    Insurance Coverage

  • Page 78 of 305

  • The financial statements disclosed fixed assets as K8,099,542 at year end. I noted that the
    Institute did not insure its properties, plant and equipment, motor vehicles and other related items
    to guard against any unforeseen events of loss through perils of fire and earthquakes. I
    recommended Management look into this matter seriously to safeguard the assets from loss.
    However, Management responded that due to funding constraints insurance cover was not
    obtained by the Institute.

    Intercompany Account – K719,808

    My review of the Intercompany Account, revealed that cheque number 434381 totalling K100,000
    was paid to KIK on 22 January 2008, however, at the time of audit, this amount was still
    outstanding. I recommended Management follow up regularly to recoup the money or the Institute
    may provide for bad debts expenses over time. When the payments are made, the provisions can
    be reversed.

    NPF Control Account – K140,918

    Superannuation contributions for staff were not remitted to Nasfund on a timely basis, in which
    95% of the contributions were carried forward from prior years. In addition, the balance did not
    have any listings or break up to substantiate it. The contribution is for the benefit of the Institute’s
    employees and should be remitted on a timely basis under the provisions of the Superannuation
    Act.

    Plantation Income Receipts – K1,356,863

    My review of the receipting process of plantation income revealed that there was no segregation of
    duties among the receipting functions. Only one officer is responsible for receipting, updating of
    income ledger and banking. Income collected was not properly recorded and registered since there
    was no income register.

    I further noted that delays in banking was a repeating issue as the Institute always prolong their
    banking of the income collected during the year. I raised these issues to Management and they
    responded that the Board had taken appropriate action to improve the situation.

    Expenditure – Purchase Order Control

    My review of the purchasing functions revealed that there were instances of requisitions being
    approved without authorised purchase orders. A purchase order is the control activity that allows
    the buyer to make the right purchasing decision in terms of the best value, right quantity and
    quality from reliable suppliers. Therefore, requisitions without accepted purchase orders may be
    easily vulnerable to fraud as it involves cash disbursement.

    Repairs and Maintenance

    The Institute paid K1,448,500 to Handa Holdings Limited for repairs and maintenance for four
    Institute houses at Tavilo. My review of the documentation revealed the following issues:
    * The Institute did not publicly invite tenders and contracts for repairs and maintenance since the
    cost exceeded K300,000, as mandated under Section 39 (2) (a) of the PFMA. Instead, the Institute
    awarded the contracts internally to the company by way of “Letter Of Expression”;
    * The contract agreement prepared by the Institute did not specify the time frame and budget cost

  • Page 79 of 305

  • for each building and the contract agreement did not have common seals of the Institute and
    Handa Holdings Limited;
    * Handa Holdings Limited did not have a current “Certificate of Compliance” (COC) from the IRC to
    show that the company is currently registered with the IRC. The Institute should have withheld ten
    percent or K144,850 of the total cost because Handa Holdings Limited did not have a current COC
    as stipulated by the IRC Act;
    * Invoices did not have proper documentation or break up of cost relating to material, labour and
    overhead costs incurred by the contractor. Thus, I could not confirm whether the invoices were
    genuine;
    * The inspection of three staff houses on which the repairs and maintenance work was done were
    incomplete and substandard. Independent assessments of the work were not undertaken before
    payments were made to the contractor. The Institute will still incur cost to complete the buildings;
    and
    * Payments made to the contractor were from the following accounts; Government Recurrent
    (K927,850), Merge Account (K425,650), Main Account (K40,000) and Coconut Levy (K55,000) from
    2011 to April 2013. The Institute did not mention as to which bank account the money was
    budgeted for the repairs and maintenance.

    I recommended to Management that in future any repairs and maintenance costs that are above
    K300,000 must go through the proper tender process. Unless the Institute has its own Tenders
    Board, the services of the Central Supply and Tenders Board shall be utilised since it is the
    authorised entity mandated under the PFMA where tenders shall be publicly invited for provision of
    contract services.

    Travel Expenses – K1,501,528

    The Institute did not maintain a Travel Advances Register for all duty travels and related expenses.
    This resulted in non-acquittal of public monies totalling K1,501,528, comprised of domestic
    (K1,443,272) and overseas (K58,256) travel expenses. Domestic travels should be acquitted within
    seven days after return and for overseas travel, fourteen days after return. As a result, I was unable
    to verify the validity of travel expenses disclosed in the financial statements.

    Procurement Procedures

    My review of the procurement process revealed that payments totalling K109,264 were made
    without obtaining three written quotations from different suppliers. The Institute is required to
    comply with the provisions of the PFMA. However, I observed that the Institute failed to comply
    with these requirements and committed funds without due care to economy, wastage and
    extravagant usage. I further noted that payments amounting to K86,844 had no proper supporting
    documents and as such I was unable to verify the validity and the correctness of these payments.

    Petty Cash – K5,000

    My examination of petty cash revealed that there is a control weakness relating to the process and
    procedures of handling petty cash. I noted that replenishment of petty cash was not properly
    approved by the Senior Accountant. I also noted variances between the general ledger and the
    remittance advice.

    6.3 STATUS OF FINANCIAL STATEMENTS

  • Page 80 of 305

  • At the time of preparing this Report, the Institute had not submitted its financial statements for
    the year ended 31 December 2013 for my inspection and audit despite repeated reminders.

    7. COFFEE INDUSTRY CORPORATION LIMITED

    7.1 INTRODUCTION

    7.1.1 Legislation

    The Coffee Industry Corporation Limited was incorporated under the Companies Act as a company
    limited by guarantee and was conferred with statutory powers relating to the control and
    regulation of the production, processing, marketing and export of coffee by the Coffee Industry
    Corporation (Statutory Functions and Powers) Act 1991. Under this Act, the undertakings of the
    Coffee Industry Board, the Coffee Development Agency and the Coffee Research Institute were, on
    1 October 1991, transferred to and vested in the Coffee Industry Corporation Limited.
    The members of the Corporation according to the Articles of Association are from the Growers
    Associations, the Coffee Exporters Association, the Plantation Processors Association, the Block
    Development Association, the Secretary – Department of Agriculture and Livestock, the Secretary –
    Department of Finance, and the Secretary – Department of Trade and Industry. The liability of each
    member is limited to an amount not exceeding one hundred kina.

    7.1.2 Functions of the Corporation

    The principal functions of the Corporation are:
    * To engage in research, extension, promotion, marketing, administration, management and
    control of the coffee industry in PNG;
    * To act in the best interests of coffee producers; and
    * To promote development of the coffee industry in PNG.

    7.1.3 Subsidiaries of the Corporation

    The Corporation has a Fund and a subsidiary company, Coffee Industry Fund and Patana No. 61
    Limited. Comments in relation to the Fund and the subsidiary are contained in paragraphs 7A and
    7B respectively of this Report.

    7.2 AUDIT OBSERVATIONS

    7.2.1 Comments on Financial Statements

    In accordance with the provisions of the Companies Act my report on the financial statements of
    the Corporation for the year ended 31 December 2012 was issued on 17 February 2014. The
    report contained a Qualified Opinion.

    “BASIS FOR A QUALIFIED OPINION

    Trade and Other Debtors – K1,798,508

    Rent Receivables – K197,155

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  • The financial statements disclosed K197,155 as rent receivables. A rental arrears of K94,024 was
    outstanding since 2007 and no evidence was made available whether action had been taken for the
    recovery. Also, I was not provided with all the lease agreements signed between the Coffee
    Industry Corporation (CIC) and the tenants and the complete schedule of the rent receivables.
    Further, some of the tenants vacated the property without settling their outstanding rents which
    have been outstanding for number of years.

    Also, some of the lease agreements made available for my review had expired and some tenants
    paid rent more than that specified in the lease agreement. As such, I was unable to verify the
    accuracy of the rent receivable balance taken up as K197,155 in the financial statements.

    Other Debtors – K1,320,475

    A sum of K1,320,475 was taken up under other debtors. However, I was not provided with the
    detailed schedule and adequate source documentation of these receivables and their current
    status to verify the accuracy of the balance. Consequently, I was unable to ascertain the accuracy
    and completeness of the balance of K1,798,508 taken up as trade and other debtors as at 31
    December 2012.

    Inventories – K869,168

    The value of the inventories for 2012 was same as last year. Further, my audit on the inventories in
    2010 revealed that records on stock were not adequately maintained and some inventories did not
    have stock-cards to determine the accuracy of the stock. My request to provide the listing was also
    not provided for 2012 to determine the accuracy of the stock value.

    Therefore, I was unable to ascertain the accuracy of the inventory value taken up in the financial
    statements as K869,168 for the year ended 31 December 2012.

    Fixed Assets–K10,563,318

    The assets depreciation schedule provided was not updated with details of serial numbers and the
    identity of the custodian for control purposes. Further, the general ledger balances of the cost
    values of the assets, accumulated depreciations and depreciation charges for the year could not be
    verified by me since the revised fixed assets register was not made available.

    An amount of K769,487 which was shown as work in progress (WIP) since 2005, was included
    under land and buildings in 2011. However, I was unable to determine the valuation of this work in
    progress which is now included under land and buildings due to non- availability of necessary
    documentation.

    The Corporation has no policy in place in respect of valuation of its land and buildings and was not
    revalued for more than seven to ten years. As per the International Accounting Standard S-16
    Property, Plant and Equipment either the assets shall be carried at cost or at revaluation as per the
    policy of the organisation. Since the Corporation does not have a policy in this regard, I was unable
    to determine whether the value of total cost taken up in the financial statements is appropriate.

    In the above circumstances, I was unable to determine whether the net assets of K10,563,318 had
    been appropriately depreciated, measured and accounted for at the year end.

  • Page 82 of 305

  • Creditors and Accruals- K4,878,387

    Group Tax – K1,590,245

    Group tax payable to the IRC amounting to K1,590,245 was outstanding and accumulated over
    years. I was informed that this liability has now formed part of a debt servicing plan with the IRC.
    However, no documentation was made available for my review to verify the arrangements entered
    into with the IRC.

    The payroll did not include all the contract allowances of motor vehicle, telephone, entertainment
    and housing for the contract officers in determining the respective employee’s taxable income.
    Therefore, the salary and wages tax deducted and paid to the IRC was considerably less and these
    allowances were instead paid on monthly basis through cheque payment without tax being
    deducted. This practice is in violation of Income Tax Act 1959.

    As such, I was unable to determine the appropriateness and completeness of the balance of
    K1,590,245 as group tax payable disclosed in the financial statements as at 31 December 2012.

    Rental Bonds Payable – K73,953

    The lease documents and schedules were not made available for my review to verify the accuracy
    of the amount of K73,953 taken up as rental bonds payable in the financial statements for the year
    ended 31 December 2012.

    Business Withholding Tax– K206,081

    An amount of K206,081 was disclosed as business withholding tax outstanding as at 31 December
    2012. I was not provided with adequate documentation to determine when this tax was deducted
    for the contractors and when it became due to the IRC.

    Also, I was unable to verify whether business withholding tax had been deducted from all the
    contractors and consultants who were providing service to the Corporation due to a lack of
    documentation.

    Registration Fee – K331,759

    Registration fees from the coffee processers and exporters for the following year were collected in
    advance in the current financial year. However, the registration fees collected in 2011 for 2012 was
    not reversed in the current financial year and was still shown as payable. Further, the registration
    fees collected for 2013 in 2012 was taken up as registration fee for 2012 in the income statement,
    which is not correct. As such, I was unable to determine the accuracy of the registration taken up
    as payable in the financial statements as well the registration fee shown as income in the income
    statement for the year ended 2012.

    Nasfund Clearing Account – K21,980 (Dr) / Salaries and Wages Clearing Account – K128,154 (Cr)

    These clearing accounts were meant for salary deductions made and paid to concerned service
    providers and should have either nil balance or credit balances at the year end. However, these

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  • accounts show debit balances as at 31 December 2012 which is not appropriate. Therefore, I was
    unable to verify the accuracy of these balances as shown in the financial statements under trade
    creditors and accruals.

    Goods and Service Tax Payable (GST) – K304,892

    The financial statements disclosed K4,878,387 as Creditors and Accruals of which K304,892 was
    GST payables. This amount was the final adjusted amount of GST receivables and GST payables of
    the Coffee Industry Corporation (CIC) and the Coffee Industry Fund (CIF) which were accumulated
    from 1999 to 2012. The Corporation provided some documentation of its own adjustment journals
    and IRC statements for my review. However, no proper reconciliation has been done between these
    records and provided for my verification to determine its accuracy.

    Further, the documentation provided by the IRC did not include the GST returns filed by CIC for the
    period October 2006 to December 2010 in deriving the above GST balance.

    Therefore, I was unable to ascertain the accuracy of the GST payables balance taken up as
    K304,829 in the financial statements as at 31 December 2012.

    Employee Provisions (Current) – K106,810; (Non-current) – K593,595

    I was not provided with the detailed break-up listing or proper schedules of the accrued long
    service leave and annual leave as at 31 December 2012 to enable me to verify the accuracy and
    appropriateness of the balances disclosed in the financial statements.

    Further, these leave provisions were the same for 2010 and 2011 financial years and no movement
    was noted in the respective accounts. Therefore, the employee’s provision was understated in the
    financial statements for the financial year.

    Consequently, I was unable to determine the appropriateness of the balance of K4,873,387 taken
    up as creditors and accruals in the financial statements as at 31 December 2012.

    Income and Expenditure Statement– K842,614 (Loss)

    Rental Income – K1,056,811

    The Corporation did not provide me a complete schedule for all its rentals received during the year
    to determine the completeness of the income received. Also, all the lease agreements were not
    made available for me to verify the accuracy of the rental income taken up in their books.

    In the above circumstances, I was unable to ascertain the accuracy of the balance of K1,056,811
    taken up as rental income as at 31 December 2012.

    QUALIFED OPINION

    In my opinion, except for the effects on the financial statements of the matters referred to in the
    qualification paragraphs:

    (a) The financial statements of the Coffee Industry Corporation Limited:

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  • (i) Give a true and fair view of the state of affairs of the Corporation as at 31 December 2012, the
    results of its operations and the cash flows for the year then ended; and
    (ii) Comply with the Companies Act, International Financial Reporting Standards and other
    generally accepted accounting practices in PNG.
    (b) Proper accounting records have been kept by the Coffee Industry Corporation Limited as far as
    appears from my examination of those records; and
    (c) I have obtained all the information and explanations required except for the matters referred to
    in the qualification paragraphs.

    EMPHASIS OF MATTER

    Status of the Coffee Industry Corporation Limited

    Audit was provided with the copy of the Coffee Industry Corporation (Statutory Functions and
    Powers) Act 1991 and according to this Act, the Coffee Industry Corporation was a Corporation
    and not a “Limited Company”. Unless Parliament by an Act or amended the existing Act to
    corporatise the Coffee Industry Corporation the word “Limited” used by the Corporation is not
    appropriate. My request to provide the amended Act was not made available for review to
    determine the appropriateness of incorporating this Corporation under the Companies Act.

    7.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Corporation for the year ended 31 December 2012 was issued on 17
    February 2014. The report contained the following issues:

    Salaries and Allowances

    The Corporation’s senior officers were paid accommodation and motor vehicle allowances in
    accordance with their contracts of employment in full without deducting appropriate taxes as per
    the Income Tax Act. I was informed that an accounting firm advised the Corporation to pay the
    allowances in full and the respective officers to lodge their annual returns with the IRC.

    My review of the advice revealed that unless a variation has been obtained from the IRC by the
    respective officers, both housing and motor vehicle allowances must be fully taxed. I brought this
    to the attention of Management and it responded that “a tax consultant is assisting management
    in this area and we will improve this aspect of compliance going forward. This has generally been
    overlooked over the years to date. It is possible to get variation approval from the IRC and get
    taxed at the prescribed taxable values. The management undertakes to review and make necessary
    decision and/or seek the Board’s endorsement to appropriately deal with salary or wages tax not
    deducted and paid when paying the allowances.”

    My view continues to be that without evidence of tax variations approved by the IRC, officers
    receiving such allowances must be fully taxed.

    Inventories

    The operation of internal control over inventories was inadequate. My stock-take attendance in
    2010 revealed that records of movements of inventories were not properly maintained. Officers

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  • responsible for recording the movements of the stock did not update the stock-cards and some
    did not maintain these cards. No monthly stock-take was conducted.

    The values of the stock-take was not recorded at cost or net realisable value whichever is less in
    accordance with the CIC Financial Procedure Manual, and to that extent the value may be
    overstated in the financial statements.

    I brought this to the attention of Management and it responded that “management will review the
    inventory management system and improve as per audit advice. We have recruited and will soon fill
    the position of assistant accountant in Aiyura. We envisaged the incumbent will be stationed there
    in 2013 and thereafter see improvements in the operation of internal controls towards inventory
    management.”

    Coffee Export Levy – K4,761,644

    The Corporation collects levy from the coffee exports as empowered by the Coffee Industry
    Corporation Act. However, the act of determining the levy amount receivable by the Coffee
    Industry Corporation Board was not gazetted as required by Section 7(2) of the Act. As such, the
    appropriateness of charging the levy could not be verified. I brought this to the attention of
    Management and it responded that they “have taken this matter to the Board for endorsement for
    gazettal of levy and registration fees for the purpose of legal validity.”

    Goods and Services Tax

    The Goods and Services Tax (GST) applied on the coffee export levy was below the approved 10%
    as per the GST Act 2003. The Corporation has to ensure that it complies with the relevant
    legislation.

    Personnel Records

    The personnel files of the Corporation were not maintained adequately to determine their liability
    at a given point of time. Also, the leave records and other important correspondences like salary
    increment and appraisals were not available in the files.

    Further, most of the contract officers’ contracts were not current or not located in their personnel
    files. I brought this to the attention of Management and it responded that “the HR/ Personnel and
    administration department maintains all personnel files at CIC. For contract officers their contracts
    are under review for signing and copies will be filed in personnel files. We will improve on the
    management and upkeep of personnel files for future audit observation and review and have
    tasked the personnel section to improve on this area.”

    7.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements for the year ended 31 December
    2013 had been submitted and the audit will commence shortly.

    7A. COFFEE INDUSTRY FUND

    7A.1 INTRODUCTION

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  • The Coffee Industry Corporation (Statutory Functions and Powers) Act 1991 provided for the
    establishment of the Coffee Industry Fund (CIF). The main purpose of the Coffee Industry Fund is
    to stabilise the coffee industry by giving the Coffee Industry Corporation the financial ability to
    implement schemes relating to stabilisation and equalisation of coffee prices and stock holdings of
    coffee.

    7A.2 AUDIT OBSERVATIONS

    7A.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 (4) of the Audit Act on the financial statements of the
    Fund for the year ended 31 December 2012 was issued on 17 February 2014. The report contained
    a Qualified Opinion.

    “BASIS FOR A QUALIFIED OPINION

    Other Debtors and Prepayments– K185,425

    Interest Withholding Tax – K12,301

    The Coffee Industry Corporation (CIC),as a non-limited company, and the Coffee Industry Fund
    (CIF) are exempt from income tax under Section 27(c) of the Income Tax Act 1959 and therefore
    not subject to Interest Withholding Tax (IWHT) under Section 186 (4) (a) of the Income Tax Act.

    However, the interest withholding tax was deducted from the interest received on the interest
    bearing deposit since the Coffee Industry Corporation (CIC) was incorporated as a limited
    company. In 2012, IWHT deducted was K12,301. In 2011, IWHT amounting to K52,321 was
    deducted and transferred to the CIC without any explanation. Also, the IWHT amount of K52,548
    deducted up to 2008 and a total of K14,293 deducted in 2011 were neither taken up in the CIF nor
    the CIC books.

    Consequently, I was unable to ascertain whether it is appropriate to have the IWHT deducted or to
    comment on the accuracy and completeness of the balance receivable as at 31 December 2012.

    Short-Term Loan – K173,124

    The loan documents were not made available for my review. As a result, I was unable to determine
    the terms and conditions of this loan and its repayment schedule. Further, a current asset should
    be receivable within one year. However, this amount remained outstanding for more than one year
    and is still treated as a current asset which is not appropriate.

    Coffee Industry Fund

    Therefore, I was unable to confirm the status of the loan balance.

    QUALIFIED OPINION

    In my opinion, except for the effects on the financial statements of the matters referred to in the
    Basis for Qualified Opinion paragraphs, the financial statements of the Coffee Industry Fund for the

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  • year ended 31 December 2012:
    (a) Give a true and fair view of the financial position and the results of its operations for the year
    then ended; and
    (b) The financial statements have been presented in accordance with the PFMA, International
    Financial Reporting Standards and other generally accepted accounting practices in PNG.”

    7A2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the audit and inspection of the
    accounts and records of the Fund for the year ended 31 December 2012 was issued on 17
    February 2014. The report contained the following observation.

    Revenue – Interest Income – K82,009

    Interest Bearing Deposit Certificate (IBD) was not made available for my review. I was therefore
    unable to verify the accuracy, correctness and completeness of the interest received monthly as I
    was relying only on the bank statements and the interest income schedule provided.

    I highlighted that unless adequate and appropriate source documents are maintained for all
    investments, the exact amount of investment and the interest earned on the IBDs could not be
    accurately determined and accounted for in the books. I also pointed out that the Corporation may
    lose the interest income earned if Management is not making sound investment decisions as to
    ensure more return on capital. I brought this to the attention of Management and they responded
    that “We note your observation and comments in relation to the IBD monthly certificate
    confirmation and will request the ANZ Bank to provide us monthly certificates in future. We advise
    also that we will update our Investment Register after we obtain Board approval on Investment
    options.”

    7A.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Fund for the year ended 31
    December 2013 had been submitted and arrangements were in progress to commence the audit
    without delay.

    7B. PATANA NO. 61 LIMITED (Subsidiary of Coffee Industry Corporation Limited)

    7B.1 INTRODUCTION

    Patana No. 61 Limited was incorporated under the Companies Act. The Company was acquired by
    the Coffee Industry Corporation Limited on 10 February 1994 and has a total issued capital of two
    ordinary shares of K1.00 each. The Company is wholly owned by the Coffee Industry Corporation
    Limited. The principal activity of the Company is to invest in property.

    7B.2 AUDIT OBSERVATIONS

    7B.2.1 Comments on Financial Statements

    My report to the members of Patana No. 61 Limited in accordance with the provisions of the
    Companies Act on the financial statements for the year ended 31 December 2012 was issued on
    17th February 2014. The report contained a Qualified Opinion:

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  • “BASIS FOR A QUALIFIED OPINION

    Fixed Assets – K591,090

    The Company has not maintained a Fixed Assets Register to enable me to verify the measurement
    and completeness of the assets, its present status and the accuracy of the depreciation claimed on
    these assets for the year ended 31 December 2012. Further, the assets purchased over the years
    by the parent company (CIC) for use by the company (Patana No. 61 Limited) were accounted for
    in the parent company’s Fixed Assets Register, which is not proper accounting treatment.

    In the above circumstances, I was unable to determine the measurement of the assets and the
    accuracy of the depreciation claimed on these assets and the net value of the fixed assets stated
    as K591,090 in the financial statements for the year ended 31 December 2012.

    Inter-Company Loan – K806,393

    I was not provided with the loan agreement entered into between the Company and the parent
    organization (CIC) to verify the terms and conditions of the loan and the repayment schedule.
    There was no movement in the loan amount since the loan was obtained from the parent entity.

    I was therefore unable to ascertain the validity and accuracy of the loan amount disclosed as
    K806,393 in the financial statements at 31 December 2012.

    Patana No. 61 Limited

    Going Concern

    The financial statements are prepared on a going concern basis. However, the Company has not
    generated any income since being incorporated except claiming only depreciation on the fixed
    assets and also disclosed a negative balance of K215,305 as reserves.
    I was also not provided with any documentary evidence that the parent Corporation will provide all
    the necessary financial support for its continued operation.

    In the above circumstance, I was unable to determine the appropriateness of preparing the
    financial statements on a going concern basis.

    Non-Compliance of International Financial Reporting Standards

    The financial statements did not include the Cash Flow and the Changes in Equity Statements
    which are mandatory. As a consequence, the Company did not comply with the International
    Financial Reporting Standards, Presentation of Financial Statements (IAS-1) and Statement of Cash
    Flows (IAS-7).

    Operating Loss – K8,257

    No rental income was received from the tenants occupying the Company’s facilities (units and
    houses) for the year. I was informed that CIC officers were occupying these properties but no
    rents had been collected from the occupants. Alternatively, no lease rentals were paid by the
    parent organisation (CIC).

    This practice of rent free accommodation provided to another entity is not a sound business

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  • practice. Once a company is incorporated it becomes a legal entity doing commercial business and
    as such, it should be operating on its own to generate income and meet its expenses and
    determine whether any profit or loss is made for the year.

    Consequently, I was unable to ascertain the appropriateness of the business practice followed by
    the Company and disclosing a business loss of K8,257 on account of providing depreciation on its
    fixed assets for the year ended 31 December 2012.

    QUALIFIED OPINION

    In my opinion, except for the effects on the financial statements of the matters referred to in the
    qualification paragraphs:

    (a) The financial statements of Patana No. 61 Limited for the year ended 31 December 2012:
    (i) Give a true and fair view of the financial position and the results of its operations for the year
    ended on that date; and
    (ii) The financial statements have been presented in accordance with the Companies Act,
    International Financial Reporting Standards and other generally accepted accounting practices in
    PNG.

    Patana No. 61 Limited

    (b) Proper accounting records have been kept by Patana No. 61 Limited as far as appears from my
    examination of those records; and
    (c) I have obtained all the information and explanations required except for the matters referred to
    in the qualification paragraphs.”

    7B.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the audit and inspection of the
    accounts and records of the Company for the year ended 31 December 2012 was issued on 17
    February 2014. The report contained the following observation.

    Investment Promotion Authority Documents

    I was not provided with the annual returns filed with the IPA for the financial years 2010 and 2011
    as well as various forms needed to be filed in respect of appointment/change of the new Directors.
    I brought this to the attention of Management and it responded that “Management notes your
    comments and will provide the copies of relevant Forms and Annual Returns filed with the
    Registrar of Companies during 2013 audit.”

    7B.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements for the Company for the year ended
    31 December 2013 had been submitted and arrangement was in progress to commence the audit
    without delay.

    8. GOVERNMENT PRINTING OFFICE

    8.1 INTRODUCTION

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  • The Government Printing Office was established by the British Colonial Administration in 1888.

    The functions of the Printing Office is empowered by Section 252 of the Constitution,
    Interpretation Act (Chapter 2) and Printing of the Laws.

    8.1.1 Objective of the Office

    The main objective of the Government Printing Office is to provide efficient and quality printing
    services to the executive arm of the government, judicial arm of the government, government
    departments and various statutory bodies at an affordable cost.

    8.2 AUDIT OBSERVATIONS

    8.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the financial statements of the
    Printing Office for the years ended 31 December 2010 and 2011 were issued on 25th March 2014.
    The reports contained similar Basis for Disclaimer of Opinion, hence only the 2011 audit report is
    reproduced.

    “BASIS FOR DISCLAIMER OF OPINION

    Limitation on the Scope of my Audit

    Due to the disclaimer of opinion issued in respect of the year ended 31 December 2010, I was
    unable to satisfy myself as to the accuracy of the opening balances. I was also unable to quantify
    the effects of misstatements, if any, which might have a bearing on the results of the operations of
    the Printing Office. As such, I was unable to form an opinion regarding the reliability of the
    financial records maintained by the Printing Office and the closing balances stated in the financial
    statements.

    Trade Debtors – K4,479,977

    My review of the Trade Debtors balance of K4,479,977 revealed that much of 2008, 2009 and
    2010 balances still remained outstanding. I was unable to verify the prior period debtors due to
    lack of relevant information. Further, no provisions for possible bad debts were made by
    Management for the long outstanding debts. As such, I was unable to satisfy myself as to the
    accuracy and completeness of the trade debtors balance at the year end.

    Government Printing Office

    Property, Plant and Equipment – K3,174,658

    My review of the Fixed Assets Register showed that the register was not properly maintained and
    updated showing additions and disposal of assets during the year with supporting documentation.

    Further, there was no stock-take undertaken at year end to confirm the existence and valuation of
    the assets held at year end. As such, I was unable to conclude on the accuracy, valuation and
    existence of the fixed assets balance of K3,174,658 at year end.

  • Page 91 of 305

  • Revenue – K8,807,746

    The revenue balance of the Printing Office stated at year end was K8,807,746, (2010: K3,997,046)
    120 percent higher than 2010. However, my review of the revenue account revealed that there was
    no audit trail available for verification. There was no correlation between job records, general
    ledger, and the inward cash register maintained by the Printing Office and the bank statements.
    Accordingly, I was unable to execute all my planned audit procedures. I have in past audit reports
    emphasised to Management the importance of this account but again no improvements have been
    made. As such, I was unable to conclude on the accuracy and valuation of the revenue balance of
    K8,807,746 disclosed in the financial statements.

    Government Grants

    My review of this account showed that permanent staff salaries and allowances of the Printing
    Office paid by the Government’s Alesco Payroll System under the Department of Prime Minister and
    National Executive Council were not disclosed in the financial statements at year end.
    Consequently, income and salaries and wages for the year were understated.

    Provision for Long Service and Recreation Leave

    The Government Printing Office did not disclose long service and recreation leave provisions for
    the permanent staff in its financial statements. There were no records in relation to personnel
    leave credits that was managed by the Printing Office. Without such records, I was unable to
    ascertain whether payments in relation to leave credits were properly calculated.

    DISCLAIMER OF OPINION

    Because of the significance of the matters referred to in the Basis for Disclaimer of Opinion
    paragraphs, I have not been able to obtain sufficient appropriate audit evidence to provide a basis
    for an audit opinion. Accordingly, I do not express an opinion on the financial statements of
    Government Printing Office for the year ended 31 December 2011.”

    Government Printing Office

    8.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Printing Office for the years ended 31 December 2010 and 2011 were
    issued on 25 March 2014. The reports contained the same observations, hence only the 2011
    report is reproduced.

    Government Printer’s Contract of Employment

    My review and examination of personnel records for the year ended 31 December 2011 revealed
    that the Government Printer’s Contract of Employment expired in April 2008. The Government
    Printer from May 2008 to September 2013, a period of more than five years, was employed by the
    State under the Department of Prime Minister and NEC without a valid Employment Contract.

    8.3 STATUS OF FINANCIAL STATEMENTS

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  • At the time of preparing this Report, the Government Printing Office had not submitted its financial
    statements for the years ended 31 December 2012 and 2013 for my inspection and audit.

    9. INDEPENDENCE FELLOWSHIP TRUST

    9.1 INTRODUCTION

    9.1.1 Legislation

    The Independence Fellowship Trust was established under the Independence Fellowship Trust Act
    (Chapter 1040).

    9.1.2 Objective of the Trust

    The object of the Trust is to benefit village development by making annual awards to selected
    citizens for the purposes of broadening their knowledge and experience, as well as implementing
    and encouraging that development.

    9.1.3 Functions of the Trust

    The functions of the Trust are to:
    * Make selections of candidates to receive the awards of fellowships;
    * Determine the number and value of awards; and
    * Invest the funds of the Trust.

    9.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements for the years ended 31 December
    2012 and 2013 had not been submitted by the Trust for my inspection and audit despite
    numerous reminders.

    10. INDEPENDENT CONSUMER AND COMPETITION COMMISSION

    10.1 INTRODUCTION

    10.1.1 Legislation

    The Independent Consumer and Competition Commission was established by the Independent
    Consumer and Competition Commission Act 2002. The Act came into operation in January 2003.

    10.1.2 Functions of the Commission

    The main functions of the Commission are:

    * To formulate and submit to the Minister policies in the interest of consumers;
    * Consider and examine and, where necessary, advise the Minister on the consolidation or
    updating of legislation providing protection to the consumer;
    * Liaise with Departments and other agencies of Government on matters relating to consumer
    protection legislation;
    * Receive and consider complaints from consumers on matters relating to the supply of goods and
    services;

  • Page 93 of 305

  • * Investigate any complaint received;
    * Make available to consumers general information affecting the interests of consumers;
    * Liaise with business, commercial and professional bodies and associations in order to establish
    codes of practice to regulate the activities of their members in their dealings with consumers;
    * Advise consumers of their rights and responsibilities under laws relating to consumers
    protection;
    * Promote and participate in consumer education activities;
    * Establish appropriate systems whereby consumer claims can be considered and redressed;
    * Liaise with consumer organisations, consumer affairs authorities and consumer protection
    groups overseas and to exchange information on consumer issues with those bodies;
    * Arrange for the representation of consumers in court proceedings relating to consumer matters;
    and
    * To do all other things relating to consumer affairs.

    10.2 AUDIT OBSERVATIONS

    10.2.1 Comments on the Financial Statements

    My report to the Ministers under Section 8 (4) of the Audit Act on the financial statements for the
    year ended 31 December 2013 was issued on 4th April 2014. The report did not contain any
    qualifications.

    Independent Consumer and Competition Commission

    10.2.2 Audit Observations Reported to the Ministers

    In accordance with Section 8 (2) of the Audit Act, I have a duty to report on significant matters
    arising out of financial statements to which this Report relates. The Report did not contain any
    significant matters.

    11. INDEPENDENT PUBLIC BUSINESS CORPORATION

    11.1 INTRODUCTION

    11.1.1 Legislation

    The Independent Public Business Corporation (IPBC) was established under the Independent Public
    Business Corporation of Papua New Guinea Act 2002 (as amended) which came into operation on
    27 March 2002.

    The above Act was amended through the Independent Public Business Corporation of PNG
    (Amendment) Act 2007 at which time the objectives and functions of the Corporation were
    changed.

    A major impact of the amendments made was that the Corporation, the Trusts, the State Owned
    Enterprises or any other enterprises in which the Corporation, the Trusts or a State Owned
    Enterprise holds any interest shall not be subject to the PFMA. The amended Act also excludes the
    Corporation from the application of the Public Services (Management) Act 1995 and the SCMC Act.

    These amendments came into operation on 8 June 2007.

  • Page 94 of 305

  • 11.1.2 Objectives of the Corporation shall be:

    * To act as trustee of the Trust and hold assets and liabilities that have been vested in or acquired
    by it, on behalf of the State;
    * To act as a financial institution for the benefit of and the provision of financial resources and
    services to State Owned Enterprises and the State, where this is approved by the NEC;
    * To enhance the financial position of the State or State Owned Enterprises; and
    * To enter into and perform financial and other arrangements that in the opinion of the
    Corporation have as their objective either:
    – The advancement of the financial interests of the State or State Owned Enterprises; or
    – The development of the State or any part thereof.

    11.1.3 Functions of the Corporation

    * The Corporation shall administer the Trusts and monitor the performance of the assets of the
    Trusts in such manner as provided under this Act and shall perform such other functions as are
    required under this Act.
    * Without limiting the generality of Subsection (1) but subject to the provisions of this Act, the
    Corporation may:
    ? Undertake the function of holding and monitoring corporation for State owned assets and
    Majority State Owned Enterprises;
    ? Undertake the function of planning, coordinating and managing State assets, infrastructure and
    projects;
    ? Determine policies regarding:

    Independent Pubic Business Corporation

    ? The conduct of its affairs and the affairs of any of the Trusts; and
    ? The administration, management and control of the Corporation and any of the Trusts.
    ? May borrow, raise or otherwise obtain financial accommodation in PNG;
    ? May advance money or otherwise make financial accommodation available to the State or State
    Owned Enterprises;
    ? May act as a central borrowing and capital raising authority for State Owned Enterprises;
    ? May act as agent for State Owned Enterprises in negotiating, entering into and performing
    financial arrangements;
    ? May provide a medium for the investment of funds of State Owned Enterprises;
    ? May manage or cause to be managed the Corporation’s financial rights and obligations; and
    ? Such other functions and duties as are prescribed by the Act or any other Act.

    11.1.4 Subsidiaries of the Corporation

    The subsidiaries of the IPBC are Aquirus No. 21 Limited, General Business Trust, PNG Dams Limited
    and Port Moresby Private Hospital Limited. Comments in relation to these subsidiaries are
    contained in paragraphs 11A, 11B, 11C and 11D of this Report.

    11.1.5 Projects of the Corporation

    The IPBC manages Japanese Fund for Poverty Reduction Project and Lae Port Project. It also
    implements the Port Moresby Sewerage and Supply Upgrading Project. Comments in relation to
    these Projects are contained in the Special Project Audits Report to Parliament.

  • Page 95 of 305

  • 11.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the inspection and audit of the accounts and records and the
    examination of the financial statements of the Corporation for the year ended 31 December 2012
    was completed and the Management Letter was issued on 2 May 2014. However, the responses to
    the Management Letter and the signed financial statements were not provided to enable me to
    issue the Report.

    The Corporation had submitted its financial statements for the year ended 31 December 2013 and
    arrangements were being made to commence the audit shortly.

    11A. AQUARIUS NO.21 LIMITED (Subsidiary of IPBC)

    11A.1 INTRODUCTION

    11A.1.2 Legislation

    Aquarius No. 21Limited was incorporated under the Companies Act. It was acquired by the Motor
    Vehicles Insurance (PNG) Trust, now Motor Vehicles Insurance Limited in 1998.

    The objective of Aquarius No. 21Limited is to purchase property to improve, develop, sell and let
    any part thereof where necessary.

    The Company was transferred to the General Business Trust on 2 August 2002 as per the
    Settlement Deed between the Independent Public Business Corporation (IPBC) and the Motor
    Vehicles Insurance Limited (MVIL) dated 3 April 2002.

    11A.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the
    accounts and records and the examination of the financial statements of the Company for the
    years ended 31 December 2011 and 2012 had been completed and the signed financial statements
    were being awaited from the Company, despite reminders to enable me to issue the reports.

    The financial statements for the year ended 31 December 2013 had not been submitted for my
    inspection and audit.

    11B. GENERAL BUSINESS TRUST (Trust under IPBC)

    11B.1 INTRODUCTION

    The General Business Trust was established under Section 31 of the Independent Public Business
    Corporation of PNG Act 2002 which came into operation on 20 June 2002.

    11B.1.1 Objectives of the Trust

    * The Independent Public Business Corporation of PNG (IPBC) was appointed as Trustee of the Trust
    and all moneys belonging to the Trust shall be invested or dealt with by IPBC in accordance with
    the Act;
    * At any time before or after the commencement date of the Act, the Minister responsible for

  • Page 96 of 305

  • privatisation matters may vest certain assets and liabilities in the IPBC as Trustee of the Trust;
    * All the State Owned Enterprises and other investments owned by the State of PNG are vested in
    the Trust by the Minister responsible for privatisation as approved by the NEC from time to time.

    11B.2 AUDIT OBSERVATIONS

    11B.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 (4) of the Audit Act on the financial statements of the
    Trust for the year ended 31 December 2012 was issued on 14 May 2014. The report contained a
    Qualified Opinion.

    “BASIS FOR A QUALIFIED OPINION

    Unquoted Equity Investments

    Unquoted equity investments under non-current assets in the financial statements were disclosed
    as K2,114,631,795. From this balance, a total of K360,895,128 was classified as other
    investments. However, I was not provided with the audited financial statements of a number of
    these entities classified as other investments.

    Furthermore, some of these investments did not exist but were still included in the financial
    statements. Some of these investment values have remained unchanged over the years. My request
    to provide the audited financial statements of these entities was not addressed by the Trustee.

    Therefore, I was unable to ascertain the accuracy of the balances classified as other investments in
    the financial statements as at 31 December 2012.

    QUALIFIED OPINION

    In my opinion, except for the effects on the financial statements of the matters referred to in the
    qualification paragraphs:
    (a) The financial statements are based on proper accounts and records; and
    (i) Give a true and fair view of the state of affairs of the Trust as at 31 December 2012 and the
    results of its financial operations, the change in equity and its cash flows for the year then ended;
    and
    (ii) Comply with the International Financial Reporting Standards and other generally accepted
    accounting practices in PNG.
    (b) Proper accounting records have been kept by General Business Trust as far as appears from my
    examination of those records; and
    (c) I have obtained all the information and explanations required except for the matter referred to
    in Emphasis of Matters.

    EMPHASIS OF MATTERS

    Without qualifying my opinion I wish to draw attention to the following matters which I consider
    significant:

    Related Party Receivables: Loan to National Petroleum Company of PNG (Kroton) Limited (NPCP)
    (formerly Kroton No. 2 Limited) – K2,720,409,942 (2011: K1,959,803,971)

  • Page 97 of 305

  • A total of K2,720,409,942 was disclosed as related party receivables in the financial statements. Of
    this amount, a total of K2,685,318,343 was the amount paid to Exxon Mobil on behalf of the
    National Petroleum Company of PNG (Kroton) Limited (NPCP) from 2009 to 2012. Furthermore, a
    total of K20,529,000 in 2010 and K14,562,599 in 2011 was paid towards operational expenses of
    NPCP. NPCP holds the PNG Government’s 16.57% stake in the PNG LNG project. The IPBC Board
    resolved that these amounts be considered as a loan and shall be paid back once revenue starts
    flowing from the project. However, a copy of the signed loan agreement was not made available for
    my review to determine the conditions attached to the loan.

    I was provided with four NEC Decisions, which were: Decision No.88/2010 dated 12 May 2010;
    Decision No.108/2011 dated 7 July 2011; Decision No.105/2011 dated 14 November 2011, and
    finally Decision No. 18/2013 dated 30 January 2013 which reaffirmed the revival of NPCP which
    was decided through the earlier NEC Decisions No. 88/2010 dated 12 May 2010 and NEC Decision
    No.108/2011 dated 7 July, 2011.

    As per Clause 8 of the NEC Decision No.108/2011 that all the payments made by IPBC to NPCP
    (Kroton) towards the PNG LNG Project shall be treated as equity by IPBC and not as a loan. Also, as
    per Clause 9 of the above decision, the cost of capital borne by IPBC towards funding
    arrangements associated with the International Petroleum Investment Corporation (IPIC)
    Exchangeable bonds are to be borne exclusively by IPBC and not to be recharged to any member of
    the NPCP Group.

    However, all the contributions including the cost of capital towards the LNG project were treated as
    a loan by IPBC in the books, which is contrary to NEC Decision No. 108/2011.

    Consequently, I was unable to determine the correctness of recording K2,720,409,942 as a
    receivable from NCPC as at 31 December 2012.

    Exchangeable Bonds – K3,652,759,670 (2011: K3,632,238,547)

    I draw your attention to the exchangeable bonds disclosed under non-current liabilities which
    amounted to K3,652,759,670. This liability is payable to International Petroleum Investment
    Company (IPIC), Abu Dhabi resulting from the raising of AUD$ 1.681billion (K3.183 billion) in 2009
    in exchangeable bonds. The bonds mature in 2014 by exchange of the Oil Search Limited (OSL)
    shares owned by the State. This amount was raised towards financing the State’s 19.6% stake in
    the PNG LNG Project. The value of the Oil Search shares as at 31 December 2012 was only
    AUD$1.378 billion (K3,013,107,304) and therefore, an additional amount of AUD$302,804,720
    (K662,014,942) would have been payable by IPBC if the bonds had been redeemed or had been
    exchanged as per the Bond Deed Poll of the Exchange Bonds agreement at the balance sheet date.

    However, on 5 March 2014, IPIC exercised the option of exchanging the bonds for Oil Search
    Shares by giving a mandatory notice to IPBC. As a result, all the Oil Search ordinary shares
    amounting to 196,604,177 were transferred to IPIC at a value of AUD$8.395 per share as per the
    average valuation of IPIC and IPBC calculation agents, BNY Trust Company of Australia Limited and
    Royal Bank of Canada in pursuant of the Deed Poll conditions of the bonds. As a result of this
    exercise, IPBC had paid additional AUD$30,507,935 to IPIC.

    IPIC had further claimed that the valuation should be as per their valuation agent’s determination
    which is AUD$8.19 per share and claimed an additional amount of AUD$40,303,856.

  • Page 98 of 305

  • IPBC and IPIC have since agreed to settle this matter in court and the disputed amount is to be
    kept in a separate escrow account until the final decision is reached by the court.

    Investments in PNG Series II and PNG Series I I I Notes

    In Note 12 to the financial statements under non-current investments, it is disclosed that the
    investments in PNG Series II and III Notes had lost K13.629 million and K4.745 million (as per 2011
    figures) respectively. Management of the Trustee, IPBC invested K15.0 million (AUD$5,920,500) in
    PNG Series II on 01 June 2007 through BSP Capital Limited in Lehman Brothers.

    Again, on 21 September 2007 Management invested K16.0 million (AUD$6,250,000) in PNG Series
    III Notes in Lehman Brothers through BSP Capital Limited, without proper evaluation on the
    overseas money market and without the IPBC Board consent. In September 2008 Lehman Brothers
    filed for bankruptcy in the United States as a result of the global financial crisis which in turn
    reduced the investment value by AUD$9 for each AUD$100 Note on PNG Series II Notes.

    Likewise, on 27 April 2009 the investment value of PNG Series III Notes had also reduced to
    AUD$70 for each AUD$100 Note.

    Further, in Note 6 to the financial statements under miscellaneous income, it is disclosed that a
    gain of K10,463,805 had been made on disposal of the BSP notes. However, as per the documents
    made available, BSP Capital Limited and BSP Limited entered into a deed of settlement dated 30
    November 2012 with the IPBC and paid K23,090,111 as final settlement towards PNG Notes II and
    PNG Notes III. As such, IPBC had incurred K7.9 million as an investment loss as well as a revenue
    loss of K4.5 million at 2.5% Treasury notes for the period 2008 to 2012.

    I am concerned that the Trustee had not done proper evaluations and failed to obtain the Board’s
    approval before the investments were made. In my view, investments in overseas financial or
    money markets are not the core purpose of the establishment of the Trust. Further, I still believe
    that the funds vested with the Trust and managed by the Trustee (IPBC) are owned by the State
    although the amendments made to the Independent Public Business Corporation Act specifically
    excluded compliance with the PFMA. Management still needed to seek the necessary approval from
    the Board before making investment decisions in overseas money markets and the sale of assets
    vested with the Trust. Therefore, the Board needs to bring in an adequate and appropriate
    corporate governance regime in the management and affairs of the Trust fund which I believe is
    lacking at present.

    Non-Compliance of Kumul Agreement

    As per the Kumul Agreement entered into between the IPBC and IPIC for the borrowing of
    AUD$1.681 billion for financing the PNG State’s share of 19.6% towards the PNG LNG Project, the
    audited financial statements of the General Business Trust should be submitted to IPIC by 30 June
    of the following year for the previous year ended. Also, the audited financial statements of the
    National Petroleum Company (Kroton) Limited (NPCP), the Subsidiary and vehicle company for the
    LNG Project for 2011 and 2012 were outstanding for twenty-two months and ten months
    respectively at the time of issuing this Report. The Corporation has not complied with this
    agreement by non-submission of the financial statements of General Business Trust and NPCP on
    time to enable me to issue the report as stipulated in the agreement.”

  • Page 99 of 305

  • 11B.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Trust for the year ended 31 December 2012 was issued on 14 May
    2014. The report contained the following observations.

    Sale of State Owned Assets without National Executive Council Approval

    Several assets were sold between 2004 and 2011 totalling K5,591,741without obtaining written
    NEC approval as required under Section 9(b)(1A) of the Independent Public Business Corporation
    Act.

    When the matter was brought to the attention of Management, they advised that, “as far as we are
    aware this was more of a commercial decision taken by the Management of IPBC over the last 10
    years. We are unable to sight any specific NEC decisions to support these sales.”

    Loan to Post PNG Limited K12.5 million

    The IPBC Board in its Board Meeting No.2/2009 dated 20 August 2009 approved the loan
    repayment of K12.5 million to the Bank of South Pacific (BSP) on behalf of Post PNG (the borrower
    of the loan). This loan refund was part of Post (PNG)’s total loan of K36.0 million borrowed from
    BSP for its new investments in properties in Lae. Further, as per the Board Meeting No.4/2012
    dated 16 August 2012, the refund of the BSP loan by IPBC was a loan to Post (PNG) Limited and
    should be refunded to IPBC on completion of sale of Haus Post Boroko. However, the loan refunded
    by IPBC on behalf of Post (PNG) Limited as at 31 December 2012 amounting to K14,166,667 was
    capitalised. No documentation was made available to verify if it was appropriate to capitalise
    K14,166,667 paid by IPBC in 2010, 2011and 2012 towards this loan repayment.

    Further, audit was informed that Post PNG could not repay the balance of the loan and therefore
    IPBC is now repaying the outstanding loan towards the borrowing. It appears that Post PNG had
    entered into new capital expenditures without a proper evaluation of their financial capacity and
    depended on IPBC for the bailout. It would be appropriate that IPBC should bring a total ban on
    new projects by all the SOEs unless approved by the NEC.

    I brought this to the attention of Management and they advised that the “former Chief Financial
    Officer of IPBC has no authority as he mentioned in his letter to Post (PNG) Limited that it would be
    treated as capital.”

    Investment Corporation of Papua New Guinea

    This Corporation was vested with IPBC in pursuant to Gazettal Notice No.33 dated 06 April 2004.
    The value of this property was taken up in the financial statements as K8,660,957 for the last eight
    years. The conditions attached with the vesting notice was not to use the GBT assets (money) for
    the disposal of remaining assets and settle the liabilities and submit all the outstanding financial
    statements to my office to enable me to complete the audit and issue the reports. However, my
    repeated request to provide financial statements for the years since 2002 was not responded to
    positively by the respective Management during these years. I brought this to the attention of
    Management and they advised that “2001 files have been archived and files passing 7 years in
    archived have been destroyed and very difficult to retrieve old records.”

  • Page 100 of 305

  • Investments in Niugini Insurance Corporation Limited (NIC)

    The NIC was corporatised and the business was transferred to Pacific MMI Insurance Limited in
    1998 except for the insurance liability and assets attached with the liabilities remaining with the
    Corporation. However, in 2010 IPBC informed my office that they filed an application for
    deregistration of the company but no documentation was made available for my review to
    determine the appropriateness of the claim.

    I brought this to the attention of Management and they advised that “We have not been able to find
    the relevant documentation and forward to your office as and when we are able to locate them.”

    11B.3 STATUS OF THE FINANCIAL STATEMENTS

    At the time of preparing this Report, the Trust had submitted its financial statements for the year
    ended 31 December 2013 and the audit will commence shortly.

    11C. PNG DAMS LIMITED (Subsidiary of IPBC)

    11C.1 INTRODUCTION

    11C.1.1 Legislation

    PNG Dams Limited was incorporated under the Companies Act on 5 June 2002. This Company was
    established under Section 3(1) of the Electricity Commission (Privatisation) Act 2002 (the ‘Act’) by
    transferring to it the Sirinumu Dam and Yonki Dam from PNG Electricity Commission (ELCOM). This
    was gazetted through Gazettal Notification No. G114 dated 16 July 2002. The Company was vested
    with the IPBC through the Gazettal Notification No. G125 dated 2 August 2002.

    11C.1.2 Objective of the Company

    The objective of the Company is to store water in the two dams for the controlled release of water
    from the storage for the generation of electricity.

    11C.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the
    accounts and records and the examination of the financial statements of the Company for the year
    ended 31 December 2012 had been completed. The signed financial statements were not
    submitted by the Company to enable me to issue the report, despite several reminders.

    The financial statements for the year ended 31 December 2013 had not been submitted for my
    inspection and audit.

    11D. PORT MORESBY PRIVATE HOSPITAL LIMITED (Subsidiary of IPBC)

    11D.1 INTRODUCTION

    11D.1.1 Legislation

    Port Moresby Private Hospital Limited (formerly Negliw No. 81 Limited) was incorporated under the

  • Page 101 of 305

  • Companies Act and was acquired by the Motor Vehicles Insurance (PNG) Trust, now Motor Vehicles
    Insurance Limited on 30 September 1994 as a subsidiary. Port Moresby Private Hospital Limited
    changed its name from Negliw No. 81 Limited in 1996.

    The Company was later transferred to the General Business Trust on 2 August 2002.

    11D.1.2 Objective of the Company

    The objective of Port Moresby Private Hospital Limited was to construct, furnish and equip a
    building to operate as a hospital.

    11D.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the
    accounts and records and the examination of the financial statements of the Company for the
    years ended 31 December 2011 and 2012 had been completed. The signed financial statements
    were not submitted by the Company despite reminders to enable me to issue the Reports.

    The financial statement for the year ended 31 December 2013 had not been submitted for my
    inspection and audit.

    12. INDUSTRIAL CENTRES DEVELOPMENT CORPORATION

    12.1 INTRODUCTION

    12.1.1 Legislation

    The Industrial Centres Development Corporation was established under the Industrial Centres
    Development Corporation Act 1990 which came into operation on 23 August 1990. The
    Corporation commenced trading on 5 January 1994.

    12.1.2 Functions of the Corporation

    The main functions of the Corporation are:
    * Overall planning and implementation of the Government’s industrial centre development
    programme;
    * Preparation of feasibility studies in order to identify appropriate forms of industrial development;
    * To identify therewith or otherwise, regions and sites in the country for industrial centres, and
    * To do such supplementary, incidental or consequential acts, as are necessary for the
    development and promotion of industrial centres in PNG.

    12.2 AUDIT OBSERVATIONS

    12.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 (4) of the Audit Act on the Corporation’s financial
    statements for the year ended 31 December 2010 was issued on 11 November 2013. The report
    contained a Qualified Opinion.

    “BASIS FOR QUALIFIED OPINION

  • Page 102 of 305

  • Trade Debtors –Malahang Industrial Centre (MIC)

    The MIC trade debtors balance had been reported as K620,863 at year end. Out of this amount,
    K344,316.95 remained outstanding for a long period of time, therefore the collectability of this
    amount is in doubt. As such, I was unable to satisfy myself as to the accuracy and collectability of
    the trade debtors reported at the year end.

    Sundry Debtors – K1,142,634

    Included in the above account were land sales debtors totalling K655,373.88 which have been
    outstanding for over 90 days. In addition, land sales debtors with credit balances (as a result of
    customers payments) totalling K63,459.98 were never been allocated with invoices. As a result, the
    sundry debtors account was understated by the said amount. Consequently, I was unable to
    ascertain the accuracy, correctness and collectability of the sundry debtors as reported in the
    financial statements at 31 December 2010.

    Industrial Centres Development Corporation

    Employee Provisions

    Employee provisions disclosed in the financial statements was K297,887. My examination revealed
    that the Corporation did not maintain history/ledger cards to calculate provision for annual leave,
    long service leave and other entitlements during the year. Variances were noted between the
    schedules submitted against the general ledger. In addition, there were no provisions made for
    staff gratuity for the year. As a result, I was unable to satisfy myself as to the accuracy and
    completeness of the employee provisions of K297,887 as reported in the financial statements at
    31 December 2010.

    Non-Compliance with the Public Finances (Management) Act

    The Corporation has not prepared and submitted its financial statements to my Office before 31
    March 2011 to enable me to conduct the audit and issue the audit report within the time frame
    stipulated in the Act. Consequently, the Corporation has breached Section 63(2) and 63(4) of the
    PFMA.

    QUALIFIED OPINION

    In my opinion, except for the effect of the matters referred to in the Basis for Qualified Opinion
    paragraphs above:
    (a) The financial statements are based on proper accounts and records; and
    (b) The financial statements are in agreement with those accounts and records, and show fairly the
    state of affairs of the Corporation for the year ended 31 December 2010 and the results of its
    financial operations and cash flows for the year then ended.”

    12.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Corporation for the year ended 31 December 2010 was issued on 11
    November 2013. The report contained the following observations.

  • Page 103 of 305

  • Custody of Corporation’s Assets

    Some of the officers of the Corporation were allocated with two laptops and printers but one was
    kept at their residence. During my assets verification exercise it was revealed that four laptops,
    two Cannon digital cameras and two Cannon video cameras were missing. The asset register did
    not properly indicate the custodians of these assets.

    Entertainment Expenses

    Reimbursements of entertainment expenses paid/reimbursed to the Managing Director totalling
    K160,246 were incomplete and did not have proper documentation attached to the cheque
    requisition.

    Industrial Centres Development Corporation

    Other Internal Control Weaknesses

    Other weaknesses noted during my review were:
    * A travel advance register and proper acquittal file was not maintained by the Corporation during
    the year;
    * Lack of control on staff advances;
    * Inadequate control procedures over cash encashment and payment to suppliers;
    * The production/printing of the Corporation’s annual report never eventuated despite the down
    payment of K60,000, K50,000 and K15,000 on three different occasions to different companies;
    * Reconciliation of general ledger accounts were not prepared on a periodic basis;and
    * Minister’s approval of the land sale was not provided.

    I drew Management’s attention to these weaknesses and I was advised that steps had been taken
    to address the issues.

    12.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the inspection and audit of the accounts and records and
    examination of the financial statements of the Corporation for the year ended 31 December
    2011had been completed and the results were being evaluated.

    The financial statements for the years ended 31 December 2012 and 2013 had not been submitted
    for my inspection and audit.

    13. INVESTMENT PROMOTION AUTHORITY

    13.1 INTRODUCTION

    13.1.1 Legislation and Objective of the Authority

    The Investment Promotion Authority was established under the Investment Promotion Act 1992.
    The objective of the Act was to provide for the promotion of investment in the interests of
    national, social and economic development. This Act repealed the National Investment and
    Development Act (Chapter 120) and the Investment Promotion Act 1991.

  • Page 104 of 305

  • 13.1.2 Functions of the Authority

    The principal functions of the Authority are to:
    * Provide information to investors in the country and overseas;
    * Facilitate the introduction of citizens and foreign investors to each other and to activities and
    investments of mutual benefits;
    * Provide a system of certification of foreign enterprises;
    * Advise the Minister on policy issues which relate to the Act; and
    * Maintain a register of foreign investment opportunities.

    13.2 AUDIT OBSERVATIONS

    13.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 (4) of the Audit Act on the Authority’s financial
    statements for the year ended 31 December 2012 was issued on 29 November 2013. The 2012
    report did not contain any qualification.

    13.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Authority for the year ended 31 December, 2012 was issued on 29
    November, 2013. The report contained the following matters:

    Unreconciled Difference

    I noted an unreconciled difference of K16,000 between the Deregistered Company Receipts and
    the General Ledger balance stated in the financial statements. I brought this to the attention of the
    Authority and the Authority agreed to identify the entries and reconcile the account.

    Investment Promotion Authority

    Travel Advances Acquittals

    I noted that travel advances made to various staff on official trips were not acquitted upon return
    within the required period as stipulated in the Financial Management Manual Part 20 Paragraph
    11.2. I brought this to the attention of management and they took note of my concern and agreed
    to take measures to comply with the requirements.
    13.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Authority for the year ended
    31 December 2013 had not been submitted for my inspection and audit, despite numerous
    reminders from my Office.

    14. KOKONAS INDASTRI KOPORESEN (Formerly Copra Marketing Board of PNG)

    14.1 INTRODUCTION

    14.1.1 Legislation

  • Page 105 of 305

  • The (NEC) through its Gazettal Notice No. G19 abolished the Copra Marketing Board Act, 1992 on
    4 June 2002 and replaced it with Kokonas Indastri Koporesen Act, 2002 which established the
    Kokonas Indastri Koporesen (KIK). The new Act decentralised copra buying and selling in PNG and
    required KIK to only regulate the copra price in PNG.

    The Kokonas Indastri Koporesen Act subsequently established PNG Coconut Extension Fund and
    PNG Coconut Research Fund. Comments in relation to these Funds are contained in paragraphs
    14A and 14B respectively, of this Report.

    14.1.2 Functions of the Koporesen

    The principal functions of the KIK are to regulate and assist in the export and marketing of copra
    in the best interest of the copra producers of PNG and to administer the PNG Coconut Extension
    Fund and the PNG Coconut Research Fund.

    14.2 AUDIT OBSERVATIONS

    14.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the financial statements of the
    KIK for the years ended 31 December 2012 and 2013 were issued on 2 October 2013 and 29 April
    2014 respectively. These reports did not contain any qualification.

    14.2.2 Audit Observations Reported to the Ministers

    My reports to Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the KIK for the years ended 31 December 2012 and 2013 were issued but
    for the purpose of this Report, only 2013 comments are reproduced.

    Managing Director’s Contract of Employment

    My examination of the personnel records for the year ended 31 December 2013 revealed that the
    NEC, in its Decision No: 14/2013 dated 23 February 2013, confirmed the appointment of the
    current Managing Director of KIK for a period of four years. The NEC further directed the Secretary
    for the Department of Personnel Management to prepare a “Contract of Employment” for the
    Managing Director, which I noted was still not finalised.

    As a result, I was unable to determine on what basis the Managing Director’s remuneration was
    calculated. Management took note of my concerns and advised that the Managing Director was on
    the same scale of the previous Managing Director and adjustments would be effected once the
    “Employment Contract” was signed.

    14A. PNG COCONUT EXTENSION FUND

    14A.1 INTRODUCTION

    The Copra Marketing Board (Amendment) Act 1997 provides for the establishment of the PNG
    Coconut Extension Fund for the purpose of receiving levies and engaging in extension services and
    related programmes in accordance with the terms of the Act.

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  • 14A.1.1 Objective of the Fund

    The objective of the Fund is to engage in extension services and related programs by itself or in
    co-operation with other persons or bodies for the benefit of the Copra Industry.
    The Fund was administered by the Copra Marketing Board up to 3 June 2002 and has since been
    administered by KIK.

    14A.2 AUDIT OBSERVATIONS

    14A.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the financial statements of the
    Extension Fund for the years ended 31 December 2012 and 2013 were issued on 2 October 2013
    and 29 April 2014 respectively. These reports did not contain any qualification.

    14A.2.2 Audit Observations Reported to the Ministers

    My examinations in accordance with Section 8 (2) of the Audit Act revealed satisfactory results.

    14B. PNG COCONUT RESEARCH FUND

    14B.1 INTRODUCTION

    14B.1.1 Legislation and Objective of the Fund

    The PNG Coconut Research Fund was established by the Kokonas Indastri Koporesen Act following
    the repeal of the Copra Marketing Board (Amendment) Act and the cessation of the PNG Copra
    Research Fund. The KIK deducts a copra research fee of K4 per tonne of copra purchased from
    producers and pays it to the Research Fund. The Research Fund in turn, pays this CESS to the
    Cocoa Coconut Institute of PNG.

    14B.2 AUDIT OBSERVATIONS

    14B.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the financial statements of the
    Research Fund for the years ended 31 December 2012 and 2013 were issued on 2 October 2013
    and 29 April 2014 respectively. These reports did not contain any qualification.

    14B.2.2 Audit Observations Reported to the Ministers

    My examinations in accordance with Section 8 (2) of the Audit Act revealed satisfactory results.

    15. LEGAL TRAINING INSTITUTE

    15.1 INTRODUCTION

    15.1.1 Legislation

    The Legal Training Institute was established in 1972 under the Post Graduate Legal Training Act
    (Chapter 168).

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  • 15.1.2 Functions of the Institute

    The functions of the Institute are to provide practical training in law, the conduct and management
    of legal offices, trust accounts and related subjects for candidates for admission, to a standard
    sufficient to qualify them for admission to practice as lawyers under the Admission Rules as
    contained in the Lawyers Act of 1986.

    15.2 AUDIT OBSERVATIONS

    15.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 (4) of the Audit Act on the financial statements of the
    Institute for the year ended 31 December 2012 was issued on 24 May 2014. The report contained
    a Qualified Opinion.

    “BASIS FOR QUALIFIED OPINION

    Personnel Emoluments

    The Institute has not provided the Pay Schedule for Pay # 26 to enable me to perform the
    necessary examination to verify the accuracy of the payment made for the pay period. As such I
    was unable to state whether personnel emoluments have been fairly stated in the financial
    statements.

    Travel Advances & Register

    The Institute incurred K99,308 in Travel and Subsistence Expenses for the year ended 31
    December 2012. During the examination, I was not provided with the necessary documentation to
    perform the necessary audit tests. Further, I noted that Travel Advance Register was not properly
    maintained for tracking outstanding advances made to employees to ensure the acquittals are
    made on a timely basis.

    QUALIFIED OPINION

    In my opinion, except for the effects of the matters referred to in the Basis for Qualified Opinion
    paragraphs above:
    (a) The financial statements of the Institute are based on proper accounts and records; and

    Legal Training Institute

    (b) The financial statements are in agreement with those accounts and records, and show fairly the
    state of affairs of the Institute as at 31 December 2012 and the results of its financial operations
    and cash flows for the year then ended.”

    15.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Institute for the year ended 31 December 2012 was issued on 24

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  • May2014. The report contained the following observations.

    Cash at Bank Reconciliations

    The monthly bank reconciliations prepared for the General Fund and Project Bank Accounts were
    not checked and signed off by a responsible financial delegate to verify the accuracy and validity of
    the reconciled bank balances. I have recommended to Management that all reconciliations must be
    checked and approved for effective internal control purposes.

    Project Account

    I noted that the Institute maintained an account named “Project Account” with the receipt of
    K436,689 and the expenditure of K281,260 at year end. However, in my review of the Project
    Account, the purpose or nature of the account’s operations was not disclosed in the financial
    statements. Further, the Institute did not have a Governing Policy and Guidelines in place for this
    account.

    General Fund Account – General Expenditure Weaknesses

    I noted that certain payments made were based on quotations rather than invoices totalling
    K70,460. Further, I was not provided with necessary documents for payment of K10,070 to “The
    Food Station Caters Company” for my verification.

    Council Meeting Minutes

    My review of all the Council Meeting Minutes revealed that these Meeting Minutes were not
    authenticated by the Chairperson and the Secretary as true and correct recording of Minutes of
    the Institute.

    Fixed Assets Register

    In my prior year’s audit report, I reported that the Institute did not maintain a Fixed Assets
    Register. I noted that the situation still remains the same, regardless of my recommendations to
    Management to maintain a Register.
    The Fixed Assets Register serves as the main control of all assets owned by the Institute and that if
    in case of loss, theft or any disaster occurs, it would be difficult to identify the magnitude of loss.
    Further, the Institute did not conduct any stock-take of the assets in order to ascertain their
    existence and condition of the assets.

    Management Letter Response

    At the time of preparing this Report, I did not receive any responses to my Management Letter,
    dated 2 December 2013 to enable me to incorporate their comments as part of the Report.

    15.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements for the year ended 31 December
    2013 had not been submitted by the Institute for my inspection and audit.

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  • 16. MINERAL RESOURCES AUTHORITY

    16.1 INTRODUCTION

    16.1.1 Legislation

    The Mineral Resources Authority was established by the National Parliament under the Mineral
    Resources Act, 2005 on 9 November 2005. This Act came into force on January 2006 but
    commenced operations in June 2007.

    16.1.2 Objectives of the Authority

    The objectives of the Authority are to achieve stability, industry growth and a degree of assurance
    of future revenues from the mineral industry. More effective management of issues concerning
    landowners and their participation in the development process and allow for the development of a
    more settled investment climate and industry development.

    16.1.3 Functions of the Authority

    The functions of the Authority are described as follows:
    * To advise the Minister on matters relating to mining and the management, exploitation and
    development of Papua New Guinea’s mineral resources;
    * To promote the orderly exploration for the development of the country’s mineral resources;
    * To oversee the administration and enforcement of the Mining Act 1992, the Mining (Safety) Act
    (Chapter 195A), the Mining Development Act (Chapter 197), the Ok Tedi Acts and the Ok Tedi
    Agreement, the Mining (Bougainville Copper Agreement) Act (Chapter 196) and the agreements
    that are scheduled to that Act, and any other legislation relating to mining or to the management,
    exploitation or development of PNG’s mineral resources;
    * To negotiate mining development contracts under the Mining Act as agent for the State;
    * To act as agent for the State, as required, in relation to any international agreement relating to
    mining or to the management, exploitation or development of PNG’s mineral resources;
    * To receive and collect, on its own account and on behalf of the State, any fee, levy, rent, security,
    deposit, compensation, royalty, costs, penalty, or other money, or other account payable under the
    Mining Act, the Mining (Safety) Act, the Mining Development Act, the Ok Tedi Acts and the Ok Tedi
    Agreement, the Mining (Bougainville Copper Agreement) Act and the agreements that are
    scheduled to that Act, or any other Act the administration of which is the responsibility of the
    Authority from time to time;
    * On behalf of the State, to receive and collect from persons to whom a tenement has been granted
    under the Mining Act the security for compliance with the person’s obligations under the Act
    required to be lodged with the Registrar, and to hold and such security received or collected;

    * On behalf of the State, to administer and be responsible for the administration of any public
    investment program relating to mining;
    * To conduct systematic geoscientific investigations into the distribution and characteristics of
    PNG’s mineral and geological resources, located on, within or beneath the country’s land mass,
    soil, subsoil and the sea-bed;
    * To provide small scale mining and hydrogeological survey data services, and occupational health
    and safety community awareness programs;
    * To collect, analyse, store, archive, disseminate and publish (in appropriate maps and
    publications) on behalf of the State geoscientific information about PNG’s mineral and geological

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  • resources;
    * To carry out such other functions as are given to the Authority by this Act or by any other law;
    and
    * Generally to do such supplementary, incidental, or consequential acts and things as are
    necessary or convenient for the Authority to carry out its functions.

    16.2 AUDIT OBSERVATIONS

    16.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 (4) of the Audit Act on the Authority’s financial
    statements for the year ended 31 December 2010 was issued on 20 September 2013. This report
    contained a Disclaimer of Opinion.

    “BASIS FOR DISCLAIMER OF OPINION

    Opening Balances

    My report on the financial statements of the Authority for the year ended 31 December 2009 was
    disclaimed on the basis of limitation of scope due to lack of information and adequate supporting
    evidence. Consequently, I was unable to determine the accuracy of the opening financial position
    of the Authority as at 1 January 2010 because the results for the year ended 31 December 2009
    enter into the determination of the opening balances and therefore the financial performance for
    the year ended 31 December 2010. Due to the significance and fundamental nature of the matters
    referred to, I was unable to determine whether the results of the Authority for the year and the net
    assets at year end are fairly stated.

    Amounts included in the Statement of Financial Position

    Included in the Statement of Financial Position as at 31 December 2010 were the following
    amounts:
    * Cash and cash equivalents balance of K47,911,397;
    * Trade debtors balance of K225,586;
    * Other debtors and prepayments of K5,254,124;
    * Property, plant and equipment of K23,343,372;
    * Trade and other payables of K206,641;

    * Employee benefits of K609,561;
    * Security deposits of K1,417,760;
    * Deferred income of K21,511,454; and
    * Royalties held in trust of K270,895.

    I was not able to obtain sufficient appropriate audit evidence relating to the carrying amount of the
    balances based on my audit procedures performed on these balances.

    Amounts included in the Statement of Comprehensive Income

    Included in the Statement of Comprehensive Income for the year ended 31 December 2010 were
    the following:
    * Rendering of services of K27,153,321;

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  • * Finance income of K2,291,603;
    * Deferred income of K741,155; and
    * Operating expenses of K20,160,003.

    I was not able to obtain sufficient appropriate audit evidence relating to the amounts based on
    audit procedures performed. Consequently, I was unable to determine whether any adjustments to
    these amounts were necessary.

    Non-compliance with the Public (Finances) Management Act and Mineral Resource Authority Act

    The Authority has not maintained accounting records in accordance with Section 62 of the PFMA
    and Section 35(1) of the Mineral Resource Authority Act to enable me to properly and readily audit
    the financial statements of the Authority.

    In addition, the Authority did not meet the financial reporting requirements of Section 36(1) of the
    Mineral Resources Authority Act which requires the Authority to furnish to the Minister annual
    financial statements for the year ended 31 December 2010 before 31 May 2011.

    DISCLAIMER OF OPINION

    Because of the significance of the matters described in the basis for Disclaimer of Opinion, I have
    not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit
    opinion. Accordingly, I was unable to express an opinion on the financial statements of the Mineral
    Resource Authority for the year ended 31 December 2010.”

    16.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Authority for the year ended 31 December 2010 was issued on 20
    September 2013. The report contained the following observations.

    Internal Control Environment

    During the course of my audit, I identified several weaknesses in the Authority’s accounting system
    and overall internal control environment operated during the year ended 31 December 2010.
    Management information is insufficient and reconciliations are not performed for items included in
    the Statement of Financial Position and/or reconciliations between the general ledger and sub-
    ledgers which resulted in significant delays in receipt of information for the audit.

    Recording of Trade Debtors/Income

    The Authority had recorded K7,425,947 as tenement income and K1,341,364 as deferred income
    (tenement rent) for the year ended 31 December 2010. I was unable to reconcile the tenement
    rental income per the general ledger against the tenement division records. In addition, I was
    unable to verify supporting documentation for tenement rentals due to non- maintenance of
    proper documents.

    A production levy of K19,727,375 was recognised as income in the period in which it was received
    with a computation done by the respective operating/producing mines. The Authority did not have
    any structure in place to ensure there is the accuracy and completeness of the production levy of

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  • K19,727,375 computed during the year.

    The trade debtors reported in the financial statements of K225,586 remained the same amount
    from last year. The breakdown of customers summarising this balance was not made available for
    my inspection. These balances could be impaired or unallocated receipts may not have been
    applied or allocated to this balance.

    I recommended Management to integrate the tenement rental sub-ledger with the general ledger
    and monthly reconciliations should be done. Any unallocated receipts and reconciling items noted
    should be investigated and adjusted promptly.

    Board of Directors Meetings Minutes

    One of the Board Meeting Minutes was not being made available during my review. I recommended
    Management to keep proper records of all Board Meeting Minutes and make these available to
    audit at all times.

    Internal Audit Function

    There is a requirement under Section 39(5) of the Mineral Resources Authority Act to appoint an
    internal auditor and provide written reports not less quarterly to the Minister and to the
    Department Head of the Department responsible for Treasury.

    However the internal audit function has been vacant for a considerable period of time. I
    recommended Management establish the internal audit division in line with the terms of the
    Mineral Resources Authority Act.

    16.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the
    accounts and records and the examination of the financial statements of the Authority for the year
    ended 31 December 2011was in progress.

    The financial statements of the Authority for the years ended 31 December 2012 and 2013 had
    not been submitted for my inspection and audit.

    17. MOTU KOITABU COUNCIL

    17.1 INTRODUCTION

    17.1.1 Legislation

    The Motu Koitabu Interim Assembly was established under Section 12 of the National Capital
    District Government (Preparatory Arrangements) Act (Chapter 392).

    17.1.2 Functions of the Interim Assembly

    The Principal functions of the Interim Assembly were:
    * To control, manage and administer the Motu Koitabu areas and to ensure the welfare of the Motu
    Koitabu areas and of the persons therein;

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  • * To assist in the preparations for the establishment of the proposed Assembly; and
    * To make preparations for the establishment of a Motu Koitabu business arm.

    The Act was repealed by the National Capital District Commission Act 1990, which came into
    operation on 5 November 1990. The assets and liabilities of the Interim Assembly were transferred
    to the Commission by virtue of the requirements of the new Act. Subsequent to this, the National
    Capital District Commission (Amendment) Act 1992 came into effect on 30 November 1992 and
    hence the establishment of the Motu Koitabu Council.

    The Act was further amended by the National Capital District Commission (Amendment) Act 1995
    which became effective on 19 July 1995 and this facilitated the establishment of a system of Local-
    level Government for the National Capital District (NCD). The government of the NCD comprises
    the NCD Commission, the Motu Koitabu Council and the Local-level Governments in the NCD.

    The Interim Assembly had a subsidiary company, Tabudubu Limited, which operated as the
    business arm of the Interim Assembly. The shares in the Company were transferred to the
    Commission as required by the National Capital District Commission Act and are held in trust for
    the Motu Koitabuan people. Comments in relation to this subsidiary are contained in paragraph
    17A of this Report.

    With the introduction of the Motu Koita Assembly, Act a system of Local Government was
    established for the Motu Koita people of the NCD.

    17.2 STATUS OF FINANCIAL STATEMENTS

    In my last Report, I reported that the fieldwork associated with the inspection and audit of the
    accounts and records and the examination of the financial statements of the Council for the years
    ended 31 December 2003 to 31 December 2007 had been completed and the signed financial
    statements from the Council were being awaited to issue the reports. I reported further that the
    new Board and Management declined to sign the financial statements. At the time of preparing this
    Report the situation remained the same.

    Kokonas Indastri Koporesen

    My reports on the entities for the years ended 31 December 2008 to 2013 will be reported under
    “Part III” of my Annual Report to the Parliament.

    17A. TABUDUBU LIMITED (Subsidiary of Motu Koitabu Council)

    17A.1 INTRODUCTION

    17A.1.1 Legislation

    Tabudubu Limited was incorporated under the Companies Act. It is a subsidiary of the Motu
    Koitabu Council.

    Motu Koitabu Interim Assembly holds 99 percent of the shares in Tabudubu Limited. The Company
    was established under the National Capital District Government (Preparatory Arrangement) Act
    (Chapter 392). This Act was repealed by the National Capital District Commission Act.

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  • With the introduction of the National Capital District Commission Act, Motu Koitabu Interim
    Assembly was amalgamated with the Commission and the “Interim Assembly” became the Council.
    The assets, liabilities and the obligations of the Interim Assembly were absorbed by the
    Commission on the commencement date.

    The shares in Tabudubu Limited were transferred to the Commission to be held in Trust for the
    Motu Koitabu people of the NCD by virtue of Section 47(2) of the National Capital District
    Commission Act.

    17A.1.2 Functions

    The main functions of the Company as per the Memorandum of Association are to:
    * Promote the development of the Motu Koitabu people living within the NCD by the promotion of
    trade, commerce, communication and co-operation; and
    * Implement the directives of the Motu Koitabu Council and the NCD Commission.

    17A.2 STATUS OF FINANCIAL STATEMENTS

    In my last Report, I reported that the fieldwork associated with the inspection and audit of the
    accounts and records and the examination of the financial statements of the Company for the
    years ended 31 December 2003 to 2007 had been completed and the signed financial statements
    from the Company were being awaited to issue the reports. I reported further that the new Board
    and Management of the Company declined to sign the financial statements. At the time of
    preparing this Report, the situation remained the same.

    My reports on the entities for the years ended 31 December 2008 to 2013 will be reported under
    “Part III” of my Annual Report to the Parliament.

    18. NATIONAL AGRICULTURE QUARANTINE AND INSPECTION AUTHORITY

    18.1 INTRODUCTION

    18.1.1 Legislation

    The National Agriculture Quarantine and Inspection Authority (NAQIA) was established by the
    National Agriculture Quarantine and Inspection Authority Act 1997. This Act came into operation
    on 29 May 1997.

    Under this Act, all assets used for Quarantine and Inspection Services (other than land held by the
    State) and previously held by the Department of Agriculture and Livestock which were necessary to
    be transferred to the Authority for the purposes of the Authority, were transferred to and became
    the assets of the Authority at commencement.

    18.1.2 Objective of the Authority

    The main objectives of the Authority as mentioned in the Act are the conduct of quarantine and
    inspection of: any animal and species; any fish species; any plant species; any products derived
    from animals, fish and plants; and to prevent pests or diseases from entering in or going out of
    PNG.

    18.1.3 Functions of the Authority

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  • The functions of the Authority, as mentioned in the Act are to:
    * Advise the Ministry and the National Government on policy formulations and legislative changes
    pertaining to agriculture quarantine and inspection matters;
    * Monitor and inspect all imports of animals, fish and plants and their parts and products,
    including fresh, frozen and processed food to ensure that the imports are free from pests,
    diseases, weeds and any other symptoms;
    * Regulate and control all imports of animals, fish and plants and their parts and products,
    including fresh, frozen and processed food to ensure the imports are free from pests, diseases,
    weeds and any other symptoms;
    * Undertake all necessary actions to prevent arrival and spread of pests, diseases, contamination,
    weeds, and any undesirable changes pertaining to animals, fish and plants and their parts and
    products, including fresh, frozen and processed foods;
    * Monitor, inspect and control the export of animals, fish and plants and their parts and products
    to ensure that they are free from pests, diseases, weeds and any other symptoms;
    * Undertake all necessary actions to ensure that the export of animals, plants, fish and their parts
    and products are free from pests, diseases, weeds and any other symptoms so as to provide
    quality assurance to meet the import requirements of importing countries;
    * Issue permits, certificates and endorsements pertaining to imports and exports of animals, fish
    and plants and their parts and products to provide quality assurance and to ensure that they are
    free from pests, diseases, weeds and any other symptoms;

    National Agriculture Quarantine and Inspection Authority

    * Inspect and treat vessels, aircraft, vehicles, equipment and machinery that are used in importing
    and exporting animals, fish and plants to ensure that they are free from pests, diseases, weeds
    and any other symptoms;
    * Regulate the movement of animals and plants from one part of the country to another to control
    and prevent the spread of pests, diseases, weeds and any other symptoms;
    * Undertake and maintain inspection and quarantine surveillance pertaining to pests, diseases,
    weeds and any other symptoms on animals, fish and plants within and on the borders of the
    country;
    * Monitor, assess and carry out tests on animals, fish and plants and their parts and products that
    are introduced into the country, to ensure that they are free of pests, diseases, weeds and any
    other symptoms;
    * Liaise with other countries, international agencies and other organisations in developing policies,
    strategies and agreements relating to quarantine, quality and inspection matters in respect of
    animals and plants;
    * Provide quarantine and inspection information and services to individuals, agencies and other
    organisations within the country and overseas in respect of animals and plants;
    * Levy fees and charges for any of the purposes of this Act and any regulations made there under;
    * Exercise all functions and powers and perform all duties which, under any other written law, are
    or may be or become vested in the Authority or are delegated to the Authority; and
    * Do such matters and things as may be incidental to or consequential upon the exercise of its
    power or the discharge of its functions under this Act.

    18.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the
    accounts and records and examination of the financial statements of the Authority for the year

  • Page 116 of 305

  • ended 31 December 2013 had been completed and the Management Letter was issued to the
    Authority on 9 April 2014. The responses, together with the signed financial statements were
    awaited to complete and issue the audit report.

    19. NATIONAL AGRICULTURAL RESEARCH INSTITUTE

    19.1 INTRODUCTION

    19.1.1 Legislation

    The National Agricultural Research Institute (NARI) was established by the National Agricultural
    Research Institute Act 1996. This Act came into operation on 10 October 1996.

    Under this Act, all monies allocated to or standing to the credit of the research division of the
    Department of Agriculture and Livestock and all assets used for research and research related
    functions (other than land held by the State) and previously held by the Department of Agriculture
    and Livestock prior to the operationalisation of the Act were transferred to the Institute to become
    the assets at commencement.

    19.1.2 Objectives of the Institute

    The main objectives of the Institute stated in the Act are to conduct and foster research into:

    * Any branch of biological, physical and natural sciences related to agriculture;
    * Cultural and socioeconomic aspects of the agricultural sector, especially of the smallholder
    agriculturalists; and
    * Matters relating to rural development, relevant to PNG.

    19.1.3 Functions of the Institute

    The primary functions of the Institute spelt out by the Act are to:
    * Generate and adapt agricultural technologies and resource management practices appropriate to
    the needs, circumstances and goals of smallholder agriculturalists;
    * Promote and facilitate applied and adaptive research in food crops, livestock, alternative cash
    crops, and resource management;
    * Promote the use of appropriate agricultural technologies and provide essential technical services
    to improve the productivity, income, nutritional status and food security, resource base and quality
    of life of rural households and communities;
    * Develop and promote ways of improving the output, quality, harvesting, post- harvesting,
    handling and processing, and marketing of food crops, livestock produce and alternative crops;
    * Maintain and conserve the diversity of genetic resources for food and agriculture, act as
    custodian for these resources and promote the effective utilisation of these resources in the
    country;
    * Update and maintain the national inventory on soil resources and to develop, promote and
    maintain sustainable practices in agriculture;
    * Provide agricultural information services, extension service support and other such assistance
    packages to the agricultural sector and to provide liaison and access to international agencies that
    promote agricultural development;

    National Agricultural Research Institute

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  • * Perform such other functions as are given to it under this Act or any other law;
    * Formulate national agricultural research policies, define sectoral research priorities and allocate
    funds and advise the Minister and the NEC on these matters; and
    * Generally, do all such things as may be incidental or consequential upon the exercise of its
    powers and the performance of its functions.

    19.1.4 Project of the Institute

    The National Agricultural Research Institute/PNG Incentive Fund Project was funded under the PNG
    Incentive Fund with counter funding from the Institute commencing on 1 June 2012 to 5 May
    2014. Comments in relation to the Project are contained in my Special Project Audits Report to
    Parliament.

    19.2 AUDIT OBSERVATIONS

    19.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 (4) of the Audit Act on the financial statements for the
    year ended 31 December 2013 was issued on 13 June 2014. The report did not contain any
    qualification.

    19.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Institute for the year ended 31 December 2013 was issued on 13 June
    2014. The report contained the following observation.

    Non-Disclosure of Land Value

    My review of the fixed assets of the Institute revealed that the land titles already issued to the
    Institute for its establishments and research activities by the State were not valued and disclosed in
    the financial statements as at 31 December 2013. I recommended Management value its land and
    make proper disclosure in the Institute’s accounting records.

    Management concurred with my findings and expressed that valuation of land would be an
    expensive exercise. However, Management agreed in principle to take appropriate action to value
    the fourteen Land Title Leases that the Institute holds currently from a Registered Land Valuer in
    compliance with my request.

    20. NATIONAL AIDS COUNCIL SECRETARIAT

    20.1 INTRODUCTION

    20.1.1 Legislation

    The National AIDS Council Secretariat was established under the National AIDS Council Act1997.
    This Act was certified and became operational on 19 January 1998.

    20.1.2 Objectives of the Council

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  • The objectives of the Council are to take multi sectoral approaches with a view to:
    * Prevent, control and to eliminate HIV/AIDS transmission in PNG;
    * Organise measures to minimise the personal, social and economic impact of HIV/AIDS; and
    * Safeguard personal privacy, dignity and integrity in the face of the HIV/AIDS epidemic in PNG.

    20.1.3 Functions of the Council

    The functions of the Council include formulation, implementation, review and revision of national
    policy in accordance with its objects for the prevention, control and management of HIV/AIDS:
    * Make recommendations and provide guidelines on the related issues to the NEC, PGs and LLGs;
    * Foster, co-ordinate and monitor HIV/AIDS prevention, control and management strategies and
    program;
    * Accept, administer and account for the funds and other resources allocated to it;
    * Consult and co-ordinate with the appropriate state agencies and other persons and
    organisations on matters related to its activities;
    * Initiate, encourage, facilitate and monitor preparation and dissemination of information,
    counselling, care and legal services, research on or in relation to HIV/AIDS; and
    * Perform such other functions given to it under Section 5 of this Act or any other law.

    20.2 AUDIT OBSERVATIONS

    20.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the Council’s financial
    statements for the years ended 31 December 2009 and 2010 were issued on the 31 January 2014
    and 26 May 2014 respectively. These reports contained similar Basis for Disclaimer of Opinions,
    hence only the 2010 report is reproduced.

    “BASIS FOR DISCLAIMER OF OPINION

    Internal Control Environment

    I noted significant weaknesses in the National AIDS Council Secretariat’s overall internal control
    environment operated during 2010. The accounting system and internal control environment at
    the Council Secretariat continued to be severely deficient. The inefficient management control
    processes, inadequate financial reporting structure, and inexperienced and un-skilled staff had
    contributed to the undue delay in the preparation of the financial statements. Further, the Council
    was unable to substantiate most of the balances in the general ledgers, unable to provide details
    for mismatched accounting records and other financial information. As a result, I was unable to
    place any reliance on the internal controls and the effectiveness of the internal control systems for
    the year then ended.

    Opening Balance

    My last report for the year ended 31 December 2009 was a Disclaimer of Opinion due to the
    qualifications on opening balances, fixed assets, prior year adjustments and adjustments to
    opening balances. I was not able to satisfy myself as to the accuracy and completeness of the
    opening balances of the above accounts and these opening balances enter into the determination
    of the results of the operations and cash flows of the Council in 2010. Consequently, I was unable
    to determine whether, any adjustments to the results of the operations and cash flows might have

  • Page 119 of 305

  • been necessary for the year ended 31 December 2010.

    General Ledger Control Account Reconciliation

    General ledgers control account reconciliation is one of the key internal control processes to
    maintain integrity of the financial data, provided it is performed in an effective manner on a timely
    basis. I noted that expense items contained significant unreconciled variances when compared to
    the end of year balance. As such, I was unable to verify the validity, accuracy and completeness of
    year end balances disclosed in the financial statements as they were not derived from the general
    ledgers.

    Consultancy Agreement

    Administration Consultancy Fees were stated as K30,905 in the financial statements. This amount
    was paid to Payroll Service PNG. I was not provided with the Consultancy Agreement for the service
    provided to the Council. As such, I was not able to verify the validity and the correctness of the
    payment.

    Fixed Assets Register

    The Council did not maintain a proper Assets Register to record all the assets nor was a stock-
    take conducted annually to verify their existence and value. The Assets Register furnished for my
    review was incomplete and had inaccurate listing of assets without any depreciation schedule and
    proper classification of assets.

    National AIDS Council Secretariat

    Further, I noted that the Register does not incorporate the assets purchased from the Provincial
    AIDS Council Secretariat (PACS). As a result, I was unable to verify and confirm the total amounts as
    stated in the Register and the amount disclosed in the financial statements as at 31 December
    2010.

    DISCLAIMER OF OPINION

    Because of the significance of the matters referred to in the Basis for Disclaimer Opinion
    Paragraph, I have not been able to obtain sufficient appropriate evidence and accordingly, I was
    unable to express an opinion on the Council’s financial statements for the year ended 31
    December 2010.”

    20.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Council for the years ended 31 December 2009 and 2010 were issued
    on 31 January 2014 and 26 May 2014 respectively. For the purpose of this Report, only significant
    matters arising out of the 2010 report is reproduced below.

    Bank Reconciliation – Provincial Aids Council Secretariats

    The Public Investment Programs (PIP) Development Trust Funds are allocated to the Provincial AIDS
    Council Secretariat (PACS) for projects to be implemented at Provincial centers. My review on the

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  • control functions of the bank reconciliations revealed that the respective PACS did not prepare
    bank reconciliations during the year under review. I further noted that PACS’s send their acquittals
    to the Head Office in Port Moresby and only one bank reconciliation for the whole year was
    prepared and maintained.

    I recommended Management to ensure that each PACS prepares bank reconciliations on a regular
    basis and to forward reports to Head Office for the compilation and record purposes. I was advised
    by Management that in 2012 a NGO assisted the Council with a roll out kit to facilitate the
    preparation of the monthly bank reconciliations.

    Employment Contracts

    The Contracts of Employment for the Senior Officers were not made available for my inspection
    and verification. As required under Section 42 (1) of the Public Service Management Act 1995 an
    officer appointed to a senior management office shall be employed under and shall hold office
    with terms and conditions of the contract of employment with the State. The Employment Contract
    is a legally binding contract which contains terms and conditions of employment. As such, I was
    unable to determine the validity, accuracy and legality of the contract of employment.

    Tax Declaration Forms

    In my review of the personnel files, I noted that there were no records of Tax Declaration Forms to
    verify the number of dependents claimed and the validity of tax computations. The Council did not
    maintain and keep proper records of Tax Declarations Forms in its officer’s personnel files. As a
    result, I was unable to determine and verify the number of dependents claimed and ensure
    whether the tax calculations are correct.

    Travel Advance Register

    In compliance with the PFMA overseas and domestic travels are supposed to be acquitted within 14
    days and 7 days respectively. However, the Council did not maintain a Travel Advance Register to
    properly acquit travel expense made during the year. As such, I was not able to trace and confirm
    the correctness and the completeness of the advances made and whether the advances made were
    correctly and properly acquitted and accounted for during the year.

    Acquittals for PACS

    The Public Investment Programs (PIP) Development Funds were allocated to each PACS for projects.
    I noted that thirteen PACS did not submit their acquittals for the funds received on a timely
    manner. The provinces referred to are: Simbu, Western Highlands, Eastern Highlands, Manus, New
    Ireland, Oro, Central, Gulf, Western, Enga and Morobe. Without the acquittal submission, I was not
    able to verify and confirm whether the funds were used for their intended purposes.

    Reports under the Public Finances (Management) Act

    The Council failed to submit to my Office its financial statements for 2010 before 31 March 2011
    to enable me to audit and issue the report as required under Section 63(4) of the PFMA. As a
    result, the Council had breached the Act.

    20.3 STATUS OF FINANCIAL STATEMENTS

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  • At the time of preparing this Report, the Council had submitted its financial statements for the
    year ended 31 December 2011 for my inspection and audit and arrangements were being made to
    commence the audit without delay.

    The Council had not submitted its financial statements for the years ended 31 December 2012 and
    2013 for my inspection and audit despite repeated reminders.

    21. NATIONAL BROADCASTING CORPORATION

    21.1 INTRODUCTION

    21.1.1 Legislation

    The National Broadcasting Commission (NBC) was established under the Broadcasting Commission
    Act (Chapter 149). This Act was amended in 1995 by the National Broadcasting Commission
    (Change of Name and Corporate Structure) Act 1995.

    In terms of Section 4 of the Broadcasting Commission (Change of Name and Corporate Structure)
    Act No.49 of 1995 the name of the Commission was changed to Corporation.

    The Amendment Act No.49 of 1995 came into operation on 23 April 1996 as per Gazettal
    Notification No.G.32.

    21.1.2 Functions of the Corporation

    The principal functions of the Corporation are to provide balanced, objective and impartial
    broadcasting services and in so doing, to take in the interests of the community, all such measures
    as in its opinion are conducive to the full development of suitable broadcasting programs.

    The Corporation’s other functions are to:
    * Ensure that the services that it provides, when considered as a whole, reflect the drive for
    national unity and at the same time give adequate expression to the culture, characteristics,
    affairs, opinions and needs of the people of the various parts of the country and in particular of
    rural areas;
    * Do all in its power to preserve and stimulate pride in the indigenous and traditional cultural
    heritage of PNG;
    * Take extreme care in broadcasting material that could inflame racial or sectional feelings; and
    * Co-operate with the Government in broadcasting social, political, economic and educational
    programs.

    21.2 AUDIT OBSERVATIONS

    21.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 (4) of the Audit Act, on the Corporation’s financial
    statements for the year ended 31 December 2012 was issued on 25 April 2014. The report
    contained a Disclaimer of Opinion.

    “BASIS FOR DISCLAIMER OF OPINION

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  • Limitation of Scope due to Disclaimer of Opinion on the previous year’s Financial Statements

    The previous year’s audit report was issued with a disclaimer of opinion. The reason for the
    disclaimer was the limitation of scope arising from an inability to obtain accounting records and
    proper explanations for the differences that were recorded between the 2011 general ledger
    balances and the 2011 financial statements.

    A similar qualification had been made in the 2010 Audit Report. Consequently, I was unable to
    quantify the effects of any material misstatements in the opening balances that might have a
    consequential effect on the financial statements of the Corporation for the year ended 31
    December 2011. Therefore, there was considerable uncertainty as to the accuracy of the 2012
    opening balances. Due to the lack of records and inadequate reconciliations, I was unable to
    perform sufficient audit procedures to satisfy myself as to the completeness and accuracy of the
    opening balances or the comparatives presented in the financial statements.

    Internal Control Environment

    I have identified significant weaknesses in the Corporation’s overall internal control environment in
    operation during the year under audit.

    The use of the Attaché Accounting System and the overall internal control environment at the NBC
    continued to be grossly defective. The combination of an inefficient management information
    system, inexperienced and/or incompetent staff as well as an inadequate financial reporting
    structure had contributed to the undue delay in the preparation of the financial statements. The
    reports that were produced by the system were inaccurate and Management was unable to
    substantiate most of the balances included in the general ledger. This effectively meant that I
    could not place reasonable reliance on the accounting system to ensure the completeness and
    accuracy of the books of the accounts maintained.

    General Ledger

    As noted during the audit, the General Ledger and Trial Balance can only be agreed through
    extensive use of adjusting and non-supported journal entries posted over a significant period of
    time after year end. The Corporation’s chart of accounts still had multiples of so many similar
    accounts where only one could have been used to record the same transactions. This resulted in
    inconsistent posting of transactions to their accounts. The Corporation’s general ledger system is
    completely unreliable as it contains posting errors, omissions and unsupported transactions. The
    cashbooks do not contain vital information such as transaction details, general ledger codes and
    payment particulars.

    Many of the financial transactions of the Corporation have been posted to the general ledger by
    using standing and adjustment journals as the primary financial records were not used to record
    entries at the individual transaction level.

    The majority of these journal entries were not authorised properly, narrated or supported by
    adequate summary documentation. I have been unable to obtain reasonable assurance as to
    whether all the transactions recorded in the general ledger are accurate, complete or correct.

    Due to these factors, I was unable to place reliance on the accounts and records submitted for

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  • audit verification to establish whether the NBC fully complied with the statutory requirements for
    maintaining proper accounts and records.

    Limitation of Scope Arising from Lack of information/records on Fixed Assets

    The net carrying value of the Corporation’s fixed assets was K38,375,554 as at 31 December
    2012. This represents 91% of the total assets of the Corporation. During my review, I was neither
    able to establish nor confirm the ownership of the revalued land and buildings with a total un-
    depreciated value of K92,209,208. Further, the evidence of ownership of various fixed assets and
    details of their effective lives were not made available for my examination and verification. Also, no
    proper fixed assets register was maintained and the Corporation did not undertake a physical
    stock-take of its fixed assets during the year under review. In addition, I could not confirm the
    depreciation amount for the year totalling K2,371,818 as correct because of non-maintenance of
    the fixed assets register and depreciation schedule. As a result, I was unable to verify the physical
    existence, ownership, usefulness and valuation including the adequacy or otherwise of the
    provision for depreciation of fixed assets.

    Scope Limitation – Accounts Receivable and Other Debtors

    The financial statements disclosed Trade Debtors as K2,565,943 at year end. In the absence of
    sufficient documentary evidence of the trade debtors, I was unable to verify the accuracy,
    completeness and validity of the account balance at the year end.

    Cash and Cash Equivalents

    The cash and cash equivalents were disclosed as K1,044,504 at 31 December 2012. The bank
    reconciliations were incorrectly completed for most of the bank accounts operated by the NBC.
    Further, the Corporation disclosed an overdraft bank balance of K2,581,438 as a current liability
    in the financial statements. However, I noted that the Corporation did not have an overdraft
    facility with any banking institutions. In the absence of proper reconciliations of the bank accounts
    and overdraft facilities, I was unable to confirm the completeness, accuracy and existence of the
    bank and petty cash balance and the bank overdraft balances disclosed in the financial statements
    at the year end.

    Scope Limitation – Trade Creditors and Accruals

    The Corporation disclosed Trade Creditors balance as K10,094,797 and accruals balance of
    K731,612 respectively in the financial statements at year end. The Corporation did not provide
    any reconciliations or appropriate documentary evidence to support the amount. As a result, I was
    unable to confirm the accuracy, completeness and existence of Trade Creditors and Accruals at the
    balance date.

    Furthermore, I was unable to perform the cut-off procedures test of sundry creditors to ascertain
    whether all credit transactions were recorded in the correct accounting period or that the accruals
    were fairly recorded and that the method of accounting for accruals was consistently applied. As a
    result, I was unable to confirm whether the account balances were fairly stated at the year end.

    Scope Limitation – Deferred Income – Donations

    The Corporation disclosed K3,241,986 as deferred income for donations at the commencement of

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  • the year, however, the amount lacked appropriate supporting documentation. The entire opening
    balance was amortised in the year and an amount of K3,241,986 was transferred to Grant Income
    which I could not verify due to the lack of supporting documentation.

    As a result, I was unable to confirm the validity, completeness and accuracy of the deferred income
    and the amortised amounts as stated in the financial statements.

    Scope Limitation – Profit and Loss Account

    The Corporation reported total revenue as K44,987,239, expenditure as K33,730,017 and
    recorded a net profit of K11,257,222 for the year ended 31 December 2012. I was not provided
    with appropriate supporting documentary evidence in respect of the sources of revenue and
    expenditure accounts for the period under review to substantiate the subsidiary account balances.
    Because of the limitation in documentary evidence, I was unable to verify the accuracy,
    completeness and validity of the account balances at the year end.

    Cashflow Statements

    According to International Accounting Standard (IAS) 7, the Corporation should prepare a “Cash
    Flow Statement” in accordance with the requirements of that standard and should present it as an
    integral part of its financial statements. However, the cash flow statements prepared by the
    Corporation do not meet the requirements for presentation as required by IAS 7.

    Financial Statements do not comply with International Accounting Standards

    The financial statements do not comply with IAS “Presentation of Financial Statements” as there is
    no proper statement of changes in equity to comply with International Financial Reporting
    Standards (IFRS).

    DISCLAIMER OF OPINION

    In my opinion, because of the limitation of the scope of my work and other matters referred to in
    the Basis for Disclaimer Opinion paragraphs, and the effects of such adjustments, if any, as might
    have been determined to be necessary had the limitations and other matters not existed, I was
    unable to and do not express an opinion on the financial statements of the National Broadcasting
    Corporation for the year ended 31 December 2012.”

    21.2.2 Audit Observations Reported to the Minister

    My report to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Corporation for the year ended 31 December 2012 was issued on 25
    April 2014. The report contained the following observations.

    Documentation and Control

    In general, there was a serious lack of supporting documentation in respect of revenue,
    expenditure, assets and liability balances in relation to the audit for the year ended 31 December
    2012. In addition to the lack of supporting documentation, there was also a complete lack of
    effective internal controls over income, expenditure, assets and liabilities.

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  • Because of the unreliable nature of the general ledger, absence of certain reconciliations and
    underlying records not being made available, I could not ascertain the extent of the inaccuracies in
    the financial data and the effect that this may have had on the financial position and results of
    operations of the Corporation for the year ended 31 December 2012.

    I have recommended Management take immediate steps to introduce a manageable document
    filing system so that documents can be easily retrieved or located when the need arises and act to
    ensure that set procedures and processes are being adhered to when executing transactions and
    that the natures of those transactions are consistent with the operations of the Corporation.
    Management responded as follows:“NBC management takes note of the recommendation. Before
    the appointment of previous management, NBC use to have very effective process and procedures
    in place and the process and procedures were not being effectively and efficiently adhered by the
    previous management. And the new management is trying its best to make sure proper process
    and procedures are followed in terms of, recruiting qualified staff, procuring goods and services,
    training and development in relation to new systems introduced such Attaché, HR system, etc. The
    management is targeting that at the end of 2013 there should be some order in the organisation
    regarding the observance of process and procedures of this organisation that once enjoyed.”

    Failure to Perform Revaluation of Fixed Assets since 2003 – Land and Buildings Materially
    Understated

    The Corporation has failed to revalue the land and buildings it owns since 2003. It is normally
    expected that when assets of this nature represent such a significant proportion of an entity’s
    balance sheet that revaluations are performed on an ongoing basis and at a minimum, every three
    years. I have recommended to Management that the Corporation immediately arrange for a
    professional and independent valuation of all the land and buildings currently held. Management
    responded as follows:“NBC progressive stock take has started since 2013 and would have a
    valuation by 2014 of all land and buildings.”

    Fixed Assets Register

    The Corporation does not have a Fixed Assets Register. Additions of assets by the Corporation are
    being updated in the general ledger on an ad-hoc basis which is leading to inaccurate balances
    being reported in the financial reports. Accounting for disposals, obsolescence or lost assets does
    not appear to be taking place at all.
    I have recommended Management take immediate action to establish a Fixed Assets Register in
    conjunction with the stock-take exercise to account for the additions and disposals and values of
    all assets to date. Management responded as follows: In 2012 audit, progress has been made
    getting Fixed Asset Register on. Asset officer has started coordinating with all Provincial and NHC
    HQ directives to provide assets listing and will follow with physical inspections.”

    Depreciation

    Because there is no Fixed Asset Register and poor records, depreciation calculated on Fixed Assets
    is being derived from the apparent year-end total balances. Ignoring the issue that depreciation is
    being calculated on some assets the Corporation no longer holds, the fact that it is calculated on
    the year-end balance means that there is no partial depreciation for assets acquired at different
    stages during the year. The charge is not being pro-rated. Additionally, due to the process of
    calculating depreciation manually in Excel, there is the potential for errors. Indeed when I reviewed
    the depreciation charges over different classes of assets, I noted that the actual rates charged

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  • differ from those disclosed in the financial statements.

    Lack of Insurance Cover

    As at 31 December 2012 the fixed assets of the Corporation (book value K38,375,554) were not
    insured. Potential losses due to fire, theft and other destructive occurrences remain un- mitigated
    and expose the Corporation to significant financial as well as legal risk. I have informed
    Management of the importance of insurance cover and was advised what action Management plans
    to take in this regard to protect its assets. Management responded as follows:“The NBC
    Management is considering the audit recommendation as it will depend on the availability of
    funds. The NBC Management will also check with the National Government if there were some
    remedial action plan to protect state properties by the GoPNG.”

    NBC Board/Minutes

    The term of office for the Board of NBC expired in 2011 and there was no Board in place during the
    year under audit. Management should liaise with appropriate authorities to ensure a proper Board
    is in place.

    Computer System

    Central to the problems experienced within the Finance Division and experiences gone through
    during the audit was the inadequate financial information provided to Management by the Attaché
    Accounting System. This was a result of a number of significant factors. From the information
    available to me, I noted that there was lack of training of the staff involved in processing entries.

    Additionally, the chart of accounts appears overly detailed such that individual codes exist for
    many variations of the same type of transactions. This has resulted in inconsistency of posting
    from period to period and day by day making meaningful comparison and therefore monitoring
    difficult.
    There are suggestions that the original linkages set up when the new accounting package was
    introduced have added to the problems and unreliability of output. Notwithstanding this, it has
    become apparent that there has been a significant breakdown in the controls over processing of
    information and transactions in the system.

    Internal Audit Report

    An independent Internal Audit function within the Corporation did not exist during the year under
    review. Consequently, no internal audit reports were available for my audit inspection. Internal
    audit function is an aid to Management. Therefore, Management should establish an Internal Audit
    Unit as a matter of priority.

    Prior Year’s Fraud and Investigation Report

    It was disclosed that there had been significant level of frauds within the Corporation during the
    years prior to my audit. The frauds were being investigated by an independent outside Accounting
    Firm. I was eventually provided with a copy of the report and its findings but was unable to use the
    report to ascertain what quantifiable effects, if any, the frauds may have had on the 2012 balances
    I was auditing.

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  • 21.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Corporation for the year ended
    31 December 2013 had not been submitted for my inspection and audit.

    22. NATIONAL CAPITAL DISTRICT COMMISSION

    22.1 INTRODUCTION

    22.1.1 Legislation

    The National Capital District Government (Preparatory Arrangements) Act 1982 established the
    National Capital District Interim Commission. The purpose of this Act was to establish an interim
    government for the NCD and make preparatory arrangements for the establishment of a
    government for the NCD as required by Section 4(4) of the National Constitution. The National
    Capital District Government (Preparatory Arrangements) (Amendment) Act 1986 came into
    operation in 1987.

    The National Capital District Commission Act 1990, which became operational on 5 November
    1990, established the NCD Commission. The introduction of this Act resulted in the amalgamation
    of Motu Koitabu Interim Assembly with the NCD Commission. Consequently, the assets, liabilities
    and the obligations of the Interim Assembly were absorbed by the Commission on the
    commencement date.

    Amendments through the National Capital District Commission (Amendment) Act 1992 which
    came into effect on 30 November 1992 resulted in the establishment of the Motu Koitabu Council.

    That was followed by the establishment of the system of government for the NCD through the
    National Capital District Commission (Amendment) Act 1995 which came into operation on 19 July
    1995. The NCD comprises the NCD Commission, the Motu Koitabu Council and Local-level
    Governments in the NCD.

    22.1.2 Functions of the Commission

    The functions of the NCD Commission are to:
    * Control, manage and administer the NCD to ensure its welfare and that of the persons in its
    jurisdiction; and
    * Ensure that an adequate level of assistance is given towards the successful operation of
    Tabudubu Limited – the Company established by the Motu Koitabu Interim Assembly for the Motu
    Koitabu people of the NCD.

    22.1.3 Subsidiaries of the Commission

    The subsidiaries of National Capital District Commission are National Capital District Botanical
    Enterprises Limited and Port Moresby City Development Enterprises Limited. Comments in relation
    to these subsidiaries are contained in paragraphs 22A and 22B of this Report.

    National Capital District Commission

    22.1.4 Projects of the Commission

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  • The National Capital District Commission implements National Capital District Urban Youth
    Employment Project. Comments in relation to this Project are contained in the Special Project
    Audits Report to Parliament.

    22.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the inspection and audit of the accounts and records and the
    examination of the financial statements of the Commission for the year ended 31 December 2010
    was completed, however, the report was not issued due to some outstanding issues that are yet to
    be cleared.

    The inspection and audit of the accounts and records and the examination of the financial
    statements of the Commission for the year ended 31 December 2011 was in progress.

    The financial statements for the year ended 31 December 2012 have been submitted for my
    inspection and audit, and arrangements were being made to commence the fieldwork shortly. The
    Commission had not submitted its financial statements for the year ended 31 December 2013 for
    my inspection and audit.

    22A. NATIONAL CAPITAL DISTRICT BOTANICAL ENTERPRISES
    LIMITED (Subsidiary of NCDC)

    22A.1 INTRODUCTION

    The NCD Botanical Enterprises Limited was incorporated under the Companies Act 1997 on 17
    January 2000. Port Moresby City Development Enterprises Limited, a 100% owned subsidiary of the
    NCD Commission, holds 94% of the shares and the NCD Commission holds the remaining 6%
    shares directly or indirectly through trust.

    The main objective of the Company is to take control over the operations of the Botanical Gardens.

    22A.1.1 Functions of the Company

    The Company’s activities include the sale of flowers and conducting research relating to orchids
    and horticulture.

    22A.2 AUDIT OBSERVATIONS

    22A.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the financial statements for the
    years ended 31 December 2003, 2004, 2005 and 2006 were issued on 20 May 2014. The reports
    contained similar Disclaimer Audit Opinions, hence, only the 2006 report is reproduced as follows:

    “BASIS FOR DISCLAIMER OF OPINION

    Limitation of Scope regarding Opening Balances

    Due to the disclaimer of opinion in respect of the prior year ended 31 December 2005, I was not
    able to satisfy myself as to the resolution of the issues which formed the basis for the disclaimer

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  • on the opening balances. Since these opening balances enter into the determination of the results
    of operations, financial position and cash flows of the entity for the year audited, I was unable to
    determine whether adjustments to the results of the operations, financial position and cash flows
    might be necessary for the year ended 31 December 2006.

    Limitation of Scope regarding Accounting Records

    I did not receive the accounting records and other necessary information from Management of the
    Company for the year ended 31 December 2006. I was therefore unable to perform the necessary
    and appropriate audit procedures.

    National Capital District Botanical Enterprises Limited

    Going Concern

    The Company has been making losses in the past and is in a net liability position as at year end.
    The continuity of the entity as a going concern depends on the grants received from the NCD
    Commission, however, the entity has not received any written commitment from the Commission
    that grants will continue to be given for the foreseeable future. Accordingly, there is significant
    uncertainty about the ability of the Company to continue as a going concern should the
    Commission discontinue these grants. No disclosures are made in the financial statements in
    relation to this uncertainty.

    DISCLAIMER OF OPINION

    In my opinion, because of the limitation of the scope of my work and other matters referred to in
    the Basis for Disclaimer Opinion paragraphs above, and the effects of such adjustments, if any, as
    might have been determined to be necessary had the limitations and other matters not existed, I
    was unable to and do not express an opinion on the financial statements of the NCD Botanical
    Enterprises Limited for the year ended 31 December 2006.”

    22A.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the
    accounts and records of the Company for the year ended 31 December 2007 was completed,
    however, the signed financial statements were not submitted to enable me to issue the report.

    The financial statements for the years ended 31 December 2008, 2009, 2010, 2011, 2012 and
    2013 had not been submitted for my inspection and audit despite numerous reminders.

    22B. PORT MORESBY CITY DEVELOPMENT ENTERPRISES
    LIMITED (Subsidiary of NCDC)

    22B.1 INTRODUCTION

    The NCD Commission acquired 100% shares of Vatar No.16 Pty Limited in 1994 with the intention
    to utilise the land called ‘Duran Farm’ for the construction of houses for its staff on the Home
    Ownership Scheme. The Company changed its name in November 1996 to Port Moresby City
    Development Enterprises Limited. This Company is a fully owned subsidiary of the NCD
    Commission.

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  • 22B.1.1 Functions of the Company

    The Company’s activities include business promotions in the NCD and the management of the
    Taurama Leisure Centre’s gymnasium.

    22B.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the
    accounts and records and the examination of the financial statements of the Company for the
    years ended 31 December 2006 and 2007 had been completed but the signed financial statements
    were not submitted by the Company to issue the reports, despite numerous requests.

    The Company had not submitted its financial statements for the years ended 31 December 2008 to
    2013 for my inspection and audit despite numerous reminders.

    23. NATIONAL CULTURAL COMMISSION

    23.1 INTRODUCTION

    23.1.1 Legislation

    The National Cultural Commission was established under the National Cultural Commission Act
    1994. This Act came into operation on 15 November 1994 there by repealing the National Cultural
    Committee (Interim Arrangements) Act 1993.

    Under the Act, all assets held by and obligations and liabilities imposed on the former National
    Cultural Committee immediately before the operationalisation of the Act were on that date
    transferred to the Commission.

    23.1.2 Functions of the Commission

    The main functions of the Commission are to:
    * Perform the cultural functions of the former National Cultural Committee and in this connection,
    to assist and facilitate, preserve, protect, develop and promote the traditional cultures of the
    indigenous people of PNG;
    * Encourage the development, promotion and protection of the contemporary cultures of PNG;
    * Facilitate the marketing of selected and approved aspects of the cultures of PNG;
    * Co-ordinate with related Government and non-Government agencies on cultural matters;
    * Co-ordinate cultural activities with provincial cultural bodies;
    * Liaise with non-Government organisations on cultural matters; and
    * Liaise with international cultural organisations.

    23.2 AUDIT OBSERVATIONS

    23.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the financial statements of the
    Commission for the years ended 31 December 2010 and 2011 were both issued on 19 November
    2013. The reports contained similar Qualified Opinions, hence only the 2011 report is
    reproduced.

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  • “BASIS FOR QUALIFIED OPINION

    Cash at Bank – K196,198

    The Commission disclosed its bank balance as K196,198 at 31 December 2011. During my
    examination, I noted that the bank reconciliations were not properly prepared by the Commission
    and they contained material errors. I also noted a difference of K57,173 between the financial
    statement balance of K196,198 and the bank reconciliation statement balance of K139,025.

    National Cultural Commission

    The Commission did not produce the bank reconciliation statements for the National Film Institute,
    National Performing Arts Troupe and Institute of PNG Studies operated under the control of the
    Commission. Further, I was not provided independent bank confirmations for all bank accounts
    maintained by the Commission. As a result, I was unable to place any reliance on the controls
    surrounding the bank reconciliation process and the balance disclosed at the year end.

    Fixed Assets – K2,376,020

    I was not able to verify the ownership of land and building, motor vehicles, artifacts and equipment
    held by the Commission in Goroka and in Port Moresby. The available documentation was
    inadequate to enable me to perform the necessary audit procedures and satisfy myself that the
    Commission holds appropriate titles to its recorded land and buildings. As a result, I was unable to
    satisfy myself as to the ownership, existence and valuation of fixed assets as reported in the
    financial statements.

    Grants Transfers – K1,041,644

    The Commission received total grants of K4,432,199 during the year. Of the total grants, the
    Commission transferred K1,041,644 to the National Film Institute, National Performing Arts
    Troupe and the Institute of PNG Studies during the year.

    However, the three centres did not provide periodical acquittals on their operations to the Head
    Office. As a result, I was unable to verify the grants transferred to the above centres for the year
    ended 31 December 2011.

    QUALIFIED OPINION

    In my opinion, except for the effects of the matters referred to in the Basis for Qualified Opinion
    paragraphs above:
    (a) The financial statements of the Commission are based on proper accounts and records; and
    (b) The financial statements are in agreement with those accounts and records, and show fairly the
    state of affairs of the Commission as at 31 December 2011 and the results of its financial
    operations for the year then ended.

    23.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records for the years ended 31 December 2010 and 2011 were both issued on 19

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  • November 2013. The reports contained similar observations, hence only the 2011 report is
    reproduced.

    Non-Compliance with the Public Finances (Management) Act

    The Commission did not submit its financial statements for the year ended 31 December 2011 on
    time to enable me to conduct the audit and issue and report within the time frame stipulated
    under the PFMA.

    National Cultural Commission

    Travel Advances Acquittal Register

    The Commission did not maintain a travel advances register for travel advances totalling K530,654
    at the year end. Consequently, the Commission breached the PFMA and the Financial Manual Part
    20 paragraphs 11.2 and 12.10 which stated that cash advanced to officers on official duty travels
    must be acquitted within the time limit specified in the Act.

    Accounting System

    The Commission since its inception has been recording and maintaining its financial information
    on a manual cashbook and spreadsheet. Receipts and payments were recorded manually using
    large register books and spreadsheets. I recommended Management source a computerised
    accounting package to maintain its financial transactions to suit its needs.

    23.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Commission for the years
    ended 31 December 2012 and 2013 had not been submitted for my inspection and audit despite
    my repeated requests to the Commission.

    24. NATIONAL ECONOMIC AND FISCAL COMMISSION

    24.1 INTRODUCTION

    24.1.1 Legislation

    The National Economic and Fiscal Commission was established in April 1996 under the National
    Economic and Fiscal Commission Act 1996 and Section 117 of the Organic Law on Provincial and
    Local-level Governments.

    24.1.2 Functions of the Commission

    The main functions of the Commission are to:
    * Provide assessment and views on national macro and micro economic issues and their relevance
    on the overall development of rural and urban communities;
    * Consider and co-ordinate requests by Provincial Governments and Local-level Governments for
    foreign grants, loans and other financial assistance for development purposes;
    * Ensure that Provincial Governments and Local-level Governments obtain a fair share of the
    national wealth and make recommendations to the NEC on the allocation of grants to Provincial

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  • Governments and Local-level Governments;
    * Recommend suitable economic development strategies and sound fiscal management policies to
    the Minister responsible for financial matters;
    * Carry out cost and benefit analysis on the development of all natural resources and the impact of
    such development on national development and make such analysis available to the NEC;
    * Review public accounting and related practices;
    * Make yearly reports and recommendations to the NEC through the Minister responsible for
    financial matters;
    * Assist the Provincial and Local-level Service Monitoring Authority with assessments and views on
    the planning and implementation systems of the Provincial Governments and Local-level
    Governments;
    * Establish and maintain a gradation system for the purpose of classifying provinces and districts
    according to the stages of development of each;
    * Assist the Provincial and Local-level Service Monitoring Authority in carrying out its other
    functions; and
    * Provide advice to the Minister responsible for Provincial Government and Local-level Government
    (now Inter Government Relations) matters as and when required.

    24.2 AUDIT OBSERVATIONS

    24.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the Commission’s financial
    statements for the years ended 31 December 2007 to 2010 and 31 December 2011 to
    2013 were issued on 25 November 2013 and 13 May 2014 respectively. The reports contained
    similar Basis for Qualified Opinions, hence only the 2013 report is reproduced as follows:

    National Economic and Fiscal Commission

    “BASIS FOR QUALIFIED OPINION

    Salaries and Allowances

    Salaries and allowances were stated as K978,636 at 31 December 2013 in the financial statements.
    The supporting documentation in relation to payroll records was not provided for my review and
    verification. In the absence of these documentation, I was unable to confirm and verify the
    accuracy and the measurement of the account balance of K978,636 stated at the year end.

    QUALIFIED OPINION

    In my opinion, except for the effects of the matter referred to in the Basis for Qualified Opinion
    paragraph above:
    a) The financial statements are based on proper accounts and records; and
    b) The financial statements are in agreement with those accounts and records, and show fairly the
    state of affairs of the Commission for the year ended 31 December 2013 and the results of its
    financial operations for the year then ended.”

    24.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the

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  • accounts and records of the Commission for the years ended 31 December 2007 to 2010 and 31
    December 2011 to 2013 were issued on 25 November 2013 and 13 May 2014 respectively. The
    reports contained similar comments; hence only the 2013 report is reproduced as follows.

    Meeting Minutes

    The Commission, under Section 9(1) of the National Economic and Fiscal Commission Act is
    expected to meet at least three times in each year and to keep minutes of its meetings and copies
    sent to the Minister. I noted that there were no Board meetings held as required by the enabling
    Act. I requested Management explain why no meetings were held during the year under review and
    they responded as follows: “The Board was dissolved but is in the process of re-establishing it.
    The new Board will include three members including the CEO- Chairman. This is anticipated to be
    more practical. The AG’s recommendations are acknowledged and will be adhered.”

    Fixed Assets Register

    In Note 5 to the financial statements, Capital Expenditure of the Commission was stated as
    K353,018 at 31 December 2013. My review of the Fixed Assets Register revealed that the
    Commission did not maintain a proper Fixed Assets Register of all the assets under its control.
    The Register provided for my review was incomplete and did not contain sufficient information to
    enable me to determine the value of individual assets. The Register did not capture the assets
    purchased in prior years and during the year to give a true and fair value of the total assets. In
    addition, there was no year-end stock-take of these assets.

    National Economic and Fiscal Commission

    As a result, I was unable to determine the fair value, condition and location of the fixed assets held
    under the custody of the Commission as at 31 December 2013.

    I recommended that Management take a complete stock-take of all its fixed assets and update the
    Fixed Assets Register to reflect the accurate information and they responded as follows: “We
    acknowledged the issue raised and have appointed the Implementation and Monitoring Officer and
    the Finance Clerk to address the matter.”

    Personnel Files

    My examination revealed that personnel files were not properly maintained and records, such as
    salaries and allowances variation advices, tax declaration forms, salary history cards and
    appointment letters, were either missing or not updated and maintained on a regular basis.
    Consequently, I was not able to determine and verify the correctness of the total wages of K74,664
    paid during the year.

    I recommended Management update all staff personnel files on a regular basis for ease of
    reference and Management responded as follows: “We acknowledged the issue raised and will
    engage an experience HR Clerk/Personnel Officer as a corrective measure.”

    Travel and Subsistence

    In accordance with the General Order 13.104 (e), all travel allowances by officers on duty travel
    must be properly acquitted. However, I noted that a total of K510,373 was not acquitted upon their

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  • return by the officers of the Commission. I advised Management that duty travels must be
    acquitted within seven days of return from duty trips for domestic travels and within fourteen days
    for overseas travels. Management responded to my observation as follows: “That some officers
    have not properly acquitted advances despite an ongoing follow ups by the Administration Team.
    In addition, most acquittals were misplaced or lost during the transition from the Department of
    National Planning to National Economic and Fiscal Commission.”

    25. NATIONAL FISHERIES AUTHORITY

    25.1 INTRODUCTION

    25.1.1 Legislation

    The National Fisheries Authority was established under the Fisheries Management Act 1998. This
    Act came into operation on 11 February 1999 and replaced the Fisheries Act 1994. Under this Act,
    all assets including monies held in trust accounts which were held or occupied by the National
    Fisheries Authority established under the Fisheries Act were transferred to and became assets of
    the Authority.

    25.1.2 Functions and Powers of the Authority

    The primary functions and powers of the Authority are described as follows:
    * The Authority shall:
    ? Manage the fisheries within the fisheries waters in accordance with this Act, taking into account
    the international obligations of PNG in relation to tuna and other highly migratory fish stocks;
    ? Make recommendations to the Board on the granting of licences and implement any licensing
    scheme in accordance with this Act;
    ? Liaise with other agencies and persons, including regional and international organisations and
    consultants, whether local or foreign, on matters concerning fisheries;
    ? Operate research facilities aimed at the assessment of fish stocks and their commercial potential
    for marketing;
    ? Subject to the Pure Foods Act, the Commerce (Trade Descriptions) Act, the Customs Act, the
    Customs Tariff Act and the Exports (Control and Valuation) Act control and regulate the storing,
    processing and export of fish and fish products;
    ? Appraise, develop, implement and manage projects, including trial fishing projects;
    ? Prepare and implement appropriate public investment programmes;
    ? Collect data relevant to aquatic resources;
    ? Act on behalf of the government in relation to any domestic or international agreement relating
    to fishing or related activities or other related matters to which the Independent State of PNG is or
    may become a party;
    ? Make recommendations on policy regarding fishing and related activities;
    ? Establish any procedures necessary for the implementation of this Act, including tender
    procedures; and
    ? Implement any monitoring, control, and surveillance scheme, including co- operation,
    agreements or arrangements with other States or relevant international, regional or sub-regional
    organisations, in accordance with this Act.

    National Fisheries Authority

    * The Authority has, in addition to the powers otherwise conferred on it by this Act and any other

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  • law, full powers to do all things that are necessary or convenient to be done for or in connection
    with the performance of its functions and the achievement of its objectives.

    25.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the inspection and audit of the accounts and records and the
    examination of the financial statements of the Authority for the year ended 31 December 2012 was
    substantially completed and the results were being evaluated.

    The Authority had not submitted its financial statements for the year ended 31 December 2013 for
    my inspection and audit.

    26. NATIONAL GAMING CONTROL BOARD

    26.1 INTRODUCTION

    26.1.1 Legislation

    The National Gaming Control Board was established in September 1993 by the enactment of the
    Gaming Machine Act 1993.

    26.1.2 Functions of the Board

    The principal functions of the Board are to consider applications for and where appropriate grant
    permits and licences under this Act and to control the operations of gaming machines as specified
    in this Act and any other law.

    26.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Board had submitted the financial statements for the year
    ended 31 December 2013 for my inspection and audit and arrangements were being made to
    commence the fieldwork shortly.

    27. NATIONAL HOUSING CORPORATION

    27.1 INTRODUCTION

    27.1.1 Legislation

    The National Housing Commission Act (Chapter 79) was repealed by the National Housing
    Corporation Act 1990. The assets and liabilities of the former National Housing Commission were
    transferred to the National Housing Corporation in March 1990.

    27.1.2 Functions of the Corporation

    The principal functions of the Corporation are to:
    * Improve housing conditions;
    * Provide adequate and suitable housing or letting to eligible persons;
    * Sell houses to eligible persons;
    * Make advances to eligible persons and approved applicants to enable them to become the
    owners of houses occupied by them;

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  • * Develop residential land by way of providing adequate services for human settlements;
    * Carry out and promote research or investigations into matters connected with urban
    development and human settlements; and
    * Maintain dwellings and associated buildings vested in the Corporation.

    27.1.3 Subsidiary of the Corporation

    The National Housing Corporation has a subsidiary Company, National Housing Estate Limited. The
    Company was incorporated under the Companies Act on 28 September 2007. The principal
    purpose of the Company is to provide Real Estate Services. From information available, the
    Company commenced its normal operations as of 1 January 2010.

    However, the Company had not submitted its financial statements for the years ended 31
    December 2010, 2011, 2012 & 2013 for my inspection and audit despite numerous reminders
    from my Office.

    27.2 AUDIT OBSERVATIONS

    27.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the financial statements of the
    Corporation for the years ended 31 December 2008, 2009 and 2010 were issued on 31 March
    2014. The reports contained similar Disclaimer of Opinions, hence only the 2010 report is
    reproduced.

    “BASIS FOR DISCLAIMER OF OPINION

    Opening Balances

    My reports for the prior years (31 December 2007, 2008 and 2009) were a disclaimer of opinion. I
    was unable to satisfy myself as to the accuracy and completeness of the opening balances of fixed
    assets, accruals, provisions and other liabilities, cash and cash equivalents, advance from the PNG
    Government and government equity.

    Since these opening balances entered into the determination of the results of operations and cash
    flows of the Corporation in 2010, I was unable to determine whether adjustments to the results of
    operations and cash flows might have been necessary for the year ended 31 December 2010.

    Fixed Assets

    The carrying value of all fixed assets as at 31 December 2010 was K13,043,737 as reported in the
    financial reports. There was no physical stock-take performed at the end of the year neither was
    there any form of communication of the existence of fixed assets by the Corporation.
    No Fixed Assets Register was provided for my verification. Consequently, I was unable to verify the
    existence, valuation and completeness of all the fixed assets reported in the financial reports.

    Trade Payables and Other Liabilities

    The total Current Liabilities balance as at 31 December 2010 was K11,010,930 as stated in the
    financial reports. This balance consisted of Trade Payables of (K303,235), Audit Fee Provisions of

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  • K132,000, Accrued Expenses of K210,913 GST Refund of (K507,318), Group Tax Provisions of
    K8,896,120 and Employee Benefit Payables of K2,670,450.

    However, acceptable records were not maintained to enable me to verify the completeness,
    existence and accuracy of the balances as disclosed in the financial statements. As a result, I was
    unable to determine the accuracy and completeness of all the balances of the current liability
    accounts at year end.

    Advance from PNG Government

    The financial statements disclosed an Advance from PNG Government as K7,779,200 as at 31
    December 2010. However, acceptable records were not maintained to enable me to verify the
    completeness, existence and accuracy of the balance as disclosed in the financial statements. As a
    result, I was not able to determine the accuracy and completeness of the balance of the Advance
    from PNG Government at year end.

    National Housing Corporation

    Government Equity

    The financial statements disclosed Government Equity as K27,668,800 as at 31 December 2010.
    However, I was unable to obtain direct confirmation from the Department of Finance that this
    amount relates to equity contributions rather than advances.
    As a result, I was unable to determine the existence, completeness and valuation of the balance,
    and its classification and recognition as equity at year end.

    Cash and Bank Balances

    The financial statements disclosed Cash and Bank balances as (K5,486,934) as at 31 December
    2010. However, I did not obtain independent bank confirmations from the banks to verify closing
    bank balances as at 31 December 2010.

    Furthermore, bank reconciliations for all bank accounts were done at year end rather than
    monthly. As a result, I was unable to determine the existence, valuation and completeness of the
    Cash and Bank balances at year end.

    DISCLAIMER OF OPINION

    Because of the significance of the matters described in the Basis for Disclaimer of Opinion, I have
    not been able to obtain sufficient appropriate audit evidence and accordingly I was unable to
    express an opinion on the financial statements of National Housing Corporation for the year ended
    31 December 2010.”

    27.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Corporation for the years ended 31 December 2008, 2009 and 2010
    were issued on 31 March 2014. The reports contained similar observations, hence only the 2010
    observations are reproduced.

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  • Non-Compliance with Public Finances (Management) Act

    The National Housing Corporation has not prepared its financial statements within six months
    after the balance date and has consequently breached Section 63 of the PFMA.

    Non-Maintenance of Fixed Assets Register

    The National Housing Corporation has not maintained a Fixed Asset Register. The Corporation
    owns properties (lands and buildings) and other fixed assets throughout the country for carrying
    out its functions as stipulated under Section 28 of its Act. However, all the fixed assets in its
    custody were not registered to monitor their existence, movement and fair value.

    27.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Corporation for the years
    ended 31 December 2011 and 2012 had been submitted and the audit arrangements were in
    progress to commence the audits without delay.

    The financial statements for the year ended 31 December 2013 had not been submitted for my
    inspection and audit.

    28. NATIONAL INFORMATION AND COMMUNICATIONS TECHNOLOGY AUTHORITY (NICTA)

    28.1 INTRODUCTION

    28.1.1 Legislation and Objectives of NICTA

    The National Information and Communications Technology Authority (NICTA) was established on 1
    November 2009 by the National Information and Communications Technology Act 2009. The
    Authority succeeds the PNG Radio Communications and Telecommunication Technical Authority
    (PANGTEL) which was established on 1 January 1997 as part of the Government’s policy to
    corporatize the Post and Telecommunication Corporation (PTC) and to have it divided into three
    different organisations namely: Telikom PNG Limited, Post PNG Limited, and Pangtel.

    NICTA is a 100% Government-owned statutory authority, established to regulate the
    telecommunication industry in PNG.

    Under the Post and Telecommunication Corporation (Corporatisation) Act 1996 assets, rights and
    liabilities as well as employees of the Corporation were transferred to Pangtel as per the allocation
    statement approved by the then Minister for Communications at the net book value recorded in the
    books of the Corporation as at 31 December 1996. In the same manner, the assets, rights and
    liabilities as well as employees of Pangtel were transferred to NICTA by virtue of Section 305 of the
    National Information and Communications Technology Act.

    28.1.2 Functions of the Authority

    The main functions or principal activities of the Authority are to exercise all licensing and
    regulatory functions in relation to the information and communications technology industry and
    perform all other functions as stated under Section 9 of the Act.

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  • 28.2 AUDIT OBSERVATIONS

    28.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the Authority’s financial
    statements for the periods ended 31 December 2010 and 2011 were issued on 21 March 2014 and
    26 May 2014 respectively. The reports contained similar basis for Disclaimer of Opinions, hence
    only the 2011 report is reproduced.

    “BASIS FOR DISCLAIMER OF OPINION

    Internal Controls, Accounting Provisions and Procedures

    During the course of my audit, I have identified significant weaknesses in the Authority’s financial
    processes, procedures and internal controls in most facets of the accounting system and the
    overall internal control environment operated during the year under review.

    I noted that there was lack of controls to capture and record all transactions and produce accounts
    that were reliable, complete and accurate. The internal controls were not effective and could not be
    relied upon to protect and safeguard the assets of the entity.
    As a result, I was not able to place any reliance on the financial and other related records
    submitted for my examination.

    Opening Balances

    The opening balances could not be confirmed as correct due to errors and material limitations of
    scope expressed in my previous audit reports. I was unable to quantify the effects of the material
    misstatements on the opening balances that might have a bearing on the balances reported as at
    31 December 2011. As a result of the limitations, I was unable to perform sufficient audit
    procedures to satisfy myself as to the completeness and accuracy of the account balances as at 31
    December 2011.

    Provision for Doubtful Debts – K1,529,447

    The Authority has made a provision of K1,529,447 for its doubtful debts for the year under review.
    However, I was not informed of the basis or criteria used by the Authority in determining its
    provision for doubtful debts. Furthermore, I noted that the Authority did not have a properly
    documented policy in place to use as a guide to determine provisions for doubtful debts. As a
    result, I was unable to establish as to whether the provision for doubtful debts has been fairly
    stated at the year end.

    Fixed Assets – K22,686,243

    The Authority disclosed its fixed assets in its financial statements as K22,686,243 at 31 December
    2011. I noted that the titles for land and properties amounting to K9,374,872 were not under the
    Authority’s name as disclosed in the balance sheet. The title deeds are yet to be transferred to the
    Authority. As such, the fixed assets balance has been overstated by the Authority as at 31
    December 2011.

    Limitation of Scope – Revenue – K27,612,753

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  • I was not able to verify the revenue of the Authority totalling K27,612,753 as disclosed in the
    financial statements. Supporting schedules, receipts books, invoices, deposit books and other
    necessary documents for the year were not provided for my review.

    Limitation of Scope – Employee Provisions – K463,097

    My examination of employee provisions revealed that staff personnel files were not properly
    updated. During the review, I was unable to obtain details such as commencement date and
    employment history which were used as a basis to calculate the provisions. As a result, I was
    unable to substantiate the above balance as adequate provision at the year end.

    Fixed Assets Revaluation – K18,677,117

    The Authority disclosed its total Reserve Balance as K18,677,117 at 31 December 2011. However, I
    was not provided with any supporting documentation to substantiate the ending balance.

    Home Ownership Scheme – K397,340

    The Authority presented a net Home Ownership Scheme (HOS) balance of K397,340 as at
    December 2011. This balance comprised HOS Suspensory Loans to staff totaling K1,823,861 and a
    corresponding amortisation amount of K1,426,521. This balance could not be verified to loan
    amortisation schedules provided by the Authority due to discrepancies between the loan
    amortisation schedule and the schedule provided for my examination.

    DISCLAIMER OF OPINION

    Because of the significance of the matters described in the Basis for Disclaimer of Opinion, I have
    not been able to obtain sufficient appropriate audit evidence and accordingly, I was unable to
    express an opinion on the financial statements of NICTA for the year ended 31 December 2011.”

    28.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit on the
    accounts and records of the Authority for the periods ended 31 December 2010 and 2011 were
    issued on 21 March 2014 and 26 May 2014 respectively. These reports contained similar
    observations, hence only the 2011 observations are reproduced below.

    Main Operating Account Stale Cheques – K1,137,776

    My examination of the Authority’s Main Operating Account year-end bank reconciliation revealed
    outstanding cheques totaling K1,961,811 at 31 December 2011. Out of this amount, cheques
    amounting to K1,137,776 had been outstanding for over six months. Further, cheques totaling
    K1,088,454 have been unpresented since December 2010 and these cheques are considered stale
    and need to be written back to the cashbook. I requested Management provide explanation for
    the long outstanding cheques. Management responded to my observation as follows: “We have
    noted the audit observations on the bank reconciliation and hereby confirm that due to an
    oversight on our part in not clearing these cheques in the MYOB as presented cheques, the bank
    reconciliation statements reported a significant amount of cheques as unpresented. The oversight
    is attributed to the sudden departure of our Accountant and the subsequent manpower changes in

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  • the Finance Branch.”

    Trade Debtors Over 90 Days

    My review of the Aged Debtors Listing revealed that the receivables aged over 90 days amounted
    to K6,225,436 which represents 66 percent of the total trade debtors balance. I was informed that
    the Authority does not have a properly updated database of all its existing customers especially in
    the Licensing Department. Because of this weakness, some customers who had gone out of
    business and others that are facing liquidity problems are still being invoiced inflating the debtors
    balance, without the actual receipts been realised. Hence, debtors’ balances continue to build up
    over time resulting in the overstatement of receivable balance.

    I sought explanation from Management and they responded to my observation as follows: “Audit
    observation on the outstanding debtors over 90 days is noted. We advised that these debts relate
    to invoices issued in 2009 and 2010 for various license renewals during PANGTEL’s regime.

    We wish to further advice that these outstanding debts will be treated as doubtful debts wherein
    adequate provisions will be put through the accounts, to be spread over three year period
    beginning in 2012 until balance is fully provided for as a doubtful debt.

    Management will seek Board approval to write off the debts against the provisions, following a
    formal policy on bad debts provisions to be submitted to the Board for its consideration and
    approval during Board meeting No.20 to be held on 30 May 2014.”

    Refundable Rental Bonds – K20,574

    The Authority disclosed the total Rental Bond balance as K79,456 at the year end. I was not
    provided with the lease agreements for accommodation rental between landlords and the Authority
    on behalf of employees for rental bond payments totaling K20,574. I was unable to ascertain the
    accuracy of the Rental Bond balance as disclosed in the financial statements.

    Management responded to my query as follows: “We noted your observations and have taken
    remedial action to address the issues highlighted in the management letter, including ensuring all
    current lease agreements are maintained in a central location with our property and admin branch
    of the department.”

    Legal Fees – K100,000

    I noted that an improper payment was made by the Authority via Cheque Number 419874 for
    K100,000 to Mileng Lawyers on 14 July 2011 following a termination of a Retainer Agreement with
    Mileng Lawyers. The Authority raised the cheque made payable to Mileng Lawyers for K100,000.
    However, I noted that the deposit was made in two parts. Only K25,000 was deposited into the
    firm’s account while the remaining K75,000 was deposited into an account named Mr. Ian Godfrey
    Mileng. The payment should have been made wholly to Mileng Lawyers as the Contract was
    between Mileng Lawyers and the Authority.

    Management responded to my observation as follows: “We have noted the audit observation with
    respect to the split payment and advice that the split in payment was done at the request of the
    Principal Owner, Mr. Ian Godfrey Mileng. In view of the audit observation and the implications

  • Page 143 of 305

  • involved, please be assured that this practice will not occur again. Mr. Mileng has since been
    appointed to the position of Manager Legal Services under NICTA.”

    Three Quotes not obtained – K194,162

    The PFMA Act requires that all statutory organisations obtain three written quotations from
    different suppliers for goods and services for which the cost is above K5,000. However, I observed
    that the Authority made five payments each costing over K5,000 on one quotation. Further to this,
    I noted that the Authority did not maintain a Quotations Register to record all quotations obtained
    for goods and services acquired.
    Management responded to my observation as follows: “We noted your observation and want to
    assure you that procurement procedures and controls is considered adequate in our view. That
    said, we will endeavor to ensure the audit recommendations is observed at all times when
    procuring goods and services, where cost price exceeds the threshold limits including maintenance
    of a quotation register for purposes of transparency.”

    Rental Payments – K115,444

    I observed that rental payments totaling K115,444 paid by the Authority to various landlords for
    staff accommodation rental were not substantiated against the lease agreements. I was not able to
    verify rental payments paid as per the agreed rental rates. I was informed that the lease
    agreements were kept at the office of the Director for Corporate Services. They were not provided
    for my review and verification.

    Management responded to my observation as follows: “We noted your observation and have taken
    remedial action to address the issues highlighted in the management letter. From 2012 and
    onwards we have all lease agreements in place for all the staff who are on rented accommodation.

    This information will be made available when 2012 audit commences. Furthermore, we wish to
    assure audit that all rental payments are paid based on limits imposed by NICTA’s Rental Subsidy
    Schedule that was approved by the Board.”

    Board Meeting Minutes

    My review of Board Meeting Minutes (Board Meeting No. 0007/2011) revealed that the Board had
    discussion on the summary of legal proceedings for and against NICTA. In the discussion of this
    agenda, the Board noted that NICTA has in total thirty legal cases, fourteen of which were carried
    over from PANGTEL and sixteen from the Independent Consumer and Competition Council (ICCC).
    Of these sixteen cases, six have been settled and ten were still pending along with the fourteen
    from PANGTEL. The status of these legal cases and the financial implications were not made known
    to me at the time of the audit.

    Management responded to my observation as follows: “We have duly noted the implications and
    recommendations in respect of the pending legal cases for and against NICTA. We advise that the
    sixteen cases transferred from ICCC to NICTA were in respect of the interconnection dispute
    between Telikom, Digicel and ICCC (transferred to NICTA) and all sixteen cases have been
    resolved by mutual discontinuance by the parties in 2012. The remaining pending legal matters
    are at various stages of the court processes and therefore beyond the control of the Board and
    Management.”

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  • 28.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Authority for the year ended
    31 December 2012 had been submitted for my inspection and audit and arrangements were being
    made to commence the audit without delay.

    The financial statements for the year ended 31 December 2013 had not been submitted for my
    inspection and audit.

    29. NATIONAL MARITIME SAFETY AUTHORITY

    29.1 INTRODUCTION

    29.1.1 Legislation

    The National Maritime Safety Authority was established by the National Maritime Safety Authority
    Act 2003.

    29.1.2 Functions of the Authority

    The functions of the Authority are to:
    * Perform the functions and exercise the powers as are conferred upon it by this Act or under any
    other law;
    * Co-ordinate search and rescue operations for vessels in distress or lost at sea pursuant to the
    terms and conditions of a search and rescue plan prepared by the Minister, from time to time, and
    approved by the Authority;
    * Co-ordinate with other agencies and persons, including regional and international organisations
    and consultants, whether local or foreign, on matters concerning maritime safety, marine pollution
    prevention or search and rescue operations at sea;
    * Collect data relevant to maritime safety, marine pollution prevention and search and rescue
    operations at sea;
    * Act on behalf of the State in relation to any domestic or international agreement relating to
    maritime safety, marine pollution prevention or search and rescue operations at sea to which the
    State is or may become a party;
    * Make recommendations on policy to the Minister regarding maritime safety, marine pollution
    prevention and search and rescue operations at sea;
    * Provide consulting services, training and management services relating to any of its functions
    whether in PNG or overseas;
    * Where appropriate to consult with:
    ? Other agencies of National Government;
    ? Provincial Governments;
    ? Local-level Governments; or
    ? Commercial, industrial and other relevant bodies and organisations, in relation to matters
    affecting them in the performance of its functions.
    * Generally to do such supplementary, incidental or consequential acts and things as are necessary
    or convenient for carrying out its functions.

    29.2 AUDIT OBSERVATIONS

    29.2.1 Comments on Financial Statements

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  • My report to the Ministers under Section 8 (4) of the Audit Act on the Authority’s financial
    statements for the year ended 31 December 2012 was issued on 14 May 2014. The report
    contained Qualified Opinion as follows:

    National Maritime Safety Authority

    “BASIS FOR QUALIFIED OPINION

    Fees and Levies

    The Operating Revenue was stated as K24,400,355 in the financial statements. Included in this
    account balance was revenue earned from fees and levies of K21,752,493. In my review of the
    billing and collection of the various fees and levies collected, I noted that there was no proper and
    accurate system or database to capture all the foreign vessels operating in PNG territorial waters.
    Further, the Authority did not keep proper, accurate and complete information such as name of the
    vessels, owner, length of vessels, and the place of registration. I noted that billing and collection of
    these fees and levies were based on the information provided by the shipping agents which was
    considered unreliable. In the absence of a proper database and a comprehensive revenue collection
    system, I was unable to state whether the revenue billing and collection by the Authority is
    accurate and complete.

    QUALIFIED OPINION

    In my opinion, except for the effects of the matter referred to in the Basis for Qualified Opinion
    paragraph:
    (a) The financial statements of National Maritime Safety Authority comply with generally accepted
    accounting practice and give a true and fair view of the financial position of the Authority as at 31
    December 2012 and the results of its operations and its cash flows for the year ended on that
    date; and
    (b) Proper accounting records have been kept by the Authority as far as appears from my
    examination of those records.”

    29.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the audit and inspection of the
    accounts and records of the Authority for the year ended 31 December 2012 was issued on 14 May
    2014. The report contained the following observations.

    Personnel Files

    During the course of the audit, I noted that the personnel files were not properly updated to enable
    me to verify the pay rates that were current and applied during the year under review. Most
    national contract officers three years contracts expired around 8 September 2011. I sighted only
    the reappointment letters in the personnel files of the officers. The personnel files were not
    updated with these records at the time of my audit.

    I brought this matter to the attention of Management and they responded as follows: “Management
    acknowledged that due to staff turnover and the recruitment of the new Human Resource Manager,
    Management will immediately address this issue and update staff personnel files”.

  • Page 146 of 305

  • National Maritime Safety Authority

    Contract/Terms of Reference

    The engagement contract or terms of reference with Leahy Lewin Nutley Sulivan Lawyers was not
    provided to me during my review. The NMSA Act 2003 (Section 31) clearly states that engagement
    of Consultants including legal counsels were to be engaged by the Authority on terms and
    conditions fixed by the Board and as such the engagement of the lawyers had violated the
    particular section of the NMSA Act. Proper Authorisation and execution of this service should have
    come from the Board as stipulated in the Act.

    I sought Management’s explanation and they responded as follows:“Management acknowledged
    non-compliance in procurement standard policies in engaging the service of Leah Lewin Nutley
    Sullivan Lawyers. Management will ensure proper financial processes are followed when procuring
    services and committing funds”.

    29.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Authority for the year ended
    31 December 2013 had not been submitted for my inspection and audit.

    30. NATIONAL MUSEUM AND ART GALLERY

    30.1 INTRODUCTION

    30.1.1 Legislation

    The National Museum and Art Gallery was established under the provisions of the National
    Museum and Art Gallery Act 1992. This Act came into operation on 15 April 1992.

    30.1.2 Functions of the Museum

    The main functions of the Museum are to:
    * Protect and conserve the cultural and natural heritage of PNG;
    * Research and document the prehistory of PNG and manage the national archaeological
    collections, and monitor archaeological research in PNG;
    * Maintain the national register of traditional and archaeological sites;
    * Identify and maintain a register of national cultural property and monitor the collection and
    export of artefacts; and
    * Issue permits and perform other duties as required by the National Cultural Property
    (Preservation) Act (Chapter 156).

    30.2 AUDIT OBSERVATIONS

    30.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the Museum’s financial
    statements for the years ended 31 December 2009 and 2010 were issued on 18 November 2013
    and 5 May 2014 respectively. These reports contained similar Disclaimer of Opinions, hence only
    the 2010 report is reproduced as follows:

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  • “BASIS FOR DISCLAIMER OF OPINION

    Accounting System

    The Museum did not have a proper basis for systematic preparation of financial statements.
    Consequently, the financial statements, trial balance and the cashbook presented for audit review
    could not be relied upon. The Museum did not maintain necessary accounting records and
    documents such as receipt books, assets registers and expenditure records which should form the
    basis of the preparation of the financial statements. In the absence of these records and
    documents, I was not able to place any reliance on the computer generated Access-based General
    Ledger which was used as the basis for the preparation of the financial statements. I therefore,
    could not extend my audit procedures to perform sufficient tests to verify the validity and accuracy
    of the figures reflected in the financial statements.

    Statutory Records

    I noted that the balances presented in the financial statements were derived from the general
    ledger and trial balance. However, I observed that there were significant variances between the
    financial statement balances and general ledger balances. As such, I was unable to reconcile these
    balances due to lack of proper and reliable accounting records.

    Cash at Bank – K424,555

    The Museum disclosed its bank balance as K424,555 at 31 December 2010. During my
    examination, I noted that the JK McCarthy Bank Account and Museum Book Shop Account were not
    reflected in the general ledger and the financial statements submitted for my review. Further,
    transactions that took place from these bank accounts and the Project Account were not
    documented and incorporated into the Institute’s financial statements together with those from
    the Main Operating Account. I was also not provided with the independent bank confirmation for
    these undisclosed bank accounts for my review. As a result, I was unable to ascertain the accuracy
    and completeness of the total bank balance of K424,555 disclosed at the year end.

    Government Grant – K3,491,500

    During my review of the Government Grant Account, I noted that there were significant variances
    between the balances of Grants stated in the Financial Statements to actual Grants received per the
    bank statements. I observed that the Cash Warrants issued by Finance and Treasury were
    overstated by K4,738,700 compared to the cash recorded in the financial statements and the
    amount disclosed in the bank statements. The Museum was unable to provide satisfactory
    explanation for the difference.

    Fixed Assets – K1,908,898

    The Museum did not properly maintain and update its Assets Register with the details of
    acquisitions and disposals during the year. During my review, I noted that the JK McCarthy
    Museum and other land and improvements in Goroka were valued at K700,000. The Museum also
    had seventeen other land improvements in Port Moresby, however, the Museum only presented a
    total land and building value of K621,646 in its financial statements.

    Furthermore, I noted that artifacts and science collections have accumulated over many years and

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  • hence there was a large volume of collections and artifacts for which there was no proper database
    system maintained to record, update and revise the collections periodically. In the absence of such
    proper documentation, the correctness, completeness and existence of these collections could not
    be verified.

    Expenditures – K6,165,814

    I noted that the General Ledgers for the expenditure accounts did not agree to the financial
    statements. As a result, I was unable to ascertain the accuracy and completeness of the total
    expenditure of K6,165,814 as disclosed in the financial statements.

    Salary And Allowances (Payroll) – K2,068,323

    National Museum and Art Gallery

    During my examination, I was not provided with the payroll summaries for four fortnights to verify
    the payments made during the year. I noted a difference of K93,598 between the payroll summary
    and the financial statements. As a result, I was unable to state whether the amount has been fairly
    stated in the accounts.

    DISCLAIMER OF OPINION

    In my opinion, because of the significance of the matters described in the Basis for the Disclaimer
    of Opinion paragraphs, I have not been able to obtain sufficient audit evidence and accordingly, I
    was unable to express an opinion on the financial statements of the PNG National Museum and Art
    Gallery for the year ended 31 December 2010.”

    30.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8 (2) of the Audit Act on the audit and inspection of the
    accounts and records of the Museum for the years ended 31 December 2009 and 2010 were
    issued on 18 November 2013 and 5 May 2014 respectively. These reports contained similar
    observations, hence only the 2010 observations are reproduced.

    Non-Submission of Financial Statements

    The Museum has not prepared and submitted its financial statements to my Office before 31
    March 2011 to enable me to conduct the audit and issue the report within the timeframe stipulated
    by the Law. Consequently, the Museum had breached Sections 63 (2) and 63 (4) of the PFMA.

    Acquittal of Travel Related Expenses

    During my examination, I noted that payments relating to travel and subsistence totaling K151,595
    paid to staff during the year were not acquitted by officers of the Museum after travel which was
    contrary to the requirements of the PFMA.

    Personnel Files

    During my review on the Museum’s personnel files, I noted that the files were not properly

  • Page 149 of 305

  • maintained and updated on a regular basis. Some employees did not have employment contracts,
    appointment letters and other staff advices relating to salary and allowances. Although, some
    employees had employment contracts in their files, the rates of salaries and allowances did not
    correspond to the rates on which salaries and allowances were paid to them. Further,
    salaries/wages declaration forms and leave records of employees were not properly maintained.

    As a result, I was not able to verify the rates on which some of the casual employees were paid
    their wages since their personnel files were not provided for my review.

    Internal Control Weaknesses

    Other internal controls breakdown and weaknesses noted during my audit are summarised in the
    subsequent paragraphs:
    * Board of Trustees Meeting Minutes for the third and fourth meetings were not signed by the
    Chairman in order to confirm the Minutes were true and correct. In addition, I was not provided
    with the Meeting Minutes for the first and second meetings;
    * Due to unavailability of receipt books, I was unable to verify whether the receipts were properly
    recorded and promptly banked into the Museum’s Bank Accounts;
    * Payroll records for pay period ending 6 May, 20 October, 17 November and 16 December 2010
    were missing from the payroll file;
    * The Institution did not maintain any schedules and calculations of all Contract Gratuities paid to
    its contract officers during the year;
    * I was not able to substantiate the validity and the authenticity of payments amounting to K9,267
    due to insufficient or missing supporting documents;
    * There were no Terms of Reference or Service Agreements between the Museum and its various
    service providers;
    * I noted that the Museum did not maintain proper budgetary control over several items which
    resulted in deviations of actual from budgeted amounts;
    * The Museum has neither maintained any records for petty cash, nor done any reconciliations;
    * Leave records of employees of the Museum were not properly maintained by the Human
    Resources Department. I was not able to determine when the leave fares were paid and verify if
    employees were qualified for recreational leave and leave fares in the absence of the leave records;
    * I noted that the Museum has not obtained the Board’s approval prior to purchasing of the office
    vehicle from Boroko Motors at a cost of K124,316.76 on 21 September 2010;
    * A schedule showing all Board of Trustees expenses was provided for my verification. However,
    these payments could not be verified to the cashbook and the payment vouchers or other
    supporting documentation. Further, approved schedule of rates of the stipend for the Board of
    Trustees was not provided for my verification; and
    * For the 2011 and 2012 audits, Management of the Museum had not submitted its responses to
    my Management Letters dated 25 October 2013 despite numerous reminders to enable me to
    include their views as part of this report.

    30.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the
    accounts and records and the examination of the financial statements of the Museum for the years
    ended 31 December 2011 and 2012 had been completed and the results were being evaluated.

    The Museum’s financial statements for the year ended 31 December 2013 had not been submitted
    for my inspection and audit.

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  • 31. NATIONAL NARCOTICS BUREAU

    31.1 INTRODUCTION

    31.1.1 Legislation

    The National Narcotics Bureau was established in April 1992 by the enactment of the
    National Narcotics Control Board Act 1992.

    31.1.2 Functions of the Bureau

    The principal functions of the Bureau are to make recommendations to the Board on policies,
    plans, matters or projects relating to abuse of drugs; coordinate and monitor the Government and
    non-Government drug education, awareness and rehabilitation program, and conduct surveys and
    gather and evaluate information, on the consumption, cultivation, trafficking and manufacture of
    drugs.

    31.2 AUDIT OBSERVATIONS

    31.2.1 Comments on Financial Statements

    My reports to the Minister under Section 8 (4) of the Audit Act on inspection and audit of the
    accounts and records of the Bureau for the years ended 31 December 2008 and 2009 were issued
    on 18 November 2013. The reports contained similar Disclaimer of Opinions, hence only the 2009
    report is reproduced.

    “BASIS FOR DISCLAIMER OF OPINION

    Limitation of Scope regarding Opening Balances

    My report for the year ended 31 December 2008 was a disclaimer of opinion due to limitation of
    scope of audit on opening balances. I was therefore, not able to satisfy myself as to the accuracy
    and completeness of the opening balances of the Fixed Assets, Cash at Bank and Surpluses.

    Since these opening balances entered into the determinations of the results of operations and cash
    flows of the National Narcotics Bureau in 2009, I was unable to determine whether adjustments to
    the results of operations, Fixed Assets and Cash at Bank might have been necessary for the year
    ended 31 December 2009.

    Limitation of Scope regarding Accounting Records

    The National Narcotics Bureau did not maintain adequate and proper accounting records and
    registers to form the basis for a systematic preparation of the financial statements. There were no
    proper commitment control ledgers and documentary evidence in support of the account balance
    reported in the financial statements. There was a serious breakdown in the accounting system as a
    whole which effectively meant that I was unable to place any reliance on the completeness and
    accuracy of the accounts.

    The financial statements were poorly prepared and had no proper supporting documentation or
    reconciliation and were prepared from incomplete and insufficient records resulting in the

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  • limitation in my audit scope. As a result, it was impracticable to extend my audit procedures
    sufficiently to determine the accuracy of the information recorded in the financial statements.

    The following deficiencies were highlighted:
    * In Note 4 to the financial statements, Fixed Assets were stated as K1,573,178. However, the
    Bureau did not maintain a proper, complete and accurate fixed assets register to record the details
    and movements of assets under its custody and control. Physical inspection of certain assets
    against the records to confirm their occurrence and existence was not possible because of the
    absence of a proper register. As a result, I was unable to determine the completeness, existence,
    accuracy and valuation of the fixed assets valuing K1,573,178;
    * Cash at Bank was stated as K6,674 in the financial statements. However, the respective bank
    reconciliation statements were not properly reconciled, checked and verified by any accountable
    officers. I was not able to sight some of the bank reconciliations to trace the closing balances of
    the preceding month to the succeeding opening balances; and
    * A surplus of K6,674 was determined at the end of the year after taking into account receipts of
    K2,794,400 and payments of K2,791,282 during the year ended 31 December 2009. However, I
    was not provided the respective supporting documentation and the explanations for the net
    variances of K1,528,881 and the missing paid vouchers totaling more than K1,000,000. As a
    result, it was impracticable for me to measure, confirm and verify the correctness and the propriety
    of the income and payment made during the year to arrive at the surplus disclosed in the financial
    statements.

    DISCLAIMER OF OPINION

    Because of the significance of the matters described in the Basis for Disclaimer of Opinion, I have
    not been able to obtain sufficient appropriate evidence and accordingly, I was unable to express an
    opinion on the financial statements of the National Narcotics Bureau as at 31 December 2009 and
    of its performance for the year then ended.”

    31.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8 (2) of the Audit Act on inspection and audit of the
    accounts and records of the Bureau for the years ended 31 December 2008 and 2009 were issued
    on 18 November 2013. These reports contained similar observations, hence only the 2009
    observations are reproduced.

    National Narcotics Bureau

    Board of Directors

    The National Narcotics Bureau was operating without a Board since 2002. The National Narcotics
    Bureau Act 2002 (Sections 3, 4 & 5) states that there should be a Board established to initiate and
    implement policies on drug abuse, legislation covering all aspects of drug abuse, advise the
    Government on all international aspects of drug abuse and other functions as stated in Section 7 of
    the Bureau’s Act. Consequently, I informed the Board that its corporate governance structure was
    weak and lacked executive direction and control.

    In response, Management informed me that the appointment of Board of Directors is done by the
    portfolio Minister and the NEC under the NNB Act and Regulatory Statutory Act 2004.
    Accounting, Administration and Procedures Manual

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  • The Bureau did not have an Accounting, Administration and Procedure Manual in place for its daily
    operations. The purpose of this Manual is to ensure that assets are safeguarded, financial
    statements are in conformity with Generally Accepted Accounting Principles and that finances are
    managed responsibly. In the absence of this documentation relating to systems and controls, I
    had no basis to measure the standards of operations in existence during the year ended 31
    December 2009.
    I was informed that the current Director had realised the importance of this Manual and opted to
    outsource the preparation of the Manual and will do so once funding is secured.

    Staff Appraisal

    I noted that there were no strategic control and monitoring of staff performance as there were no
    staff appraisals conducted to date by the Bureau. Staff appraisal is an instrument to measure,
    review and evaluate an employee’s knowledge and skills, requirements of the job, feedback on the
    level of performance against agreed criteria, and planning for training requirements. This may also
    be used to plan and deal with career development and poor performances.
    Management informed me that it was conducting staff performance appraisals and records were
    forwarded to the Department of Personnel Management for salary increments but its human
    resources department failed to keep those copies/records on respective officer’s personal files.
    Contract of Employment

    Contracts of employment for senior officers were not signed or renewed. A signed employment
    contract is a legally binding contract and often contains terms and conditions of employment.
    As required under Section 42 (1) of the Public Service Management Act 1995 an officer appointed
    to a senior management position shall be employed under, and shall hold office with terms and
    conditions of the contract of employment with the State. As such, I was unable to determine the
    validity, correctness and legality of the employment capacity for several senior officers as their
    contracts were not signed or renewed.

    Management concurred with my observations and admitted that the respective contracts were not
    signed and renewed because of its senior management instability. However, I was assured that
    under the new refined structure, senior officers’ contracts will be renewed.

    Missing Records

    In my review of the accounting records, I noted that some of the Bureau’s records have been
    misplaced and records were not properly kept up to date for audit purposes or even for the
    Bureau’s own internal management purposes. As I was unable to obtain sufficient and appropriate
    audit evidence, I queried Management and it responded that the records were lost due to fire
    fighters hosing water into the building to stop fire from spreading when the next building
    (currently Westpac, Musgrave Branch) was on fire.

    Report under Public Finances (Management) Act

    The Bureau is required to submit an annual report on performance and management and a
    quarterly report on all investment decisions, a detailed report on investments, performance and
    returns for each year and a five year investment plan (up-dated each year) setting out investment
    policies, strategies and administrative systems to be pursued and providing forecasts of
    investment flows and returns. However, I noted that Management did not submit its relevant

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  • reports as required under Section 63 (2) of the PFMA to the Minister for the years ended 31
    December 1997 to 2007.

    31.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the
    accounts and records and the examination of the financial statements of the Bureau for the years
    ended 31 December 2010 to 2012 were completed and the results were being evaluated.

    The Bureau had not submitted its financial statements for the year ended 31 December 2013 for
    my inspection and audit despite reminders.

    32. NATIONAL RESEARCH INSTITUTE

    32.1 INTRODUCTION

    32.1.1 Legislation

    The National Research Institute (NRI) was established under the Institute of Applied Social and
    Economic Research Act (Chapter 165). The name of the Institute was changed from ‘PNG Institute
    of Applied Social and Economic Research’ to ‘National Research Institute’ following the approval of
    the NEC through its Decision No. 42/90 of 7 March 1990.

    The Institute of Applied Social and Economic Research (Amendment) Act 1987 came into operation
    on 1 January 1988, and on this date, the promotion and cultural functions of the former Institute
    of PNG Studies; and functions to do with Educational Research for National and Provincial
    Departments of Education carried out by the former Educational Research Unit (UPNG), formed
    part of the National Research Institute.

    32.1.2 Functions of the Institute

    The functions of the Institute include the promotion of research into PNG society and economy; the
    undertaking of research into social, political and economic problems of PNG in order to formulate
    practical solutions to such problems; where practicable, the provision, by agreement with the body
    concerned, of consultancy services to the Government and to Government institutions; the
    promotion of the functions and objects of the Institute of PNG Studies; and research into all
    aspects of education for National and Provincial Departments of Education.

    32.2 AUDIT OBSERVATIONS

    32.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 (4) of the Audit Act on inspection and audit of the
    accounts and records of the Institute for the year ended 31 December 2012 was issued on 30 April
    2014. The report did not contain any qualification.

    32.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Institute for the year ended 31 December 2012 was issued on 30 April
    2014. The report contained the following observations.

  • Page 154 of 305

  • Title Deeds to Leasehold Land

    The Institute is yet to obtain Title Deeds for three properties located at Section 482 Allotment 61,
    Section 482 Allotment 62 and Section 484 Allotment 35. These three properties were registered
    under Mimino and Associates and not under the Institute’s name. I drew the Institute’s attention to
    this and I was advised that the transfer process was still in progress.

    National Research Institute

    Appointment of Council Members

    The Institute had not appointed the Chairman and the Community Representative of the National
    Research Institute Council that was expired on 17 January 2010. Management advised that
    attempts to have their terms renewed had not progressed due to frequent changes of Ministry of
    Higher Education, Research, Science and Technology and they are currently working on this issue.

    Travel Acquittal

    The Institute did not maintain a proper Travel Advances Register for all duty travels and related
    expenses. As such, I noted that several instances of travel advances were not properly acquitted
    after the completion of duty travel. I recommended Management to maintain a Travel Advance
    Register and strictly follow the NRI Financial Operations Manual by acquitting within 14 days after
    completion of duty travel. Management informed me that the Institute would comply with this
    requirement.

    Accounts Receivable – K187,123

    The Institute disclosed GST Receivable as K138,354 at 31 December 2012. During my audit, I
    noted that the Institute has failed to prepare and lodge returns to the IRC on a monthly basis. I
    recommended Management prepare and lodge monthly returns to the IRC on a timely basis.
    Management responded that due to staff shortage this was not done.

    32.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements for the year ended 31 December
    2013 have been submitted and arrangements were being made to commence the audit at the
    earliest possible.

    33. NATIONAL ROAD SAFETY COUNCIL

    33.1 INTRODUCTION

    33.1.1 Legislation

    The National Road Safety Council was established under the National Road Safety Council Act
    1997. This Act came into operation on 1 May 1998. The Council commenced its operational
    activities from May 1998.

    33.1.2 Functions of the Council

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  • The principal functions of the Council are to:
    * Determine the goals and objectives in the promotion of road safety in PNG;
    * Advise the National Government on all matters relating to road safety which the Council may
    from time to time consider desirable or which the National Government may refer to the Council;
    * Recommend to appropriate authorities the adoption of precautionary measures of all kinds
    calculated to prevent accidents involving the use of motor vehicles;
    * Foster, promote and conduct educational campaigns designed to stimulate compliance with
    acceptable and proven principles of road safety;
    * Enlist the aid of all agencies and individuals who in the opinion of the Council are able to
    promote any acceptable and proven principles of road safety;
    * Procure sufficient personnel and finance for purposes of the Council and to co-ordinate and
    control their use;
    * Foster and promote road safety research;
    * Determine measures which will lead to the improvement of road safety and implementation of
    such measures;
    * Monitor and evaluate the effectiveness of programs and strategies of organisations involved in
    the promotion of road safety;
    * Formulate, monitor and update an appropriate long-term national program for the improvement
    of road safety in PNG and to supervise its implementation;
    * Consider and implement any other aspects of road safety as may be referred to it from time to
    time;
    * Perform such other functions as are given to it under this Act or any other law;
    * Advise the Minister and the NEC on all or any of its functions specified in this section; and
    * Generally to do all such things as may be incidental or consequential upon the exercise of its
    powers and the performance of its functions.

    33.2 AUDIT OBSERVATIONS

    33.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 (4) of the Audit Act, on the Council’s financial
    statements for the year ended 31 December 2012 was issued on 28 April 2014. The report
    contained a Qualified Opinion.

    “BASIS FOR QUALIFIED OPINION

    Traffic Infringement Fees – K1,495,074

    The Council disclosed in its financial statements K1,495,074 as Motor Traffic Infringement Fees
    collected for various offences committed by motor vehicle users. The break-up and the supporting
    documents in relation to this balance were not provided for my verification and examination. As
    such, I was unable to verify the accuracy and completeness of this balance as at 31 December
    2012.

    Fixed Assets – K1,561,756

    I noted that the Council’s accounts are prepared on a cash basis. As such, the Fixed Assets
    Register is a vital record for recording all the assets purchased by the Council, their current

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  • condition and their movements. I noted that the Council did not maintain a proper Fixed Assets
    Register. The Fixed Assets Register maintained by the Council did not include all the assets
    disclosed in the Statement of Assets. Further, supporting documents for new assets purchased
    during the year totalling K450,585 were not provided for my examination. As such, I was unable
    to verify the accuracy and completeness of the fixed assets balance as disclosed in the financial
    statements.

    QUALIFIED OPINION

    In my opinion, except for the effects of the matters described in the Basis for Qualified Opinion
    paragraphs:
    (a) The financial statements are based on proper accounts and records; and
    (b) The financial statements are in agreement with those accounts and records and show fairly the
    state of affairs of the Council as at 31 December 2012 and the results of its financial operations
    for the year then ended.”

    33.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8 (2) of the Audit Act on the audit and inspection of the
    accounts and records of the Council for the year ended 31 December 2012 was issued on 28 April
    2014. The report contained the following observations.

    National Road Safety Council

    Travel Advances Acquittals

    My review of the Travel Expenses revealed that the Council has not maintained a Travel Advances
    Register to monitor advances given to various staff members. As a result, officers’ overseas and
    domestic duty travels during the year were not acquitted as required under the Financial
    Management Manual Part 20. I sought Management’s explanation and they responded as follows:
    “We now have in place Finance Form 16, the Duty travel Advance Form and Register for both
    domestic and overseas travels. The Officer on duty travel acquits the expenses while on duty and
    duly signs on the acquittal form.”

    Personnel Files

    My review of the personnel files revealed that salary history cards, employment letters,
    birth/marriage certificates and salary declaration forms were not maintained for most of the files
    examined. In the absence of such valid documents, I was unable to verify each officer’s
    salary/wage and allowances paid and accruals provided for at year end. I requested Management
    explanation and they responded as follows: “In 2012 we have had change in management and the
    previous management did not maintain most of the staff files as you have noticed. One of the
    Senior Human Resource officers (Assistant Manager –HR) has been demoted and transferred to the
    enforcement Division and replaced with another officer. We have a vacancy in the position of
    Manager –HR and now looking at employing a well- qualified person to fill in this particular
    position.”

    Procurement Processes

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  • My review of the Council’s procurement processes revealed the following irregularities:
    * Payments were made without observing proper procedures;
    * Three written quotations per the Financial Management Manual Part 12(3) for amounts K5,000
    and less than K100,000 were not obtained; and
    * Payment vouchers selected for verification were missing rendering no audit trails.

    I brought these deficiencies to the attention of Management and they responded to my concern as
    follows: “The current and new Management was tirelessly working on achieving on all these
    issues.”

    Damaged Motor Vehicle

    During my review of the Council’s fixed assets, I noted that the Executive Director’s official vehicle
    (Toyota Land Cruiser – Registration No. BDV 596) was involved in a car collision leaving the vehicle
    at a disposable state. The Police Incident Report and Conviction Notice confirmed the driver of the
    other (Digicel) vehicle was convicted for drink driving and caused the accident.

    I was unable to ascertain whether the Council was compensated for the damage caused by Digicel
    (PNG) Limited. I sought explanation from Management and it responded to my query as
    follows:“This particular vehicle concerned involved in an accident and the driver of the other party
    Digicel PNG was convicted and the court case is still ongoing.

    We have engaged a Lawyer to take up our case against Digicel and the Lawyer has already given
    notice to sue the other party and we were advised by the Lawyer that if Digicel do not respond
    positively upon the notice then the Lawyer will give summons and we will update you from time to
    time.”

    Development Budget – K1,000,000

    My review of the Development Budget Grant revealed that K1,000,000 was transferred as
    development grant to the Council. I was not provided with supporting documents such as
    submissions and proposals that would give detailed purpose and scope of the grant transferred.
    Due to the absence of source documents, I was unable to comment on whether the grant received
    was expended according to priority areas of the Council. I requested Management to provide
    explanation and they responded as follows:

    “In 2012 we received K1m as development budget allocation from the National Government after
    we submitted various projects for funding from 2012 National Government budget. We submitted
    for K5m but received only K1m. That K1m was spread among the several projects we had in place,
    those projects were on-going.

    We were not provided with any documents but advised by the Department of Finance & Treasury
    that they have raised warrants of funding and directly credited our bank account. We asked the two
    Departments several times to provide the necessary documents K1m budget allocation but they
    could not provide any up to now.”

    33.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Council for the year ended 31

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  • December 2013 had not been submitted for my inspection and audit.

    34. NATIONAL ROADS AUTHORITY

    34.1 INTRODUCTION

    34.1.1 Legislation

    The National Roads Authority was established by the National Roads Authority Act 2003 and came
    into operation in 2004.

    34.1.2 Objectives of the Authority

    The objectives of the Authority are to:
    * Raise funds for the maintenance of public roads;
    * Ensure the efficient preparation of effective annual road maintenance programmes; and
    * Ensure that all routine, specific and emergency maintenance of roads and road rehabilitation and
    reconstruction funded by the Authority are executed in a transparent, effective and efficient
    manner, in order to optimise the contribution of road assets to the economic and social
    development of PNG.

    34.1.3 Functions of the Authority

    The functions of the Authority are to:
    * Establish and operate a Road Fund from road user charges, budget and other sources;
    * Establish resources and an organisation to enable the Authority to perform its functions;
    * Maintain and manage updated data on asset conditions using the Road Asset Management
    System, Bridge Inventory and Bridge Maintenance and other approved systems;
    * Formulate and determine prioritised annual road maintenance plans and programmes using the
    Road Asset Maintenance System, Bridge Inventory and Bridge Maintenance and other approved
    systems to be supported by the road sector cost recovery revenues;
    * Establish annual road maintenance funding requirements in accordance with the future annual
    road maintenance plans;
    * Determine and implement road user charges in accordance with the financial resource
    requirements of the annual road maintenance plans;
    * Deliver the required routine, specific and emergency road maintenance in accordance with the
    maintenance service levels established for each class or type or road, through the contracting of
    independent contractors, and to monitor and supervise the contracts as they are executed;
    * Deliver road improvement, and road restoration when required, by undertaking the design
    studies necessary for the programmed road improvement or rehabilitation projects by:
    ? Prepairing corresponding construction plans, specifications, cost estimates, and the other
    documents required for the proper tendering of the programmed works;

    ? Monitoring and supervising the works as are executed, by such qualified consultants and/or
    contractors as are engaged; and
    ? Ensuring safety audits on design, construction, maintenance and safety aspects of road.

    * Establish and sustain contract management capacity to ensure the validity of contracts and the
    effective management of contracts awarded for the execution of agreed road maintenance works
    and rehabilitation and reconstruction projects;

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  • * Ensure that all contracts are tendered through a transparent and competitive procedure to
    ascertain economic efficiency and sustainability in delivery of road maintenance and rehabilitation
    works;
    * Keep adequate records and to maintain a management information system which provides the
    Board and staff with accurate and timely information on commitments, expenditures and revenue
    for the purchase of consultancy and contracting services and other purchases and outlays;
    * Report publicly and transparently on collection of user charges, revenues, and in detail on the
    use of the revenues on the road maintenance programs in accordance with internationally accepted
    accounting principles;
    * Establish environmental management capacity;
    * Provide a continuing programme of professional staff development and required skills training
    for non-professional staff; and
    * Construct, erect or affix signs or marks on road transport infrastructure in accordance with the
    Motor Traffic Act (Chapter 243).

    34.2 AUDIT OBSERVATIONS

    34.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the inspection and audit of the
    accounts and records of the Authority for the years ended 31 December 2011 and 2012 were
    issued on 21 March 2014 and 24 April 2014 respectively. The reports contained similar Qualified
    Opinions, hence only the 2012 report is reproduced.

    “BASIS FOR QUALIFIED OPINION

    Contract Balance and Retentions – K31,057,571

    The Contract Balance and Retentions for the year ended 31 December 2012 was stated as
    K31,057,571 (2011:K8,547,985). The Authority recognised contract expense upon progressive
    job completion and not on a proportionate equitable basis on total contract amount. The Authority
    recognised a 56% of the contract balance at year end. However, I was unable to substantiate the
    measurement and the correctness of the account balance as no movements were recorded during
    the year ended 31 December 2012. Further, I observed that the subsidiary documentation provided
    for the basis of determination were not properly reconciled as movements were not accurately
    taken up and the rate used had no conservative basis. Consequently, I was unable to verify and
    confirm the measurement and the correctness of the account balance.

    Fuel Levy Receivable – K10,873,520

    The fuel levy receivable was stated as K10,873,520 in the financial statement at 31 December
    2012, of which K524,215 relates to prior year levy receivables but were not collected during the
    year under review.

    I was unable to confirm the accuracy, completeness and appropriateness of the prior year levy
    receivable balances as the Asycuda System Generated report from the IRC was not reliable.

    QUALIFIED OPINION

    In my opinion, except for the effects on the financial statements of the matters referred to in the

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  • Basis for Qualified Opinion paragraphs:
    (a) The financial statements of the Authority are based on proper accounts and records; and
    (b) The financial statements are in agreement with those accounts and records, and show fairly the
    state of affairs of the Authority as at 31 December 2012 and the results of its financial operations
    and cash flows for the year then ended.”

    34.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8 (2) of the Audit Act on the inspection and audit of the
    accounts and records of the Authority for the years ended 31 December 2011 and 2012 were
    issued on 21 March 2014 and 24 April 2014 respectively. These reports contained similar
    observations, hence only the 2012 observations are reproduced.

    Statutory Accounts and Records

    The Authority did not have any control mechanisms such as accounting manuals, operational
    guidelines and written policies. These records are supposed to be formally established, well
    documented and communicated to all levels and functions of the organisation and be used in daily
    activities by all personnel.

    I further noted that the Authority did not have a Corporate Plan in place. A Corporate Plan is a
    formal statement that sets out strategic business goals to achieve optimum performance.

    I recommended Management of the Authority develop such control mechanisms to achieve its
    Corporate objectives effectively. Management agreed with my observation and informed me that
    the Accounting Policy and Procedural Manual will be developed and implemented.

    Bank Reconciliation Statement

    Bank reconciliation statements were not prepared on a regular and timely manner. In my review,
    the reconciliations statements were prepared on an ad-hoc basis. Bank reconciliation is a vital
    control mechanism that identifies and rectifies discrepancies between the bank and cashbook
    balance. It also prevents overspending by keeping close control over cash flow management. In the
    absence of bank reconciliations, errors cannot be identified and corrected on a timely basis.

    I recommended the Authority to properly implement control procedures over the bank
    reconciliation process. The Management agreed and informed me that due to staff turnover, bank
    reconciliations were not done on a regular and timely manner.

    Staff Advance – K173,885

    Salary Advances were stated as K173,885 in the financial statement at 31 December 2012. I noted
    that salary advances were allowed for school fees and other assistance without any policy
    guidelines on salary advance. I further noted that the Authority did not maintain an Advances
    Register to keep track of advances made and their subsequent recoveries.

    Consequently, I recommended the Authority to maintain an Advance Register in compliance with
    the PFMA. Management informed me that a clear policy would be implemented and adopted to
    improve the situation.

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  • Former CEO Vehicle

    My review of the Authority’s fixed assets revealed that the CEO’s designated motor vehicle (BDH
    367) was under the custody of the former CEO, Mr Roy Mumu. I was unable to confirm the
    ownership of the said vehicle as there was no evidence of the transfer of ownership to the former
    CEO. I further noted that as per his contract of employment, the CEO may exercise his option to
    purchase the said vehicle at a price to be determined by the Authority. However, this determination
    had not been done and there was no evidence to show that the vehicle was purchased by the
    former CEO. Management agreed with my findings and informed me that the vehicle was still
    under his custody and that a final determination is yet to be done. Due to lack of proper
    documentation, I was unable to confirm whether the vehicle was purchased by the former CEO or
    returned to the Authority.

    Motor Vehicle Fleet

    Physical inspection conducted over motor vehicles revealed that motor vehicles belonging to the
    Authority were registered using private plate numbers instead of “Z” number plate. State owned
    vehicles should be registered with “Z” number plates to signify government ownership. I
    recommended the Authority comply with the Government’s directives. Management had agreed
    and informed me that corrective actions would be taken to comply with the requirements.

    Salary History Cards

    The Authority did not maintain proper employees’ salary and history cards. My review on the
    employees’ personal files revealed that leaves (furlong, recreational, annual, maternity, sick, and
    compassionate) taken and leaves accrued were not correctly and accurately recorded and updated
    by the Authority. Inadequate record keeping may expose the Authority to the risk of paying
    incorrect employee benefits. Management agreed and informed me that improvements have been
    initiated with the introduction of Attaché Payroll System and staff history cards.

    Salary and Wages Tax Declaration Form

    During my review of payroll processing, I noted that certain officers had no tax declaration form in
    their personal files. As a result, I was unable to determine the accuracy and authenticity of the
    dependent rebates claimed on salary and wage tax in compliance with the Income Tax Act 1959.
    Management had taken note of my audit findings.

    Leave Fare Entitlements

    In my review of leave fare entitlements, I was unable to verify the validity and authenticity of leave
    fares paid for dependents as no birth certificates and tax declarations maintained for dependents.

    According to the Public Services General Order (GO) 14.41, children under the age of 19 years that
    are wholly dependent and maintained by the officers are eligible for leave fares. As such, I was
    unable to verify and confirm the eligibility of the dependents and the validity of the leave fares
    paid. Management has taken note of my audit findings.

    Certificate of Compliance

    My examination on contract expenses revealed that payments totaling K3,143,704 were made to

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  • contractors who had expired Certificate of Compliance (COC).The IPA Business Investment
    Guideline on Income Reporting System stipulates that “where a contractor fails to produce a valid
    certificate of compliance (COC) to a company for services rendered, the company is required to
    deduct ten percent (10%) of total payment that is to be made to the contractor and remit that
    portion to IRC”. However, I noted that the Authority did not comply with the requirements of the
    IPA and IRC. In addition, the Authority did not request the contractors to provide renewed COC.
    Further, I did not sight the Certificate of Compliance for the payments made to contractors
    totaling K4,932,907. Management agreed with my audit findings and informed me that the
    situation was addressed since 2013.
    Procurement Process

    I noted that payments totaling K212,801 were made based on quotations instead of invoices and
    only one quotation was sighted for payment. The Authority did not comply with the Financial
    Management Manual, Part 12, Division 3 Para 9. Consequently, I was unable to determine whether
    the procurements made were transparent and procurements were made in accordance with the
    PFMA. Management agreed with my audit findings and informed me that necessary actions would
    be taken to improve the situation.

    Internal Controls

    My review of internal controls on cash receipting, bank reconciliation, payroll processing and
    procurement process revealed that there were no segregation of duties performed in those areas. I
    noted that only one officer was performing several tasks. I further noted that there were no
    independent checks done by an appropriate officer to ensure accounting procedures are in
    compliance with the requirements of the PFMA, Financial Instruction Manual and the General
    Orders of the Public Service.

    Absence of segregation of duties and lack of independent review may open avenues for improper
    practice such as fraudulent act and embezzlement. Management agreed and informed me that the
    internal controls need to be improved with the recruitment of an Internal Auditor.

    Report under Public Finances (Management) Act

    The Authority is required to prepare and furnish to the Minister a “Performance and Management
    Report” of its operations for the year, a quarterly report on all investment decisions, a detailed
    report on investment performance and returns and a five year investment plan. However, I noted
    that Management did not submit it’s relevant reports as required under Section 63 (2) of the PFMA
    to the Minister for the year ended 31 December 2012.

    34.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements for the year ended 31 December
    2013 had been submitted and arrangements were being made to commence the audit at the
    earliest possible.

    35. NATIONAL TRAINING COUNCIL

    35.1 INTRODUCTION

    35.1.1 Legislation

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  • The National Training Council was established under the National Training Council Act 1991.
    Although the Act came into operation on 5 December 1991, the Council formally began operating
    in April 1992 following its inauguration.

    35.1.2 Objectives of the Council

    The objectives of the Council are to:
    * Foster the comprehensive development of training with regard to the needs and the resources of
    the country;
    * Foster the co-ordination of training institutions so that the most effective use can be made of
    resources available for training which ensures increased productivity and capacity building in the
    workforce;
    * Make the benefits of training as widely as possible;
    * Plan and encourage the development of a system of training fitted to the requirements of the
    country and its people;
    * Establish, preserve and improve standards of training throughout the country;
    * Make the most effective use of the resources available for training related purposes in so far as
    this can be done by legislative and administrative measures; and
    * Generally augment and support the role and functions of the Commission for Higher Education
    as specified in the Higher Education Act (Chapter 397).

    35.1.3 Functions of the Council

    The principal functions of the Council are to be responsible for supervising and managing the
    implementation of the National Training Policy and for monitoring, reviewing and revising the
    National Training Policy when necessary; to provide guidelines to the NEC, Provincial Government,
    and the in-service Training Institution’s Governing Councils on any issues related to training; and
    to formulate and publish guidelines on human resource requirements, localisation and
    indigenisation issues and related matters.

    35.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the
    accounts and records and the examination of the financial statements of the Council for the years
    ended 31 December 2010, 2011, 2012 and 2013 were completed and the results were being
    evaluated.

    36. NATIONAL VOLUNTEER SERVICE

    36.1 INTRODUCTION

    36.1.1 Legislation

    The National Volunteer Service was established on 12 April 1990 under the National Volunteer
    Service Act 1990.

    36.1.2 Functions of the Service

    The principal functions of the National Volunteer Service are to promote a spirit of sacrifice and
    service to the people of PNG; to provide labour, skills, education and training to the community for

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  • development projects; to cooperate and assist National and Provincial Government agencies as well
    as other organisations whose goals include the development of the people of PNG, in achieving
    their plans and purposes; and to encourage and participate generally in the advancement of the
    development of PNG.

    36.2 AUDIT OBSERVATIONS

    36.2.2 Comments on the Financial Statements

    My reports to the Ministers under Section 8 (4) of the Audit Act on the National Volunteer Service
    financial statements for the years ended 31 December 2007, 2008, 2009 and 2010 were issued on
    25 April 2014. These reports contained Disclaimer of Opinions, hence only the 2010 report is
    reproduced as follows:

    “BASIS FOR DISCLAIMER OF OPINION

    Limitation of Scope on Opening Balances

    My report on the financial statements of the Service for the year ended 31 December 2009 was a
    Disclaimer of Opinion on limitation of scope in respect of Fixed Assets Register, Board Minutes,
    bank confirmations and receipts and payments. I was unable to perform sufficient audit
    procedures to satisfy myself as to the completeness and accuracy of the opening balances. Any
    adjustments that might have been found to be necessary on these opening balances would have
    had a consequential effect on the financial statements for the year ended 31 December 2010.

    Limitation of Scope – Lack of Audit Trail

    A substantial number of accounting records including general ledger, cashbook, payment
    vouchers, assets register, and receipt books were not maintained and provided by the Service for
    the year ended 31 December 2010 for my audit examination and review. As a result, it was
    impracticable to extend my audit procedures to determine the completeness and accuracy of the
    account balances in the financial statements at the year end.

    National Volunteer Service

    Bank Balance – K127,174

    The financial statements disclosed the bank account amounting to K127,174 as at 31 December
    2010 and this is the bank statement balance. The Service did not perform any bank reconciliations
    for the year under review and consequently, I was not provided with any monthly bank
    reconciliation statements and cashbook to validate the balance. I noted that the National Volunteer
    Service had not reconciled bank statement balance. As a result, I was unable to ascertain the
    accuracy and completeness of the bank balance for the year then ended.

    Fixed Assets – K176,135

    The financial statements disclosed fixed assets balance as K176,135 as at 31 December 2010.
    However, the Service did not furnish the Fixed Assets Register to show the balance on fixed assets.
    Further, my perusal of the records revealed that the Service have not disclosed the fixed assets
    movement during the year in the financial statements with each assets classification categories.

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  • Consequently, I was unable to comment on the existence, completeness and accuracy of this
    balance for the year ended 31 December 2010.

    Income – K1,161,449

    The financial statements disclosed a total receipts of K1,161,449 comprising; government grants
    of K1,201,000, other funding of (K73,516) and bank opening balance of K33,964. The general
    ledgers, trial balance and other supporting documentation including receipt and deposit books in
    respect of the above income were not provided for my audit examinations and verification. As a
    result, I was unable to ascertain the accuracy and completeness of total income as disclosed in the
    financial statements.
    Expenses – K1,127,484

    The financial statements disclosed total expenses of K1,127,484 as at 31 December 2010. I noted
    that the cashbook, general ledger, trial balance and other supporting documentations including
    cheque butts and payment vouchers were not provided for my verification. As a result, I was
    unable to comment on the accuracy and validity of this balance due to lack of adequate supporting
    documentation.

    Internal Control Environment

    During my review, I identified significant weaknesses in the Service’s overall internal control
    environment operated during the year ended 31 December 2010. The accounting system and
    internal control environment at the National Volunteer Service continued to be severely deficient.
    The inefficient management information system, inexperienced and/or incompetent staff and
    inadequate financial reporting structure had contributed to the undue delay in the preparation of
    the financial statements. The reports that were produced by the Service were further inaccurate
    and the management was unable to substantiate most of the balances in the general ledgers,
    mismanaged accounting records and other financial information. Further, I noted that the Service
    has no segregation of duties, nor employee records and entitlements within the Accounting and
    Finance Division. As a result, I was unable to place any reliance on the internal controls,
    completeness and accuracy of internal control systems for the year then ended.

    National Volunteer Service

    DISCLAIMER OF OPINION

    In my opinion because of the significance of the matters described in the Basis for the Disclaimer
    of Opinion paragraphs, and the effects of any adjustments, if any, that might have been
    determined to be necessary had the limitations not existed and that I have not been able to obtain
    sufficient audit evidences and accordingly, I was unable to express an opinion on the financial
    statements of the National Volunteer Service for the year ended 31 December 2010.”

    36.2.2 Audit Observation