Gazelle District Service Improvement Program Performance Audit Report 2007-2016

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    Auditor General’s Performance Audit Report on the Gazelle District Service Improvement Program (DSIP) for years 2007-2016.

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  • GAZELLE DISTRICT
    SERVICE IMPROVEMENT PROGRAM
    PERFORMANCE AUDIT FOR YEARS
    2007-2016

    PERFORMANCE AUDIT REPORT OF THE GAZELLE
    DISTRICT SERVICE IMPROVEMENT PROGRAM
    (DSIP) FOR YEARS 2007-2016

    The objective of the audit was to examine and ascertain the
    authenticity
    of the DSIP expenditure payments in compliance with Government
    procurement process, DSIP procedural requirements and applicable
    legislation.

    Key Statistics
    District Gazelle
    Sitting Member Honourable Jelta Wong
    Total Population 150,000 plus
    Five (5) Local Level Toma Vunadidir, Reimber Livuan, Central
    Gazelle,
    Government areas Inland Baining, Lassul Baining
    Province East New Britain
    Total DSIP funds for 2007- K58.05 Million
    2016
    Balance as at 31st August K10,627,255
    2017

    1 | Gazelle DSIP Performance Audit Report 2007-2016

    2 | Gazelle DSIP Performance Audit Report 2007-2016

    Telephone: 301 2203 Fax: 325 8295 Website: www.ago.gov.pg Email:
    agopng@ago.gov.pg

    OFFICE OF THE AUDITOR-GENERAL

    Honorable Job Pomat, MP
    Speaker of the National Parliament
    Parliament House
    WAIGANI
    National Capital District

    Dear Mr. Speaker
    In accordance with the provisions of Section 214 of the National
    Constitution of the

  • Page 2 of 48

  • Independent State of Papua New Guinea, and the Audit Act 1989 (as
    amended), I have
    undertaken a Performance Audit on the District Services Improvement
    Program
    (DSIP).
    I submit the report titled Gazelle District Services Improvement
    Program (DSIP)
    Performance Audit for years 2007-2016.
    Following its presentation, receipt and tabling, the report will be
    placed on the
    Auditor-Generals Office of Papua New Guinea Homepage: www.ago.gov.pg

    Mr. Gordon Kega, MBA, CPA
    Acting Auditor-General
    3 | Gazelle D S I P Performance Audit Report 2007-2016

    4 | Gazelle D S I P Performance Audit Report 2007-2016

    Contents
    ACRONYMS AND DEFINITIONS
    7
    EXECUTIVE SUMMARY
    8
    INTRODUCTION
    8
    AUDIT OBJECTIVE, CRITERIA, SCOPE AND METHODOLOGY
    8
    AUDIT OBJECTIVE
    8
    CRITERIA
    8
    SCOPE
    9
    AUDIT METHODOLOGY
    9
    AUDIT CONCLUSION
    9
    RECOMMENDATIONS
    12
    RECOMMENDATION 1
    12
    RECOMMENDATION 2
    12
    RECOMMENDATION 3
    13
    RECOMMENDATION 4
    13
    RECOMMENDATION 5
    14
    CHAPTER 1. FINANCIAL ARRANGEMENTS
    15

  • Page 3 of 48

  • CONCLUSION
    15
    KEY FINDINGS
    15
    CHAPTER 1 FINDINGS
    16
    FUNDING ALLOCATION FOR DSIP
    16
    TOTAL DSIP FUNDS DISBURSED TO GDDA FOR YEARS 2007-2016
    16
    DATA OF TOTAL FUNDS RECEIVED NOT KEPT AND RECONCILED.
    17
    UNAVAILABILITY OF RECORDS PERTAINING TO YEARS 2007-2012
    17
    DATA FOR 2013-2014 WAS PARTIALLY MAINTAINED
    17
    RECOMMENDATION 1
    19
    RESPONSE
    19
    CHAPTER 2 EXPENDITURE TREND
    20
    CONCLUSION
    20
    KEY FINDINGS .
    20
    CHAPTER 2 FINDINGS
    21
    RECOMMENDATION 2
    23
    RESPONSE
    23
    CHAPTER 3. EXPENDITURE NOT IN LINE WITH THE DSIP GUIDELINES
    24
    CONCLUSION
    24

    5 | Gazelle D S I P Performance Audit Report 2007-2016

    KEY FINDINGS
    24
    CHAPTER 3 FINDINGS
    25
    TOKEN OF APPRECIATION PAYMENTS
    25
    GHOST NAMES PAID WAGES FROM GAZELLE DISTRICT TRUST OPERATING
    ACCOUNT (DTOA) 26
    GAZELLE DEVELOPMENT ROAD MANAGEMENT UNIT (GDRMU)
    26
    QUESTIONABLE PAYMENT TOTALLING K18,000 MADE TO AIM GLOBAL AS
    SCHOOL FEE ASSISTANCE IN
    2015
    29

  • Page 4 of 48

  • RECOMMENDATIONS 3
    29
    RESPONSE
    29
    CHAPTER 4. PROCUREMENT OF INFRASTRUCTURE AND THE TENDERING PROCESS
    30
    CONCLUSION
    30
    KEY FINDINGS
    30
    CHAPTER 4 FINDINGS
    31
    EXAMPLES OF GDDA PROJECTS WITH POOR PROCUREMENT OF PROJECT
    MANAGEMENT PRACTICES 32
    INCOMPLETE KEREVAT MARKET AT THE COST OF K 3 MILLION
    33
    INCOMPLETE TOKIALA FIBRE GLASS PROJECT, COST OF K489,782.30 IN
    2015 AND 2016 33
    CONFLICT OF INTEREST IN THE TOKIALA FIBREGLASS PROJECT
    34
    KEREVAT RURAL HOSPITAL UNCOMPLETED X-RAY ROOM RENOVATION, COST OF
    K121,588 38
    PAYMENT TO AN INDIVIDUAL PERSON TOTALLING K30,000 IN 2014 FOR WORK
    THAT WAS NOT VERIFIED BY
    AUDIT.
    39
    RECOMMENDATION 4
    39
    RESPONSE
    40
    CHAPTER 5. MANAGEMENT OF FIXED ASSETS
    41
    CONCLUSION
    41
    KEY FINDINGS
    41
    CHAPTER 5 FINDINGS
    41
    ASSET MANAGEMENT
    41
    RECOMMENDATION 5
    43
    RESPONSE
    43
    APPENDIXES
    44
    LIST OF TABLES
    44
    LIST OF FIGURES
    44

  • Page 5 of 48

  • 6 | Gazelle DSIP Performance Audit Report 2 0 0 7 – 2 0 1 6

    Acronyms and Definitions
    Acronym Definition
    CSTB Central Supply Tenders Board
    DIRD Department of Implementation and Rural Development
    DTOA District Treasury Operating Account
    DSG District Support Grant
    DSIP District Services Improvement Program
    EDF Electoral Development Funds
    ENB East New Britain
    GDRMU Gazelle Development Road Management Unit
    GDDA Gazelle District Development Authority
    KRH Kerevat Rural Hospital
    LEL Log Export Levy
    LLG Local-level Government
    PF(M)A Public Finance (Management) Act 1995
    PFD Project Formulation Document
    PGAS PNG Government Computerized Accounting System
    PID Project Initiation Document
    PSIP Provincial Services Improvement Program
    PSTB Provincial Supply and Tender Board

    7 | Gazelle D S I P Performance Audit Report 2007-2016

    Executive Summary

    Introduction
    Since the 1980s, the Government of PNG has allocated funding to
    Members of
    Parliament (MPs) to spend in their electorates known as the
    Electoral Development
    Fund (EDF). PNG has 89 open electorates (usually made up of one or
    more districts).

    In 2007, the Government of PNG introduced the District Services
    Improvement
    Program (DSIP) program replacing the Electoral Development Fund
    (EDF). Under the
    DSIP, government funding of K10million was to be made available to
    each District.

    The District Development Authority Board (previously known as the
    Joint District
    Planning Budget Priorities Committee (JDPBPC)) was the decision-
    making body for

  • Page 6 of 48

  • the DSIP and has ultimate responsibility on how the funds are spent.
    It is chaired by
    the MP of the district (or electorate) and also includes Local-Level
    Government (LLG)
    presidents and community members.

    The DSIP is not a discretionary account for MPs to use as they wish.
    The Government
    intends for the DSIP funds to finance basic infrastructure, and to
    improve service
    delivery. In 2013, the Department of Implementation and Rural
    Development (DIRD)
    issued administrative guidelines for spending DSIP funds. The
    guidelines stated that
    at least 40 per cent of this funding is to be spent on service
    improvement in the areas
    of health and education.

    Audit objective, criteria, scope and methodology
    An independent audit of the Gazelle District Support Improvement
    Program (DSIP)
    was requested by the Member (MP) for Gazelle District, Honourable
    Jelta Wong in
    September 2017. The Auditor-General considered the request and
    decided to
    commence an audit on this matter.
    Audit Objective
    The objective of the audit was to examine and ascertain the
    authenticity of the DSIP
    expenditure payments in compliance with Government procurement
    process, DSIP
    procedural requirements and applicable legislation.
    Criteria
    To form a conclusion against this audit objective, the AGO examined
    and ascertained
    whether:
    • DSIP expenditure payments complied with Government procurement
    process,
    procedural requirements and applicable laws (including DSIP
    Guidelines,
    Finance Instructions, Public Finance Management Act (1995 as
    amended), and
    the Legislations of Papua New Guinea).

    8 | Gazelle D S I P Performance Audit Report 2007-2016

    • Management and acquittals including monitoring and reporting
    requirements
    were adhered to.
    • Goods and services have been received for the funds expended and
    value for
    money was achieved.

  • Page 7 of 48

  • Scope
    Audit covered the Gazelle District Development Authority (GDDA) and
    DSIP
    programs and projects around the Gazelle District and looked into
    the following areas:
    • Payments and expenditures for the period 2013-2016 fiscal years
    • Billing and Accounting Practice
    • Corporate Governance
    • Management Internal Controls and systems
    • Asset Management
    • Projects Inspection and Verification
    • Management of Infrastructure Contracts
    • Cash Book and Bank Reconciliations
    • Human Resources
    Audit Methodology
    The audit team employed a number of data collection methods and
    techniques
    including:
    • examination of expenditure records and source documents;
    • data analysis and recalculations of payment amounts;
    • project inspection and verification;
    • the assessment of systems and payment process in place including
    survey using
    questionnaire;
    • reviewing of DSIP key policy documents such as DSIP
    Administrative
    Guidelines and Finance Instructions, District Corporate plans,
    PFMA 1995, and
    relevant legislations; and
    • interviewing key officers of the Gazelle District Development
    Authority
    (GDDA).

    Audit Conclusion
    The Gazelle District Development Authority (GDDA) has not complied
    with all
    Government procurement process, DSIP procedural requirements and
    applicable
    legislation, regarding DSIP expenditure. The findings from this
    audit are serious with
    a number of suspicious and potentially fraudulent transactions
    detected. The audit
    inspections also revealed that a number of projects undertaken by
    GDDA had either
    nothing to show for the expenditure (a ‘ghost’ project), or were
    left incomplete or
    completed to a substandard level, despite the full project costs
    being spent.

    9 | Gazelle D S I P Performance Audit Report 2007-2016

    The GDDA did not maintain appropriate supporting documentation to
    validate DSIP

  • Page 8 of 48

  • expenditure. Examples of missing documentation included invoices,
    payment
    vouchers, contractual agreements, certificates of completion, tender
    documents,
    quotations, bank reconciliations, development plans, project
    reports, fixed assets
    registers and minutes of meetings.

    This gives rise to non-compliance with the requirements of the
    Finance Instruction
    and the Public Finances (Management) Act and increases the risk of
    irregularities,
    fraud and error with respect to the application of DSIP funds.

    It was also found that the District Treasury Operating Account
    (DTOA) has been used
    to receive other funding in addition to the DSIP funds. Utilising
    the DTOA for other
    deposits reduces the ability of the Government to hold Districts
    accountable for the
    manner in which DSIP funds are spent. Further, in a majority of
    cases the difference
    between the DSIP funds disbursed and deposited in the trust account
    has not been
    reconciled. Accordingly, it is not possible to accurately determine
    where funds have
    been received from and the intended purpose of the funds.

    The strategic planning framework has not been fully implemented
    across the district
    and was not operating as intended. Key documents, including the
    Five-Year District
    Development Plan, approved budgets and the prioritised list of
    projects were not
    followed. As a result, spending has not been well-directed, and
    funds have been spent
    on projects outside the aims of the DSIP.

    Actual expenditure from Gazelle District is not consistent with the
    proportions
    mandated and recommended by the DSIP program requirements. This
    creates a risk
    that some sectors will not receive the specified proportion of
    funding and benefits of
    the program will not be appropriately spread around the District.
    The desired
    outcomes of the DSIP are not being achieved and certain areas of
    focus of the DSIP are
    receiving little or no benefit.

    It was noted that a considerable amount of expenditure was
    undertaken on items
    outside the DSIP guidelines. On areas including: tokens of
    appreciation; Wages; School

  • Page 9 of 48

  • Fees Assistance; Gazelle District Road Management Unit (GDRMU); and
    maintenance.

    There appear to be limited processes in place to manage and monitor
    the progress of
    projects or the performance on sub-contractors. Further, there is
    limited use of signed
    contracts to formalise the subcontracting relationship with service
    providers. These
    malpractices have resulted in value for money not being achieved by
    the District.

    10 | Gazelle D S I P Performance Audit Report 2007-2016

    Further, limited use of a competitive tender process increases the
    risk of irregularities
    and fraud.

    The impacts from the malpractices shows that, there are many
    infrastructure projects
    that have been fully paid for by GDDA but remain either incomplete
    or completed to
    a substandard level. Due to the limited use of contracts at a
    District level there is
    limited recourse against non-performing sub-contractors that have
    been utilised.

    The GDDA’s management of assets is not effective. The fixed assets
    register is
    incomplete and not properly maintained. This was evident in the
    audit tests results,
    which found that a large number of assets could either not be
    located or were identified
    as damaged. The lack of maintaining and updating an asset register
    creates the
    potential of mismanagement and theft of GDDA assets.

  • Page 10 of 48

  • 11 | Gazelle D S I P Performance Audit Report 2007-2016

    Recommendations
    Recommendation 1
    AGO recommends that the Gazelle District Development Authority
    (GDDA):
    1. Ensures that financial records and data for financial years 2012
    back to prior
    years are tracked and kept to ensure accountability of GoPNG DSIP
    funds.
    2. Builds proper and secure storage rooms for records management to
    safeguard
    the records of the GDDA.
    3. Properly and accurately records all funds received, and
    reconciles these to the
    District Treasury Operating Account (DTOA) on a timely basis and
    corresponds with the financial data that is sent by GDDA to
    Department of
    Finance Head Quarters in Port Moresby.
    Gazelle District Development Authority Response: Agreed
    Recommendation 2
    AGO recommends that the Gazelle District Development Authority
    (GGDA):
    1. Complies with the funding guidelines of DSIP by sector and
    implement the
    sector programs accordingly to ensure that services are
    delivered to the
    population according to the government’s plan by sector.
    2. Establishes a monitoring system to track expenditure by
    program against
    its DSIP expenditure in Gazelle District, so that it can clearly
    track its level
    of development against its development plan.
    3. Replaces the five (5)-year development plan which lapsed at
    the end of 2017
    with a new multi-year development plan that will guide GDDA and
    drive
    developments.

  • Page 11 of 48

  • Gazelle District Development Authority Response: Agreed

    12 | Gazelle D S I P Performance Audit Report 2007-2016

    Recommendation 3
    AGO recommends that the Gazelle District Development Authority
    (GGDA):
    1. Immediately stop all expenditures out of the DSIP funds that
    are not in line
    with the funding arrangements. Appropriate disciplinary/legal
    action is also
    required against:
    • Officers who abused their authority to pay themselves
    excessive
    “Tokens of Appreciations”;
    • Officers responsible for using GDDA funds to pay salaries
    for
    individuals who are not employed by the district (termed
    ‘Ghost Names’
    in this audit); and
    • Officers that were responsible for making a payment of
    K18,000 in the
    disguise of School fee assistance to the pyramid scheme ‘Aim
    Global’.
    2. Should not use the District Support Grants (DSG) and DSIP funds
    that come
    into the District Treasury Operating Account (DTOA) to maintain
    GDDA’s
    business arm Gazelle District Road Management Unit (GDRMU). This
    is in
    breach of the DSIP guidelines.
    3. Review the long term viability of maintaining the GDDA business
    arm
    GDRMU, and whether the benefits outweigh the costs of continuing
    it.
    Gazelle District Development Authority Response: Agreed
    Recommendation 4
    AGO recommends that the Gazelle District Development Authority

  • Page 12 of 48

  • (GGDA):
    1. Takes appropriate management action on the Contractors and
    Officers tasked
    to manage the projects listed below:
    • Kerevat Market — non-existent despite spending K3 million;
    • Tokiala Fibre Glass Project — non-existent despite spending
    K489,782.30;
    • Utmei Aidpost upgrade — unfinished despite spending K321,000;
    • Vunapalading Construction of the Kerevat Health Centre Nurses
    Duplex —
    unfinished despite spending K320,000;
    • Kerevat Rural Hospital X-ray Room Renovation — incomplete
    despite
    spending K151,588; and
    • The maintenance invoice for work at Kerevat Rural Hospital
    (KRH)
    totalling K30,000 being paid to an individual, which the AGO
    could not
    verify.
    2. Establishes controls on Procurement & Tendering to ensure
    compliance with
    the DSIP guidelines, PFMA and relevant legislations. This should
    ensure that
    project designs, costs, monitoring and reporting is done in a
    manner consistent
    with the allowable standards.
    3. Reviews the quality and qualifications of officers that it
    currently employs in
    the administration. This review should be conducted in
    consultation with the
    Provincial Works Office. The GGDA should upskill current staff
    or advertise

    13 | Gazelle D S I P Performance Audit Report 2007-2016

    for skilled personnel that are efficient and effective in
    delivering tasks and
    programs.
    Gazelle District Development Authority Response: Agreed
    Recommendation 5
    AGO recommends that the Gazelle District Development Authority
    (GGDA):
    1. Undertake a stocktake of all government assets, building, plant,
    equipment
    vehicles furniture’s and fittings, and a centralised asset
    management system is
    developed and maintained by a dedicated officer to ensure that
    all assets are
    accounted for.
    2. Have a dialogue with the East New Britain (ENB) Provincial
    Administration to
    review the policy for disposing of vehicles after 3 years. This

  • Page 13 of 48

  • is a costly exercise
    and the GDDA has no budget for buying new vehicles or machinery
    for the
    DSIP sectoral programs.
    Gazelle District Development Authority Response: Agreed

    14 | Gazelle D S I P Performance Audit Report 2007-2016

    Chapter 1. Financial Arrangements
    Conclusion
    Gazelle DSIP did not maintain appropriate supporting documentation
    to validate DSIP
    expenditure. Examples of missing documentation included invoices,
    payment vouchers,
    contractual agreements, certificates of completion, tender
    documents, quotations, bank
    reconciliations, development plans, project reports, fixed asset
    register and minutes of
    meetings.

    This gives rise to non-compliance with the requirements of the
    Financial Instructions
    and the Public Finances (Management) Act and increases the risk of
    irregularities, fraud,
    and error with respect to application of DSIP funds.

  • Page 14 of 48

  • It was also found that the District Treasury Operating Trust Account
    (DTOA) has been
    used to receive other funding in addition to the DSIP funds.
    Further, in a majority of
    cases the difference between the DSIP funds allocated and deposited
    in the DTOA and
    total funds received has not been reconciled. Accordingly, it is not
    practical to accurately
    determine where funds have been received for the intended purpose of
    the funds.

    This has the effect of the district having access to additional
    funding with no clear
    direction as to how these funds should be spent. Further, utilising
    the DTOA and DSIP
    account for other deposits reduces the ability of the Government to
    hold districts
    accountable for the manner in which DSIP funds are applied.
    Key Findings
    A total of K58.05 million was disbursed as DSIP to the Gazelle
    district for years 2008-
    2016. The DSIP funding was managed under the account named “District
    Treasury
    Operating Trust Account”. This account held all other funds for the
    district, including:
    • District Support Grants (DSG);
    • National Agriculture Development Program (NADP); and
    • Log Export Levy (LEL).

    Audit review of the financial management of GDDA found that no
    record has been kept to
    account for all the funds received into the district despite having
    a full finance team
    (Treasurer, Accountant and 2 accounts clerk’s/officers) stationed at
    the District Treasury
    Office.

    The Audit found that records and back-up data were not retained from
    2007-2012. The
    risk and impact it poses on management is very high on areas such
    as:
    •Accountability of expenditures undertaken over the last 10 years;
    •Location of assets that were purchased over the last 10 years that
    are not included in
    the asset register;
    •Document trail accounting, auditing and management purposes; and
    •Accuracy of acquitted reports submitted to the Department of
    Infrastructure and Rural
    Development (DIRD) and Department of Finance.

    Management file documentation was very poor, including that:

    15 | Gazelle DSIP Performance Audit Report 2007-2016

  • Page 15 of 48

  • • The files were stacked outside the treasury office accessible to
    the public;
    • No filing cabinet exists;
    • Minutes of meetings were not properly filed;
    • Contract files were not maintained; and
    • Personnel files were poorly managed.

    Chapter 1 Findings

    Funding allocation for DSIP
    The National Executive Council (NEC) Decision NG 414/2013
    decision made on
    18th November 2013, and subsequent Finance Instructions 2/2014
    & Finance
    Instruction 1 of 2015 directed for District Support
    Improvement Program and
    funding on sectoral basis. These key sectors are shown in
    Table 1.
    Table 1: Distribution of DSIP K10 million through sectors 2013-2016

    Sector Funding K10million total
    Allocation
    Infrastructure 30% K3million
    Health 20% K2million
    Education 20% K2million
    Law and Justice 10% K1million
    Economic & Agriculture 10% K1million
    Administration 10% K1million
    (K300,000 General Admin (30%))
    (K300,000 MP Office Support
    (30%))
    (K400,000 Project Mobilisation
    (40%))
    Source: DSIP Administrative Guidelines 1B/2014 (1st January 2014).

    Total DSIP funds disbursed to GDDA for years 2007-2016
    Table 2: Total DSIP Funds allocated and Released to Gazelle District
    2007 2008 2009 2010 2011 2012 2013 2014 2015
    2016

    DSIP GDDA Not Available4m 6m 5m 3m 2m 10m 10m 8.05m
    10m
    Total K58,050,000 (K58.05million)1
    Note 1: The K58.05 million is only the DSIP component for years
    2008-2016, all the other
    grants that go into this account is not factored in this
    total.
    Source: Department of Implementation and Rural Development audited
    report.
    While the Gazelle district was notionally allocated K10
    million per year, for a
    total of K90 million from 2008-2016. According to the Table 2,

  • Page 16 of 48

  • a total of
    K58.05 million was disbursed to Gazelle district as DSIP for
    that period, from
    the Department of Implementation and Rural Development
    records. The
    GDDA does not maintain any data or documentations to show that
    they
    received these funds.

    16 | Gazelle DSIP Performance Audit Report 2007-2016

    Bank Accounts
    Part 6.1 of the Department of Finance, Financial Instructions 1
    of 2015
    regarding the functional arrangement for the District
    Development Authority
    (DDA), states that the:
    District Development Authority will utilise the existing
    District/Provincial
    Treasury operating Account to make expenditure, payments
    and do receipting
    of DSIP funds until as and when need arises to establish
    another trust account
    then a formal request must be made to Secretary of Finance
    providing full
    explanations.
    The DSIP funds in Gazelle is managed under the account named
    “District
    Treasury Operating Account” (DTOA) with the Bank of South
    Pacific. The same
    account holds the districts other funds, including the:
    • District Support Grants (DSG);
    • National Agriculture Development Program (NADP); and
    • Log Export Levy (LEL).
    Data of Total Funds received not kept and reconciled.
    Audit review of the financial management of GDDA found that no
    records or
    ledgers were maintained to account for all the funds received.
    The GDDA undertook no reconciliation of dispersed DSIP
    allocations with
    actual funds received by the District. Accordingly, the audit
    was unable to verify
    that the budgeted DSIP allocations have been disbursed across
    the District as
    intended.
    Control weaknesses over recording of revenue can lead to fraud
    and poses a
    high risk of inaccurate accounting of revenue records.
    Unavailability of records pertaining to years 2007-2012
    Audit review of the systems and controls surrounding the
    receipting and
    collection of revenues were noted to be weak and needed
    addressing. Including

  • Page 17 of 48

  • that the revenue data pertaining to years 2007-2012 could not
    be confirmed by
    AGO, due to poor records management at the GDDA.
    The GGDA confirmed that no data pertaining to years 2007-2012
    was kept at
    the Gazelle District. Without this financial data the district
    could not monitor
    and take stock of the assets and projects that were carried out
    in the district.
    Data for 2013-2014 was partially maintained
    • Data for 2013-2014 was partially maintained but soft/hard
    copies of the Papua
    New Guinea Accounting System (PGAS) could not be obtained due
    to
    unavailability of PGAS Server at the District.
    • AGO was advised that East New Britain was one of the Provinces
    where the
    Governments new Integrated Financial Management System (IFMS)
    was rolled
    out and all PGAS servers were replaced with the IFMS in 2016.

    17 | Gazelle D S I P Performance Audit Report 2007-2016

    Without access to the records or back-up data, there is a very
    high risk and
    impact on areas such as:
    • Accountability of expenditures undertaken over the last 10
    years;
    • Location of assets that were purchased over the last 10 years
    that are not
    included in the asset register;
    • Document trail accounting, auditing and management purposes;
    and
    • Accuracy of acquitted reports submitted to DIRD and Department
    of Finance.

    District Treasurer failed to allow AGO officers access to GDDA
    records
    Despite the District Treasurer confirming and signing the Local
    Audit Query
    (LAQ) that no data was backed up and kept in the district,
    further audit inquiry
    with the District Accountant confirmed that they did maintain
    copies of the data
    for 2015 and 2016. This data was then made available to the
    audit team.
    The attempt to keep government records from Auditor-Generals
    Office is a
    breach of section 213 & 214 of the National Constitution on the
    powers of the
    Auditor General.

    Document Management

  • Page 18 of 48

  • For accurate accounting and financial purposes, the Public
    Finance
    Management Act (PFMA) requires that financial data and
    information must be
    kept to account and record all transactions of the District
    Accounts. The PFMA
    also requires that all financial documents be maintained in a
    proper and secure
    storage area, to establish financial trails to expenditures
    which can be used by
    other financial entities as well a management to track
    expenses.
    Figure 1: Gazelle District Development Authority (GDDA) Financial
    Records stacked outside the
    GDDA treasury office

    GDDA was found to have poor controls regarding the management
    of financial
    records management, as shown in Figure 1. These files were
    stacked outside the
    treasury office which were easily accessible to the public. AGO
    found that there
    was:

    18 | Gazelle D S I P Performance Audit Report 2007-2016

    • No filing cabinet to properly store the financial documents of
    the district;
    • No documents pertaining to years 2007-2009 were kept;
    • Minutes of Meetings were not properly filed, they should be
    filed and kept in
    the administrator’s office;
    • Contract files were not kept; and
    • Personnel files were poorly managed.

    Recommendation 1
    AGO recommends that the Gazelle District Development Authority

  • Page 19 of 48

  • (GDDA):
    1. Ensures that financial records and data for financial years
    2012 back to prior
    years are tracked and kept to ensure accountability of GoPNG
    DSIP funds.
    2. Builds proper and secure storage rooms for records management
    to safeguard
    the records of the GDDA.
    3. Properly and accurately records all funds received, and
    reconciles these to the
    District Treasury Operating Account (DTOA) on a timely basis
    and
    corresponds with the financial data that is sent by GDDA to
    Department of
    Finance Head Quarters in Port Moresby.
    Response
    Gazelle District Development Authority agreed with findings.

    19 | Gazelle D S I P Performance Audit Report 2007-2016

    Chapter 2 Expenditure trend
    Conclusion
    The strategic planning framework has not been fully implemented
    across the district and
    was not operating as intended.

    Key documents, including the Five-Year District Development Plan,
    approved budgets

  • Page 20 of 48

  • and expenditure on sector programs not followed.

    GDDA actual expenditure for years 2007-2016 did not follow the DSIP
    program
    guidelines. This resulted in sectors programs not receiving expected
    funding proportions,
    meaning that the intended benefits of the DSIP program was not
    appropriately spread
    around the District.
    Key Findings .
    Only data for 2013 to 2016 totalling K38.05million was tested due to
    the lack of available
    data and records for years 2007-2012.

    From the audited funds of K38.05million, only K20.1 million was
    spend on the DSIP
    required sectors.

    AGO notes that K17.95 Million from the 2013-2016 DSIP grants
    released is un-accounted
    for (equivalent to 47 per cent of released funds).

    While K10million was released in most years from 2013 to 2016, total
    expenditure per
    sector was below 50% for 2013 and 2014. As a result, most of the
    programs for 2013 and
    2014 were rolled over into years 2015 and 2016. The district has
    been mainly
    implementing rollover programs in recent years.

    20 | Gazelle DSIP Performance Audit Report 2007-2016

  • Page 21 of 48

  • Chapter 2 Findings
    2.1 Only data for 2013 to 2016 totalling K38.05million was
    tested due to the lack
    of available data and records for years 2007-2012.
    2.2 The audit noted that only K20.1 million was spent on DSIP
    approved sectors
    for the years 2013-2016 as shown in Figure 2.
    2.3 Of the K38.05 million that DIRD has reported providing to
    GDDA from 2013-
    2016, a sum of K17.95 million is un-accounted for (equivalent
    to 47 per cent of
    received funds).
    Figure 2: DSIP revenue vs Expenditure in Gazelle District from 2013
    to 2016.
    12,000,000
    10,000,000
    8,000,000
    6,000,000
    4,000,000
    2,000,000
    0 2013 2014 2015
    2016
    Amount Allocated Expenditure Rollover Expenditure

    Graph Narrative
    2.4 Figure 2 shows that despite government releasing K10million
    to GDDA for
    three of the four years from 2013-2016, total expenditure was
    below 50% for
    2013 and 2014. As a result, most of the programs for 2013 and
    2014 were rolled
    over into years 2015 and 2016. The district has been mainly
    implementing
    rollover programs in recent years.
    2.5 The DSIP funding guidelines (discussed in Chapter 1) state
    that the proportion
    of DSIP expenditure for each sector should be:
    • 30 per cent Infrastructure;
    • 20 per cent Health;
    • 20 per cent Education;
    • 10 per cent Law and Justice;
    • 10 per cent Economic & Agriculture; and
    • 10 per cent Administration.

    21 | Gazelle D S I P Performance Audit Report 2007-2016

    Figure 3: DSIP Expenditure by sector in Gazelle District for years
    2013-2016
    2.6 Audit analysis of the expenditure against sector programs in
    Figure 3 found

  • Page 22 of 48

  • that GDDA did not fully roll out the its 5 year plan because the
    expenditures
    on all sectors in the 4 years were below the 50% mark for all
    sectors. The only
    increased expenditure over the 5-year period was on infrastructure
    (K4million
    in 2016). This figure (K4million) was higher than the threshold for
    one year
    (K2million) and was confirmed with GDDA that the additional,
    increase in
    Infrastructure spending in 2015 and 2016 was due to:
    o Outstanding invoices on projects for prior years expenditure being
    carried forward covering years 2011-2014. Audit noted that most of
    the
    payments were based on minutes and resolutions from GDDA board
    from 2011-2014.
    Five (5)-year Plan for 2012-2017 was not fully implemented.
    2.7 Audit is of the view that the 5-year Plan for GDDA covering
    2012-2017 was not
    fully implemented as the expenditure analysis shows that all the
    goals of the
    plan were not fully achieved.
    2.8 The GDDA five (5)-year development plan lapsed at the end of
    2017 and should
    be replaced with a new multi-year development plan that will guide
    GDDA and
    drive developments.
    22 | Gazelle D S I P Performance Audit Report 2 0 0 7 – 2 0 1 6
    5,000,000
    4,000,000
    3,000,000
    2,000,000
    1,000,000
    0
    Economic
    Health
    Infrastructure
    Community
    Development
    Law & Order
    Education
    Administration
    2013
    2014 2015
    2016

    Recommendation 2
    AGO recommends that the Gazelle District Development Authority
    (GGDA):
    1. Complies with the funding guidelines of DSIP by sector and
    implement the
    sector programs accordingly to ensure that services are
    delivered to the

  • Page 23 of 48

  • population according to the government’s plan by sector.
    2. Establishes a monitoring system to track expenditure by
    program against
    its DSIP expenditure in Gazelle District, so that it can clearly
    track its level
    of development against its development plan.
    3. Replaces the five (5)-year development plan which lapsed at
    the end of 2017
    with a new multi-year development plan that will guide GDDA and
    drive
    developments.
    Response
    Gazelle District Development Authority agreed with findings.

    23 | Gazelle D S I P Performance Audit Report 2007-2016

    Chapter 3. Expenditure not in line with the DSIP Guidelines
    Conclusion
    DSIP funds are intended to be spent on the sectors identified in the
    DSIP guidelines.
    However, it was noted that a considerable amount of DSIP funds was
    expended on items
    outside the DSIP guidelines such as: Token of appreciation; Wages;
    School Fees
    Assistance; and sustaining its business arm, the Gazelle District

  • Page 24 of 48

  • Road Management Unit
    (GDRMU).

    AGO further concludes that, due to the costs associated with
    maintaining a business arm
    without a funding source, it is advisable that management review its
    decision to maintain
    GDRMU and whether the benefits outweigh the costs.

    The District Support Grants (DSG) and DSIP funds that come into the
    DTOA should not be
    used to maintain GDRMU. This is a breach of the financial
    guidelines, which states what
    DSG and DSIP funds can be used for.
    Key Findings
    Audit review uncovered that the Officers were paying themselves
    cash/cheque payments
    known as ‘token of appreciation’ for working overtime and/or other
    reasons only known
    to them. In 2015 and 2016, the audit found that a total of K125,989
    was paid as token of
    appreciation to the GDDA officers, and mostly to senior public
    servants.

    Audit review of expenditures incurred by GDDA in 2015 and 2016 found
    that a
    substantial amount of administration funds (totalling K200,813) was
    used to pay the
    wages of casual staff. AGO further noted that, thirteen (13) casual
    staff currently engaged
    by GDDA, had been casual employees for more than three (3) years,
    exceeding the six (6)
    month allowable probation period.

    It was also uncovered that two ‘Ghost’ employees were being paid
    wages from the District
    Treasury Operating Account (DTOA).

    Proper planning and cost benefit analysis were not done to assess
    whether GDDA had the
    capacity to sustain the Gazelle District Road Management Unit
    (GDRMU) which is a
    Business arm of GDDA. A considerable amount of GDDA DSIP funds had
    been used to
    sustain, as well as maintain, GDRMU and its machineries. The GDDA
    could not provide the
    total revenue that was received for GDRMU for years 2007 to 2012.

    The GDRMU’s current practices of leasing machinery to construction
    contractors poses a
    very high risk of collusion. The GDDA officers and contractors could
    defraud the State
    through this arrangement, whereby the State is paying for the hire
    of machinery that it

  • Page 25 of 48

  • already owns.

    A total of K1.3 million was paid as school fees assistance from the
    DSIP funds between
    2015 and 2016. The guidelines for DSIP clearly states that it is a
    “service” improvement
    program and not a grant to individuals.

    24 | Gazelle DSIP Performance Audit Report 2007-2016

    The audit also found a fraudulent payment totalling K18,000 made to
    AIM GLOBAL
    Networking Pyramid Money scheme in the disguise of school fee
    assistance.

    Chapter 3 Findings
    Token of appreciation payments
    3.1 Audit review uncovered that a number of mostly senior permanent
    public
    servants were paying themselves cash/cheque payments known as
    ‘token of
    appreciation’ for working overtime and/or other reasons known
    only to them.
    For the 2015 and 2016 period, the audit found that a total of
    K125, 989 were paid
    as token of appreciation to the officers.
    3.2 These officers are already paid a fixed salary to carry out
    official government
    duties. Receiving such a token is seen as Double Dipping. This is
    an abuse of
    public funds allocated for projects and the running of the
    Administration, which
    is in breach of Public Financial Management Laws and Public
    Service General
    Orders.
    Table 3: Summary of payments made as token of appreciation for years
    2015 & 2016

    Year AMOUNT

    2015 39,948.00

    2016 86,041.00

    TOTAL 125,989.00
    3.3 The audit further found that tokens of appreciation totalling
    K24,200 were
    suspiciously made on the 31st of December in both 2015 and 2016,
    after the
    annual close of accounts and shut down of government offices.
    3.4 These payments are in breach of the DSIP guidelines as well as

  • Page 26 of 48

  • the general
    orders on the payment of allowances.
    3.5 The District Treasury Operating Account (DTOA) should not allow
    for irregular
    payments that are not in line with the policies and legislations
    of the
    government. Nor should officers with financial position of trust
    abuse their
    positions to operate systems outside of the normal guidelines and
    legislations.
    3.6 In 2015 and 2016, the audit found that a substantial amount of
    the
    administration and internal revenue funds component (totalling
    K200,814) was
    used to pay the wages of casual staff.

    25 | Gazelle DSIP Performance Audit Report 2007-2016

    Payment of Salaries and wages out of the DSG and DSIP accounts

    Table 4: Total Wages paid from the District Treasury Operating
    Account

    Year Number of Total
    payments

    2015 111 K76,380.84

    2016 222 K124,433.00

    Total 333 K200,813.80

    3.7 According to the Human Resource Staff Establishment Register
    obtained, there
    were 13 casual staff working with the District at the time of the
    audit. All
    13 casuals had been working (as casuals) for more than 3 years,
    exceeding the
    6 months’ probation period. The long-term casual staff should
    have been made
    permanent by now (depending on the need of the job they are
    doing) or laid off
    to cut administration cost on staff wages.

  • Page 27 of 48

  • Ghost Names paid wages from Gazelle District Trust Operating Account
    (DTOA)

    3.8 The audit also found that three (3) payments totalling K900 were
    paid in 2016
    to two (2) individuals whose names were not on the Human Resource
    Staff
    Establishment Register. Such individuals are referred to as
    ‘ghost’ names.

    Gazelle Development Road Management Unit (GDRMU)

    Problems with sustainability

    3.9 GDRMU was formed back in 2007 as a business arm of the GDDA,
    when heavy
    machinery plant and vehicles were acquired to be used to develop
    Gazelle
    district. The audit found that proper planning and cost benefit
    analysis were not
    done to assess whether GDDA had the capability to sustain this
    business idea
    over the long term.

    3.10 Audit uncovered that from 2008 to 2012 GDRMU started facing
    management
    problems with maintenance of the machines and payment of GDRMU
    staff.
    Audit found that GDDA DSIP funds were being used to sustain as
    well as
    maintain GDRMU and its machinery.

    3.11 GDRMU did not have a funding source and was solely depended on
    the GDDA
    Treasury Account which holds DSG and DSIP funds to pay for:

    • the wages for GDRMU staff;
    • maintenance of the fleet; and
    • fuel for operations.

    26 | Gazelle D S I P Performance Audit Report 2007-2016

    Inconsistencies in the Billing and Receipting for GDRMU raises
    concerns of fraud
    taking place.

  • Page 28 of 48

  • 3.12 The GDDA could not provide the total revenue that was received
    for GDRMU
    for years 2007 to 2012. It was also noted that invoices for the
    usage of GDRMU
    machinery were being raised by contractors and were cleared for
    payments. This
    practice poses a high risk of fraud because GDDA should not be
    paying
    contractors for machinery that they already own. Without a clear
    receipting
    system in place, the risk of theft and fraud is very high.
    3.13 The current practice is that machinery is leased out to
    construction contractors
    who in turn raise the invoice inclusive of GDRMU leased machinery
    back to the
    DTOA for payment. This practice of leasing out and invoicing
    GDRMU
    machines poses a very high risk of collusion between GDDA
    officers and
    contractors to defraud the State, whereby the State is paying for
    the hire of
    machinery that they already own.
    3.14 GDRMU are currently operating the following machinery that were
    inspected
    by audit:
    • 1x Loader;
    • 1x Roller;
    • 1x Backhoe loader; and
    • 1x Hino Earth Moving Truck.
    3.15 Audit also found that there were no clear invoicing and
    receipting process for
    the hire of equipment, and individuals managing them fail to
    produce revenue
    listing or ledgers for machinery hire. Audit is concerned that
    the risk of misuse
    of GDDA assets benefiting a few individuals, has been found here
    to be high
    and urgently in need of addressing.
    3.16 It was also noted that some machinery has now been grounded due
    to special
    maintenance needs and parts that can only be sourced from
    specialist and
    expensive companies.

  • Page 29 of 48

  • 27 | Gazelle D S I P Performance Audit Report 2007-2016

    Figure 4: Some of the GDRMU machinery that needs maintenance and
    replacement.

    3.17 The malpractices in the District has denied the much-needed
    services and
    infrastructure to the district. GDDA should ensure that these
    findings are taken
    seriously and address them.
    3.18 It should also be noted that public officers and contractors
    dealing in corruption
    can be imprisoned up to seven years as specified under sections
    61, 62, 87 and
    9B of the Criminal Code 1974.
    School Fee’s Assistance
    3.19 A total of K1.3 million was paid as school fee’s assistance
    from the DSIP funds
    between 2015 and 2016.
    Table 5: Total Paid as school fee’s assistance for years 2015 & 2016
    Year School fee’s
    assistance from DSIP
    2015 K1,118,813
    2016 K 162,200
    Total K1,281,013

    3.20 The guidelines for DSIP clearly states that it is a “service”
    improvement
    program and not a grant to individuals. So, any expenditure on
    school fees is
    outside the DSIP guidelines.

  • Page 30 of 48

  • 28 | Gazelle D S I P Performance Audit Report 2007-2016

    Questionable payment totalling K18,000 made to AIM GLOBAL as school
    fee
    assistance in 2015
    3.21 Audit confirmed that there are no schools in Papua New Guinea
    called Aim
    Global and therefore concluded the K18,000 payment for ‘school
    fee assistance’
    in July 2015 is suspicious of being a fraudulent activity. A
    fraud where the
    officers intentionally made a dubious payment to the money
    pyramid scheme
    Aim Global in the disguise of school fee assistance.
    3.22 Appropriate action should be taken against the Education
    Coordinator and all
    officers charged with overseeing school fees with regards to the
    suspicious
    payment.

    Recommendations 3
    AGO recommends that the Gazelle District Development Authority
    (GGDA):
    1. Immediately stop all expenditures out of the DSIP funds that are
    not in line
    with the funding arrangements. Appropriate disciplinary/legal
    action is also
    required against:
    • Officers who abused their authority to pay themselves
    excessive
    “Tokens of Appreciations”;
    • Officers responsible for using GDDA funds to pay salaries for
    individuals who are not employed by the district (termed
    ‘Ghost Names’
    in this audit); and
    • Officers that were responsible for making a payment of K18,000
    in the
    disguise of School fee assistance to the pyramid scheme ‘Aim
    Global’.
    2. Should not use the District Support Grants (DSG) and DSIP funds
    that come
    into the District Treasury Operating Account (DTOA) to maintain
    GDDA’s
    business arm Gazelle District Road Management Unit (GDRMU). This
    is in
    breach of the DSIP guidelines.
    3. Review the long term viability of maintaining the GDDA business
    arm
    GDRMU, and whether the benefits outweigh the costs of continuing
    it.
    Response
    Gazelle District Development Authority agreed with findings.

  • Page 31 of 48

  • 29 | Gazelle D S I P Performance Audit Report 2007-2016

    Chapter 4. Procurement of Infrastructure and the tendering process
    Conclusion

    Audit observed that the District did not have qualified engineer/
    personnel to review
    infrastructure designs, or to ensure that projects, costs, designs,
    and monitoring was done
    in a manner consistent with the allowable standards.

    The Finance Instruction establishes procedures for the screening,
    selection and approval
    of service providers. Gazelle District has performed very poorly
    against these
    requirements due to lack of quotations, ineffective tender
    processes, poor selection of
    preferred suppliers/contractors, splitting of project costs to
    circumvent the procurement
    requirements and proper approvals/authorisation not being obtained.

    There appear to be limited processes in place to manage and monitor
    the progress of
    projects, or the performance on sub-contractors. There is limited
    use of signed contracts
    to formalise the sub-contracting relationship with service
    providers.

    The poor controls surrounding procurements of infrastructure and the
    tendering
    processes has increased the risk that value for money is not being
    achieved by the GDDA,
    due to competitive tender processes not taking place. Further,
    limited use of a
    competitive tender process increases the risk of irregularities and
    fraud. This was evident
    in the number of uncompleted projects, and ghost project that were
    uncovered during
    the audit that are highlighted in the key findings
    Key Findings
    Audit noted weaknesses in the procurement controls at the GDDA
    including payments

  • Page 32 of 48

  • being split in order to work around the procurement requirements of
    the Public Finances
    (Management) Act and the Finance Instruction.

    Further, the process of requesting quotations is non-existent and
    the authorisation of
    purchase orders is limited. This results in:
    • Bypassing of government procurement process;
    • Over-inflated costs;
    • Rollover projects;
    • Incomplete projects; and
    • Non-Existent projects.

    Audit noted that Gazelle District Development Authority did not have
    qualified
    engineer/personnel to review infrastructure designs, or to ensure
    that projects, costs,
    designs and monitoring was done in a manner consistent with the
    allowable standards.

    The Project Initiation and Formulation Documents (PID/PFD) are
    poorly designed and
    documented without proper scrutiny and assessment by qualified
    technical engineers to
    give a realistic cost of the project before the awarding of
    contracts. As a result of poor
    project documentation and engineering scoping design in the initial
    stage of project

    30 | Gazelle DSIP Performance Audit Report 2007-2016

    planning, most projects funded were not completed on time, were
    carried over to
    following year and/or remained outstanding.

    The audit uncovered a “ghost project” whereby K3million was spent to
    build a market in
    Kerevat, but to date there is nothing but an empty plot of land at
    the site of the proposed
    Kerevat Market.

    The audit also found that K489,782 had been spent on another “ghost
    project” Tokiala
    Fibre Glass Project during 2015-2016. The audit confirmed through
    site inspection that
    this project does not exist, except for a fenced area and a small
    makeshift office.

    The audit is concerned that there was a conflict of interest between
    the Chairman of the
    GDDA and the company that was engaged to build the Tokiala Fibre
    Glass Project. The
    GDDA Chairman was a director of the company when it registered with

  • Page 33 of 48

  • IPA on the 2nd of
    February 2015, and the audit found that directives were issued by
    the chairman to pay
    for invoices that related to this project for years 2015-2016.

    Audit inspections revealed that a number of projects under taken by
    GDDA were left
    incomplete despite being paid the full project funds. Most of these
    projects were
    undertaken by the same suppliers and have been rolled over from the
    previous years.

    Chapter 4 Findings
    Procurement processes in the DDA guidelines as well as Public
    Finance
    Management Act and Finance Instruction 1 of 2015 not adhered to.
    The audit observed that the District did not have qualified
    engineer/personnel
    to review infrastructure designs, or to ensure that projects,
    costs, designs and
    monitoring was done in a manner consistent with the allowable
    standards.
    The audit found that the Project Initiation and Formulation
    Documents
    (PID/PFD) were poorly documented without proper scrutiny and
    assessment by
    qualified technical engineers to give a realistic cost of the
    project before the
    awarding of the contract. This has resulted in high additional
    inflated cost
    and/or variation cost to the projects and the completed projects
    does not reflect
    the real value of money spent. As a result of poor project
    documentation and
    engineering scoping design in the initial stage of project
    planning, most funded
    projects were not completed on time, and were carried over to
    following year
    and/or remained outstanding.
    Use of Third Party for tendering out GDDA projects
    The audit found that the GDDA contracts out some of the major
    Infrastructure
    projects to the Gazelle Restoration Authority (GRA). The GRA is
    not a
    construction company, but a consultancy entity of the East New
    Britain
    Province.
    Payments under this arrangement are a waste, as the funding for
    the program
    is spent on consultancy fees instead of the intended project.

    31 | Gazelle DSIP Performance Audit Report 2007-2016

  • Page 34 of 48

  • Less than 300 meters of the road sealed for K1.8 Million
    An example of a GDDA project to include the GRA as a middleman,
    is the
    VURAVURAI Road Project. This project used K1.8million (almost 98%
    of
    Infrastructure allocation) for re-resealing 300 metres of an
    existing road at
    Vuravurai.
    Under this arrangements all tender and contract documents for
    this road
    project was managed by GRA. GRA’s consultancy fees for the
    K1.8million
    project totalled K500,000 (almost 28% of the project funding).
    Figure 5: Vuvurai Road less than 300meters resealed for K1.8 million

    Examples of GDDA projects with poor procurement of project
    management
    practices
    The audit found a number of examples of poor procurement or
    project
    management practices in Gazelle District, including:
    Kerevat Market;
    Tokiala Fibre Glass Project;
    Utmei Aidpost upgrade;
    Vunapalading Construction of the Kerevat Health Centre Nurses
    Duplex;
    Kerevat Rural Hospital X-ray Room Renovation; and
    Maintenance work at Kerevat Rural Hospital.

    32 | Gazelle D S I P Performance Audit Report 2007-2016

  • Page 35 of 48

  • Incomplete Kerevat Market at the Cost of K 3 million
    Key Findings for this project:
    • No Contract or Project Initiation Document;
    • Over inflated cost;
    • Tendering document not found (above K500,000); and
    • No Progressive work reports to justify payments.
    Despite paying K3milion for the construction of the Kerevat
    Market, there is
    nothing to show for that expenditure, see Figure 6.
    Figure 6: Image of the empty space taken in November 2017 where the
    proposed K3Million
    Kerevat Market was to have been built.

    All officers that were involved in the project should be held
    accountable and
    investigated for possible intentions to commit fraud.
    Incomplete Tokiala Fibre Glass Project, cost of K489,782.30 in 2015
    and 2016
    Key Findings for this project:
    • No Contract or Project Initiation Document;
    • Over Inflated Cost;
    • Tendering Document not found (above K500,000); and
    • No Progressive work reports to justify payments.

    33 | Gazelle D S I P Performance Audit Report 2007-2016

    Despite payment of K489,782.30 for years 2015 and 2016, the audit
    inspection

  • Page 36 of 48

  • of the site revealed that the amount of work done does not
    reflect the amount
    of money spent.
    Figure 7: Image shows the empty space and the fencing for Tokiala
    Fibre Glass, taken in
    November 2017

    Conflict of interest in the Tokiala Fibreglass Project
    Company search shows that the former Chairman of GDDA was a
    director of
    the company when it registered with IPA on the 2nd of February
    2015 and had
    shares in the contractor engaged to deliver this project.
    Review of the payment documents found that directives were issued
    by the
    former chairman of GDDA to pay for invoices that related to this
    project which
    totalled to K489,782 despite not having any project monitoring or
    progress
    reports to justify them being paid.
    The subsequent payments from the District need to be investigated
    for fraud
    because the inspection exercise that was carried out by the audit
    on the 8th of
    November 2017 found that there was nothing in the proposed site
    for the Fibre
    Glass Project to justify for the amounts of funds that was
    released on the
    directive of the Former Chairman.
    Audit found that there were no progressive work reports to
    justify the amount
    of funds that were released for this project.

  • Page 37 of 48

  • 34 | Gazelle D S I P Performance Audit Report 2007-2016

    Utmei Aidpost Upgrade, cost of K321,000
    Key findings for this project:
    • People with no access to health services due to incomplete
    project;
    • No Contract;
    • No Project initiation Document;
    • Resource Wastage;
    • Over Inflated Cost;
    • Tendering Document not found; and
    • No Progressive work reports to justify payments.
    Figure 8: Utmei Aidpost left unfinished and unoccupied due to
    incomplete infrastructure
    and bad planning.

  • Page 38 of 48

  • 35 | Gazelle D S I P Performance Audit Report 2007-2016

    Prior to AGO inspections, the building was listed as 100%
    complete from the
    list obtained from the infrastructure program officer. Audit
    inspection found
    the building was incomplete and was covered with overgrown brush.
    Construction of Duplex Building for Kerevat Hospital On-call Nurses
    at
    Vunapalading, cost of K320,000
    Located 30 minutes’ drive away from the Kerevat Rural Hospital
    this facility
    was supposed to have been used for on call nurses.
    Key findings for this project:
    • No Contract;
    • No Project initiation Document;
    • Resource Wastage;
    • Over Inflated Cost; and
    • No Progressive work reports to justify payments.
    GDDA paid the construction company the full cost of K320,000 and
    listed the
    house as completed in the infrastructure listing. The audit
    inspection found that
    the house was incomplete, with no water connections and no
    electricity. The
    audit inspection of the property noted that the wood used to
    construct the
    property was starting to show signs of termite infestation and
    the building was
    starting to rot away. This was despite it being a new building
    that was not yet
    occupied.
    The Contractor should be held accountable for the gross wastage
    of GDDA
    funds and made to complete the building with its own funds or
    appropriate
    action taken on future business engagements with the supplier.

  • Page 39 of 48

  • 36 | Gazelle D S I P Performance Audit Report 2007-2016

    Figure 9: Vunapalading Uncomplete Construction of the Kerevat Health
    Hospital Oncall
    Nurses Duplex

    Floor Rotting as
    well as the stair
    casing

    AGO noted that the same contractors have been given new projects
    at the time
    of audit despite failing to complete infrastructure projects at
    Utmei Aidpost
    Upgrade and Vunapalading Duplex Building.
    The GDDA have shown gross negligence of their roles and
    responsibilities to
    ensure that much needed services and infrastructure is provided
    to the people
    of the Gazelle district.
    Need for an on-call hostel for Nurses at Kerevat Rural Hospital
    With the on-call Nurses accommodation described above being
    unfinished,
    personnel at Kerevat Rural Hospital advised the audit that On
    Call Nurses did

  • Page 40 of 48

  • not have a place to stay when on duty. A Storage Room was used by
    nurses as
    the temporary live in quarters, which is cramped.

    37 | Gazelle D S I P Performance Audit Report 2007-2016

    Figure 10: Current Facility used by on call nurses at Kerevat Rural
    Hospital. A makeshift
    store-room converted to sleeping room.

    The audit also found that there was enough land inside the
    Kerevat Rural
    Hospital premises to build an on call hostel for the nurses and
    medical officers.
    This would appear to be a more sensible option than a facility
    that is located 5
    kilometres away from the Hospital.
    Kerevat Rural Hospital Uncompleted X-ray Room Renovation, cost of
    K121,588
    Key Findings for the project:
    • Incomplete;
    • Over Inflated Cost;
    • Wastage of resource;
    • No progressive reports to justify payment; and
    • Breach of normal procurement processes to engage contractor.

  • Page 41 of 48

  • Audit found that the X-ray room was incomplete and also the
    equipment that
    was bought for the X-ray room was still sitting idle in the
    District Health Sector
    Program Officer’s office.
    Procurement Requirements and the health standard design
    requirements for an
    X-ray room were not followed to construct this vital part of the
    Kerevat Rural
    Hospital. The construction was also undertaken by an individual
    which is a
    breach of the Finance Management Act and the DSIP guidelines.

    38 | Gazelle D S I P Performance Audit Report 2007-2016

    Figure 11:Image of the incomplete X-ray room

    Payment to an individual person totalling K30,000 in 2014 for work
    that was not
    verified by audit.
    Audit inspection of the Rural Hospital could not verify and
    confirm the work
    that was done by the individual that was paid K30,000 on 24
    December 2014 for
    maintenance services at the Kerevat Rural Hospital. The GDDA also
    did not
    provide any details as to the work done, why an individual was
    engaged, or who
    requested and approved this work.
    GDDA should seriously take into consideration the quality and
    qualifications of
    officers that it currently employs in the administration and up
    skill them or
    advertise for skilled personnel that are efficient and effective
    in delivering tasks

  • Page 42 of 48

  • and programs.
    Officers Responsible should be held accountable for the
    incomplete projects as
    they initiate the project identification, project scoping and
    monitor and report
    project results.
    Audit recommends that management adhere to the Governments set
    rules,
    procedures and regulations as per the Finance Instructions, ORD
    Administrative Guidelines and PFMA in awarding contracts to the
    contractors.

    Recommendation 4
    AGO recommends that the Gazelle District Development Authority
    (GGDA):
    1. Takes appropriate management action on the Contractors and
    Officers tasked
    to manage the projects listed below:
    • Kerevat Market — non-existent despite spending K3 million;
    • Tokiala Fibre Glass Project — non-existent despite spending
    K489,782.30;
    • Utmei Aidpost upgrade — unfinished despite spending K321,000;

    39 | Gazelle D S I P Performance Audit Report 2007-2016

    • Vunapalading Construction of the Kerevat Health Centre Nurses
    Duplex —
    unfinished despite spending K320,000;
    • Kerevat Rural Hospital X-ray Room Renovation — incomplete
    despite
    spending K151,588; and
    • The maintenance invoice for work at Kerevat Rural Hospital
    (KRH)
    totalling K30,000 being paid to an individual, which the AGO
    could not
    verify.
    2. Establishes controls on Procurement & Tendering to ensure
    compliance with
    the DSIP guidelines, PFMA and relevant legislations. This should
    ensure that
    project designs, costs, monitoring and reporting is done in a
    manner consistent
    with the allowable standards.
    3. Reviews the quality and qualifications of officers that it
    currently employs in
    the administration. This review should be conducted in
    consultation with the
    Provincial Works Office. The GGDA should upskill current staff or
    advertise
    for skilled personnel that are efficient and effective in
    delivering tasks and
    programs.
    Response

  • Page 43 of 48

  • Gazelle District Development Authority agreed with findings.

    40 | Gazelle D S I P Performance Audit Report 2007-2016

    Chapter 5. Management of fixed assets
    Conclusion
    The Gazelle District Development Authority (GDDA) did not maintain
    proper records of
    fixed assets. The assets themselves were also not properly
    maintained, or managed, as
    required by the Public Finance Management Act on Asset Management.
    The lack of
    maintaining and updating an asset register creates the potential of
    mismanagement and
    theft of GDDA assets.

    The East New Britain Provincial Government Transport Policy needs to
    be reviewed, as
    the policy of disposing of all vehicles after 3 years is costly and
    has negative flow-on
    effects to the programs of the GDDA.
    Key Findings
    The historical total value of all Gazelle District Development
    Authority (GDDA) assets
    maintained in the asset register was K10,645,103.00. However, the
    asset register was

  • Page 44 of 48

  • incomplete and does not capture full details of assets purchased
    over the years, or their
    current market value. Also, a large number of assets were either not
    located or identified
    as damaged during the course of the audit.

    In compliance with the East New Britain Provincial Government
    Transport Policy, the
    GDDA was to dispose of more than 45 motor vehicles (including heavy
    equipment) with
    a total valuation amount of K1,313,950, as they were over 3 years
    old.

    Due to poor historical asset management data and records maintained,
    the audit could
    not ascertain the actual economic value of the motor vehicle fleet
    as at current date of
    disposal. It was also noted that some of the vehicles that were to
    be disposed of were not
    even registered in the asset register that was maintained at the
    GDDA.

    Chapter 5 Findings

    Asset Management
    5.1 The historical total value of assets maintained in the asset
    register records was
    K10,645,103.00. The audit found that the asset control
    environment for Gazelle
    District Development Authority was generally weak.
    5.2 The audit noted that the records in the asset register were
    incomplete. For
    instance, a long base Hino Truck purchased in 2016 at a cost of
    K92,500.00 was
    not captured in the asset register records. Other assets such as
    laptops or
    cameras were not captured in the asset register.
    5.3 There was no stock-take of assets conducted annually to verify
    their existence
    or the condition of the assets. The ‘wear and tear’ costs
    (Depreciation Cost) of
    the assets was not reflected in the register, so the market value
    as at a current
    date could not be determined.

    41 | Gazelle DSIP Performance Audit Report 2007-2016

    ENB Provincial Transport Policy requires Government Vehicles and
    assets to be
    disposed of after 3 years.
    5.4 The ENB Provincial Transport Policy requires Government
    Vehicles and assets

  • Page 45 of 48

  • to be disposed of after 3 years. In line with this policy, the
    GDDA disposed of a
    total of 45 vehicles (including heavy equipment) with a total
    valuation amount
    of K1,313,950.00. According to the Tender documents, the disposal
    was
    undertaken through an approval by Board of Survey (BOS) in 2016.
    5.5 Due to the poor historical asset management data and records
    maintained, the
    audit could not ascertain the actual economic value of these
    vehicles as at the
    date of disposal. It was also noted that some of the vehicles
    that were to be
    disposed of were not listed in the asset register.
    Vehicle replacement will put a strain on DSIP funds that is meant
    for service
    delivery
    5.6 The ENB Provincial Transport Policy should be reviewed.
    Disposing of a large
    number of vehicles at the same time, significantly affects the
    ability of staff to
    travel for work purposes. Furthermore, it is very costly to
    replace vehicles after
    only 3 years. With development funds ceiling being reduced each
    year,
    constantly purchasing vehicles and machinery will put pressure on
    the limited
    funds available for programs.
    Figure 12: Images of the 48 GDDA vehicles that were pooled to be
    disposed of in accordance
    with the ENB Transport Policy to replace vehicles after 3 years

  • Page 46 of 48

  • 42 | Gazelle D S I P Performance Audit Report 2007-2016

    Recommendation 5
    AGO recommends that the Gazelle District Development Authority
    (GGDA):
    1. Undertake a stocktake of all government assets, building, plant,
    equipment
    vehicles furniture’s and fittings, and a centralised asset
    management system is
    developed and maintained by a dedicated officer to ensure that
    all assets are
    accounted for.
    2. Have a dialogue with the East New Britain (ENB) Provincial
    Administration to
    review the policy for disposing of vehicles after 3 years. This
    is a costly exercise
    and the GDDA has no budget for buying new vehicles or machinery
    for the
    DSIP sectoral programs.
    Response
    Gazelle District Development Authority agreed with findings.

  • Page 47 of 48

  • 43 | Gazelle D S I P Performance Audit Report 2007-2016

    Appendixes
    List of Tables

    Table 1: Distribution of DSIP K10 million through sectors 2013-2016
    16
    Table 2: Total DSIP Funds allocated and Released to Gazelle District
    16
    Table 3: Summary of payments made as token of appreciation for years
    2015 & 2016

    25
    Table 4: Total Wages paid from the District Treasury Operating
    Account 26
    Table 5: Total Paid as school fee’s assistance for years 2015 & 2016
    28

    List of Figures

    Figure 1: Gazelle District Development Authority (GDDA) Financial
    Records stacked
    outside the GDDA treasury office
    18
    Figure 2: DSIP revenue vs Expenditure in Gazelle District from 2013
    to 2016. 21
    Figure 3: DSIP Expenditure by sector in Gazelle District for years
    2013-2016 22
    Figure 4: Some of the GDRMU machinery that needs maintenance and
    replacement.28
    Figure 5: Vuvurai Road less than 300meters resealed for K1.8 million
    32
    Figure 6: Image of the empty space taken in November 2017 where the
    proposed
    K3Million Kerevat Market was to have been built.
    33
    Figure 7: Image shows the empty space and the fencing for Tokiala
    Fibre Glass,
    taken in November 2017
    34
    Figure 8: Utmei Aidpost left unfinished and unoccupied due to
    incomplete
    infrastructure and bad planning.
    35
    Figure 9: Vunapalading Uncomplete Construction of the Kerevat Health
    Hospital
    Oncall Nurses Duplex
    37

  • Page 48 of 48

  • Figure 10: Current Facility used by on call nurses at Kerevat Rural
    Hospital. A
    makeshift store-room converted to sleeping room.
    38
    Figure 11:Image of the incomplete X-ray room
    39
    Figure 12: Images of the 48 GDDA vehicles that were pooled to be
    disposed of in
    accordance with the ENB Transport Policy to replace vehicles after 3
    years 42

    44 | Gazelle D S I P Performance Audit Report 2007-2016