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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:
  [email protected]

  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

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• 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

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• 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

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• 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