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• INQUIRY INTO THE PUBLIC ACCOUNTS
  OF THE GOVERNMENT OF
  PAPUA NEW GUINEA FOR THE FINANCIAL YEAR 2006.

  REPORT TO THE NATIONAL PARLIAMENT

  1. EXECUTIVE SUMMARY

  1.1. By 2006, the Constitutional and statutory scheme of
  accounting and accountability for the management of public
  monies, had collapsed.

  1.2. The Committee respectfully advises the National Parliament
  that this collapse of accountability and responsible, lawful and
  competent fiscal management was, and remains, a direct
  threat to the viability and civil stability of the Nation and the
  health and welfare of our citizens.

  1.3. To the end of 2006, service delivery had faltered and, in some
  areas failed, in large measure the result of fiscal mischief
  and/or incompetence on a huge scale by the very persons
  responsible for properly and lawfully applying public monies –
  our Public Service at all levels of Government and
  administration. The results are clear to see in any social
  indicator of health and education and we believe this situation
  continues currently.

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  1.4. By 2006 Executive control of public monies and Government
  finances had failed and been supplanted by unaccountable
  management by officers of the Public Service who were
  themselves unaccountable, acted unlawfully or failed to carry
  out their lawful duties to make and submit accounts.

  1.5. So bad had the situation become by 2006, that the Auditor
  General was unable to audit significant parts of the Public
  Accounts and/or many areas of Government because there
  were no records or accounts.

  1.6. This Committee rejects the Public Accounts of the
  Government of Papua New Guinea for the financial year 2006
  as unreliable, incompetent, possibly fabricated in part,
  misleading and incomplete.

  1.7. The Auditor General refused to certify or disclaimed the Public
  Accounts of the Government of Papua New Guinea for these
  reasons.

  1.8. By 2006, there had developed a culture of impunity against
  and behind which fiscal mishandling and misappropriation has
  prospered. So pernicious is this culture that there was, and is,
  no fear or risk of detection or punishment for those who
  would act illegally with public funds.

  1.9. The findings and resolutions of the Committee, to be
  effective, need to be actioned by the Government, without
  delay.

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  1.10. The National Parliament must immediately move to rectify the
  collapse of accountability for the use and application of public
  monies by the Public Service.

  1.11. The National Parliament must immediately reassert the
  Constitutional system of fiscal management by the Executive.

  1.12. The National Parliament must immediately bring the
  Department of Finance under control and enforce
  accountability in that Department for fiscal management.

  1.13. The National Parliament must reestablish the political and
  social contract with the citizens of Papua New Guinea and
  bring the application of appropriated monies under control for
  the benefit and betterment of the people of Papua New
  Guinea.

  1.14. The National Parliament must accept that it has, for years,
  failed to enforce and demand lawful and proper fiscal
  accountability for the use of and transactions with public
  monies, property and stores. It has failed to understand or
  fulfil its Constitutional duty in this regard.

  1.15. The National Parliament must recognize that the result of its
  failure has been to cede power to unelected and
  unaccountable officers of the Public Service.

  1.16. The National Parliament must accept that this failure has
  resulted in the development and protection of significant
  abuse of public monies by the very persons charged with

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  lawfully managing and applying public monies to the
  betterment of our country.

  1.17. This failure has resulted in deteriorating services to our
  people and a failed system of delivering development to our
  citizens.

  1.18. The Department of Finance had, by 2006, arrogated to itself
  sovereign power over the use and application of public
  monies, often in open defiance of Government appropriation,
  policy and directive.

  1.19. By 2008, the agencies responsible for fiscal management and
  which were required to be accountable to Government and
  the Parliament for their performance, refused to cooperate
  with this Parliamentary Committee and refused to respond
  when called to account for past performance. In short, the
  Departments of Finance and Treasury intentionally refused to
  render account or assistance to this Parliament.

  1.20. The Public Service, by 2006, was without control or oversight
  in its fiscal management and acted with impunity and
  immunity in their handling of public monies and in its refusal
  or failure to account lawfully – or at all.

  1.21. The major agencies responsible for fiscal management, by
  2006, acted largely as they wished in respect of public monies
  and, in many instances, in direct defiance of Law,
  Constitutional requirements and Government policy and
  appropriation.

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  1.22. There was and still is a collapse of law enforcement in the
  application of, or obedience to, the Public Finances
  (Management) Act 1995 and every other dictate of Law
  relating to fiscal accountability across the entire span of
  Government.

  1.23. By 2006 and continuing to the present, not one Department
  of Government can, will or is capable of complying with all (or
  in many cases, any) lawful requirements of fiscal accounting.

  1.24. This collapse of accountability is so complete that hardly one
  agency can reconcile or account for its own internal financing
  – much less deal with or apply development or service
  orientated appropriation.

  1.25. There is a direct correlation between the collapse of public
  fiscal accountability and failure of service delivery. Even a
  peremptory examination of Trust Fund Suspense Account No.
  2 still shows huge misappropriation and random and illegal
  distribution of appropriated funds to other than their intended
  recipient or purpose in 2006 despite warnings by the Auditor
  General.

  1.26. The failure of service and development delivery will, and has
  already, resulted in significant social unrest. In other words,
  the loss of Parliamentary power and fiscal control, and
  thereby policy implementation, has created an increasingly
  angry, impoverished and disillusioned citizenry, deprived of
  the services that they have the right to receive.

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  1.27. This Committee strongly recommends that the Government
  seek assistance and expertise wherever it can to replace
  failed individuals, failed systems and intentional refusal by
  Officers of the Public Service to act properly and lawfully.

  1.28. This Committee concludes that there is no detectable will or
  ability in the Public Service – particularly in the Department of
  Finance – to change or reform. The huge amounts of money
  misappropriated in that Department clearly displace any
  ability or wish to change or to comply with the duties imposed
  on that Department.

  1.29. The Department of Finance must be brought under control
  and be made accountable. The Department cannot control
  public spending and cannot fulfill even basic accounting tasks.
  Government should seriously consider degazetting the
  Department and replacing it with a specialised accounting and
  fiscal agency to guide and implement development and
  service delivery budgets.

  1.30. Power to expend or authorize the expenditure of monies must
  be removed in whole or in part from the Department of
  Finance pending restructuring of that Department.

  1.31. A new and specialized agency is required to control, approve
  and account for the expenditure of public monies. If
  necessary, that agency should be recruited from private
  enterprise and/or from overseas if the necessary expertise
  cannot be sourced in Papua New Guinea.

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  1.32. Decentralised accounting had, by 2004, failed and this
  continued into 2006. It continues in a state of failure in 2009.
  No agency or Department of Government has the expertise or
  capability to account for the use of or transactions with public
  monies.

  1.33. Either the devolution is reversed and made the task of a
  specialised and effective independent agency or a very
  significant training and oversight effort must be injected into
  public accountability at every level of Government right down
  to LLG, District and Board level – and even then, we doubt
  that decentralized accounting can succeed.

  1.34. The Committee recommends that the number of Section 32
  Officers be strictly circumscribed and that delegation to
  expend public monies must be restricted to officers with a
  proven record of honesty and who are trained, experienced
  and subject to training, oversight, control and a “fit and
  proper person” test.

  1.35. Ministers must assume responsibility for transparent
  accounting by their Departments and not acquiesce in the
  current failed system.

  1.36. The culture of impunity attending failure and malpractice in
  our Public Service should be addressed immediately. There is
  no fear of detection or sanction for fiscal mishandling – and
  there must be.

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  1.37. Senior management has failed to enforce standards of
  accounting required by Law and no analysis of capability has
  ever been conducted – this must change.

  1.38. The Public Finances (Management) Act 1995 requires
  updating and modernization.

  1.39. Executive power must be reasserted over fiscal management
  and power over and accountability for expenditure reclaimed
  by the Executive.

  1.40. Ongoing training and supervision of accounting staff must be
  implemented and maintained at all levels of Government.
  1.41. Departments and agencies that fail to make statutory records
  or accounts should be penalized by a reduction of funding or
  removal and replacement of failed staff and management.
  There should be zero tolerance for failure or refusal to comply
  with the requirements of the Public Finances
  (Management) Act 1995.

  1.42. Inadequate IT systems need urgent attention and
  rectification. The fact that PGAS budget management systems
  cannot prevent invalid budget codes is totally unacceptable.
  The fact that PGAS and TMS cannot communicate is not
  acceptable.

  1.43. Qualified Finance Officers only should be deployed in self
  accounting agencies and constantly controlled and overseen.

  1.44. No agency should be designated as self accounting unless
  strict prerequisites are met. Departments and agencies

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  considered by this Committee were bad enough when they
  were not self accounting, but since gaining this status, they
  have failed completely to keep even basic accounts or
  records.

  1.45. The oversight and monitoring agencies should be properly
  and fully funded. The Office of the Auditor General is simply
  unable to meet its mandate due to lack of resources and this
  is not acceptable – or lawful.

  1.46. As a result of evidence and documents received by the
  Committee, the Public Accounts Committee makes referrals of
  certain Officers of the Public Service for inquiry and possible
  prosecution for breaches of statutory obligations.

  1.47. As a result of evidence and documents tendered to the
  inquiry, the Public Accounts Committee unanimously resolved
  to make a full and complete report of its Inquiry and findings
  to the National Parliament in accordance with Section 86 (1)
  (c) of the Public Finances (Management) Act 1994.

  1.48. The Public Accounts Committee now tables the report with its
  strongest recommendation that remedial action be
  immediately taken by the National Parliament in accordance
  with findings and resolutions of the Public Accounts
  Committee.

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  2. INTRODUCTION

  2.1 On the 25th May 2009 the Permanent Parliamentary
  Committee on Public Accounts conducted an Inquiry into the
  keeping of the Public Accounts of the Independent State of
  Papua New Guinea for the financial year ending the 31st
  December 2006.

  2.2 This Inquiry was held pursuant to the powers vested in the
  Committee by Section 86(1)(a) of the Public Finances
  (Management) Act 1995.

  2.3 The Committee had recently completed detailed inquiries into
  the Keeping of the Public Accounts for the Financial Years
  2004 and 2005 and it was the intention of the Committee in
  this Inquiry, to establish whether there had been any
  improvement in the quality of keeping of the Public Accounts
  and in particular in the frequency and quality of financial
  reporting and accounting which constituted the primary
  documents from which Public Accounts are compiled.

  2.4 The evidence received by the Committee in the earlier
  inquiries clearly showed a collapse of systems of
  accountability for the use of public money, property and
  stores across the entire span of Government resulting in the
  Public Accounts of the Independent State of Papua New
  Guinea being found by the Office of the Auditor General to be
  unreliable and inaccurate.

  2.1. The results of this collapse have been manifold.

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  2.2. The first result has been that illegal and/or and improper
  practices were rife – particularly in the very Department
  responsible for fiscal management, the Department of
  Finance, but also across the entire spectrum of Government
  at every level – National, Provincial and Local.

  2.3. This systemic disregard of accounting requirements has
  opened public money to misuse, theft and misappropriation
  particularly by and through the very Officers of the Public
  Service whose duty it is to properly manage those monies.

  2.4. Secondly, diverted or misused public money can only come
  from one source – funds belonging to and intended for service
  development and delivery to our people. Schools, hospitals,
  roads, doctors, infrastructure maintenance, medicine and
  basic services take a poor second place after allocated funds
  were diverted or misused.

  2.5. Thirdly, the misuse of public monies appeared utterly
  uncontrolled. Governments and law enforcement agencies
  failed to grapple with the problem and this failure
  emboldened the misusers, who moved in a few years from
  small scale opportunistic misappropriation to the organized
  diversion of huge sums of public money – with apparent
  immunity and impunity.

  2.6. Fourthly, central control of public finances by the Executive
  and the National Parliament had ceased. The Public Service
  failed or refused to keep accounts or to obey the legal

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  requirements for accountability, yet were still funded and
  permitted to control public funds free of any oversight or
  control by the Executive.

  2.7. Fifthly, vital information which should be accurately set out in
  the Public Accounts was, in 2006, not available.

  2.8. For example the Committee was unable to ascertain the
  number of Government Trust Accounts (the figure varied from
  368 to 15,000), the amount of money held in Trust Accounts,
  interest accruing on Trust Account deposits (if any), the
  extent and composition of public or State debt, the actual
  application of public money through Trust Accounts
  (especially by Provincial Governments) and much more.

  2.9. Sixthly, in the absence of competent and reliable Public
  Accounts the Committee cannot understand how Government
  could competently and responsibly plan, monitor, form policy,
  budget, manage currency, meet major fiscal challenges or
  crises, deliver services effectively or maintain any
  understanding of the fiscal state of the Nation.

  2.10. Seventhly, the Government and the National Parliament had
  clearly lost control of the Public Service and thereby
  responsible, lawful and equitable application of public monies
  – the most basic requirement for a modern, sovereign nation.

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  3. CHRONOLOGY

  3.1 The Public Accounts Committee commenced its Inquiry into the
  keeping of the Public Accounts of the Independent State of
  Papua New Guinea on the 25th May 2009 and closed the Inquiry
  on that day.

  3.2 Summonses to Attend were served on the Heads of the
  Department of Finance and Treasury. Mr Simon Tosali of the
  Department of Treasury appeared. The Secretary of Finance did
  not appear. He was represented by Mr. Frank Gaudi (Acting
  Secretary (P/A) and Mr. Mario Cueva (Advisor).

  3.3 The Inquiry was frustrated by the unpreparedness of the
  representatives from the Department of Finance who had clearly
  not been briefed and had not bothered to familiarize themselves
  with the Public Accounts or the Report of the Auditor General on
  those Accounts.

  4. LIST OF ABBREVIATIONS

  4.1 “PF(M)A”

  Public Finances Management Act

  4.2 “PAC”

  Public Accounts Committee

  4.3 “the Constitution”

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  Constitution of the Independent State of Papua New Guinea

  4.4 “TMS”

  Treasury Management System

  4.5 “PGAS”

  Papua New Guinea Government Computerised Accounting
  System.

  4.6 “the Committee or “this Committee”

  The Permanent Parliamentary Committee on Public Accounts.

  5. COMPOSITION OF THE COMMITTEE

  5.1 The Public Accounts Committee which made inquiry into the
  Public Accounts of the Independent State of Papua New
  Guinea for the Financial Year 2006 was constituted as
  follows:

  25th May 2009

  Hon. Timothy Bonga M.P. – Chairman

  Hon. Dr. Bob Danaya M.P. – Deputy Chairman.

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  Hon. Francis Marus M.P. – Member.

  Hon. Malaki Tabar M.P. – Member.

  Hon. Philip Kikala M.P. – Member.

  5.2 The Chairman, Deputy Chairman and Members of the
  Committee were properly and lawfully appointed and
  empowered to sit as a Public Accounts Committee.
  6. JURISDICTION.

  INTRODUCTION:

  6.1. At all times, the Committee has taken great care to enable
  witnesses to make full and complete representations and
  answers to any matter before the Committee – in particular
  those matters about which the Committee may make adverse
  findings against individuals or entities.

  6.2. The Public Accounts Committee has taken care to give careful
  consideration to all responses and evidence given before the
  Committee.

  6.3. The Public Accounts Committee has taken care to seek
  opinion, information, facts and submissions from all sources
  reasonably open to it including all citizens of Papua New
  Guinea.

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  6.4. A substantial amount of evidence was taken on oath and full
  and due inquiry was made of all relevant State Agencies
  where the Committee considered those inquiries to be
  necessary.

  JURISDICTION

  The Constitution of the Independent State of Papua New
  Guinea.

  6.5. The Committee finds its jurisdiction firstly, pursuant to
  Section 216 of the Constitution of the Independent State
  of Papua New Guinea. That Section reads:

  “216. Functions of the Committee

  (1) The primary function of the Public Accounts
  Committee is, in accordance with an Act of the
  Parliament, to examine and report to the
  Parliament on the public accounts of Papua New
  Guinea and on the control of and on transaction
  with or concerning, the public monies and
  property of Papua New Guinea”.

  (2) Sub-section (1) extends to any accounts, finances
  and property that are subject to inspection and
  audit by the Auditor General under Section 214
  (2) … and to reports by the Auditor General under
  that Sub-section or Section 214 (3)…”.

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  6.6. Whilst considering the relevant provisions of the Constitution,
  the Committee has had regard to the Final Report of the
  Constitutional Planning Committee 1974 and been
  guided by or applied the stated intentions of that Committee
  wherever necessary.

  6.7. The Public Accounts Committee has had due regard to Reports
  by the Auditor General made pursuant to audit inspections of
  the Public Accounts for the financial year 2006 and the five
  years preceding, but has conducted an Inquiry into relevant
  matters deemed by the Committee to be of National
  Importance or which arise naturally from primary lines of
  Inquiry and which are within the jurisdiction and function of
  the Committee as set forth in the Constitution.

  6.8. Whilst engaged in the Inquiry the Committee was guided by
  two definitions contained in the Constitution, which are
  directly relevant to Section 216 of the Constitution. They are:

  “Public Accounts of Papua New Guinea” includes
  all accounts, books and records of, or in the
  custody, possession or control of, the National
  Executive or of a public officer relating to public
  property or public moneys of Papua New Guinea;”

  and

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  “Public moneys of Papua New Guinea” includes
  moneys held in trust by the National Executive or
  a public officer in his capacity as such, whether or
  not they are so held for particular persons;”

  Schedule 1.2 of the Constitution.

  The Public Finances (Management) Act 1995.

  6.9. The Public Accounts Committee also finds its jurisdiction to
  Inquire into the Public Accounts of Papua New Guinea in
  Section 86 (1) (a) of the Public Finance (Management) Ac
  1995. That Section states:

  “ (1) The functions of the Committee are –

  “(a) to examine the accounts of the receipts and
  expenditure of the Public Account and each
  statement and report of the Auditor-General
  presented to the Parliament under Section 214 of
  the Constitution or Section 113 (8) (a) of the
  Organic Law on Provincial Governments and :Local-
  level Governments; …….

  6.10. The Committee has considered such statements and Reports of
  the Auditor General as were presented to Parliament and in
  particular the Part 1 Report of the Office of the Auditor
  General for the financial year 2006.

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  6.11. The Committee has further considered Reports of the Auditor
  General which have not yet been presented to the Parliament,
  on the basis that that evidence was tendered by the Auditor
  General for the consideration of the Committee and at the
  request of the Committee, on the basis that such material is
  within the purview of the Committee as a matter of national
  importance.

  6.12. Power to refer matters for investigation and possible
  prosecution is granted to the Committee by Section 86A of
  the Public Finances (Management) Act 1995.

  Permanent Parliamentary Committees Act 1994:

  6.13. The Committee also resolved that a full Inquiry into the
  keeping of the Public Accounts for the year 2006 was a
  matter of National importance and found further jurisdiction
  for the inquiry in Section 17 of the Permanent
  Parliamentary Committees Act 1994.

  6.14. That Section provides that the Public Accounts Committee
  can, of its own initiative, consider any matter within its
  jurisdiction to be of national importance and report to the
  National Parliament accordingly. The Committee, as we have
  stated, considers the Public Accounts of the Nation for the
  financial year 2006, to be such a matter.

  7. RELEVANT STATUTES ETC. CONSIDERED BY THE
  COMMITTEE DURING INQUIRY.

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  Public Finances (Management) Act 1995.

  7.1 The Public Finances (Management) Act 1995 prescribes
  the method and standard for the administration of and
  accounting for public monies, public properties and stores by
  Government.

  7.2 Further, the Act imposes certain obligations on Public
  Servants for collection of State revenue and controls the
  expenditure of public monies.

  7.3 Relevant sections of the Act which were considered by the
  Public Accounts Committee during the course of the Inquiry
  into the Public Accounts are:

  (i) Section 5 – Responsibilities of Heads of
  Department

  This Section prescribes the duties, powers and
  obligations of Head of Department.

  (ii) Section 3 – Responsibilities of the Minister

  This Section prescribes the obligations and duties of
  relevant Ministers of State.

  (iii) Part X – The Public Accounts Committee

  This Part empowers and imposes functions and
  obligations on the Public Accounts Committee. In

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  particular, the Committee was required to consider
  Section 86 (A) – power to refer officers of the
  Department to the Office of the Public Prosecutor for
  investigation and possible prosecution relating to
  breaches of the Public Finances (Management) Act
  1995 and/or the Constitution.

  (iv) Part XI – Surcharge

  This Section prescribes personal liability for certain
  public servants who fail in their obligations to collect
  and protect certain public monies.

  (v) Section 112 – Offences

  This Section prescribes disciplinary action which may be
  taken against certain public servants or accountable
  officers who fail to comply with the terms of the Public
  Finances (Management) Act 1995.

  Financial Instructions.

  7.4 Section 117 of the Public Finances (Management) Act
  1995 enables the promulgation of certain Financial
  Instructions which establish detailed procedures for the
  handling, collection, expenditure, disposal of and accounting
  for public monies, property and stores.

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  7.5 The Public Accounts Committee had regard to these
  Financial Instructions or Directives when considering the
  2006 Public Accounts.

  7.6 In particular, the Committee had regard to Part 6 Division 1
  Para. 2.1 – Accountable Officers. That paragraph reads, in
  part:

  “…..the Departmental Head is liable under the
  doctrine of personal accountability to make good any
  sum which the Public Accounts Committee
  recommends should be disallowed”.

  Audit Act 1986.

  7.7 The Audit Act 1986 establishes and empowers the Office of
  the Auditor General to carry out its work of overseeing and
  supervising the handling of public monies, stores and
  property by all arms of the National Government. The Public
  Accounts Committee had regard to the terms of this Act
  during the course of the Inquiry into the Public Accounts.

  7.8 The Committee received considerable assistance from the
  Office of the Auditor General in the course of this Inquiry.

  Permanent Parliamentary Committees Act 1994.

  7.9 The Committee has had regard to Sections 17, 22, 23, 25, 27,
  and 33 of the Permanent Parliamentary Committees Act

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  1994 during the course of the Inquiry into the Public
  Accounts.

  Parliamentary Powers and Privileges Act 1964.

  7.10 The Parliamentary Powers and Privileges Act 1964 sets
  forth those privileges and powers extending to Members of
  Parliament, Committees of Parliament and Officers or
  Parliamentary Staff.

  7.11 In the course of this Inquiry, the Committee had cause to
  examine and apply Sections 19 and 20 (1) (d) of that Act.

  7.12 The Secretaries of the Departments of Finance and Treasury
  failed to comply with a Summons requiring the production of
  documents and certain resolutions and referrals were made in
  this respect. This matter is developed more fully in this
  Report (infra).

  8 PURPOSE OF THE INQUIRY

  8.1 The purpose of the Inquiry conducted by the Public Accounts
  Committee was to make full and complete examination of the
  keeping of the Public Accounts as revealed in the Part 1
  Report of the Office of the Auditor General for the year 2006
  and all the evidence relevant to the compiling and
  presentation of those Public Accounts.

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  8.2 The purpose of the Inquiry was not to improperly pursue or
  criticize any person or company, but to make a constructive
  and informed Report to the Parliament on any changes which
  the Committee perceives to be necessary to any item or
  matter in the accounts, statements or reports or any
  circumstances connected with them, which comprise the
  Public Accounts, all other primary material from which those
  Accounts are compiled and any other matter considered by
  the Committee to be of national importance.

  8.3 Further, the intention of the Committee was to report to the
  National Parliament in a meaningful way on alterations that
  the Committee thinks desirable in the form of the Public
  Accounts as manifested in the method of keeping them, in the
  method of collection, receipt, expenditure or issue of public
  monies and/or for the receipt, custody, disposal, issue or use
  of stores and other property of the State by all arms or
  Departments of Government as those matters are revealed in
  the Reports of the Auditor General or other evidence received
  by the Committee.

  9 THE AUTHORITY TO REPORT

  9.1 The Public Accounts Committee finds authority to make this
  Report in Section 86(1) (c) and (d) (i), (ii), (iii) and (iv) and
  (f) of the Public Finances (Management) Act 1995 and
  Section 17 of the Permanent Parliamentary Committees
  Act 1994.

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  10 THE AUTHORITY TO REFER

  10.1 Where satisfied that there is a prima facie case that a person
  may not have complied with the provisions of the
  Constitution of the Independent State of Papua New
  Guinea and / or the Public Finances (Management) Act
  1995 in connection with the control and transaction with and
  concerning the accounts of a public body or the public
  moneys and the property of Papua New Guinea, it may make
  referrals of that person to the Office of the Public Prosecutor
  in accordance with Section 86 (1) (f) and Section 86A (1) and
  (2) of the Public Finances (Management) Act 1995.

  10.2 The Public Accounts Committee is not a true investigatory
  body or law enforcement agency capable of investigating
  and/or prosecuting persons for breaches of the law. The
  Committee is required to refer such matters to the
  appropriate authorities and may make such recommendations
  as it thinks fit in relation to any referral made pursuant to
  Section 86A of the PF(M)A.

  10.3 The Committee is also empowered to refer for prosecution,
  any witness who fails to comply with a Notice to Produce any
  document, paper or book and / or any person who fails to
  comply with a Summons issued and served by the
  Committee. See Section 23 Permanent Parliamentary
  Committees Act 1994.

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  10.4 Further, Section 20 of the Parliamentary Powers and
  Privileges Act 1994 permits the Committee to refer for
  prosecution any person who, inter alia, fails to comply with a
  Summons to produce books, papers or documents specified in
  the Summons.

  10.5 Regrettably, the Committee is required to make referrals of
  individuals for further investigation and possible prosecution
  as a result either of their non compliance when summoned to
  this Inquiry or as a result of evidence received by the
  Committee in the Inquiry or their demonstrated attitude
  toward this Committee or its proceedings.

  10.6 In particular the Secretaries of the Departments of Finance
  and Treasury simply refused to answer Summonses issued
  and served by the Committee or to assist or cooperate with
  the Committee. What oral evidence was given by these
  Officers was difficult to understand and/or unresponsive.

  10.7 Those referrals were made after anxious consideration of the
  evidence and any explanations given by the persons
  concerned. The Secretaries for the Departments of Finance
  and Treasury were invited to make any response or show any
  reason why they should not be referred, but made no
  response to the Committee in this regard.

  10.8 The Committee is cognisant that to make referrals,
  particularly of a senior public servant is a very serious matter
  which will adversely reflect on the individual concerned.
  These referrals are not made lightly but only after careful

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  consideration of all the evidence and unanimous resolution by
  the Committee and where there is clear and unequivocal
  evidence which requires either specialized investigation by the
  appropriate agency or where a failure to cooperate with the
  Committee, as required by Law, was clear.

  11 METHOD OF INQUIRY

  11.1 The Inquiry by the Public Accounts Committee into the Public
  Accounts for the financial year 2006 was a public hearing at
  which sworn evidence was widely sought from a large range
  of sources, but received from only a small number of
  witnesses.

  11.2 Early in this Inquiry, the Committee became aware that it was
  dealing with a serious and thoroughgoing collapse of fiscal
  accountability by Government.

  11.3 The Committee quickly became aware of the extent of failure
  and non compliance with the legal requirements of accounting
  for public monies imposed by the Public Finances
  (Management) Act 1995 and the Financial Instructions
  promulgated thereunder.

  11.4 The Committee decided to conduct a constructive Inquiry
  intended to identify the reasons for the collapse of
  accountability and to make informed suggestions and
  recommendations to the National Parliament to commence
  the process of reform and/or restoration of these systems.

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  12 WHAT IS THE PUBLIC ACCOUNT?

  12.1 The systems and legal basis for the supervision and control
  of Government finances, and therefore of public monies, is
  prescribed by Subdivision A, Division 1 of Part VIII of the
  Constitution of the Independent State of Papua New
  Guinea.

  12.2 Section 209 of the Constitution states that there shall be, in
  each fiscal year, a national Budget comprising:

  (a) estimates of finance proposed to be raised and
  estimates of proposed expenditure by the
  National Government in respect of the fiscal
  year; and

  (b) …………..

  (c) such other supplementary budgets and
  appropriations as are necessary.

  12.3 Section 211 of the Constitution establishes the systems of
  account for public monies under the control of Government.
  The Section states:

  “(1) All moneys of or under the control of the
  National Government for public expenditure
  ……..shall be dealt with and properly
  accounted for in accordance with law.

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  (2) No money under the control of the National
  Government for public expenditure …..shall
  be expended except as provided by this
  Constitution or by or under an Act of
  Parliament”.

  12.4 The term “public accounts of Papua New Guinea” is defined in
  Schedule 1 of the Constitution in the following manner:

  “public accounts of Papua New Guinea”
  includes all accounts, books and records of,
  or in the custody, possession or control of,
  the National Executive or of a public officer,
  relating to public property or public moneys
  of Papua New Guinea;”

  12.5 The Constitution gives no detailed guidance to or prescription
  for the handling of or accounting for public money. Those
  systems and the legal requirements for those accounts are
  set forth in the Public Finances (Management) Act 1995
  and the Financial Instructions made thereunder.

  12.6 At the outset of this Inquiry the Committee sought a clear
  statement and definition of the Public Accounts and the use to
  which they were put by various entities.

  12.7 This basic question was important – not least because it
  would assist the Committee to understand the import of a
  refusal by the Auditor General to certify the Accounts or to

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  disclaim them. Should such a decision by the Auditor General
  concern the Committee and, if so, why?

  12.8 If the Public Accounts are found to be unreliable or prepared
  or presented on the basis of accounting policies that are
  themselves defective in some way, what recommendations
  should the Committee make to the National Parliament?

  12.9 This question was addressed to the Office of the Auditor
  General both in writing and orally at the Inquiry. We received
  timely, comprehensible and responsive assistance from the
  Auditor and we record our gratitude for that cooperation.

  12.10 Evidence given by the Auditor General both orally and by Para
  6 of the Part 1 Report for 2005, is accepted by the Committee
  as relevant in this Inquiry:

  “HON. TIMOTHY BONGA MP – Chairman:

  What use is made of the public accounts and by
  whom? Are they used for budgeting purposes, are
  they used by foreign governments or credit agencies,
  by Treasury or Central Bank? Perhaps you could
  summarise Para 6 of your 2005 Report.

  MR. GEORGE SULLIMAN – Auditor General:

  Chairman, there are lots of users for the Public
  Accounts and there are a lot of uses for the national
  Public Accounts. The Departments themselves, our

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  economist and the public at large, investors, central
  governments agencies …………,

  Transcript 30th April 2008.

  12.11 Para. 6 of the Part 1 Report of the Auditor General for 2005 is
  of direct relevance to the Committee’s question. It states:

  “THE ROLE OF THE PUBLIC ACCOUNTS OF PAPUA NEW
  GUINEA.

  Important features of the Papua New Guinea
  system of governing depend in part on the
  availability of good financial information. The Public
  Accounts are a major source of annually reported
  financial information.

  The features of Papua New Guinean system of
  Government that depend in part on the
  availability of good financial information are:

  • Consent of the governed;

  • An Executive entrusted with powers;

  • Impose limits on the executive use of
  powers; and

  • Oversight of executive action.

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  Government in this country is based on consent
  formally given by representatives in Parliament
  through the annual appropriation of supply,
  approval of the Budget and passage of Legislative
  proposals.

  Information on the benefits, costs and financial
  effects of Government proposals is needed before
  Parliament gives its consent. Subsequent periodic
  reporting of the financial information is needed to
  compare actual costs, tax burdens, and other
  financial effects with those intentions and for which
  consent was given.

  The system of Papua New Guinea provides for a
  strong Executive entrusted with great
  power……………..Reports of the actual costs and
  financial effects of government activities are
  needed to assess whether, from a financial view,
  Executive discretion was appropriately exercised.

  Limitations on the use of Executive authority are a
  constitutional strategy to protect individuals’ liberty
  from abuse of the powers of the State. Some limits
  are financial (for example, the system of
  Parliamentary appropriation) and financial records
  are needed to show whether the Executive has
  complied………

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  The possibility of review helps deter behavior such
  as unfairness, fraud, waste, extravagance,
  embezzlement and misappropriation”.

  12.12 The Committee also considered the intent of the
  Constitutional Planning Committee. In the Report of that
  Committee in 1974, the following was found:

  “ …the ultimate task of management, of raising,
  allocating, re-allocating and then spending
  government fund, remains an executive
  responsibility.” Para. 9/2: 11.

  and further,

  “ A presentation of an annual budget and statement
  of account to the legislature provides a most
  important opportunity for the audited results of one
  year’s government activity to be related to
  estimates for the following year, and for both of
  these to be examined against the governments long
  term economic plans. It provides a most useful
  occasion for parliament to review progress being
  made toward the attainment of national objectives”
  Para. 9/2 12

  12.13 This Committee accepts that the Annual Report on the Public
  Account of Papua New Guinea is a vital tool of governance
  which performs at least two crucial functions:

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  1. The Public Accounts are a statistical record of National
  progress, achievement and adherence to planned
  development, budgeting, service delivery, monitoring
  and growth.

  2. The Public Accounts are a powerful Constitutional device
  intended to protect against Executive excesses and to
  serve thereby, the social and fiscal covenant between
  the governed and their leaders.

  12.14 Either or both of those functions demand accurate,
  comprehensible and reliable statements of account – which in
  turn requires lawful, competent, accurate, current and
  comprehensible primary records and documentation.

  12.15 If reliable or accurate statements of the Public Account are
  not made, this Committee cannot understand how a
  Government can budget, fix taxation, plan development,
  allocate money, deliver services, maintain executive power or
  maintain any understanding of such vital issues as the
  national debt, national resources and needs, the amount of
  money actually held in Trust Accounts, the number of Trust
  Accounts, the public debt, guarantees or other vital
  information, fundamentally important to the modern nation
  state.

  12.16 In our opinion, an accurate and reliable Statement of the
  Public Account and a review of that Statement by the Auditor

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  General and this Committee is vital to preserve the
  supremacy of Parliament and to prevent the power of the
  Executive being usurped by an uncontrolled Public Service
  acting behind a veil of fiscal secrecy created by either a
  failure to produce accounts at all or a production of
  misleading or defective accounts.

  12.17 In summary, the preparation and presentation of accurate
  and reliable Public Accounts is crucial to good governance,
  democratic rule and the welfare of our people.

  12.18 Unelected and unaccountable public servants have deprived
  successive governments of this information for years by the
  simple device of refusing to create or present records or
  accounts of their financial activities. Astonishingly this has
  been tolerated by successive Governments.

  12.19 In light of the contents of this Parliamentary Report, it is
  important to understand that the Public Account of the
  Independent State of Papua New Guinea is only as reliable
  and as comprehensive as the primary documents from which
  it is compiled and the creation and accuracy of these records
  are the responsibility of the Heads of Department,
  Department of Finance and therefore the Head of
  Department, the Minister for Finance and all Ministers of
  Government who oversee the performance of Departments.

  12.20 With regret, this Committee must record at this point that the
  collapse in the systems of public accounting in 2006 and in
  previous years, at every level of Government, has resulted in

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  a Public Account for the year 2006, which is not reliable and
  may not represent or record the true state of fiscal dealing by
  the Government of Papua New Guinea for that year.

  13 WHAT ARE THE PRIMARY DOCUMENTS AND SOURCES OF
  THE PUBLIC ACCOUNTS?

  13.1 By Section 211 of the Constitution all monies over or under
  the control of the National Government for public expenditure
  should be dealt with and properly accounted for in accordance
  with law.

  13.2 The accounting standards and requirements for the use of
  and transactions with public monies, property or stores are
  set forth in the Public Finances (Management) Act 1995
  and the Financial Instructions promulgated hereunder.
  These documents are the primary records from which the
  Public Accounts are compiled and upon which they rely for
  their accuracy.

  13.3 The Public Accounts of Papua New Guinea record the
  allocation and expenditure of public monies and also
  collection of revenues made by National Government
  Departments, agencies, arms or entities, Provincial
  Governments (in summary form) and all other functionalities
  and instrumentalities of the State.

  13.4 The State renders services and administration through
  Government Departments or agencies at National, Provincial
  and Local Level Government levels.

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  13.5 Each Department, arm, entity or agency of Government is
  required by the Public Finances (Management) Act 1995
  and the Financial Instructions to maintain internal,
  external and audit controls over all their dealings with public
  monies, property or stores and to keep reliable and current
  records and accounts of those dealings.

  13.6 In the absence of those statutory records, data or accounts,
  power of and control over public funds has been lost to
  Government, which effectively means that Constitutional
  fiscal autonomy and power has also been lost.

  13.7 Strict adherence to and rigorous enforcement of legal
  requirements for the accounting for public monies, property
  and stores by all arms of Government is a fundamental and
  indispensable item of proper modern governance.

  13.8 For this reason, the Constitution and the Statutory scheme of
  financial management gives detailed and mandatory direction
  to all Heads of Department, including and in particular, the
  Department of Finance.

  13.9 The primary material from which the 2006 Public Accounts
  were drawn was unreliable, at best. In many instances the
  records simply did not exist and no Audit examination was
  possible of the Government entity concerned.

  13.10 This collapse can only have occurred as a result of a loss of
  central command and control. This Committee concludes that
  the loss of that control was a two-stage process.

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  13.11 Firstly, the Executive itself has lost control of the Public
  Service – and in particular the agency responsible for the
  management of public monies i.e. the Department of Finance.

  13.12 Secondly, the Department of Finance itself has failed in its
  statutory duty to enforce the requirements of law for the
  handling of and transactions with public money and the
  accounting for and reporting of those transactions and hides
  behind the excuse that Departments are self accounting and
  no responsibility of the Department of Finance.

  13.13 This situation has existed and worsened in spread and depth
  for years.

  13.14 In short, the Executive and the National Parliament failed to
  supervise and control the Public Service in its handling of and
  transactions with public monies which simply allowed those
  agencies to act as they pleased and obey the Law if and when
  they wanted to.

  13.15 This has encouraged, hidden and protected a usurpation of
  power by the Public Service which it does not have and should
  not be allowed to exercise.

  13.16 This Committee can only conclude that the very Department
  responsible for the protection and management of public
  monies has failed in its duty to enforce accounting standards
  and practices, which has inevitably resulted in unreliable,
  illegal, misleading and (in many cases) non-existent financial
  records.

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  13.17 Because of the failure of these systems, the Committee
  proposes to outline the respective roles of the Department of
  Finance, the Auditor General and the Public Accounts
  Committee in order that the National Parliament may obtain a
  clear understanding of how the system of financial
  management should work and the seriousness of the current
  failure.

  13.18 Members may then compare the findings of this Committee
  and the Auditor General with what should have occurred.

  14 CONSTITUTION OF THE PUBLIC ACCOUNT

  The Statutory scheme of Government Accounting and
  Financial Management.

  14.1 The Public Account consists of the Consolidated Revenue Fund
  and the Trust Fund.

  14.2 To ensure effective control, it is an established Government
  accounting principle that all Government receipts including
  loans, grants and revenue should be channeled through a
  single Consolidated Revenue Fund while payments are to be
  made out of the same Fund in accordance with the Annual
  Appropriation Act and other subsequent Revised Appropriation
  Acts passed by Parliament from time to time.

  14.3 Individual Trust Accounts are established and operated within
  the Trust Fund and managed by responsible agencies. These

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  may have an actual bank account or be non-bank account
  Trust Accounts.

  14.4 The total of the balances in the various trust accounts
  represent the Trust Fund. Trust monies held for various
  entities and purposes are permitted to be held by accounting,
  prudence or by given regulations.

  14.5 All monies received by the State should be brought to account
  in cashbooks and deposited to the credit of the Waigani Public
  Account, the Receiver of Public Monies Accounts and
  operating accounts maintained with the Bank of Papua New
  Guinea, the Bank of South Pacific or other commercial banks
  which are authorized by the Minister for Finance.

  14.6 The Government accounts are maintained on a cash basis.
  Receipts and expenditure shown in the financial statements
  are based on amounts actually received or actually spent in
  the financial year.

  14.7 Of course, those records will only be as good as the primary
  material produced by agencies of Government who effect
  expenditure and receipt.

  14.8 Expenses for goods and services received are brought to
  account in the year payment for those services are made and
  similarly, income received is brought to account in the year of
  receipt.

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  14.9 Expenditure is limited to the funds appropriated by the
  Appropriation Act or the Special Appropriations approved by
  other Acts of Parliament. In practice Departments are issued
  with a Warrant Authority that gives them the right to spend
  public money, but only to the limit of the warrant.
  Departmental Heads are responsible for ensuring that total
  expenditures incurred are within the Warrant Authorities
  issued to them.

  14.10 Departmental Heads are accountable for over-expenditure
  incurred by the Department but may obtain top up funds from
  the Department of Finance under Sections 3 or 4 of the
  Appropriation Act.

  14.11 Appropriations lapse at the end of the financial year. The only
  exception to this is where monies are advanced before the
  end of the financial year to make payments in connection with
  commitments made during the year.

  14.12 The Financial Instructions set forth detailed procedures
  particularly for commitment of expenditure in the payment of
  claims. Requisitions have to be approved by designated
  officers and financial delegates must certify the availability of
  funds to commit the approved expenditure.

  14.13 The Financial Regulations provide that the accounting system
  and records maintained by the various Departments,
  Provincial Treasuries and cash officers are subsidiary to the
  accounting system and records of the Department of Finance.

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  The system and methodology of accounting organization in
  2006, was as follows:

  GOVERNMENT OF PAPUA NEW GUINEA

  DEPARTMENT OF FINANCE

  PUBLIC ACCOUNTS DIVISION

  MAIN APPROPRIATION

  PROVINCIAL SELF CASH
  TREASURIES ACCOUNTING MANAGEMENT
  DEPARTMENTS BRANCH

  SUB SUB
  APPROPRIATION APPROPRIATION
  LEDGER WITH LEDGER WITH RPM
  DRAWING ACCOUNT
  ACCOUNTS

  DEFENCE
  DISTRICT
  EDUCATION
  TREASURIES TRANSPORT
  HEALTH
  HOSPITAL MANAGEMENT SERVICES
  POLICE
  FOREIGN AFFAIRS AND TRADE
  PRIME MINISTER AND NEC
  CORRECTIONAL SERVICES
  PERSONNEL MANAGEMENT
  AGRICULTURE AND LIVESTOCK
  CASH OFFICES LAND AND PHYSICAL PLANNING
  NATIONAL PLANNING
  PROVINCIAL AND LOCAL LEVEL GOVERNMENT
  AFFAIRS
  HOME AFFAIRS AND YOUTH
  COMMERCE AND INDUSTRY
  ATTORNEY GENERAL
  ELECTORAL COMMISSION

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  14.14 The Department of Finance, and particularly the Secretary of
  that Department, is fully accountable and is, in fact, the
  accountable agency to government for the entire performance
  of Government in its handling of and transactions with public
  funds.

  14.15 Provincial Treasury Offices are the Department of Finance’s
  agencies in the Provinces. Under Section 112 of the Organic
  Law on Provincial and Local-level Governments, the
  Secretary for the Department of Finance appoints the
  Provincial Treasurer. The duties of the Provincial Treasurers
  are based on the provisions of the Organic Law and
  Provincial Governments or Local Level Governments. The role
  of the Provincial Treasury is to ensure that public monies are
  managed and released strictly in accordance with the law.

  14.16 Under the Organic Law, the Provincial Treasury Offices are
  funded through Grants and are to account for the grants
  expended in the annual financial statements prepared for the
  Provincial Governments.

  14.17 The Provincial Treasurer is responsible for the preparation and
  submission of the Provincial Government’s financial
  statements in accordance with Financial Instructions and
  the Public Finance (Management) Act 1995. These
  financial statements are forwarded to the Office of the Auditor
  General for Audit.

  The Statement of the Public Account.

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  14.18 The Public Account Financial Statements form part of the
  Department of Finance’s annual operational Report to
  Parliament. The statement contains a report on:

  • Appropriation of funds to be available to be received
  and expended by the State;

  • Receipts and expenditure for the year;

  • Cash position at the end of the year;

  • Borrowings and investment by the State; and

  • Losses by the State.

  14.19 The information constituting these statements of the public
  account comes from various sources. The Legislative controls
  and requirements together with the Departmental policies and
  procedures should ensure the records and the Public Account
  Financial Statements are materially complete and accurate.

  14.20 As the Committee has already stated, assurance on the
  regularity and propriety of the Government’s financial
  transactions requires regular and timely reconciliation of
  balances shown in cashbooks with those of the respective
  bank accounts and constant oversight and control by the
  Department of Finance – even of self accounting
  Departments.

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  14.21 It is no excuse, in our opinion, for the Department of Finance
  to abrogate its responsibility by claiming that Departments
  are self accounting and therefore no concern of the
  Department of Finance. That attitude has led directly to a
  failed system of accounting and questionable or unreliable
  public accounts.

  14.22 That attitude also means that the only function of the
  Department of Finance is to publish and submit the Public
  Accounts regardless of accuracy or reliability of their contents.
  We do not accept this.

  14.23 For proper control, cashbook balances should be reconciled
  promptly with the sub appropriation ledger balances, bank
  statements and, where possible, reconciled to the quarterly
  revenue and expenditure statements produced by the Finance
  Department Headquarters.

  14.24 This was not occurring in 2006 and our Inquiries into
  Government Departments clearly show that it is not occurring
  now.

  14.25 It is to be noted that the Auditor General concludes that past
  accounting practices are inappropriate, statements of the
  public account are distorted and difficult to understand and
  that the Department of Finance, while claiming to be in the
  process of clearing up many problems that it has inherited,
  have not for many years properly fulfilled the statutory role of
  enforcement and oversight of accounting practices – as it
  should.

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  The Format of the Statement of the Public Accounts 2006

  14.26 The Public Accounts comprise:
  • Statement A – Statement of Public Account Balances;

  • Statement B – Consolidated Revenue Fund Receipts and
  Expenditure;

  • Statement C – Receipts and payments of the Trust
  Fund;

  • Statement D – Statement of Sources and Application of
  Funds;

  • Statement E – Trust Fund – Particulars of Investments;

  • Statement F – Statement of Direct Investments, Capital
  Contributions and Equity Options Rights;

  • Statement G – Statement of Public Debts;

  • Statement H – Statement of Lending;

  • Statement I – Statement of Loans Guaranteed by
  Government;

  • Statement J – Receipts classified under Heads of
  Revenue Estimates;

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  • Statement L – Expenditure by Departments classified
  under Appropriation Divisions;

  • Statement M – Notes to and forming part of the Public
  Accounts of the Independent State of Papua New
  Guinea for the year ended the 31st December 2006;

  • Appendix 1 – Statement of Losses and Deficiencies of
  Public Monies in Previous Years first reported in 2006.

  The format of the 2006 Public Accounts are the same as the
  Public Accounts for many years preceding. The adequacy
  and propriety of the format will be discussed in the body of
  this Report.

  14.27 The Secretary of the Department of Finance is responsible
  under Section 4 of the Public Finance (Management) Act
  1995 for the preparation and presentation of the Public
  Accounts as prescribed by the Public Finance
  (Management) Act 1995.

  14.28 This responsibility includes the maintenance of adequate
  accounting records and internal controls designed to prevent
  and detect fraud and error.

  14.29 These matters are discussed in greater detail in this Report
  (infra).

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  15 FISCAL DUTIES OF DEPARTMENTS AND DEPARTMENTAL
  HEADS.

  15.1 The responsibilities of a Government Department arm, entity
  or agency to keep proper and detailed records of all dealings
  and transactions with public monies, property and stores
  arises from the Public Finance (Management) Act 1995
  and in the further prescriptive detail in the Financial
  Instructions. The requirements are not onerous and would
  be readily understandable by any trained Finance Officer.

  15.2 Heads of Department and entities or agencies are required by
  Section 5 of the Public Finances (Management) Act 1995
  to, at least:

  • Ensure that provisions of the PF(M)A are complied
  with; and

  • All accounts and records relating to the functions and
  operations of the Department are properly maintained;
  and

  • Ensure all necessary precautions are taken to safeguard
  the collection and custody of public monies; and

  • All expenditure is properly authorized and applied to the
  purposes for which it is appropriated; and

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  • There is no over-commitment of funds and a review is
  undertaken each month to ensure that there is no over-
  expenditure or over-commitment and the collection of
  public monies accords with approved plans and
  estimates; and
  • All expenditure is incurred with due regard to economy,
  efficiency and effectiveness and the avoidance of waste;
  and

  • All necessary precautions are taken to safeguard stores
  and other property of the State; and

  • Any fee, charge or tax imposed by Legislation for which
  the Department is responsible is collected promptly and
  to the fullest extent; and

  • Any fee, charge or tax imposed by Legislation for which
  the Department is responsible is reviewed at least once
  in every year in order to establish whether the level of
  the fee, charge or tax is adequate and whether the fee,
  charge or a tax should be increased; and

  • Ensure that financial reports on reviews and other
  matters are submitted to the Secretary for Finance in
  the format specified in the Financial Instructions;
  and

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  • Information required by the Public Accounts Committee
  is submitted to that Committee accurately and
  promptly; and

  • Advice on financial management is given to the Minister
  politically responsible for the Department; and

  • Proper estimates in respect of collection and
  expenditure of public monies are prepared in a form
  specified in the Financial Instructions; and

  • As soon as practicable after the end of each fiscal year,
  submit to the Departmental Head of the Department
  responsible for Financial Management a Report on
  Financial Management in a form specified in the
  Financial Instructions.

  15.3 These responsibilities are clearly stated, easily understood
  and cannot be derogated from or reduced by delegation. They
  are, for professional Public Servants, simple to implement,
  maintain, perform and enforce. Yet it was not done in 2006.

  15.4 Within every Department, arm, entity or agency of
  Government there is an accountable officer who, by Section 6
  of the PF(M)A is required to and responsible for applying and
  complying with provisions of the PF(M)A in respect of all
  public money, property and stores under his possession or
  control. In other words, he is required to account for them.

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  15.5 In every Department, arm, entity or agency of Government
  there is a public office holder responsible for the collection of
  revenue (where revenue is collected at all) who is responsible
  for prompt collection, payment into the public account and
  record-keeping.

  15.6 By Section 8 of the PF(M)A, the Secretary for Finance may
  appoint an Officer to be a Finance Inspector and both that
  person and the Head of the Department of Finance are given
  wide powers to obtain access to all records of accountable
  officers and to inspect and Inquire into and call for any
  information arising from those records and accounts.

  15.7 The Management of the Public Account is clearly set forth in
  Part 3 of the Public Finances (Management) Act 1995.
  None of these requirements are complex, technical or difficult
  to apply or understand.

  15.8 The Financial Instructions promulgated under the PF(M)A
  makes full provisions for all necessary documentation and
  step by step guidance as to the application of the PF(M)A.

  15.9 By Part VIII of the PF(M)A, detailed accounting and reporting
  requirements are set forth. There is nothing difficult or
  onerous about these simple steps. For example, Section 63
  of the Public Finance (Management) Act 1995 requires
  certain statutory reports and financial statements to be
  furnished – and it is from these statements that the Public
  Accounts that relate to Public Bodies, are compiled.

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  15.10 Likewise, Part IX of the PF(M)A clearly sets forth the statutory
  requirements for accounting and reporting by Provincial and
  Local Level Governments. This Committee has had careful
  regard to these and all the other requirements of the PF(M)A
  and finds them simple, straight-forward, easily understood
  and easily implemented.

  15.11 Departments, arms, entities and agencies of Government
  employ hundreds of officers whose only duty is to create,
  maintain and submit financial records and/or to oversee this
  process to ensure that it occurs. How can we have reached
  such a state of failure in the management of public monies?

  15.12 This Committee could identify scarcely one entity capable of
  managing its own internal funding, bank account or budgets,
  much less development or service related budgets. This is the
  direct failure of Heads of each implicated Department.

  16 DUTIES OF THE AUDITOR GENERAL

  16.1 Audit review of the Public Accounts by the Auditor General is
  the first level of objective and independent assessment and
  consideration of the Public Accounts.

  16.2 The standard of the Reports of the Auditor General into the
  Public Accounts were, on the whole, competent and incisive.
  Clearly the state of the Public Accounts had, by 2006,
  deteriorated to the stage where the Auditor General had no
  choice but to condemn them by significant qualification.

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  16.3 Section 214 of the Constitution of the Independent State
  of Papua New Guinea requires the Auditor General to
  inspect, audit and report at least once in every fiscal year to
  the Parliament on the Public Account of the Independent
  State of Papua New Guinea and on the control of and
  property of the Independent State of Papua New Guinea.

  16.4 The Audit Act 1989 expands and provides the above
  function in Section 7 (2) (A) therein. It is the responsibility of
  the Auditor General to form an independent audit opinion on
  those Public Account statements.

  16.5 The Committee accepts that the Audit conducted of the Public
  Accounts for the financial year 2006 was made in accordance
  with generally accepted standards and practices on auditing.
  These standards and practices require that the Auditor
  General plan and perform the Audit to obtain a reasonable
  assurance as to whether the Public Accounts are free of
  material miss-statement.

  16.6 An Audit includes examination on a test basis of evidence
  supporting the accounts and other disclosures in the Public
  Account Statements.

  16.7 It also includes evaluation of accounting policies and
  significant accounting estimates, as well as evaluating
  whether the Public Accounts statements are presented fairly
  in accordance with statutory requirements, so as to present a
  view which is consistent with the understanding by the
  Auditor General of the Government’s financial position.

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  16.8 The Audit does not include any procedures that would allow
  the Auditor General to form an opinion on the completeness
  of revenue collected on behalf of the State but does cover the
  accounting for revenue actually acknowledged as collected.

  16.9 The Auditor General, after completing his Audit, enters into
  discussions with the Department of Finance and ultimately
  presents the Audit to the National Parliament together with
  the Statement of Public Account.

  17 PARLIAMENTARY SCRUTINY OF THE 2006 PUBLIC
  ACCOUNTS.

  17.1 Review of the Public Accounts by this Committee is the second
  level of assurance as to the standard, format and contents of
  the Public Accounts.

  17.2 Responsibility for all aspects of public finance is vested in the
  Minister responsible for Finance, who is required to submit to
  the National Parliament a Statement of Government Revenue
  and Expenditure.

  17.3 The Auditor General is required to report to the Parliament on
  the control and management of public money and the
  property of the Independent State of Papua New Guinea at
  least once every fiscal year. The Parliament is required to
  conduct certain scrutiny and oversight of public finances.

  17.4 Section 215 of the Constitution establishes the Public
  Accounts Committee. The primary function of that Committee

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  is to examine the Public Accounts and control of public monies
  and to report their findings to the Parliament.

  17.5 The Statement and intention of the framers of our
  Constitution was to provide for scrutiny of the control of
  public funds and to enable the Parliament to call for an
  account of any irregularities and defaults in the Report of the
  Public Accounts. This we have strived to do.

  17.6 The Committee also has a duty to report to Parliament any
  alterations which in its opinion, should be made to the form of
  the Public Accounts or in the method of keeping them, or in
  the method of collection, receipts, custody, disposal, issue or
  use of stores and other property.

  17.7 The Reports of the Public Accounts Committee are then
  forwarded to the Secretary for Finance who should deliberate
  with Departments concerning the Committee suggestions and
  criticisms.

  17.8 Any conclusions reached after these deliberations are
  communicated to the Public Accounts Committee by means of
  a Finance Minute, which the Committee tables in Parliament.

  17.9 This Inquiry and the Report to the National Parliament has
  been sent in draft form to the Secretary for Finance for
  comment and after the Report is tabled in the Parliament will
  be delivered to the Auditor General for the discussion process
  to ensue.

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  18 DUTIES AND FUNCTIONS OF THE DEPARTMENT OF
  FINANCE.

  Duty to Keep and Submit the Public Accounts.

  18.1 By Section 3 (3) of the Public Finances Management Act
  1995 the Minister responsible for financial matters is required
  to:

  “As soon as practicable after the end of each fiscal
  year, the Minister shall cause to be prepared a
  detailed Statement of the receipts and
  expenditure of the Public Account during the
  fiscal year, and send it to the Auditor General”.

  18.2 By Sub-Section 2 of the Public Finances (Management)
  Act 1995;

  “Public Account” is defined as follows:

  “Public Account” means a Public Account
  established by Section 10 (1) and in relation to a
  Provincial Government or a Local Level
  Government established under the Organic Law on
  Provincial Governments and Local Level
  Governments, meaning the General Revenue Fund
  and the Trust Fund established for that Provincial
  Government or Local Level Government”.

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  18.3 Section 10 of the Public Finances (Management) Act 1995
  reads as follows:

  “Public Accounts”

  i) There shall be a Public Account for each of:

  (a) The National Government; and

  (b) A Provincial Government or a Local
  Level Government established under the
  Organic Law on Provincial Governments
  and Local Level Governments.

  ii) A Public Account established by Sub-Section
  (1) shall consist of:

  (a) In the case of the National Government –

  i. The Consolidated Revenue Fund;
  and

  ii. The Trust Fund; and

  iii. In the case of a Provincial or Local
  Level Government –

  1. A General Revenue Fund; and

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  2. A Trust Fund.”

  18.4 Section 11 of the Public Finances (Management) Act
  1995 directs that the Public Account consisting of public
  monies, shall be kept in Banks which are approved by the
  Departmental Head of the Department responsible for
  financial management or in such a manner as the
  Departmental Head of that Department may direct.

  18.5 This Committee concludes that Section 3 of the Public
  Finances (Management) Act 1995 places responsibility on
  the Minister for Finance for the supervision of the finances of
  the Independent State of Papua New Guinea so as to ensure
  that a full accounting is made to the Parliament of all
  transactions involving public monies.

  18.6 Under Section 3 (3) and (5) of the same Act, the Minister for
  Finance is required to cause the preparation of detailed
  statements of the receipts and expenditure of the Public
  Account for the fiscal year 2006 and send it to the Auditor
  General for the purpose of Audit.

  18.7 The Committee further concludes that the Public Account
  presented by the Minister for Finance represents a statement
  of the entirety of the fiscal affairs of the Independent State of
  Papua New Guinea for the financial year 2006.

  18.8 The Auditor General told this Committee:

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  “The provision of an Annual Report into the Public
  Account of Papua New Guinea is a Constitutional
  requirement made with the intention of informing
  Parliament through Audited Accounts, of the
  precise state of the Financial Management by
  Government. The accuracy of those Reports is
  fundamental to good governance. The provision of
  accurate and lawful primary records from all
  levels, arms, entities of Government is the primary
  statutory duty of the Head of the Department of
  Finance.”

  18.9 This Committee must report that in 2006 the Auditor General
  has expressed numerous qualifications of his opinion on the
  Public Account as produced by the Department of Finance.

  18.10 The Public Account was found by the Auditor General, in
  summary, to not be based upon proper accounts and records
  and to not give a true and fair view of the financial position of
  the Government of Papua New Guinea and the results of its
  operation for the year ended the 31st December 2006.

  18.11 More worryingly, the Auditor General has found that:

  “…. the controls exercised over the receipt and
  payment and investment of monies and the
  acquisition and disposal of assets are not in
  accordance with the Public Finances (Management)
  Act 1995 and any other relevant legal obligations

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  including the Constitution of the Independent State
  of Papua New Guinea”.

  18.12 This Committee concludes that the Report of the Auditor
  General shows serious failures in both the format and content
  of the Public Account for the year 2006 and reveals an almost
  complete failure by the Department of Finance and every
  other agency of Government to keep or require to be kept,
  accurate or, in many cases, any records or accounts at all.
  This is an extremely serious matter.

  18.13 There is a further matter of concern. It is clear that the
  Department of Finance (like all other Departments) cannot
  even manage its own internal accounting. How can it be
  expected to carry out its duties to oversight government
  finances in general?

  18.14 This Committee concludes that the Department of Finance has
  insufficient influence and control over government spending
  and has completely lost control of its oversight role.

  19 DUTY OF DEPARTMENTS AND OFFICERS TO THE OFFICE
  OF THE AUDITOR GENERAL.

  19.1 All persons have the duty to assist and cooperate with the
  Auditor General when required to do so.

  19.2 The Audit Act 1986 gives wide powers to the Auditor
  General – see for example Sections 2 (power to access

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  information or data), 4 (power to summon, examine,
  access, search and force delivery of information) and
  5 (power to prosecute).

  19.3 By Section 29 of the Audit Act 1986, offences and
  penalties are prescribed for obstructing or failing to assist
  the Auditor General.
  19.4 In concert with the provisions of the Public Finances
  (Management) Act 1995, it is clear that co-operation
  with the Auditor General is mandatory and enforceable.
  Yet for years, public servants have failed or refused to give
  this cooperation when it did not suit their agenda to do so.

  19.5 This Committee has wide experience of failure by
  Departmental Heads and Officers refusing to cooperate
  with the Auditor General and with the Committee itself.
  This Inquiry into the Public Accounts for 2006 is no
  exception.

  19.6 In his 2006 Part 1 Report, the Auditor General makes
  specific findings concerning this failure in the Departments
  of Finance and Treasury and we will address this matter
  later in this Report.

  19.7 At this stage we state that these failures to cooperate
  strike at the heart of accountability and cannot be
  tolerated. The Auditor General should exercise his coercive
  powers to force assistance and cooperation.

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  20. THE INQUIRY.

  EVIDENCE RECEIVED BY THE COMMITTEE.

  20.1 The principal evidence received by the Public Accounts
  Committee was the Statement of the Public Accounts for the
  financial year 2006. This Statement of the Public Account is
  produced by the Department of Finance as part of its Annual
  Parliamentary Report.

  20.2 The Committee received the Part 1 Report of the Auditor
  General on the 2006 Public Accounts of Papua New Guinea.
  A copy of that Report is shown in Schedule 2.

  20.3 These Reports were supplemented by oral explanatory
  evidence to the Committee from the Auditor General.

  20.4 The Committee has given very careful consideration to the
  contents of both Reports and accepts the Report of the
  Auditor General as it is presented.

  20.5 The Committee received no evidence contradicting or
  qualifying the Report of the Auditor General in any respect.

  20.6 The Report of the Auditor General together with the Public
  Accounts for 2006 was tabled in the National Parliament on
  the 26th day of November 2008.

  20.7 The 2006 Part 1 Report of the Auditor General on the Public
  Accounts of Papua New Guinea is presented in two Sections.

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  20.8 The first, Part A, presents the Public Accounts which the
  Minister for Finance in the terms of Section 3 of the Public
  Finances (Management) Act 1995 caused to be prepared
  and sent to the Auditor General for audit.

  21. QUALIFICATIONS

  Limitation of Scope – Public Account Funds

  21.1 The balance of the Public Accounts as at the 31st December
  2006 was K 1,449.22 million. The Trust Fund showed a
  balance of K 1,684.98 and the Consolidated Revenue Fund –
  a deficit balance of K235.76 million.

  21.2 The Auditor General was unable to determine the correct
  balance of the Trust Fund and the reported balance of the
  Public Accounts, due to the following matters:

  • Non-compliance by various Heads of Department to
  submit Statements of Trust Accounts at the end of
  each year and prepare monthly returns of receipts
  and payments together with bank reconciliations.

  It was therefore impossible for the Auditor General to
  verify the validity and completeness of transactions
  forming the basis of the above accounts.

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  • Unreconciled material differences of K478 million
  between two types of Trust Accounts. This
  extraordinary finding requires detailed and deep
  investigation.

  • Variances in the reported Trust balances to the Bank
  Confirmations. In sixteen cases Bank records were
  in excess of Trust Account amounts by K7.6 million.
  Seventeen Accounts reported “nil” balance whilst the
  Bank records showed a total balance of K17.79
  million and four of the Trust Accounts were listed
  under an incorrect Bank name.

  22. TRUST FUND SUSPENSE ACCOUNT NO. 2

  22.1 The Trust Fund Suspense Account No. 2 is the subject of
  considerable and detailed investigation by the Auditor
  General and this Committee for the Years 2004 and 2005. All
  the evidence showed planned, intentional and illegal conduct
  of this Trust Account and continued into 2006.

  22.2 The Trust Account was established to hold temporary
  payments to Government such as bail money and Child
  Maintenance. Over the years, the receipts through this non-
  Bank Trust Account and payments from it had increased with
  material transactions being administered.

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  22.3 During this current financial year 2006, K47.89 million was
  receipted and K57.26 million was paid from the Account
  resulting in a deficit of K9.07 million.

  22.4 This deficit was reduced to “nil” at the year end through
  journal transactions but the Auditor General was unable to
  verify the accuracy and completeness of the transactions
  because of:

  • A lack of detailed ledgers maintained at the
  Department of Finance to track credits or withdrawals;

  • Payments amounting to K10.23 million were made out
  of thirteen Provincial Treasuries without having
  sufficient balance on the Accounts;

  • The Account was operated by the Provinces without
  delegated authority from Officials of the Department
  of Finance;

  • The Trust Funds deficit of K9.07 million at year end
  represents a breach of Section 17(b) of the Public
  Finances (Management) Act 1995.

  22.5 We make comment as to the conduct of this Trust Account
  later in this Report.

  23. EXPENDITURE BY NATIONAL DEPARTMENTS

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  23.1 Expenditure incurred by National Departments totaled K
  2,801.41 million from a total K 7,451.29 million,
  development and recurrent expenditure of the State.

  23.2 There is no effective reconciliation by National Agencies
  against their reported expenditure and the Auditor General
  could not extend Audit procedures sufficiently to verify them.

  23.3 This is an extremely serious finding but one which mirrors the
  failures and incompetence of the Government Accounting
  system and all Government Agencies for the Financial Years
  2004 and 2005.

  23.4 Bank reconciliations are a key control to identify anomalies
  and errors in the payment and receipting processes and to
  minimize the risk of misappropriation or fraud and it is not
  occurring.

  23.5 The Auditor General again finds some very large numbers of
  adjusting journal entries at the year end. In total a 196
  journal entries were posted after the 31st December 2006
  amounting to K 3,532.94 million.

  23.6 This Committee has been quite unable to obtain any
  explanation at all from the Department of Finance (or any
  other source) for this practice. It is strongly suggestive of
  gross incompetence or fiscal malpractice. Whatever the
  explanation, it is entirely unsatisfactory but has been a
  pattern of conduct now for many years.

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  24. EXPENSES MADE IN 2007 ACCOUNTED FOR IN 2006

  24.1 The Auditor reports that for the reporting period ended the
  31st December 2006, accounts were not closed for payments.
  The total value of cheques drawn after the 3rd January 2007
  and post-dated to the 31st December 2006 totaled an
  incredible K95.12 million.

  24.2 The Cheque Usage Reports show that K41.90 million was
  processed outside normal working hours. This is a totally
  unacceptable practice but one which has commonly seen by
  this Committee and one which has been a feature of the
  Public Accounts for many years.

  24.3 The effect of this practice is to render inaccurate and
  unreliable the Period End Report to ensure completeness of
  public expenditure and the Auditor General was not able to
  accept or audit on the basis of these documents alone.

  25. CASH ADJUSTMENT ACCOUNT

  25.1 The Cash Adjustment Account is used for accrual adjustments
  of month end/year end. As at the end of the financial year,
  the account balance was K62.48 million (overdrawn)
  comprising of receivables and payables.

  25.2 The Account also facilitated recording of significant amounts
  of receipts and payments in 2005 resulting in a material
  carry-over for 2006.

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  25.3 The Auditor General has provided a list of transactions to the
  Department of Finance and recommended the Internal Audit
  Section investigate the appropriateness of the payments.

  25.4 The Auditor General finds that:

  “In addition, disclosing accrual adjustments in a
  cash reporting environment is not in accordance
  with the requirements specified by the Financial
  Instructions for preparation of the Financial
  Statements. I am concerned that selective
  recognition of receivables and payables does not
  correctly disclose the financial position of the
  State. The nett effect of recognizing these
  “payables” and “receivables” reduces the Public
  Account balance by at least K62 million”.

  25.5 So far as this Committee can ascertain, no response has been
  received from the Department of Finance and we accept the
  qualification imposed as a result of limitation upon the work
  of the Auditor General.

  26. PROVINCIAL TREASURY OPERATING ACCOUNT

  26.1 Statement “A” includes an amount of K95.90 million being
  held in the Provincial Treasury Operating Accounts. This
  represents a mix of National Government and Provincial
  Government funds.

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  26.2 The Auditor General could not accurately determine the
  amount that should be accounted for in the Public Account.
  Only the Receiver of Public Monies Bank balances of K0.42
  million could be verified and this situation is exactly the same
  as 2004 and 2005.

  26.3 The Auditor General makes the extraordinary finding that the
  Bank balance is potentially overstated to a maximum amount
  of K95 million. This can only have arisen as a result of
  incompetent record-keeping and in different accounting and
  is completely unacceptable.

  26.4 This Committee accepts the limitation of scope and
  qualification placed on the Auditor General by this
  shortcoming.

  27. DIRECT INVESTMENTS

  27.1 Statement “F” discloses the State’s direct investment, capital
  contributions and equity option rights in various companies
  and public bodies. The total of this investment in 2006 was
  K11.27 million.

  27.2 The Auditor General made the following finding:

  “While the values of the investments disclosed in the
  Financial Statements are generally based on the
  Financial Statements prepared by the Investment
  Entity, it is my view that these Statements may
  considerably understate the true value of the

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  investments as the assets of many of the investment
  entities have not been revalued for some years. In
  addition, the reliability of amounts reported as
  investments is affected by the number of entities
  audited. Financial statements being either in arrears
  or financial statements being qualified”.

  27.3 This finding has remained the same for many years past.
  There has been no apparent attempt to address these
  problems which have been reported by the Auditor General
  for at least five years.
  27.4 A formal Investment Register to assist with the tracking of all
  State Investments was also not maintained. How can the
  State possibly manage its affairs if it does not know the value
  of its investments?

  28. WITHHOLDING INFORMATION

  28.1 This is a matter of considerable seriousness and should be
  addressed immediately by the National Parliament.

  28.2 Government agencies including and in particular the
  Department of Finance, do not produce documents for Audit
  records as they are required to do by law.

  28.3 The Audit scope was significantly restricted as much of the
  information sought by the Auditor General was the result of
  statistical sampling.

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  28.4 Some of the documentary evidence was not complete where
  it was produced. There was no supporting documentation of
  the Department of Finance for ten journal entries amounting
  of K9.35 million, payment vouchers for thirteen payments
  totaling K175.90 million were missing and five payment
  vouchers totaling K96.64 million were not certified for
  payment.

  28.5 This practice of withholding or selectively producing
  information and refusing to co-operate with the Auditor
  General is very familiar to this Committee. Indeed,
  Government Departments and agencies now ignore both this
  Committee and the Auditor General almost as a matter of
  course.

  28.6 This attitude cannot be tolerated and should be addressed by
  the Auditor General by the joint use of his powers to summon
  and his power to prosecute.

  28.7 As we have addressed in our 2004 and 2005 Reports it is
  clear that many Government Agencies avoid Audit by the
  simple expedient of not producing Financial Statements or
  records and they are subject to no form of control or
  oversight or accountability.

  28.8 The Department of Finance simply did not seem to care and
  abandoned it’s responsibility upon the basis that accounting
  functions have been devolved to individual agencies.

  28.9 We accept the limitation of scope and therefore the
  qualification placed by the Auditor General on the Public

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  Accounts for the Financial Year 2006 as a result of the failure
  to produce to the Auditor relevant and crucially important
  statutory records.

  28.10 The next limitation is a curious failure on the part of the
  Department of Finance and one which this Committee finds to
  be very significant.

  28.11 The Public Accounts for the year ended the 31st December
  2006 did not contain a Secretary’s Statement for that year.

  28.12 The Statement is a representation by the Head of the
  Department and the Chief Accountable Officer of the
  Government that he acknowledges the Departmental
  responsibility for the fair presentation of the Financial
  Statements and also represents the means of approving the
  Financial Statements on behalf of the Government.

  28.13 Since Management has not provided the necessary
  representations, the Auditor General considers this to be a
  scope of limitation which affects every Statement presented
  by Management.

  28.14 In light of the state of failure of Government accounting and
  the disclaimer of the Public Accounts for the years 2004 and
  2005, it is not surprising that the Secretary for Finance
  disowns the work of his own Department.

  28.15 The Committee wished to inquire from the Secretary the
  reasons for his failure to provide a Statement but he was not
  available and the witnesses who did appear from the

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  Department of Finance clearly had no knowledge of virtually
  any matter before the Committee and had not been briefed in
  any way at all for their appearance.

  29. ACCOUNTS AND RECORDS

  Losses and Deficiencies

  29.1 Appendix I of the Public Accounts reports Losses and
  Deficiencies of public monies and properties totaling K0.19
  million. Most Departments do not maintain a record of
  Assets and as a result, the Auditor General was unable to
  determine the full extent of the misstatement or to
  accurately judge the value or amount of assets lost, stolen,
  sold or otherwise disposed off.

  30. OWNERSHIP OF INSURANCE DEPOSITS

  30.1 The Audit examination of Statement “E” – Bank Confirmations
  and details of deposits held as per the Insurance
  Commission’s records indicate errors that require
  investigation.

  30.2 Insurance Commission’s records did not match those of the
  Department of Finance including Bank confirmations and in
  some instances Insurance Company deposits required to be
  held by the Government were held in the name of the
  Insurance companies.

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  30.3 Therefore in the event of a default or non-compliance with
  statutory obligations by insurance companies, the
  Government may not be able to recover the insurance
  deposits.

  30.4 This is a fundamental flaw and one that should not have
  occurred.

  31. REPORTING OF REVENUE

  31.1 There were significant variations noted between the
  Department of Lands and Physical Planning and IRC –
  Customs and Taxation Revenue figures to balances reported
  in the Public Accounts. Any amendment due to variation
  would also affect Statements “B” and “A” to the same extent.

  31.2 Taxation Revenue disclosed in the Statement “J” was
  overstated by K3.25 million compared to Revenue Summary
  Report from the IRC.

  31.3 Bureau of Customs Revenue in Statement “J” was overstated
  by K13.42 million compared to the Revenue Report from IRC.

  31.4 Total revenue of the Department of Lands and Physical
  Planning was understated by K0.54 million compared to
  Statement “J” and the Department of Lands and Physical
  Planning’s records state that K18.81 million was collected at
  Head Office in Port Moresby, whilst K3.22 million was stated
  as having being received from the Provincial Treasury Offices
  based in the nineteen Provinces.

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  31.5 The Auditor General is unable to verify these collections as
  there were no Collector Statements available. How can these
  primary and, more importantly, statutory records not be
  made available? Over years of experience, this Committee
  concludes that the statements, records and accounts required
  by law simply do not exist.

  32. DEPARTMENTAL AUDITS

  32.1 The Public Accounts financial statements are compiled from
  primary documentation generated by National Government
  Departments and Agencies.
  32.2 Therefore, the result of the Audits of the Agencies has a direct
  impact on conclusions made in the Public Account or on the
  Public Accounts.

  32.3 As the Auditor General has found significant control
  weaknesses and compliances during the Audit major
  Departments – see the Part 2 Reports of the Auditor General
  for the Financial Years 2004 – 2006, these directly impact on
  the quality of the primary documents and thereby the
  reliability of the Public Accounts themselves.

  32.4 This Committee has already made Report to the National
  Parliament on the Part 2 Reports of the Auditor General for
  the Years 2004 and 2005 and at least the following
  weaknesses and failures were identified in Government
  Departments in 2006:

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  • Material unreconciled items reduced the level of
  assurance on bank reconciliations.

  • A high rate of non-compliance with procurement and
  payment procedures and considerable use of
  Consultants with no supporting documentation for
  payments.

  • No Asset Registers were maintained or those that
  were maintained were inadequate, incomplete or
  lacked detail.

  • Salaries and Wages accounted for 20% of total
  Government expenditure that had considerable
  control failure such as unauthorized payments,
  incorrectly calculated entitlements, deductions made
  in excess of gross pay, excess staff over
  establishment level and absence of reconciliations.

  32.5 The inevitable qualification and disclaimer of the Public
  Accounts in 2006 is, once again, a direct result of failed
  accounting across the entirety of governance and this is a
  matter which, in 2006, neither the Government nor any
  Department seems to have understood or addressed.

  33. OTHER STATUTORY MATTERS

  33.1 The Auditor General finds that, in addition to the accounts and
  records and the scope of limitations already discussed, that

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  there have been breaches of the Constitution and the
  Public Finances (Management) Act in 2006. These were:

  33.2 Expenditure exceeding appropriation

  33.3 Statement “B” discloses actual expenditure against
  appropriated funds.

  33.4 Separate appropriations are required for the National
  Parliament, the Judiciary, Recurrent Expenditure and
  Development Expenditure.

  33.5 It is the role of the Parliament through the Appropriation and
  Supplementary Appropriation Acts and other Laws, to
  appropriate expenditure as required by Section 211(2) of the
  Constitution of the Independent State of Papua New
  Guinea.

  33.6 The Auditor General identified many instances during 2006, of
  expenditure exceeding the appropriation limits or expenditure
  being incurred without valid appropriation.

  33.7 This is a practice which is becoming more frequent during the
  period 2004 – 2006 and clearly becoming more uncontrolled
  as time passes. It is a serious matter which requires
  immediate and urgent address by the National Parliament.

  33.8 The Auditor General identified at least the following significant
  abuses:

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  • K95.12 million drawn in January 2007 against lapsed
  2006 appropriation.

  • Over expenditure totaling K 742.58 million under
  1,151 items of the Vote for 59 Government
  Departments, Provincial Governments and Statutory
  Bodies.

  This huge fiscal misappropriation is a matter of very
  profound concern to this Committee and should be of
  immediate concern to the National Parliament.

  • There was a transfer of K450.01 million from the
  Recurrent to Development Budget during the year
  2006 in breach of Section 24(B) of the Public
  Finances (Management) Act 1995. This transfer
  was beyond the delegated authority of the Secretary
  of Finance may approve (limited to 10% of the
  appropriation). The transfer between Recurrent and
  Development Expenditure represented an increase of
  35%.

  • No appropriation existed in 2006 for spending of
  K110.1 million. The appropriation for Special
  Support Grants was made in the 2005
  Supplementary Budget in expectation that the Grants
  would be paid in that year.

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  A Trust Account with its own Bank Account was
  established with a purpose of financing Mining
  Projects in the Provinces. However, only a small
  amount was paid out in 2005, while the K110.1
  million was transferred into a Trust Account in 2006
  and paid out.

  • Expenditure under Miscellaneous Vote 207 exceeded
  the revised appropriation by K 67.59 million.

  33.9 These abuses have been occurring for some time but the
  amounts involved are becoming more as the years pass.

  33.10 Public Servants ignore Appropriation Acts and ignore
  Government Directives with seeming impunity and no
  understanding of or concern for the effect of this misconduct.

  34. TRUST ACCOUNTS

  34.1 Statement “C” discloses closing balances for Trust Accounts
  forming the Trust Fund.

  34.2 In 2006, the Auditor General identified the following matters:

  • Twenty five Trust Accounts were revoked by the
  Minister but they continued to operate contrary to his
  Directive and the document of revocation.

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  • Monies were expended contrary to the purpose of the
  accounts.

  • Instances were noted where accounts had been
  overdrawn.

  34.3 Each of these matters constituted a breach of the Public
  Finances (Management) Act 1995 and this derelict
  conduct has continued for years without any seeming concern
  within the Department of Finance or Government.

  34.4 This Committee has made a separate Report to the National
  Parliament on the keeping of Government Trust Accounts in
  the period 2000 – 2008 and we recommend that all Members
  read and consider the revelations in that Report and consider
  the adverse impact on service delivery and development of
  the Nation as a result of abuses of Trust Accounts and
  monies held in them.

  35. CREDIT DISCLAIMER OF AUDIT OPINION

  35.1 The Auditor General is of the opinion that, as a result of the
  limitations which we have addressed in this Report, no
  opinion can be expressed on the Public Accounts of the
  Government of Papua New Guinea for the Year Ended the
  31st December 2006.

  35.2 This means that the Public Accounts of the Government of
  Papua New Guinea, the records and their transactions were

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  not kept in a lawful manner as prescribed by the Finance
  Instructions.

  35.3 It also means that receipts and payments of investment and
  monies in the acquisition and disposal of assets during the
  period covered by the Financial Statements have not been in
  accordance with the Public Finances (Management) Act
  1995.

  35.4 It also means that monies have been spent in excess of
  appropriation limits or without valid appropriation resulting in
  breaches of the Constitution.

  35.5 This Committee accepts the limits and accepts the disclaimer
  of the Auditor General for Public Accounts of the Government
  of Papua New Guinea for the Financial Year 2006.

  35.6 This Committee also finds a collapse of Government
  accountability and mishandling, misappropriation and misuse
  of public funds, property and stores by Public Servants with
  seeming impunity.

  35.7 The core problem is that the Executive has completely lost
  control of fiscal management in Papua New Guinea and the
  Government has completely lost control of the Public Service
  who act with immunity and impunity and ignore the law at
  will.

  35.8 Not only is this a sign of a Nation in serious administrative
  turmoil. It is also directly and adversely impacting on service
  delivery and development.

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  35.9 Government generally allocates public monies in a responsible
  and well-meaning way to deliver services and development to
  the citizens who have an entitlement to demand and receive
  at least this from their Government.

  35.10 Fiscal incompetence, malpractice and intentional illegality
  characterize the keeping of accounts and the handling of
  public monies, property and stores by the Public Service in
  this country and this diverts money from its intended and
  appropriated purposes.

  35.11 It is high time that the Government of Papua New Guinea
  and the National Parliament reasserted the Constitutional
  system under which this Nation was established and reassert
  by whatever means are available, control over the
  management of public monies and thereby service delivery
  and the implementation of Government development policies.

  35.12 It is also high time that the National Parliament stopped
  ignoring warnings and reports from the Auditor General and
  this Committee and understood that it is the only entity
  which is entitled to deal with public monies and decide where
  public monies will be spent and how they will be spent. The
  Public Service is an implementation body.

  35.13 Over the last decade, the Public Service has arrogated to
  itself Constitutional fiscal power which it was never intended
  to have and cannot lawfully wield.

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  35.14 If this collapse of fiscal accountability continues we have
  significant and severe doubts that Papua New Guinea can
  continue as a modern sovereign nation in charge of its own
  destiny and, as we have reported in previous Reports to the
  National Parliament, the inevitable result of an Government
  acquiescing in the incompetence and malpractice exhibited by
  the Public Service in its fiscal management, can only result in
  a marginalized, deprived, disillusioned and increasingly angry
  citizenry.

  35.15 His outcome is simply not acceptable and the National
  Parliament needs to move immediately to address the
  significant national failing.

  35.16 Finally, we should advise the National Parliament that one of
  the five prerequisites of a failed state is a collapsed system of
  public accountability and service delivery.

  35.17 It is our great fear that Papua New Guinea may have reached
  or is reaching that stage of fiscal collapse from which the
  other prerequisites may follow.

  35.18 The warnings of the Auditor General are balanced, reasoned
  and supported by the evidence. The warnings and
  conclusions of this Committee over the last four years are
  reasoned, balanced and and grounded in the facts. The
  National Parliament will ignore these Reports and warnings at
  its very considerable peril.

  36. SECTION “B” – THE AUDIT REPORT ON THE PUBLIC
  ACCOUNTS 2006 – FINDINGS OF THE AUDITOR GENERAL

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  AUDIT RESULTS

  36.1 The Auditor General finds that the Department of Finance has
  put considerable effort into improving the year end
  preparation process of the Financial Statements and this is
  heartening news.

  36.2 The Auditor General reports:

  “This included both improved documentation and
  supported and validated the Financial Statements
  balances as well as maintaining constructive
  relationship with the Audit Team. The Department
  had also rectified some previous Audit findings and
  then implemented Audit recommendations”.

  36.3 The Committee commends the Department of Finance for at
  least recognizing that there have been problems. We have
  no doubt that the disclaimer of the Public Accounts for the
  Financial Years 2004 and 2005 should have and apparently
  did jolt the Department of Finance out of their previously
  complacent attitude.

  36.4 However, the Auditor General does in 2006 report that the
  number and the magnitude of Audit issues identified in the
  course of the Audit indicate that overall there were significant
  weaknesses in the control environment. He states:

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  “At present, the control activities, such as
  delegations, authorizations, reconciliations, date of
  processing, system access etc are not sufficiently
  robust to prevent detect or correct error or fraud”.

  36.5 The Committee accepts that comment.

  36.6 The entire system of Government accountability has been
  derelict and in a state of collapse for many years and there is
  no reason to suppose that it would change by the 31st
  December 2006.

  36.7 However, there are some small encouraging signs that the
  Department of Finance might be starting to understand the
  gravity of the situation and may be attempting to reassert its
  statutory authority.

  36.8 However, what is clear to this Committee from its
  examination of the entire system of Government’s financial
  accounting in the years 2004 – 2006, is that there is great
  resistance to change.

  36.9 The current chaotic situation will suit many vested interests
  that are in control of the Public Service and public money and
  the lack of accountability has seen the rise of very significant
  fraud, misappropriation, misapplication and misuse of public
  funds – a situation which presents a direct challenge to the
  assertion of the Rule of Law and has been encouraged by a
  collapse of Law Enforcement and oversight systems.

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  36.10 In short, there has developed a culture of impunity behind
  which very significant, unlawful, unconstitutional and
  uncontrolled misappropriation and fiscal mishandling has
  developed and thrived.

  36.11 In this Inquiry, the Public Accounts Committee attempted to
  identify reforms or improvements in fiscal accounting across
  Government Agencies in 2006.

  36.12 We detect the stirring of the beginning of change within the
  Department of Finance but a great deal more is required.

  36.13 In particular, a major effort from the National Parliament on
  the Government of the day to reform and completely
  rejuvenate our systems of fiscal accountability is immediately
  required.

  36.14 We now address the Audit observations for the Financial Year
  2006:

  Statement “A”

  36.15 Statement “A” is intended to present the reserves of the
  state at year end that are represented by cash. However, a
  Cash Adjustment Account has been operated by the
  Department of Finance that included both accrual
  adjustments and receipts and payments of monies.

  36.16 This are other Audit issues identified during the Audit and
  detailed below:

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  Bank Reconciliation

  36.17 Financial Instructions Division 1 Section 4.7 establishes
  mandatory requirements for monthly reconciliations by all
  Heads of Government Departments and Statutory Authorities
  of their Bank Accounts.

  36.18 The overwhelming majority of Departmental Heads and of all
  Government Agencies have not complied with this
  requirement. In addition, there should a reconciliation
  process that ensures that the PGAS Cashbooks and the TMS
  Cashbooks are balanced on a periodic basis – but this simply
  does not occur.

  36.19 As we have said in the past, reconciling a Bank Account is not
  a difficult task but it is one that hardly any Government
  Agency or a Department can perform.

  36.20 If Government Departments cannot even reconcile their own
  internal Bank Accounts, how can they possibly manage large
  development budgets and very significant amounts of public
  money appropriated for specific developmental purposes?

  36.21 The clear evidence before this Committee is that they cannot.
  This failure very largely explains the collapse of service
  delivery and the decline in standards of health, education and
  wellbeing of our citizens.

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  36.22 In the absence of bank reconciliations at years end, little or
  no reliance can be placed on the accuracy and balances of
  the respective Departmental Drawing Accounts.

  36.23 Bank Reconciliations are a fundamental accounting tool which
  is intended to allow management to identify anomalies or
  errors in payment and receipting processes and to assist the
  Department of Finance to discharge its accountability
  requirements.

  36.24 If for no other reason, bank reconciliations should be made to
  minimize the risk of misappropriation or fraud.

  36.25 This Committee recommends that the Department of Finance
  and the Government of the day immediately move to ensure
  reconciliation of all Drawing Accounts, Treasury Operating
  Accounts and all other relevant cash accounts balances
  reconciled with Department of Finance records.

  36.26 We also recommend monthly reconciliation by the
  Department of Finance to ensure that PGAS and TMS
  Cashbooks are in balance. This should assist and facilitate
  timely end of year reconciliations and both the Auditor
  General and Committee see this as a matter of absolute
  priority.

  36.27 In respect of bank reconciliations, the Department of Finance
  advises the Auditor General (as it did in 2004 and 2005) that
  the Department has progressively been implementing a
  number of strategies to address the issue.

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  36.28 Exactly what those strategies are were not explained to the
  Committee and they do not seem to be having any effect that
  either we or the Auditor General can detect.

  36.29 It is clear to this Committee that the differences between
  TMS and PGAS Cashbooks and records is the result of years
  of neglect and indeed the Department of Finance states:

  “However, the TMS system is not rolled over at year
  end and processing continues to occur against the
  accounts of the previous year while the Public
  Accounts are being prepared. Over time, the
  volumes of transactions that are recorded in the
  TMS system (but not in the PGAS systems) have
  built up so that the TMS and PGAS systems are
  becoming increasingly out of balance and
  impossible to properly reconcile”.

  36.30 The blame for that disgraceful situation lies squarely on the
  Department of Finance who for a decade or more have
  ignored their responsibilities and failed to fulfill their statutory
  obligations to virtually any degree at all.

  37. CASH ADJUSTMENT ACCOUNT

  37.1 The Cash Adjustment Account Code 31 – 003 is intended to
  be used by the Department of Finance for the purpose of
  accrual adjustment at month end or year end – such as
  receivables and payables.

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  37.2 The Auditor General concludes that upon examination of the
  receipts, cash payments and journal entry transactions, the
  Cash Adjustment Account is being inappropriately used.

  37.3 The overdrawn closing balances of the Account clearly show
  that the Department of Finance, with no consideration to the
  availability of funds to facilitate payments, simply approves,
  authorizes or makes payment and disregards lawful
  requirements.

  37.4 The Auditor General finds that examination of the ledger
  printouts shows that the Account has been used as another
  Miscellaneous Vote 207 by the Department of Finance – in
  exactly the same way as Trust Fund Suspense Account No. 2
  was misused in previous years. The Auditor General
  considers a number of the transactions to be inappropriate
  and to require in-depth investigation.

  37.5 The risk with this conduct is that funds in the Waigani Public
  Account could be depleted by the accessing of funds without
  proper budgetary processes. This is a contravention of the
  Public Finances (Management) Act and the
  Constitution.

  37.6 It is inconceivable to this Committee that the Department of
  Finance can conduct itself in this manner. The Department
  over the last five years has demonstrated an arrogant and
  cavalier disregard of law in its use of public monies and with
  no regard to Appropriation Acts or of policy and directives of
  Government. When one avenue of misuse (Trust Fund

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  Suspense Account No. 2) is shut off, another is created in the
  form of the Cash Adjustment Account.

  37.7 The Committee therefore recommends that, if the Account
  was not closed, it should immediately be so. This is required
  because recording accruals on a cash basis is inadequate,
  expenditure is likely to occur in a wrong appropriation year
  and this will (and we believe has) exposed funds to the risk
  of misappropriation.

  37.8 This Committee gave careful consideration to the response of
  the Department of Finance on this issue. The Department
  purported to explain that the course of this action:

  “The usage of the CAA is resorted to only when
  the implementation of the current Budget is
  negated i.e. where Supplementary Budget is
  passed and the current Budget year is about to
  end and when respective MPs fail to adhere to the
  Guidelines in securing the release of their DSG
  Funds as these are considered as Constitutional
  Grants”.

  37.9 The Department of Finance went on to contend that the
  comments of the Auditor General regarding the overdrawn
  closing balances indicate a lack of understanding of the usage
  of this Account.

  37.10 However, as the Auditor General has pointed out the closing
  balance of the cash adjustment account on the 31st

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  December 2006 is the same as on the 31st December 2005
  except for a negligible amount. The explanation by the
  Department of Finance that the cause is the Supplementary
  Budget passed at the end of the year, is simply wrong.

  37.11 Whatever the situation, the Auditor General’s
  recommendations are endorsed and Government should
  address this matter immediately. This Committee will revisit
  this issue when we consider the 2007 Public Accounts to
  ascertain whether there has been any action taken in respect
  of the Auditor General’s findings for 2006.

  38. PERMANENT ADVANCES AND CASH IN TRANSIT

  38.1 The same findings and comments concerning Permanent
  Advances and Cash in Transit in 2006 were made by the
  Auditor General in 2004 and 2005 and there appears to be no
  attempt to improve the systems of accountability in this
  regard.

  38.2 What is notable is that the Department of Finance has, in
  2006, endorsed the following recommendation of the Auditor
  General:

  “The Department of Finance has to scrutinize the
  transactions processed through the Permanent
  Advance and Cash in Transit Accounts and initiate
  necessary adjustments to close the account. The
  presentation of these accounts in the Public
  Accounts is likely to mislead the readers/users of

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  the Financial Statement. Alternatively, the
  Department of Finance could rename the two
  Accounts to best fit the types of transactions that are
  allowed through the respective accounts”.

  38.3 The Committee commends the Department of Finance for its
  attitude and acceptance of the recommendations and we
  intend to revisit this matter in 2007 to ascertain whether
  there has been any improvement or change in the status or
  existence of these accounts.

  39. PROVINCIAL TREASURY OPERATING ACCOUNTS

  39.1 The Operating Accounts of Provincial Treasuries have been a
  source of constant failure and weakness in the primary
  documentation from which the Public Accounts are compiled,
  for many years. The situation continues in 2006.

  39.2 Statement “A” shows an amount of K95,900,736 as held in
  the Provincial Treasury Operating Accounts.

  39.3 This balance comprises 19 Provincial Treasury Operating
  Accounts balances representing a mix of National
  Government and Provincial Government funds during 2006.

  39.4 The Auditor General could not determine the part of that
  money which belonged to the National Government that
  should be accounted for in the Public Accounts. In other

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  words, the ability to trace the monies, as a result of
  unaccounted mixing of funds.

  39.5 The implication for the Auditor General was that the Bank
  balance is overstated up to the amount of K96 million
  representing the Provincial Treasuries Operating Bank
  Account and the Auditor General recommends:

  “As the National Government Grants for
  Provincial Governments are transferred into the
  respective Provincial Treasury Operating Bank
  Accounts, the Department of Finance should
  review the composition of these balances with the
  Provincial Treasuries and account only for funds
  that are related to the National Government”.

  39.6 This Committee agrees.

  39.7 The Department of Finance in its response to this finding
  offered to provide the Auditor General with a PGAS trial
  balance for each of the Provincial sites which would detail all
  current year receipts and payments for both National and
  Provincial money.

  39.8 This apparently would enable the Auditor to trace these
  receipts and payments to the Bank Statement. Why this
  was not produced in the first place was not explained. Why
  the Auditor General should have to carry out work that is
  properly the province of the Department of Finance was not
  explained.

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  39.9 However the Department of Finance did, correctly, point out
  that the problem would not be fully addressed until there is a
  separate PGAS database and Bank account for Provincial
  monies.

  39.10 This Committee agrees that this should have been
  established years ago and will recommend that the
  Department of Finance do so as a matter of urgency.

  40. STATEMENT “D”

  Lapsing of Recurrent Appropriations

  40.1 Statement “D” represents summary of the receipts and
  expenditures of the Consolidated Revenue Fund.

  40.2 Section 27 of the PFMA states that all recurrent appropriation
  out of Consolidated Revenue made in respect of a fiscal year,
  lapsed at the end of that fiscal year.

  40.3 However, during the Audit of the 2006 year end closing
  processes which included the review of cheque users reports
  processed at the 31st December 2006, the Auditor General
  identified unused appropriation funds at year end that
  continued to be utilized in January 2007. He found:

  “33 Cheque Usage Reports totaling K125, 137,224.
  The first Cheque Usage Report was drawn on the
  31st December 2006. The subsequent Cheque

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  Usage Reports were drawn from the 3rd January
  2007 onwards and predated. Payments mainly
  related to system upgrade, cash advances, legal
  fees and general purchases.”

  40.4 In other words, this was an unseemly rush to dispose of huge
  amounts of public money before the end of the financial year
  but after the financial year had closed, by the simple device
  of backdating cheques.

  40.5 In the Committee’s opinion, this may be a fraud and a
  misappropriation and it should be visited with immediate
  investigation and prosecution of the Officers involved.

  • Huge amounts of public money were involved – the
  total value of the cheques drawn after the 3rd
  January 2007 and predated, amounted to K
  95,122,274. These were drawn against lapsed
  appropriations and are utterly unlawful.

  • By careful scrutiny of Cheque Usage Report, the
  Auditor General has found 30,000 cheques with serial
  numbers that are not accounted for. However, the
  manual adjustment of cheque numbers indicated that
  the Computer Operator was able to alter the
  sequence of cheque numbers. Why this should be
  done is beyond our understanding.

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  40.6 This behavior exposes the system (particularly at year end)
  to unauthorized changes and increases the risk of
  misappropriation and fraud.

  40.7 The Department of Finance explained that the transposition
  error had been “accidentally typed” on the cheques. We do
  not accept this explanation but, if true, it is merely another
  example of the slip shod and negligent attitude displayed in
  that Department to public monies and accounting.

  • The actual cheque payment dates recorded in the
  Department of Finance from the 2006 appropriations
  were paid in January 2007.

  • The times recorded on the Cheque Usage Report
  showed clear processing outside normal business
  hours. Two examples are:

  
  Nine Cheque Usage Reports were printed between
  10.00pm – 11.45pm for a total value of K
  34,825,877; and

  
  Three Cheque Usage Reports were run between
  5.00am and 6.19am for an aggregate value of K
  7,116,677.

  40.8 Why should this be occurring? The Auditor General
  recommends that the Department should investigate whether

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  this was fraudulent activity or information system weakness
  and this Committee agrees with that recommendation.

  40.9 This unlawful conduct breaches the Public Finance
  (Management) Act and is completely unacceptable
  although it appears to have been a behavior indulged in as a
  matter of course for many years. The Auditor General
  recommends:

  • Department of Finance cease raising payments relating
  to the preceding fiscal year once the year has ended.
  This is serious misconduct.

  • Internal controls are strengthened over cheque usage in
  the processing of payments.

  • The Department should implement efficient and effective
  Financial Management Planning to avoid late payments.

  40.10 To the surprise of the Committee the Department of Finance
  made no attempt whatsoever to justify this practice. The
  Department made a bland admission of the conduct and
  agreed with the recommendation of the Department of
  Finance.

  40.11 The Department gave the following assurance:

  “Finance will continue to investigate ways to
  improve their end of year processes”.

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  40.12 This dismissive and meaningless assurance will be the
  subject of further investigation by this Committee when we
  consider the 2007 Public Accounts.

  40.13 We do note that the Department of Finance blamed overwork
  and heavy workloads after the 15th December for this
  conduct. In the opinion of this Committee that is no
  justification at all for improper conduct.

  41. DIFFERENCES IN ACTUAL EXPENDITURE FIGURES

  41.1 Total expenditure figures disclosed in Statement “D” exceeded
  the total expenditure figure shown in Statement “L” by K
  196,406,577.

  41.2 This situation has arisen in the 2004 and 2005 and the
  explanation given by the Department of Finance is exactly
  the same, viz, that the difference in actual expenditure was
  attributed to the change to the Cash basis of accounting.
  Payables and Receivables amounting to K 153.9 million are
  retained within the accounting system and could not be
  included in Statement “L”.

  41.3 The Auditor General again recommended that consideration
  be given to adopt the more integrated financial management
  system and the Department of Finance agreed, commenting
  that the issue would be rectified as and when IFMS is in place
  and “up and going”.

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  41.4 The Committee will revisit this when we consider the 2007
  Public Accounts to ascertain whether any and what
  improvement has occurred.

  42. REVISED APPROPRIATION FORMAT

  42.1 The Auditor General finds that the appropriation column in
  Statement “L” for 2006 states the amount of the original
  appropriation adjusted by the Supplementary Appropriation
  and Sections 3 and 4 transfers. He also finds that the
  presentation is inconsistent with the previously accepted
  format and good accounting practice.

  42.2 It is our recommendation that the revised format is
  inappropriate and the Department of Finance should retain
  the existing presentation. The Department of Finance
  actually agrees with this recommendation as it was made by
  the Auditor General.

  43. EXPENDITURE EXCEEDING ALLOCATION/APPROPRIATION

  43.1 In 2006 there was over expenditure totaling a staggering K
  742,579,999 under 1,151 items of the Votes for 59
  Government Departments, Provincial Governments and
  Statutory Bodies.

  43.2 The Auditor General found a transfer of K 450,014,000 from
  the Recurrent to the Development Budget during the year
  2006 which was a breach of Section 24(B) of the PF(M)A.

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  43.3 This Committee concludes that the appropriation between
  Recurrent and Development Budgets reported for the
  Financial Years 2003 – 2005 continues to be a breach of
  Sections 24 and 25 of the Public Finances (Management)
  Act 1995 in 2006.

  43.4 Once again, we must find that the transfer of huge sums
  from Recurrent to Development Budgets is beyond the
  delegated authority of the Secretary and is a breach of the
  PF(M)A . We intend to make referrals, investigation and
  prosecution in this regard.

  43.5 The Department of Treasury disagrees with this conclusion
  and is still awaiting legal advice from the State Solicitor –
  which he was waiting on in 2005.

  43.6 The terms of the Public Finances (Management) Act
  should be obeyed until any legal advice to the contrary is
  received. We will revisit this matter in the 2007 Public
  Accounts Inquiry to ascertain progress made by the State
  Solicitor and the Department of Treasury.

  44. SUPPLEMENTARY APPROPRIATION OF K152 MILLION

  44.1 In early 2006 Special Support Grants totaling K152 million
  were paid under the Appropriation made in the 2005
  Supplementary Budget.

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  44.2 It was anticipated that the Grants would be paid in 2005 and
  Trust Accounts were opened for the purpose of financing
  mining projects in provinces as follows:

  • K85.5 million for Western Province;

  • K40.8 million for Enga Province;

  • K25.5 million for New Ireland Province; and

  • K0.2 million for Central Province.

  44.3 In 2005 only K 41.9 million was transferred into the Trust
  Account with the remaining balance of a K 110.1 million
  transferred on the 17th February 2006.

  44.4 The transfer in 2006 against the 2005 Supplementary Budget
  is a breach of the PF(M)A. The appropriation had lapsed on
  the 31st December 2005 and another appropriation existed in
  2006 for spending K 110 million.

  44.5 The situation was worsened by the fact that the Secretary,
  Department of National Planning and Rural Development did
  not comply with the conditions of the Trust Account despite a
  number of requests from the Department of Finance for
  information – we have already discussed this in our Report
  on the 2005 Public Accounts.

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  44.6 As no funds were spent in 2005, it is not clear why the
  Supplementary Appropriation was made in that year and not
  2006.

  44.7 No provision was made in the 2005 Cash Adjustment Account
  for the balance of K 110.1 million.

  44.8 The Department of Finance explains that the 2005
  Supplementary Budget provided for SSG back payments prior
  to 2005 amounting to a K 193.9 million. A total of K 41.9
  million was transferred to a Trust Account held at the Bank of
  PNG and the balance of K 152.0 million was set up under
  Cash Adjustment Account.

  44.9 The Department contends that that provision was made in
  2005 for the transfer of a K110 million to the Trust Account
  held at the Bank of PNG.

  44.10 Further, the Department of Finance agrees that there was no
  appropriation in 2006 for the K 110.1 million but the fact that
  K 152 million provisions was made in 2005 under the CAA
  allowed it to implement the payment without any funding
  impairment for the 2006 Budget.

  44.11 This Committee finds that the 2005 Supplementary Budget
  was for the payment of SSG of K 193.9 million of which K
  41.9 was transferred to Trust Accounts held at BPNG. The
  balance not transferred was K 152 million.

  44.12 Therefore, payments amounted to K 76,538,356 in 2005 and
  receipts and journals amounted to K 14,609,122. They

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  therefore could not have included the higher figure of K 152
  million. The Department of Finance explanation is proven
  wrong by the figures.

  44.13 This Committee finds that this is yet another example of the
  unilateral, uncontrolled and unlawful ignoring of
  Appropriation Acts and the Law in general. This is a very
  profound problem which clearly shows a loss of control over
  fiscal management and accountability by the Executive and
  the National Parliament.

  44.14 This form of misappropriation has characterized fiscal
  management by the Department of Finance for many years
  and we intend to revisit this situation when we consider the
  2007 Public Accounts to ascertain whether there has been
  any improvement or change.

  45. STATEMENT “C”

  45.1 Statement “C” reports on Trust Funds managed by the State
  on behalf of donor organizations, special projects or funds set
  aside for the benefit of individuals or groups.

  45.2 There are two types of Trust Accounts – those with bank
  accounts and those that are operated within the account of
  the Waigani Public Account known as Non-Bank Trust
  Accounts.

  45.3 The Auditor General finds that the Departments and Agencies
  managing Trust Accounts have in 2006, not been complying

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  with Section 19 of the PF(M)A in that they have not
  submitted financial statements and/or Section 14(4)(c) of the
  same Act requiring submission of monthly return of receipts
  and payments together with Bank reconciliations of Trust
  Accounts.

  45.4 This Committee can simplify the situation somewhat. There
  has been a collapse of Trust Accounting to the point where
  nobody knows the number of Trust Accounts, the identity of
  Trustees, the amount of money held in the Trust Accounts or
  the amount of interest (if any) earned on those Funds.

  45.5 Further, the Trust Instruments are breached on a daily basis
  and the Law of Trust Accounting is almost completely ignored
  by virtually every trustee and the Department responsible for
  management of Trust Accounts – in particular Royalty Trust
  Accounts held for and on behalf of landowners or resource
  owners.

  45.6 Departmental Heads have failed in their duty to ensure that
  proper reports, reconciliations and statements are made and
  submitted and the Department of Finance has failed in its
  duty to insist on obedience to the requirements of law.

  45.7 By October 2007 only 42 Bank Reconciliation Statements to
  the 31st December 2006 had been received and there are
  “probably” approximately 386 Trust Accounts in existence.

  45.8 The effect on the Auditor General of these failures was an
  inability to verify whether transactions accorded with Trust
  Instruments and the Law.

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  45.9 The Auditor General recommends in 2006 (as he did in
  previous years) the Department of Finance work to fulfill its
  obligation to bring Trust Accounts under some form of control
  by forcing Departmental Heads to provide the Report which it
  is their duty to make and submit. The comment from the
  Department of Finance was as follows:

  “Finance notes the recommendation. Finance
  is continuing a program aimed at improving
  lodgment of Trust Bank Reconciliations by
  responsible Departments and Agencies, as
  required under the Public Finance
  (Management) Act.”

  45.10 This response is simply inadequate. There has been no
  improvement in 2006 in this most vital area of public
  accountability. In fact, the failure to provide Trust Accounts
  records and reports is worse than it was in previous years
  and, we believe, continued to worsen in 2007.

  45.11 This Committee has in fact provided a Report to the National
  Parliament on the state of Trust accounting to the end of
  2008 and on the evidence which was available to us the
  deterioration and collapse in trust accounting continued until
  the 31st December 2008.

  46. REVOKED TRUST ACCOUNTS

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  46.1 This issue was addressed in our 2004 and 2005 Reports on
  the Public Accounts. There the Committee found that
  revoked Trust Accounts were still being used and a great
  many Trust Accounts that should have been revoked were
  not.

  46.2 The whole situation clearly showed a complete loss of control
  by the Department of Finance and a perfect willingness in
  that Department and other Departments to ignore and defy
  Ministerial Directives to close Trust Accounts.

  46.3 The evidence also clearly showed that there was no system or
  systems capable of being used to revoke or close Trust
  Accounts and this Committee intended to consider whether
  there had been any improvement in 2006.

  46.4 In 2006, 165 Trust Accounts were revoked by the Minister for
  Finance. 260 had also been revoked in 2005.

  46.5 In at least 25 instances, where Trust Accounts have been
  revoked, the accounts continued to be used and in many
  instances Trust bank accounts include bank balances.

  46.6 There seems to be no order or coherence in this particular
  exercise which appears to be quite beyond the capability of
  the Department of Finance to implement.

  46.7 The Auditor General concludes in 2006:

  “There is a breach of PFMA Act where Trust
  Accounts continue to be operated without formal

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  authority. Further, a number of bank accounts in
  respect of these Trust Accounts continue to be
  operated illegally. Overall, there is a lack of
  compliance with the PFMA Act and Financial
  Instructions which exposes the Government to the
  risk of loss of public monies through
  misappropriation or fraud”.

  46.8 This Committee recommends that the Department of Finance
  immediately address this issue and bring Government Trust
  Accounts under some form of legitimate control and
  oversight.

  46.9 If that requires the removal of Heads of Department or the
  disciplinary action to be taken against these Officers – so be
  it.

  46.10 We also recommend that the National Parliament and the
  Government immediately legislate to bring Trust Accounts
  under some form of proper, competent, lawful experienced
  and honest trust management in a specialized agency
  created for that purpose and staffed by Trustees of
  impeccable qualification and repute.

  46.11 Trust accounts are the conduit between Government and
  Service delivery to our people and they have failed to fulfill
  this role to any degree of acceptable performance.

  46.12 It is also the conclusion of this Committee that the standard
  of Trust Accounting and responsible trust reporting

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  considerably worsened during the period 2004 – 2006. Some
  examples of the worsening situation are:

  • In 16 cases Trust Account closing balances exceeded
  amounts disclosed in Statement “C” revealing a
  difference of K 7,559,059. The Department of Finance
  responded (as they did in 2004 and 2005) that the
  balance “probably” represented unpresented cheques.

  • 17 Trust Accounts revealed “nil” balances. However
  BSP Bank records confirmed the Accounts had balances
  aggregating K 17,790,956. How is this possible? The
  only explanation can be a failed and non-performing
  system of Trust Reporting and accounting and the
  Department of Finance which simply does not care
  whether the figures that it replicates in the Public
  Accounts are correct.

  • Statement “C” does not reveal the names of the
  administering agencies and follow up the queries by the
  Auditor General is extremely difficult to make
  particularly when there is no Registrar of Trust
  Instruments or of Trust allocations.

  • Bank names were incorrectly recorded for four
  accounts listed in Statement “C”. This chaotic situation
  has given rise to a very serious finding by the Auditor
  General which this Committee finds to be reasonable
  and proper in the circumstances, viz:

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  “It is not possible to determine the
  completeness and accuracy of the Trust
  Accounts reported in Statement “C”. The
  response received from the Department of
  Finance is that Statement “C” is largely
  complete and correct.

  Bank accounts should be open for all trust
  accounts for the currently book balances.

  The Trust Ledgers must contain all the
  transactions of each Trust Account and
  ensure that these figures agree with the Bank
  Reconciliation Statements of all agencies that
  operate these trust accounts.

  A suggestion for improvement is for the
  Department of Finance to include the details
  of the bank account numbers and the names
  of administering agencies to facilitate an
  accurate Audit trail and easier access during
  external verification process.

  In addition, Department of Finance could
  classify the bank balances on Departmental
  drawing accounts, Provincial RPM Accounts
  and the Provincial Treasury Operating
  Accounts under the respective headings to
  facilitate easy reference.

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  Every attempt should be made to confirm the
  balances and the names of the Banks, review
  bank reconciliation statements together with
  attachments, before their inclusion in the
  notes to the Financial Statement”.

  46.13 The Committee agrees with these recommendations and
  notes that the Department of Finance claims that details of
  Bank information, responsible Departments and Agencies are
  available for all Trust Accounts managed by Finance. Why
  was this information not provided to the Auditor? Why was it
  not provided to this Committee when we requested it for the
  2004 and 2005 Inquiry into Trust Accounts?

  46.14 In Summary, we recommend that all Members read our
  Report into Trust Accounting for the period 2000 – 2008 and
  that immediate and sweeping change and reform system of
  Government Trust Accounts is urgently required.

  47. TRUST FUND SUSPENSE ACCOUNT NO. 2.

  47.1 Trust Fund Suspense Account No. 2 is administered by the
  Department of Finance and it was established to hold and
  record temporary payments made to or from Government for
  such matters as Bail Money or Child Maintenance.

  47.2 The Trust Instrument is addressed in our 2004 and 2005
  Public Account Reports. We have now ascertained that there

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  is no record of the delegation of authority to Provincial
  Treasury Offices to operate this account. At present, the
  Trust Account is operated at Provincial level without any
  delegated lawful authority at all.

  47.3 Trust Fund Suspense Account No. 2 has been the subject of
  widespread blatant and hidden misuse by the Department of
  Finance over seven years from 1999. Huge amounts of
  money have passed through this Account without any
  seeming lawful basis at all.

  47.4 In the course of this Inquiry, the Committee was advised by a
  representative of the Department of Finance that there was a
  legal opinion given by the State Solicitor approving the use of
  the Trust Instrument for any purpose which the Secretary
  decided was appropriate.

  47.5 This document suddenly emerged despite detailed requests
  for evidence over a period of 12 months from this Committee
  when it considered the 2004 and 2005 Public Accounts.

  47.6 The Department of Finance was questioned on several
  occasions as to the legal basis upon which Trust Fund
  Suspense Account was operated and used for inappropriate,
  unbudgeted and in many cases fraudulent payments.

  47.7 The Department of Finance flatly refuse to cooperate, assist
  with, appear before or provide any information to this
  Committee on this (or any other) subject.

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  47.8 Suddenly a legal opinion is produced to the Committee
  apparently in response to an unspecified request from Mr.
  Thaddeus Kambanei as to the meaning of a Trust Instrument.

  47.9 The Trust Instrument clearly did make provision for use of the
  Trust Account for virtually any purpose that the Minister or
  the Secretary wished to direct, but this gives no legal basis
  for the huge amounts of misappropriated monies unlawfully
  passing through the Account for purposes which were neither
  temporary nor, in many cases, lawful.

  47.10 What really concerns this Committee is the fact that
  unaccountable and unelected Public Servants well knowing
  that their conduct is illegal continue to operate this Trust
  Account in a manner which not only breaches the Trust
  Instrument but the Public Finances (Management) Act
  and the Constitution and knowing that the Trust Account
  has been revoked.

  47.11 Moreover the account showed a debit balance at the end of
  the year which is a legal impossibility. This Committee again
  makes the following recommendations in respect of this Trust
  Account:

  1. The Department of Finance must immediately ensure
  that Trust Fund Suspense Account No. 2 is wholly
  suspended from being operated by Officers at the
  Provincial level and to ensure that only delegated
  officers as per the Trust Instrument operate the
  Account in any event.

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  2. The Trust Account is closed and should not be used
  for any purpose whatsoever. The Department of
  Finance should expedite alternative arrangements in
  the Provinces and immediately bring some order into
  this unlawful and blatant misconduct within its own
  Department.

  48. STATEMENT “E”

  48.1 Statement “E” records Government investments. The
  investments earning interest are credited to various accounts
  and this Statement is compiled from Trust Fund Investment
  Ledgers maintained by the Department of Finance.

  49. OWNERSHIP OF INSURANCE DEPOSITS

  49.1 The Auditor General was unable to reconcile the data recorded
  in Statement “E” to Bank confirmations. The records of the
  Insurance Commissioner did not agree with the Department
  of Finance records.

  49.2 The Auditor General recommends an examination of
  Statement “E”, Bank confirmations and details of deposit held
  as per the Insurance Commissioner’s records which will
  require amended statements to be furnished.

  49.3 The Department of Finance should review the current
  Legislation relating to the withholding of insurance deposits
  on behalf of Insurance Companies with a view to ensuring

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  that the Government has full ownership of the deposits until
  these are required to be relinquished.

  49.4 This Committee agrees with the recommendations and we
  note that the Department of Finance accepts the findings and
  the Auditor’s suggestion.

  50. STATEMENT “F” – EVALUATION OF INVESTMENTS

  50.1 Statement “F” summarizes the State’s direct investments,
  capital contributions and equity options in various companies,
  public bodies and other organizations.

  50.2 There have been qualified Audit opinions resulting in Part
  from the failure of the Auditor General to determine the
  correctness of Statement “F” for the last two years i.e. 2004
  and 2005.

  50.3 The reasons for this inability are:

  • The 2006 Financial Statements with some Statutory
  Bodies listed as investments have been qualified by the
  Auditor General.

  • The Department of Treasury does not maintain a formal
  investment register to assist with tracking State
  investments.

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  • These issues remain unresolved in 2006 despite the
  Auditor General making a similar finding for some
  years.

  50.4 There are no valuations of investments managed by IPBC.
  The Auditor General was advised that it is considered
  impractical to have an independent valuation performed
  every year. However, International Financial Accounting
  Standards requires this to be conducted at least once every
  three years – which has not been done.

  50.5 The Department of Treasury has advised that it intends to
  address the matter in 2008. Why this has not been done in
  past years, is not explained. Treasury has advised that it
  wishes to use its Internal Audit Section to carry out checks to
  identify investments unless the Auditor General recommends
  to the contrary.

  50.6 The Department of Treasury has requested that the Auditor
  General contact the Independent Public Business Corporation
  to provide relevant information as well as to address issues
  arising in the 2006 Public Accounts Audit.

  51. STATEMENT “G”

  51.1 Statement “G” sets out the borrowings made by the State
  together with repayments of principal and interest to the
  lending authority. The Statement also shows net gains and
  losses caused by fluctuation and currency exchange rates.

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  52. DIFFERENCES IN REPORTED AMOUNTS AND
  CONFIRMATIONS

  52.1 The Auditor General has found that while figures for Treasury
  Bills Inscribed Stock for 2006 in Statement “G” agree with
  the records maintained by Treasury, there are differences
  when the figures are compared to confirmations received
  from the Bank of Papua New Guinea.

  52.2 The Auditor General has identified methodology problems as
  well as communication difficulties between the internal
  processes for the accounting and management of Treasury
  Bills and inscribed stock. These exist both internally and
  externally between Bank of Papua New Guinea and the
  Department of Treasury.

  52.3 How this situation came to prevail for years is beyond the
  Committee’s understanding. It would seem that there is
  finally some attempt to resolve the issues but again this has
  only occurred after the Public Accounts were disclaimed by
  the Auditor General.

  52.4 The Auditor General recommends the following course of
  action:

  • The Department of Finance and Department of Treasury
  resolve the reconciliation difficulties including formalizing
  an accepted format for accounting entries which
  accurately identifies the value of Treasury Bills and
  Inscribed Stock.

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  • That a proper reconciliation of Treasury Bills and
  Inscribed Stock be periodically undertaken with a view to
  ensuring that the value on hand is reconciled back to the
  Bank of PNG records.

  • Department of Finance could improve the disclosure of
  the public debt by providing:

  
  Details about public debt management strategy
  activities and the performance during that period.

  
  Commentary on the risk management framework for
  example equity risk and exposure of the foreign
  risk.

  
  Details of the net value of public debt in addition to
  the published information on total borrowing.
  Disclosure of the net value of public debt will
  provide more meaningful information to the user
  of the Financial Statements.

  52.5 The Committee views these recommendations as practical and
  necessary and endorses them.

  53. MONITORING OF LOANS

  53.1 There is inadequate verification of the financial data disclosed
  in Statement “G” to source data. The lack of monitoring of
  loan conditions exposes the State to the risk of penalties that

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  are imposed or that public funds are not being appropriately
  utilized.

  53.2 We endorse the recommendations of the Auditor General
  that:

  • Treasury’s work papers and reconciliation of their records:

  
  Be consistent across all four groups involved.

  
  Be presented to Audit in the similar manner as
  Statement “G” showing that the figures are in
  accord with the General Ledger, and

  
  The calculation of the balance of the loan principal
  in kina value is included on the worksheet.

  53.3 The Department of Finance ensure that independent
  verification for accuracy and completeness be conducted prior
  to submission to the Auditor General.

  53.4 Treasury review their practices to include the monitoring and
  managing of agency compliance with loan conditions.

  53.5 A mechanism be established which ensures that when a new
  Trust is established as a result of a loan agreement, Treasury
  liase with the Department of Finance Trust Office to ensure
  proper records are updated accordingly.

  53.6 No response was received from Treasury.

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  53.7 This Committee endorses the recommendations and will
  revisit this matter when we consider the 2007 Public
  Accounts.

  54. REVENUE COLLECTION

  54.1 The Auditor General identifies a discrepancy between the
  Departmental records of the Department of Finance and
  Statement “J” in respect of IRC – Customs and Taxation and
  Department of Lands and Physical Planning.

  54.2 In Summary, taxation revenue is overstated as is revenue
  from the Bureau of Customs.

  54.3 Further, revenue from the Department of Lands and Physical
  Planning is understated and the Auditor General is unable to
  verify debt collections in Provinces as there are no Collector
  Statements available to support claimed revenue of K
  3,217,386.

  54.4 This significant differences may require amendment to
  Statement “J” (which is rendered uncertain by the
  discrepancies) which will in turn affect Statements “B” and
  “A” to the same extent.

  54.5 This same problem manifested in 2004 and 2005 and there
  appears to have been no steps taken to rectify the situation.

  54.6 The Department of Finance purports to explain that the
  differences are immaterial and that they “may” be due to

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  time differences between the time of deposit and the transfer
  of monies to the Waigani Public Account.

  54.7 This Committee recommends that the Department of Finance
  and the Department of Treasury should ensure records of IRC
  and the Department of Lands are reconciled and adjustments
  made to correct variations. Revenue procedures at the
  Department of Lands should also be reviewed so that the
  Budget recognizes the total of “demand notices” raised to
  lease holders.

  54.8 The chaotic accounting situation within the Department of
  Lands has been known at least since our Report on that
  Department four years ago but nothing appears to have been
  done to modernize, rectify or rebuild the defective processes
  in the Department.

  55. INADEQUATE FORECASTING OF REVENUE

  55.1 This matter is of considerable concern to the Public Accounts
  Committee.

  55.2 The Auditor General finds the forecasting of revenue including
  revised Budget reviews receipt estimates is not satisfactory
  as there were significant variances between the revised
  estimate revenue figures and actual revenue received.

  55.3 Further, in four instances the original estimates were not
  revised to cater for an increase or decrease in revenue
  collection.

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  55.4 It is clear that Departments are not estimating revenues or
  updating estimates. This is a serious matter as poor or
  inaccurate forecasting and record keeping impacts directly on
  the reliability of the Public Accounts.

  55.5 This Committee strongly recommends that revised updates be
  performed whenever necessary and performed accurately to
  ensure variations are kept within reasonable limits and
  control. This is important to facilitate proper, thorough
  planning.

  55.6 The Department of Finance agrees that this area requires
  improvement but make the point, which this Committee
  accepts, that there are variables which render completely
  accurate prediction impossible.

  56. DIFFERENCES IN APPROPRIATION

  56.1 This is a further area that is a concern to the Committee.

  56.2 Statement “L” provides detailed descriptions of budgeted and
  actual expenditure against the Expenditure Vote. It is a
  crucially important Statement containing very basic
  information for the use of Government and for the purposes
  of planning and budgeting.

  56.3 The information is produced from the Department of Finance
  Transaction Management System.

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  56.4 Statement “B” records Recurrent and Development Budget
  Estimates and payments made during the year. The data
  used to compile that Statement comes entirely from TMS 40
  and it should reconcile with Statement “L”.

  56.5 A very significant difference of K 1,332,500,100 was noted in
  the original appropriation figures in Statement “L” when
  compared to Statement “B” for the year 2006. This
  represents the supplementary Budget in that year.

  56.6 The very considerable difference is apparently due to the fact
  that the format for presentation of Statement “L” changed in
  the 2006 Financial Year. Statement “L” cannot be adjusted
  but Statement “B” has been manually prepared and the
  original appropriation between Statements “B” and “L”
  differed in the sum recorded above.

  56.7 This is not satisfactory. Reconciliation between the two
  Statements should be a matter of course.

  56.8 The Department of Finance has apparently recognized the
  discrepancy and states that:

  “The recording of the Supplementary Budget in the
  original appropriation rather than separately
  identified is currently being discussed with the
  Information Systems Division. To ensure
  transparency, Finance will continue with the
  current presentation format in Statement “B”
  which includes the original appropriation plus any

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  supplementary Budget plus any Section 3 and 4
  adjustments”.

  56.9A Given the current technical difficulty, that is probably the best
  that can be done, but the situation is not satisfactory and
  should be resolved as recommended by the Auditor General.

  OTHER MATTERS

  Receiver of Public Monies

  56.9 The Auditor General identifies delays in banking of monies
  noted from the Collector Statements ranging between 2 – 8
  days.

  56.10 Confirmations of year end bank balances of funds in the
  respective Provinces RPM Bank Accounts were not obtained
  by the Department of Finance and as a result, little reliance
  can be placed on the accuracy of the total Provinces RPM
  Bank Account balances.

  56.11 All balances in the Provinces RPM Bank Accounts should be
  remitted to the Waigani Public Account at the end of the
  Financial Year leaving nil balances.

  56.12 This is clearly not known to at least the Central Provincial
  Treasurer and this information should be promulgated and
  enforced by the Department of Finance.

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  56.13 No balances recorded in the TMS 130 Type 2 Ledgers could be
  verified by Audit as there is no supporting documentation.

  56.14 This Committee can therefore place no reliance on year end
  bank balances and bank confirmations are not received from
  Provincial Treasury for RPM Bank Accounts. Further, banking
  is not performed daily at the Finance FCB Branch and there
  were delays in banking of money.

  56.15 This is fundamental accounting and management procedure
  which should be easily rectified.

  56.16 The recommendations for change from the Committee are:

  • Collection should be banked daily to avoid the risk of theft
  or unauthorized activities.

  • RPM Bank balances of the Provinces need to be confirmed
  as at the 31st December 2006 in order to report the true
  balance at year end.

  • Management should inform Provincial Treasuries of the
  established practice for omission of funds.

  56.17 We received assurances in the 2005 Public Account Inquiries
  that the Department of Finance had addressed this issue but
  clearly they have not. We will revisit this matter in 2007 to
  inquire as to any progress obtained in enforcing these simple
  standards and requirements.

  EXCEEDED LIMITS IMPOSED BY THE APPROPRIATION ACTS

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  56.18 In 2006 a total of K 1,252,500,000 was appropriated by
  Appropriation Acts against the Secretary’s Advance
  (Miscellaneous Vote).

  56.19 The Administrative Directive issued by the National Parliament
  provided a total of K 626,714,800 that was to be
  transferred/paid out in the manner prescribed with the
  balance of K 725,785,200 under the Secretary’s advance.

  56.20 However, Statement “L” disclosed a net figure of K
  698,572,100 as being transferred out resulting in an amount
  of K 72,786,900 being over the appropriation limit.

  56.21 Section 24 transfers aggregated K 2,806,348,320 contrary to
  the provisions of the Appropriation Acts which allowed for
  only K603,184,980.

  56.22 The appropriation limits set by Parliament was exceeded by a
  staggering K2,203,163,340.

  56.23 Further, the limits set for transfers of the Development
  Expenditure Appropriations Act Supplementary
  (Priority Expenditure) Act and the additional
  Supplementary (Priority Expenditure) Act provided a
  limit of transfers by the Development Expenditure
  Appropriation at K 168,718,320. The net transfer was
  actually K 401,387,100 which exceeded the set limit by K
  232,668,780.

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  56.24 In short, the Auditor General finds breaches of Section 24(a)
  of the Public Finances (Management) Act 1995 and
  thereby breaches of the Appropriation Act and quite
  possibly the Constitution.

  56.25 There was no response on this issue from the Department of
  Treasury – Budget Division. Indeed, what answer could they
  give other than to admit that they acted unlawfully?

  56.26 The blatant disregard of the terms of Appropriation Acts and
  Government Directives was a feature of the Public Accounts
  Inquiry for the years 2004 and 2005 but has reached new
  heights in 2006.

  56.27 When unaccountable and unelected Public Servants can ignore
  Appropriation Acts and thereby the National Parliament, the
  Law, the Constitution and the sound fiscal management
  principles, this Nation has a problem which must be
  addressed immediately.

  56.28 As if the actions were not bad enough, there was no attempt
  to justify or explain these huge excesses or to argue any
  basis of Law for them occurring.

  REALLOCATION OF FUNDS BETWEEN BUDGETARY
  APPROPRIATION ACTS

  56.29 Funds can only be reallocated from Recurrent to Recurrent
  Expenditure Budgets and from Development to Development
  Expenditure Budgets.

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  56.30 Funds could be reallocated subject to conditions expressed in
  the respective Appropriation Acts and the Public Finances
  (Management) Act 1995.

  56.31 The Auditor General has formed the view that:
  • Reallocation of funds appropriated under a current
  budget can only be used for recurrent purposes in
  accordance with the conditions expressed in the
  recurrent Appropriation Act.

  • Reallocation of funds appropriated under Development
  Budget can only be used for development purposes in
  accordance with the conditions expressed in the
  Development Expenditure( Appropriation) Act.

  • Any deviation from the National Parliament
  (Appropriation) Act would require amending the
  original Appropriation Act.

  • Any deviation from the National Judiciary
  (Appropriation) Act would require amending the
  original Appropriation Act.

  56.32 This means that unless specifically provided for, funds
  appropriated under one Appropriation Act are not permitted
  to be reallocated to fund operations of another Appropriation
  Act.

  56.33 The Auditor General found clear evidence of very significant
  transfers between Appropriations and concludes that the

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  conditions of reallocating funds within the means of each
  Appropriation Act had been ignored by the Department of
  Treasury.

  56.34 Once again, as in 2004 and 2005, these reallocations occurred
  in respect of the National Parliament and the Judiciary.

  56.35 These two arms of Government should surely be setting an
  example for all other Agencies of Government at least insofar
  as fiscal management is concerned but for some years, have
  not done so.

  56.36 In 2004 and 2005 Treasury at least attempted to explain their
  actions and find tenuous legal grounds for their decisions.

  56.37 In 2006 they made no attempt to explain and made no
  response to the findings of the Auditor General.

  MAINTENANCE OF RECORDS

  56.38 As we have found in past years, supporting registers such as
  the Recurrent Budget movements, Warrant Register and the
  Development Budget movements and Warrants Register
  contained errors and inaccuracies.

  56.39 These errors and inaccuracies were not minor but involved
  very significant amounts of money. For instance, the
  differences in figures for the Secretary’s advance in
  Statement “L” were K 1,284,572,100.

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  56.40 The Auditor General concludes, and this Committee agrees
  that the accuracy of Note 5.1 of the Public Accounts Financial
  Statement is not assured or accepted.

  56.41 This Committee recommends that reconciliation of the Budget
  Movements Register and the Budget Movements and
  Warrants issued for Departments be undertaken by the
  Department of Treasury in order to account for all
  movement of funds.

  56.42 Once again, no response was received from the Department
  of Treasury.

  IMPROPER USE OF SECRETARY’S ADVANCE VOTE

  56.43 The Secretary’s Advance Vote is intended to be used as a
  contingency fund to transfer funds to meet unforeseen
  circumstances.

  56.44 An amount of K 4,970,669 was paid from the Secretary’s
  Advance Vote without appropriated authority by the
  Department of Finance. The Auditor General also found:

  • Breaches of the Public Finances (Management) Act
  1995 by the Department of Finance in that proper
  authorization from the Secretary of the Department
  was not obtained for a write off in the sum of K
  4,970,669; and

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  • The Appropriation Act stipulated that the Secretary of
  Treasury was responsible to administer funds provided
  under the Secretary’s Advance Vote. The Department
  of Finance had not obtained the appropriate approval
  from the Department of Treasury.

  • There is no apparent reason to charge expenditure to
  this Vote and that the Department of Treasury made no
  response to the findings of the Auditor General.

  • Once again, improper use of the Secretary’s Advance
  Vote was an incident of management or
  mismanagement of the Public Accounts for the years
  2004 and 2005 and does not seem to have been
  addressed or controlled in any way at all.

  INSTRUMENT OF DELEGATION

  56.45 The Auditor General sought copies of an Instrument of
  Delegation under Section 26 of the Public Finances
  (Management) Act 1995 from the Minister to the
  Departmental Head but none was produced by the
  Department of Treasury.

  56.46 The Auditor General concluded that the Department had
  blindly followed past practice and did not have written and
  documented procedural guidelines or delegation instruments.

  56.47 This failure to obtain basic legal authority clearly shows
  negligence in the performance of duties by the Office of the

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  Department of Treasury and this Committee recommends
  that the Department should document the provisions of
  Legislation, learn them and obey them.

  56.48 It is notable the Department of Treasury made no response at
  all to this finding.

  MISCELLANEOUS EXPENDITURE VOTE 207

  56.49 An original appropriation of K 411,002,000 made under the
  Miscellaneous Vote 207 increased to K 1,175,691,500 in
  2006 and total expenditure exceeded the revised
  appropriation (and limit) by K 67,593,500.

  56.50 Total expenditure of K 1,243,285,000 reported in Statement
  “B” differs to that of TMS 6 – 10 Ledger and Statement “L”
  which reported the figure of K 1,116,667,961 – a difference
  of K 126,617,039.

  56.51 Examination that was conducted 56 random selected
  payment vouchers and the result was:

  • Payment vouchers for 13 payments totaling K
  175,901,755 were not available.

  • Five payment vouchers totaling K 96,644,844 were not
  certified.

  • Copy of Journal Entry No. 164 for an amount of K
  800,000 and all supporting documentation was missing.

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  • Ten journal entries totaling K 9,347,439 had no
  supporting documents.

  • Three cheques drawn in the name of David Imig for a
  total of K 300, 000 were cancelled but copies of the
  cheques were not attached to the journal entries and it
  was not possible for the Auditor General to confirm that
  the cancellations actually occurred.

  56.52 These failures of the Department of Finance to keep proper
  basic and adequate records requires the following
  rectification:

  • The Department should strengthen the controls within
  the payment system so that money is not paid out
  without valid appropriation.

  • The Department must improve current record keeping
  practices and ensure documents are maintained and
  retained.

  • Approval of journal entries may have to be confined to
  the FAS in charge of the Expenditure Division.

  56.53 The Department of Finance made response to these findings.
  Basically the Department agreed with the recommendations
  and claimed that significant effort had been put in place to
  improve record keeping.

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  56.54 This Committee has still to see the results of such an effort
  and we will be revisiting this issue in 2007.

  INTERNAL AUDIT

  56.55 Internal Audit failures were a significant feature of the Public
  Accounts in 2004 and 2005 and the situation appears to
  continue.

  56.56 The Auditor General finds that while the Department of
  Finance Internal Audit Branch did conduct six major internal
  control reviews in 2006 the overall internal control
  environment is very weak and requires ongoing internal audit
  review particularly in high risk areas.

  56.57 The Department of Finance Internal Auditors did not following
  up on issues specifically reported and did not undertake
  periodic reviews. There are also legislative compliance
  matters that Internal Audit should be addressing but does
  not.

  56.58 The Auditor General recommends, and this Committee agrees:

  • Secretaries of both the Departments of Finance and
  Treasury should review those Departments Internal
  Audit Branch with a view to effectively utilizing those
  resources.

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  • Roles and lines of control and appearance of
  independence need to be assured within the
  Department of Finance.

  • The Secretary should review the Annual Strategic and
  Operational Plans to ensure there is an ongoing review
  of high risk areas.

  • The Secretary should ensure adequately qualified and
  experienced staff are involved.

  • Staff should conduct Internal Control checks and
  compliance reviews rather than investigative work.

  • At least two dedicated Inspectors should be formally
  allocated to specifically investigate Trust Account non-
  compliance. This must include physically following up
  completion and lodgment of Bank reconciliations, trust
  reconciliations and other statutory records.

  • The Secretary should undertake periodic reviews to
  ensure that bank reconciliation of bank accounts
  managed by the Department of Finance including Trust
  Accounts, advances and drawing accounts are being
  performed in a timely manner.

  • Internal Auditors should report on the risk and
  occurrence of legislative non-compliance to the
  Secretary.

  • The failure of Internal Audits Groups across the whole
  of the Government Agencies is a matter of continuous

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  comment by the Auditor General and by this Committee
  and is one of the major reasons for the collapse of fiscal
  accountability in Government.

  • The tenor of the Report of the Auditor General for 2006
  suggest that there are stirrings of reform but a very
  significant effort must be made across Government to
  establish competent, trained Internal Audit systems to
  try and bring fiscal accounting back to some form of
  order.

  56.59 We will revisit this matter in 2007 Public Account

  JOURNAL ENTRIES POSTING IN PERIOD 13.

  56.60 196 Period 13 Journal Entries were posted into TMS (after
  PGAS had been closed) amounting to a huge K
  3,532,937.836.

  56.61 Quite a number of these postings are due to donors not being
  able to provide Financial Statement until after the end of the
  Financial Year and in 2006, the total of entries pertaining to
  donor funding amounted to K 674,300,000.

  56.62 However these postings of donor funding are not material in
  the scale of postings in Period 13.

  56.63 An indication of the enormity of this expenditure is shown
  when the TMS 40 Ledger printed on the 22nd October 2007 is
  considered.

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  56.64 That Ledger revealed expenditure between periods 12 and 13
  amounting to K 708,965,975 largely due to the PGAS and
  TMS not being reconciled at the end of every month with
  items that make up the discrepancies corrected during Period
  13.

  56.65 The failure to keep proper accounts and records means that
  Departments whose overpayments and underpayments are
  the subject of journal adjustment are simply not aware that
  the increase/decrease has occurred.

  56.66 There is further a risk of the transfer may not be correct and
  this in turn facilitates irregular activities or a cover up of the
  actual Department’s expenditure and large numbers of errors
  not corrected during the year causing delays in the
  preparation of the Public Accounts Financial Statement.

  56.67 Simply put, the lack of audit trails and a failure to keep even
  Statutory records increases the risk of error,
  misappropriation or fraud that may not be detected in a
  timely fashion or at all and also result in additional resources
  and time spent in correcting errors which should have been
  obvious at a much earlier time.

  56.68 The unseemly rushed in Period 13 to correct errors and, we
  believe, to create figures where no records exist is simply not
  acceptable.

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  56.69 There will always be a need for some adjustments in Period
  13 in the normal course of accounting, but the huge amounts
  of money and the sheer number of adjustments in Period 13
  clearly show a failed system which produces unreliable data.

  56.70 As we did in 2004 and 2005, we recommend:

  • All journal entries should be referred and properly
  authorized by the responsible Departments and Agencies
  – not solely by the Department of Finance. In this
  situation it is clear that devolved accounting has failed.

  • The Department of Finance should monitor the monthly
  reconciliation of PGAS and TMS. This they have failed to
  do for years.

  • All clearing accounts should be reconciled by the
  Department of Finance each month.

  • Consideration to encourage donors to provide
  expenditure reports before the end of the financial year
  should be made. If this cannot be done, then interim
  statements and reports could be provided.

  • The Department of Finance reinforce the policy of proper
  cross-referencing of journals to staff involved in
  preparing and authorizing journal entries.

  • The accuracy of journal postings should be subject to
  periodic independent verifications by the Internal Audit
  and Compliance Branch of the Department of Finance.

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  • Simply put, the Public Accounts are drawn from primary
  documents which have themselves failed and are the
  products (where they existed at all) of a collapsed
  system of accounting and record keeping.

  The requirements of the Public Finances
  (Management) Act 1995 and the Constitution and
  the Financial Instructions are not onerous or difficult
  to understand yet no Department is capable of
  complying with them.

  • Period 13 adjustments must be brought under control
  immediately and if this requires some form of statutory
  control, the Government should enact such legislation.

  DEPARTMENTAL AUDITS.

  56.71 As we have said on several occasions’ Departmental
  accounting and record keeping and fiscal management has
  collapsed.

  56.72 In 2006 ten Departments were not audited at all. Not one
  Department complied with all requirements of law and most
  complied with almost none. Of thirty Departments the
  following were the results of the investigations of the Auditor
  General:

  Legal Requirement Number of Departments
  Complying

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  Corporate Governance 2 Departments

  Financial Reporting 2 Departments

  Budgetary Controls 10 Departments

  Procurement and
  Payment Procedures Nil Departments

  Salaries & Wages 2 Departments

  Advances Management 6 Departments

  Assets 7 Departments

  Motor Vehicles 13 Departments

  Trust Accounts 14 Departments

  Cash Management 6 Departments

  56.73 This Committee detects no improvement from the years 2004
  and 2005 and in respect of corporate governance, financial
  reporting or budgetary controls, the situation has worsened.

  56.74 In respect to Procurement and Payment procedures the fact
  that not one Government Department complies should be a
  matter of very profound concern and bespeaks a complete

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  loss of control of Government accounting and fiscal
  management by the Executive.

  56.75 These matters have been the subject of considerable analysis
  and recommendation by this Committee in previous Reports
  to the National Parliament and we reiterate our findings and
  recommendations in respect of the 2006 Public Accounts.

  57. FINDINGS

  57.1 The Committee has been deeply concerned by the revelations
  made during and as a result of this Inquiry.

  57.2 It is clear that the disintegration of our systems of fiscal
  management and accountability evident in 2004 and 2005
  continued into 2006.

  57.3 One major question raised by the evidence was – how could
  the national accounting system have reached such a state of
  collapse?

  57.4 The Committee has carefully considered the evidence and we
  can only conclude that the situation in 2006 represented a
  failed Executive control over national finances compounded
  by mala fides in the Officers and Departments controlling and
  accounting for public funds encouraged and protected by a
  culture of impunity that has increasingly characterized
  Governance and society in Papua New Guinea.

  57.5 We say this because the Executive Government is vested with
  responsibility to formulate budgets and effective

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  management, control of, and accounting for, the Budget. If
  this responsibility is met, responsible fiscal management and
  application can be expected to follow. The Executive has
  failed in this role for many years and the Public Service have
  moved into that vacuum and assumed power that it does not
  have.

  57.6 This shift in power is very largely responsible for the failed
  accounting system and the huge fiscal misconduct that we
  now see.

  57.7 Some incidents of this loss of command and control are:

  • Overspending by Departments resulting from the inability
  of the Department of Finance to control public spending –
  notably in its own Department.

  • Ministers failing to demand Agency Heads be responsible
  for transparent and compliant spending of Agency budget
  allocations;

  • Considerable abuse and diversion of public monies that
  goes undetected and unpunished;

  • A large and seemingly uncontrolled increase in the number
  of Section 32 Officers who are authorized to approve
  expenditure. This merely increases the pressure points for
  the application of blandishments, threats and intimidation
  for payments to be made. Only persons of proven moral
  and intellectual qualities should hold such designations.

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  • There is a real lack of qualified Finance Officers in every
  Department and agency, but particularly in the agencies
  that expend money;

  • Low managerial capability and commitment resulting in
  declining service delivery;

  • No critical analysis of managerial capacity across all
  agencies;

  • Poor or non existent procurement practices delivering poor
  value for money and quality procurement for Government;

  • No action by top management on external or internal
  recommended changes, reforms or restructuring or on
  reported irregularities;

  • Inadequate or no information and communication
  technology or infrastructure. For example, current payroll
  and PGAS budget management systems are not capable of
  preventing invalid budget codes from being attached to
  payroll variation advices, purchase orders or payment
  vouchers. This situation has prevailed for years;

  • No regular or recurrent monitoring and review of budget
  implementation, together with timely corrective action;

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  • Low level of staff competency, performance and risk
  management failures;
  • Physical separation of staff around PNG;

  • Language barriers;

  • Ability to hide malpractice and minimal risk of detection
  and less of prosecution or punishment;

  • Failed lines of control and accountability horizontally and
  vertically across all of Government.

  58. RESOLUTIONS OF THE COMMITTEE

  58.1 The following Resolutions were made unanimously by the
  Public Accounts Committee:

  1. This Report is accepted as the Report of the
  Committee.

  2. The title of the Report is approved in the form:

  “INQUIRY INTO THE PUBLIC ACCOUNTS OF THE
  GOVERNMENT OF PAPUA NEW GUINEA FOR THE
  FINANCIAL YEAR 2006.”

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  3. The appendices in Schedules to the Report are
  approved.

  4. There is no dissenting Report.

  5. The Committee will make this Report to Parliament
  under Section 86 (1) (c) and (d) Public Finances
  (Management) Act 1995 with findings and
  recommendations concerning the Part 1 Reports of the
  Auditor General for the financial year 2006.

  6. That the Committee accepts the findings of the Office
  of the Auditor General in respect of the Public Accounts
  in the Part 1 Report for the financial year 2006, and
  will report to Parliament on necessary changes to the
  keeping of the Public Accounts as set forth in Section
  86 (1) (d) (i – iv) of the Public Finances
  (Management) Act 1995.

  7. To accept and endorse the referrals set forth in Para.
  59 herein.

  8. To accept and endorse the recommendations in Para.
  58 hereof.

  9. To accept the qualifications and limitations on audit
  found by the Auditor General.

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  10. To reject the Public Accounts for the financial year
  2006 as unreliable, incomplete or not based on proper
  records or accounts.

  11. To reject the Public Accounts for the financial year
  2006 as not giving a proper, true or fair view of the
  financial operations or results of Government.

  12. To censure Heads of Department and all other
  accountable Officers for failing to keep, make or
  submit lawful, timely and accurate financial accounts,
  records or reports in 2006.

  13. To censure Heads of Departments and all other
  accountable Officers for failing to obey or breaching
  the Public Finances (Management) Act 1995, the
  Constitution, the Financial Instructions and/or
  Appropriation Acts.

  14. To censure the Department of Finance for failing to
  enforce lawful and correct accounting and recording of
  the use of public monies, property and stores in the
  financial year 2006.

  15. That the Chairman brief the Minister for Finance and
  the Prime Minister on the findings and resolutions of
  this Committee.

  16. The Committee resolve that this Report will be sent to
  the Minister for Finance and Treasury and the Prime

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  Minister with a recommendation for urgent attention to
  its contents.

  17. The Committee resolve to recommend to the National
  Parliament through the Chairman that a debate of
  National importance be called pursuant to SO 109 of
  the Parliamentary Standing Orders concerning the
  state of management of public monies by Government.

  18. That the Committee resolve that the PAC will consider
  the 2007 Part 1 Report of the Auditor General as soon
  as possible and Report to the National Parliament as a
  matter of urgency.

  19. That the entire structure, function and performance of
  the Department of Finance be considered by the
  National Parliament as a matter of urgency and, if
  necessary, the Department be removed and replaced
  with a specialized, competent, controlled and
  accountable agency to rebuild and maintain or perform
  the systems of fiscal accounting in Government.

  20. That the Committee resolve that the current system of
  Trust Accounts has failed. Trust accounting and the
  lawful management and application of monies by the
  Public Service through Trust Accounts had failed by
  2006 and should be replaced.

  21. That the Government give urgent consideration to the
  establishment of a specialized, transparent,
  accountable, responsive agency staffed by honest,

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  competent and overseen experts (recruited from
  overseas if necessary) to manage Trust Accounts and
  trust monies – in particular monies appropriated for
  development, infrastructure maintenance and service
  delivery.

  22. That Government accept that the fiscal management
  by the Public Service has failed at all levels of
  Government and that this is a matter of first national
  importance impeding, as it does, Government service
  delivery and development policies.

  23. That the Executive reassert its fiscal power and control
  by whatever lawful means are available to it.

  24. That the Government reassert control over and
  accountability for the use and handling of public
  monies.

  25. That the Government restore and reassert the
  Constitutional power and systems of fiscal
  management as a matter of national urgency.

  26. That Government demand and enforce zero tolerance
  for fiscal mishandling in Government and form a
  specialized agency to investigate and prosecute those
  found to be engaged in such conduct.

  27. That Government embark urgently on a program of
  training and capacity building for officers charged with
  handling or applying public monies. In particular the

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  establishment of training colleges and ongoing courses
  of training and retraining throughout the country must
  be established.

  28. That Government recognize that the failures reflected
  in the Public Accounts directly dictate the reputation
  and effectiveness of Government itself. Failed
  Government accounts reflect adversely on the
  Government concerned and the patent loss of control
  of public monies by the Executive is a matter of
  National importance.

  29. That Government must immediately institute a
  competent investigation into the National public debt
  to establish it with accuracy.

  30. That Government must immediately institute an
  independent investigation into the number of Trust
  Accounts, the status of each Trust Account, the
  balance where appropriate of each account, the nature
  and terms of each Trust Instrument across all of
  Government including the Provincial Governments, the
  identity of Trustees, signatories and to obtain
  reconciliations of Trust Accounts.

  31. Devolved accounting functions should be revoked. A
  central and expert accounting agency capable of timely
  reporting and accounting should be established. On
  line daily reconciliations and reports should be
  introduced and maintained and accounts should be
  open to all who require to use them.

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  32. Government should consider the establishment of an
  expert and fully funded and resourced agency staffed
  by qualified and effective officers capable of detecting
  and dealing with corrupt practices in Government and
  with power to prosecute.
  33. Government should consider the appointment of a
  Minister responsible for reestablishing probity, ethical
  behaviour and transparency in Government –
  particularly in the handling of public monies, the
  keeping of accounts of public monies, the conduct of
  public officers responsible for same and the
  application, oversight and effectiveness of
  development budgets.

  34. The Government should effect specialized legislation to
  deal with illegal conduct by Public officers and proclaim
  draconian punishment therefore.

  35. The PF(M)A requires updating and modernization as
  do the Financial Instructions.

  36. The Audit Act 1986 requires updating and
  modernizing.

  37. The Public Accounts Committee needs a single, new
  Act to govern its operations.

  38. The IRC should be modernized and given wide power
  to investigate and prosecute for tax fraud or
  avoidance.

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  39. All recipients of monies from Trust Fund Suspense
  Account No. 2 should be referred to the IRC for
  investigation to ensure that tax liabilities have been
  declared and paid.

  40. Funding to any agency that does not comply with its
  requirements under the PF(M)A of the Financial
  Instructions should cease until those requirements
  are fulfilled.

  41. Interference with, defalcation or diversion or
  misappropriation of monies appropriated for
  development or service delivery – especially aid donor
  funds – should be met with severe penalties.

  42. All Royalty Trust Accounts should be immediately
  removed from the control of agencies and vested with
  trained, independent, experienced, honest and
  accountable professional Trustees who understand
  their obligations, duties and liabilities.

  43. Interference with or refusal to obey or effect
  Appropriations made by the National Parliament,
  should be met with severe penalties.

  44. Trustees or signatories responsible for any failure of
  accounting or proper management of monies in Trust
  Accounts should be removed, prosecuted and never
  again be allowed to handle public monies – and
  certainly not Trust monies.

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  45. Appointment of senior officers – particularly Heads of
  Departments should be finally approved by an
  independent Board constituted of representatives of
  Church/State/private enterprise and aid donors with
  power to investigate, interview and refuse
  appointment.

  46. Section 32 Officers should be carefully and selectively
  appointed and the positions should be made only
  where the officer is trained, competent and honest.

  47. Trustees should be independent of the Department or
  agency that administers the Trust Account and should
  never be Head of the responsible Department – in
  particular the Department of Finance. Professional
  Trustees who understand their responsibilities and can
  manage Trust funds should be the only persons
  permitted to act as Trustees of Public monies.

  48. Government Trust Accounts should be real Trust
  Accounts as that term is known to Law – with Rules,
  and Trust Instruments which are comprehensible and
  lawfully effective to protect the Trust, account for
  monies and control the Trustees.

  49. Trustees, before they are appointed, be subject to
  tuition and testing to establish that they understand
  the obligations, duties and legal position of a Trustee

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  and the obligation to properly manage and account for
  all monies passing through a Trust Account.

  50. Trustees should, before their appointment, be subject
  to a “fit and proper person” test and their conduct and
  decisions as Trustees be subject to biannual audit by
  either the Office of the Auditor General or an
  independent auditor.

  51. Signatories to Trust Accounts should only ever be
  experienced and carefully chosen. They should have
  clear and precise controls.

  52. Every limitation and failure reported by the Auditor
  General needs to be individually addressed.

  53. Government must adequately and properly fund the
  Office of the Auditor General and the Public Accounts
  Committee as the Constitution requires.

  54. The NEC should reassert its power and those powers
  and its control of public monies, should be reasserted
  by whatever means may be required.

  55. Every public servant who has failed to perform his
  duties under the PF(M)A or the Financial
  Instructions should be immediately replaced.

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  56. Every public servant who has failed to cooperate with
  this Committee and/or with the Auditor General should
  be immediately replaced.

  57. That Government immediately recruit, deploy and
  adequately fund and resource Internal Audit Units in
  every agency of Government.
  58. That Law Enforcement agencies be immediately
  revitalized, improved, properly staffed and resourced
  and adequately funded to deal with financial failure
  and fraud in Government.

  59. Proven interference with the discretion or duty of a
  Trustee should be met with a deterrent punishment.

  60. That the form and content of the Public Accounts be
  modernized and replaced to allow easily read and
  understood statements.

  61. That the recommendations of the Auditor General
  made in his Part 1 Report for the financial year 2006
  be accepted and actioned by Government by any
  means lawfully available.

  62. Accounting processes in all agencies should be
  reviewed and modernized or reformed in accordance
  with recommendations by the Auditor General.

  63. Asset lists should immediately be established.

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  64. The Government should demand and obtain Guarantee
  Register, Loan Register, Trust Instrument Register,
  Trust Account Register and all other running records
  which were not produced to the Auditor General.

  65. Government must immediately ascertain actual losses
  and deficiencies.
  66. The Government (and the Executive in particular) and
  the Department of Finance must regain control over
  and demand accountability of Agency spending.

  67. Government must demand an immediate account of
  Investments and interest earned.

  68. Government must study and implement all the
  recommendations made by the Auditor General and
  endorsed by this Committee.

  58. RECOMMENDATIONS;

  58.1 This Committee recommends that:

  1. The findings and resolutions of the Committee, to be
  effective, need to be actioned by the Government, without
  delay.

  2. The Government accept this Report, debate same and
  immediately begin the process of reform and the
  reestablishment of the Constitutional fiscal scheme.

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  3. The National Parliament immediately move to rectify the
  collapse of accountability for the use and application of
  public monies by the Public Service.

  4. The National Parliament immediately reassert the
  Constitutional system of fiscal management by the
  Executive.

  5. The National Parliament immediately reestablish and
  enforce the Constitutional power which is the sole province
  of the Executive.

  6. The National Parliament immediately bring the Department
  of Finance under control and enforce accountability in that
  Department for fiscal management.

  7. The National Parliament re-establish the political and social
  contract with the citizens of Papua New Guinea and bring
  the application of appropriated monies under control for
  the benefit and betterment of the people of Papua New
  Guinea.

  8. The National Parliament of Papua New Guinea accept that
  the Public Service has failed to lawfully and properly
  manage, apply and account for public monies, for years.

  9. The National Parliament accept that it has failed to enforce
  and demand lawful and proper fiscal accountability for the
  use of and transactions with public monies, property and
  stores, for years. It has failed to understand or fulfil its
  Constitutional duty in this regard.

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  10. The National Parliament recognize that the result of this
  failure has been to cede fiscal power to unelected and
  unaccountable officers of the Public Service.

  11. The National Parliament accept that this failure has
  resulted in the development and protection of significant
  abuses of public monies by the very persons charged with
  lawfully managing and applying public monies to the
  betterment of our country.

  12. The National Parliament accept that this failure has
  resulted in deteriorating services to our people and a failed
  system of delivering development to our citizens.

  13. The National Parliament accept that, by 2006, the
  Constitutional system of public fiscal accountability had
  collapsed and that misappropriation, theft, misapplication,
  fraud and illegal and improper handling of public monies
  had become an incident of Governance in Papua New
  Guinea.

  14. The National Parliament accept that the Department of
  Finance had, by 2006, arrogated to itself sovereign power
  over the use and application of public monies, often in
  open defiance of Appropriation and Government policy and
  directive.

  15. The National Parliament accept that it is the only entity
  that can remedy or rectify the collapse of fiscal
  management and administration.

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  16. The National Parliament accept that the Public Service, by
  2006, were without control or oversight in their fiscal
  management and acted with impunity and immunity in
  their handling of public monies.

  17. The National Parliament accept that the major agencies
  responsible for fiscal management, by 2006, acted just as
  they wished in respect of public monies and, in many
  instances, in direct defiance of Law, Constitutional
  requirements and Government policy and appropriation.

  18. The National Parliament accept that, by 2006, there had
  developed a culture of impunity for Public servants in their
  dealings with and application of public monies such that
  the Accounts of the Government of Papua New Guinea
  were rendered unreliable (at best).

  19. The National Parliament accept that there is a collapse of
  law enforcement in the application of, or obedience to, the
  Public Finances (Management) Act 1995 and every
  other dictate of Law relating to fiscal accountability across
  the entire span of Government.

  20. The National Parliament accept that the Auditor General
  and the Public Accounts Committee are, as a matter of
  routine, treated with contemptuous disregard by the Public
  Service – and in particular by the Department of Finance.

  21. The National Parliament accept that, by 2006 and
  continuing to the present, not one Department of

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  Government can, will or is capable of complying with all
  lawful requirements of fiscal accounting. Many could not
  comply with virtually any such requirement.

  22. The National Parliament accept that this collapse of
  accountability is so complete that almost no Agency could,
  or can, even reconcile or account for its own internal
  financing – much less deal with or apply development or
  service orientated appropriations.

  23. The National Parliament accept that Government policies,
  directives, appropriations and funding for service delivery
  and development are diverted, misappropriated,
  mishandled or not applied and that there was not in 2006,
  (or 2008), any competent, lawful or proper accounting or
  record of the application of money for these purposes.

  24. The National Parliament accept that there is a direct
  correlation between the collapse of public fiscal
  accountability and failure of service delivery.

  25. The National Parliament accept that the failure of service
  and development delivery will, and has already, resulted in
  significant social unrest. In other words, the loss of
  Parliamentary power and fiscal control, and thereby policy
  implementation, has created an increasingly angry,
  impoverished and disillusioned citizenry.

  26. The National Parliament accept that the collapse of public
  fiscal accountability is a failure of Government and a failure

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  of the National Parliament and Executive to understand or
  fulfill its Constitutional role.

  27. The National Parliament must accept that this collapsed
  system cannot continue.

  28. The National Parliament must accept that there is no more
  urgent issue of national importance than the collapse of
  fiscal accountability and the attendant collapse of law
  enforcement that has allowed this to occur.

  29. Government should seek assistance and expertise
  wherever it can to replace failed individuals, failed systems
  and intentional refusal by Officers of the Public Service to
  act properly and lawfully.

  30. The Department of Finance be brought under control and
  be made accountable. The Department could not and
  cannot control public spending or fulfill even basic
  accounting tasks. Government should seriously consider
  degazetting the Department and replacing it with a
  specialised accounting and fiscal agency to guide and
  implement development and service delivery budgets.

  31. Power to expend monies be removed in whole or in part
  from the Department of Finance pending restructuring of
  that Department.

  32. A new and specialized agency is required to control,
  approve and account for the expenditure of public monies.
  If necessary, that agency should be recruited from private

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  enterprise and/or from overseas if the necessary expertise
  cannot be sourced in Papua New Guinea.

  33. Decentralised accounting has failed. No agency or
  Department of Government has the expertise or capability
  to account for the use of or transactions with public
  monies. Either the devolution is reversed and made the
  task of a specialised and effective independent agency or a
  very significant training and oversight effort must be
  injected into public accountability at every level of
  Government right down to LLG, District and Board level –
  and even then, we doubt that decentralized accounting can
  succeed.

  34. The number of Section 32 Officers be strictly circumscribed
  and that delegation to expend public monies must be
  restricted to officers with a proven record of honesty and
  who are trained and experienced.

  35. Ministers must assume responsibility for transparent
  accounting by their Departments and not acquiesce in the
  current failed system.

  36. The culture of impunity attending failure and malpractice in
  our Public Service should be addressed immediately. There
  is no fear of detection or sanction for fiscal mishandling –
  and there must be.

  37. Senior management has failed to enforce standards of
  accounting required by Law and no analysis of capability
  has ever been conducted – this must change.

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  38. The Public Finances (Management) Act 1995 and
  Financial Instructions be updated and modernized.

  39. The Audit Act 1989 be updated and modernized.

  40. The Public Accounts Committee draft Bill be enacted to
  modernize and empower the PAC.

  41. Executive power must be reasserted over fiscal
  management and power over and accountability for
  expenditure reclaimed by the Executive.

  42. Ongoing training and supervision of accounting staff must
  be implemented and maintained at all levels of
  Government.

  43. Departments and agencies that fail to make statutory
  records or accounts should be penalized by a reduction of
  funding or removal and replacement of failed staff and
  management. There should be zero tolerance for failure or
  refusal to comply with the requirements of the Public
  Finances (Management) Act 1995.

  44. Inadequate IT systems need urgent attention and
  rectification. The fact that PGAS budget management
  systems cannot prevent invalid budget codes is totally
  unacceptable. The fact that PGAS and TMS cannot
  communicate is not acceptable.

  45. Qualified Finance Officers only should be deployed in self
  accounting agencies and constantly controlled and

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  overseen. Ready assistance and advice should be available
  to these Officers if it is required.

  46. No agency should be designated as self accounting unless
  strict prerequisites are met. Departments and agencies
  considered by this Committee were bad enough when they
  were not self accounting, but since gaining this status,
  they have failed completely to keep even basic accounts or
  records.

  47. The oversight and monitoring agencies should be properly
  and fully funded. The Office of the Auditor General is
  simply unable to meet its mandate due to lack of resources
  and this is not acceptable – or lawful.

  Format of the Public Accounts:

  48. There is a need for improved financial reporting and an
  improved format for the Public Accounts. The current
  system is voluminous and not easily read or understood.

  49. An improved systematic approach to presenting
  Government financial information needs to be
  implemented.

  50. We recommend a format or Report similar to that used by
  corporations in the Public Sector and/or public sector
  entities in other countries. This would allow a reader who
  is not an accountant to easily find and understand the
  information.

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  51. The “Financial Reporting under the Cash Basis of
  Accounting” standard is used by other countries and
  would seem to be suitable for Papua New Guinea.

  52. Although the Department of Finance has issued
  instructions for Departments to use this standard, the
  Department does not seem to use it itself and it should.

  53. Timely reporting and auditing of Public Accounts receipts
  and expenditure would assist the Parliament in its
  assessment of the finances of the State.

  54. Rather than allowing the Minister for Finance to provide a
  detailed statement of receipts and expenditure as soon as
  possible after the end of the fiscal year, the PF(M) A
  should require these statements to be produced by the end
  of March to allow audit by the end of June.

  Modified cash basis of accounting:

  55. Revenue and expenditure are accounted for by Government
  on a cash basis i.e. when the cash is received and not when
  revenue is earned or expenditure incurred. Cheques are
  accounted for when raised and issued – not when the cheque
  is presented at bank. However, the Department of Finance
  applies a modified cash basis of accounting – contrary to the
  publicly disclosed accounting policy. This distorts the Public
  Accounts and should not be permitted.

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  Control over Appropriation limit:

  56. Controls over payment of public monies are not sufficiently
  robust to prevent spending over appropriation limits. The
  following should be instituted by Government:

  • The new Financial Management System currently under
  development at the Department of Finance should have
  in built controls to prevent payments over appropriation
  limits.

  • Senior management of the Department of Finance
  should be held accountable for overspending
  appropriation because overspending by entities results
  from a failure by those Officers to control public
  spending.

  • There should be regular monitoring and review of
  budget implementation together with timely corrective
  action by the Department of Treasury.

  57. Budgetary framework should include a programmed
  supplementary budget process which would allow entities to
  submit requests for mid-year funding for unforeseen
  circumstances.

  Transactions after the end of the accounting period:

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  58. This practice demonstrates poor internal controls and
  constitutes poor or crisis management across all agencies.
  The Department of Finance should be required to monitor the
  monthly reconciliation of PGAS and TMS to ensure that the
  variations are promptly corrected.

  59. The Department of Finance should be required to reconcile
  clearing accounts each month so that outstanding amounts
  are cleared promptly.

  60. Government must, by any and all means available, demand
  and enforce accountability of senior managers to act on
  recommendations made by review bodies, including internal
  and external audit and audit committees.

  61. Audit units must be immediately deployed and properly
  resourced at all levels of Government to oversee and enforce
  accountability and lawful handling of public monies.

  Trust Accounts:

  62. The system of Trust Accounts established by the PF(M)A has
  failed to ensure either the proper and lawful handling of
  public monies or to effect Government policy – especially
  development and service delivery.

  63. Trust Account accounting by Trustees and responsible officers
  had collapsed by 2006 and has not improved since.

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  64. The Auditor General could not audit the Trust Account due to
  a lack of records or accounts for individual accounts
  comprising the whole.

  65. There was and is widespread and significant misconduct,
  misappropriation and defalcation by Trustees and/or
  signatories across the whole span of Government from
  National agencies right down to District level.

  66. There was significant misappropriation and misconduct
  toward Trust Accounts and the funds in them, within the
  Department of Finance itself.

  67. Trustees regularly breach their duties and obligations with no
  fear of detection or punishment.

  68. The system of oversight and control of Trust Accounts had
  failed by 2006 and remains in a state of failure.

  69. There is no register of Trustees, accounts, bank accounts,
  Trust Instruments or monies held in Trust Accounts.

  70. Neither the Committee nor the Government know or can
  ascertain the number of Trust Accounts, the amount of
  money in them, the true balance of the Trust Account, the
  identity of Trustees, the terms of Trust Instruments or any
  other incident of the Trusts.

  71. Trust Accounts are regularly overdrawn – a legal
  impossibility.

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  72. Trust Accounts were and are abused and funds mishandled
  on a daily basis.

  73. The Department of Finance is both unwilling and incapable of
  managing, controlling or enforcing lawful accounting
  requirements for Trust Accounts.

  74. As we have reported in past Inquiries, Departments
  responsible for service delivery, co-ordination, development
  and applying appropriated monies for these purposes have
  failed to do so and treat Trust monies as they please – often
  as acting on political or other direction or pressure.

  75. By 2006, not one agency of Government complied with all
  Trust Accounting requirements and almost all obey none of
  those requirements. This situation still prevails.

  76. Trust Funds are hidden and records were and are
  intentionally not kept, we believe to avoid audit and
  detection.

  77. Mishandling of Trust Accounts and the money in them was so
  widespread by 2006, that the Executive had lost all control
  over this aspect of Government and therefore failed in its
  Constitutional duties.

  78. In this regard, the Public Service had, quite illegally,
  assumed unfettered power of and discretion over the use and
  application of Trust monies, regardless of Appropriations in
  many instances. That power has been used in a further

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  unlawful fashion and public monies misappropriated on a
  huge scale. This situation prevails in 2008.

  79. Trust Instruments, when they can be found, are poorly
  drawn, often ambiguous (where they make any sense at all)
  and often outdated.

  80. Trust Accounts which had been closed are still operating.

  81. Trust Accounts which had been unused for years are still
  open.

  82. Trust Accounts recorded as having a nil balance actually had
  funds at bank.

  83. Trust Accounts shown as having balances at bank actually
  had nil balance.

  84. The senior line Departments of Government responsible for
  administration of Law and Justice acted illegally and
  unconstitutionally in its handling of Trust monies and Trust
  Accounts.

  85. By 2006, the very Department responsible for proper and
  lawful administration of Trust Accounts and accounting
  functions, the Department of Finance had, as a matter of
  course, engaged in illegal, unconstitutional and significant
  mishandling and application of Trust Accounts and funds
  under its control.

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  86. Law enforcement systems and agencies intended to control
  and account for Trust Accounts and Trust funds had, by
  2006, failed. This failure continues.

  87. Trustees were clearly incapable of understanding their duties.
  This situation continues currently.

  88. The refusal and failure to keep records, make reconciliations
  or accounts of Trust Accounts or funds was intentional. This
  had, by 2006, lead to huge misappropriation, mishandling
  and diversion of funds to non-appropriated purposes.

  89. This misconduct was so significant that it has derailed
  National service delivery and National development and very
  largely rendered Government impotent to effect its Plans and
  Policies. In many ways, this single collapse of accountability
  has, and continues to, impoverish and marginalize many of
  our citizens through failed health, education and other
  service provision.

  90. The law of Trust establishment, management and control in
  the PF(M)A, was and is ignored by Trustees and is
  ineffective and outdated.

  91. Penalties for mishandling of Trust funds or Accounts are
  inadequate.

  92. A culture of impunity has developed in the Public Service
  behind which unelected and unaccountable individuals access
  and misuse public and Trust monies.

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  93. Trustees should be persons of the highest repute and proven
  probity who understand their duties, act independently and
  exercise their discretion in accordance to precise rules and
  stated intentions. Trustees appointed to manage trust
  accounts of Government do not meet these requirements.

  94. Considering the chaotic, dishonest, incompetent, corrupt and
  failed mismanagement of the system of Government Trust
  Accounts that existed in 2006 and for years before that (and
  that exists still), Trust Accounts or at least monies
  appropriated for development and service delivery should be
  removed from the Public Service pending reform of that
  entity and given to a specialized Trust agency constituted by
  persons of proven expertise, independence and probity
  guided by precise Trust Rules and charged with properly and
  fruitfully implementing Government development and service
  delivery policies and the appropriated funding therefore, by
  lawful and accountable management of Trust Accounts.

  If such persons cannot be recruited in PNG, international
  recruitment should be made. Other countries do so, and so
  should we.

  95. Government should consider whether Trust Accounts are the
  proper and responsive mechanism to effect lawful application
  of public monies. The current system established by the
  PF(M)A does not establish true Trust Accounts or a real
  Trust relationship with appointed Trustees as those concepts
  are known to Law. We recommend that the method of

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  conduiting money from Government and applying public
  monies be carefully considered.

  96. Royalty Trust Accounts have been significantly abused by
  Trustees and public servants in 2006 and to the present day.

  97. Government should immediately remove Royalty Trust
  Accounts and every other trust Account that contains or
  administers money held for Landowners or resource owners
  from the Public Service and vest those Accounts in a
  specialized, independent, expert agency operated by
  professional, educated, experienced and honest Trustees.

  98. Fault for the failure of Trust Account management lies not
  only with those citizens who have abused and
  misappropriated Trust monies. It was also a direct result of a
  failure of governance, oversight and control by the Executive
  and the National Parliament to fulfil their Constitutional duties
  and roles.

  99. Those agencies, the Auditor General, this Committee and
  fiscal governance in general has been hostage to intentional,
  planned and deliberate refusal to act lawfully and to account
  properly (or at all) for the use of public monies – in particular
  the huge amounts in Trust Accounts – by the Public Service
  who, by 2006, had abandoned any pretence of lawfully
  managing Trust Accounts for the National good.

  100. In the interest of our future, our viability and our peoples
  welfare, this situation must change and change immediately.

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  59. REFERRALS.

  1. There is little point in referring Public Servants for
  investigation or prosecution for events that occurred in 2006.
  The Royal Papua New Guinea Constabulary seems incapable
  or unwilling or both of investigating or prosecuting complex
  fiscal crime, time has probably elapsed for prosecution due to
  the gross delays in producing and tabling the Public Accounts
  and the Reports of the Auditor General, the Auditor General
  has made some referrals in the past with no success, this
  Committee has made many referrals in the past four years
  with no action taken by any law enforcement agency and if
  we were to refer accountable Public Servants for failure to
  perform their duty or fiscal mismanagement, there would
  scarcely be an officer who would remain.
  2. In summary, the very culture of impunity that we have
  identified in this Report means that any referral by us would
  be a hollow gesture – and it is high time that the National
  Parliament realized the extent and terrible effect that this
  collapse of law enforcement has had on our National
  Institutions.

  3. Despite our first comments in this Paras. 1 and 2, we do refer
  the Trustees and signatories and the Head(s) of the
  Department of Finance in the period 1999 – 2006 to the
  Ombudsman and the Constabulary for full investigation and
  possible prosecution for their respective roles in the conduct
  of Trust Fund Suspense Account No.2 in that period.

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  4. We also refer those parts of this Report and the Part 1 Report
  of the Auditor General for 2006 which deal with Trust Fund
  Suspense Account No.2 to the Office of the Attorney General
  and the Solicitor General with the strong recommendation
  that those Offices consider whether any grounds exist to
  issue civil proceedings against the Trustees of that Account
  for a full and complete account of monies passing through
  the account and possible recovery of misapplied money from
  those persons personally.

  5. We also refer the same parts of both Reports to the Internal
  Revenue Commission with a strong recommendation that all
  recipients of payments from this Account be subject to a tax
  audit and investigation to ensure that relevant tax and other
  imposts have been paid or declared.

  6. This Report and the Part 1 Report of the Auditor General for
  2006 is referred to the Office of the Ombudsman for
  consideration as to whether any breach of the Leadership
  Code has occurred.

  60. CONCLUSION.

  1. The Committee has been deeply concerned by the revelations
  made during and as a result of this Inquiry.

  2. The gross neglect of duty, defiance of our Constitution and
  Laws and the sheer waste, misappropriation, inept and
  deviant handling of public monies and the absence of

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  accounts, records or even the most basic reconciliations, is
  clear evidence of deliberate and planned diverting of
  Government policy and appropriated funding by unelected
  and unaccountable individuals.

  3. This has led to the Public Accounts of the Government of
  Papua New Guinea being unreliable and misleading and their
  disclaimer by the Office of the Auditor General.

  4. This Committee rejects the Public Accounts for the year 2006
  and censures every agency of Government and every Head of
  Department for a failure to make, keep, submit or produce
  even fundamental statutory records or accounts in 2006.

  5. The National Parliament must address this National state of
  failure immediately. The future, viability and reputation of the
  Government of Papua New Guinea and the welfare of its
  citizens demand it.

  ……………………………………………….
  Signature of the Chairman
  Hon. Timothy Bonga OL MBE MP

  Date of adoption by the Committee: 2009

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  SCHEDULE ONE
  LIST OF WITNESSES

  25th May 2009

  Names of Witnesses Comments
  Mr. Simon Tosali Secretary – Treasury
  Mr. George Sulliman Auditor General
  Ms. Marina Cvetanovska Office of Auditor General
  Philip Nauga Office of Auditor General
  Gabriel Koh Office of Auditor General
  Mr. K. Mahendran Office of the Auditor General
  Mr. C. Doss Office of the Auditor General
  Mr Enoch Elpat Department of Treasury
  Mr Frank Gaudi Department of Finance
  Ms Jo Hoffman Department of Finance
  Mr Mario Cueva Department of Finance

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  SCHEDULE TWO

  LIST OF EXHIBITS AND DOCUMENTS BEFORE THE INQUIRY

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