Inquiry into the Public Accounts of the Government of Papua New Guinea for the Financial Year 2006. Report to the National Parliament
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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
DepartmentThis 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 1212.13 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 BRANCHSUB SUB
APPROPRIATION APPROPRIATION
LEDGER WITH LEDGER WITH RPM
DRAWING ACCOUNT
ACCOUNTSDEFENCE
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;
andii. 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; andThree 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
CONFIRMATIONS52.1 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, andThe 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 ACTS56.29 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 DepartmentsSalaries & 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 MPDate of adoption by the Committee: 2009
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SCHEDULE ONE
LIST OF WITNESSES25th 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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