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• Report of the Auditor-General – 2011

  on the Accounts of Public Authorities and Statutory Bodies established under the Act of Parliament and Government Owned Companies established under the Companies Act

  Part IV

   Public Bodies and their Subsidiaries  National Government Owned Companies  National Government Shareholdings in Other Companies

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• Report of the Auditor-General – 2011 on the Accounts of Public Authorities and Statutory Bodies established under the Act of Parliament and Government Owned Companies established under the Companies Act

  Part IV

   Public Bodies and their Subsidiaries  National Government Owned Companies  National Government Shareholdings in Other Companies

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• REPORT OF THE AUDITOR-GENERAL – 2011

  PART IV

  TABLE OF CONTENTS

  PARA SUBJECT PAGE NO. NO.

  General …………………………………………………………………………………………………………………………….. V

  A. Foreword ……………………………………………………………………………………………………………….. V B. Authority of Audit ……………………………………………………………………………………………………… V C. Audit of Public Bodies …………………………………………………………………………………………….. VII D. Appointment and use of Authorised Auditors ……………………………………………………………… VII E. Executive Summary ………………………………………………………………………………………………. VIII Attachments A – D …………………………………………………………………………………………. XVI

  SECTION A PUBLIC BODIES AND THEIR SUBSIDIARIES

  PARA SUBJECT PAGE NO. NO.

  1. Foreword …………………………………………………………………………………………………………………………… 1

  2. Bank of Papua New Guinea …………………………………………………………………………………………………. 3 3. Border Development Authority ………………………………………………………………………………………………. 6 4. Civil Aviation Safety Authority of Papua New Guinea ……………………………………………………………….. 8 5. Cocoa Board of Papua New Guinea and its Subsidiaries ………………………………………………………… 11

  5A. Cocoa Stabilization Fund ………………………………………………………………………………………… 15 5B. Productive Partnership In Agriculture Project …………………………………………………………….. 18

  6. Cocoa Coconut Institute of Papua New Guinea ………………………………………………………………………. 20 7. Coffee Industry Corporation Limited and its Subsidiaries …………………………………………………………. .21

  7A. Coffee Industry Fund………………………………………………………………………………………………. 29 7B. Patana No. 61 Limited ……………………………………………………………………………………………. 32

  8. Government Printing Office ………………………………………………………………………………………………….. 35 9. Immigration and Citizenship Service Authority ………………………………………………………………………… 36 10 Independence Fellowship Trust …………………………………………………………………………………………. .. 38 11. Independent Consumer and Competition Commission …………………………………………………………….. 39 12 Independent Public Business Corporation and its Subsidiaries ………………………………………………… 40

  12A. Aquarius 21 Limited ……………………………………………………………………………………………….. 42 12B. General Business Trust …………………………………………………………………………………………… 43 12C. Lae Port Development Project ………………………………………………………………………………… 44 12D. PNG Dams Limited ………………………………………………………………………………………………… 45 12E. Port Moresby Private Hospital Limited ………………………………………………………………………. 46

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• PARA SUBJECT PAGE NO. NO.

  13. Industrial Centres Development Corporation ………………………………………………………………………….. 47 14. Investment Promotion Authority …………………………………………………………………………………………… 48 15. Kokonas Indastri Koporesen and its Subsidiaries ……………………………………………………………………. 49

  15A. Papua New Guinea Coconut Extension Fund …………………………………………………………….. 50 15B. Papua New Guinea Coconut Research Fund …………………………………………………………….. 51

  16. Legal Training Institute ………………………………………………………………………………………………………… 52 17. Mineral Resources Authority ……………………………………………………………………………………………….. 57 18. Motu Koitabu Council and its Subsidiary ………………………………………………………………………………… 63

  18A. Tabudubu Limited ………………………………………………………………………………………………….. 64

  19. National Agriculture Quarantine and Inspection Authority …………………………………………………………. 65 20. National Agriculture Research Institute ………………………………………………………………………………….. 68 21. National AIDS Council Secretariat…………………………………………………………………………………………. 70 22. National Broadcasting Corporation Limited …………………………………………………………………………….. 76 23. National Capital District Commission and its Subsidiaries ………………………………………………………… 80

  23A. National Capital District Botanical Enterprises Limited…………………………………………………. 82 23B. Port Moresby City Development Enterprises Limited …………………………………………………… 83

  24. National Cultural Commission ………………………………………………………………………………………………. 85 25. National Economic and Fiscal Commission ……………………………………………………………………………. 86 26. National Fisheries Authority …………………………………………………………………………………………………. 88 27. National Gaming Control Board ……………………………………………………………………………………………. 91 28. National Housing Corporation ………………………………………………………………………………………………. 98 29. National Maritime Safety Authority ………………………………………………………………………………………… 99 30. National Museum and Art Gallery ……………………………………………………………………………………….. 101 31. National Narcotics Bureau………………………………………………………………………………………………….. 102 32. National Research Institute ……………………………………………………………………………………………….. 103 33. National Road Safety Council …………………………………………………………………………………………….. 105 34. National Roads Authority……………………………………………………………………………………………………. 107 35. National Training Council ………………………………………………………………………………………………….. 111 36. National Volunteer Service …………………………………………………………………………………………………. 112 37. National Youth Commission ……………………………………………………………………………………………….. 113 38. Oil Palm Industry Corporation ……………………………………………………………………………………………. 115 39. Ombudsman Commission of Papua New Guinea ………………………………………………………………….. 117 40. Papua New Guinea Forest Authority ……………………………………………………………………………………. 118 41. Papua New Guinea Institute of Medical Research …………………………………………………………………. 120 42. Papua New Guinea Institute of Public Administration …………………………………………………………….. 122 43. Papua New Guinea Maritime College …………………………………………………………………………………. 124 44. Papua New Guinea National Institute of Standards and Industrial Technology …………………………. 125 45. Papua New Guinea Radio Communications & Telecommunications Technical Authority (PANGTEL) …………………………………………………………………………………………………………………….. 126 46. Papua New Guinea Sports Foundation ……………………………………………………………………………….. 127 47. Papua New Guinea University of Technology and its Subsidiary ……………………………………………… 129

  47A. Unitech Development and Consultancy Company Limited …………………………………………. 130

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• PARA SUBJECT PAGE NO. NO.

  48. Parliamentary Members’ Retirement Benefits Fund ………………………………………………………………. 133 49. PNG Waterboard ………………………………………………………………………………………………………………. 134 50. Public Curator of Papua New Guinea…………………………………………………………………………………… 137 51. Security Industries Authority ……………………………………………………………………………………………….. 159 52. Small Business Development Corporation …………………………………………………………………………… 160 53. Tourism Promotion Authority ……………………………………………………………………………………………… 163 54. University of Goroka and its Subsidiary………………………………………………………………………………… 164

  54A. Unigor Consultancy Limited …………………………………………………………………………………… 168

  55. University of Natural Resources and Environment ………………………………………………………………… 170 56. University of Papua New Guinea and its Subsidiary ……………………………………………………………… 173

  56A. Univentures Limited …………………………………………………………………………………………….. 179

  SECTION B – NATIONAL GOVERNMENT OWNED COMPANIES

  PARA SUBJECT PAGE NO. NO.

  57. Foreword …………………………………………………………………………………………………………………………. 183 58. Air Niugini Limited …………………………………………………………………………………………………………….. 185 59 Livestock Development Corporation Limited …………………………………………………………………………. 187 60. Mineral Resources Development Company Limited ………………………………………………………………. 188 61. Motor Vehicles Insurance Limited ……………………………………………………………………………………….. 195 62. National Airports Corporation Limited and its Subsidiaries ……………………………………………………… 198

  62A. Civil Aviation Development Investment Programme (CADIP) …………………………………….. 199 62B. PNG Air Services Limited ……………………………………………………………………………………… 202

  63. National Petroleum Company of PNG (Kroton) Limited …………………………………………………………. 203 64. NCD Water and Sewerage Limited (Eda Ranu) …………………………………………………………………….. 204 65. Papua New Guinea Ports Corporation Limited ………………………………………………………………………. 206 66. PNG Power Limited …………………………………………………………………………………………………………… 209 67. Post PNG Limited …………………………………………………………………………………………………………….. 224 68. Telikom PNG Limited and its Subsidiaries ……………………………………………………………………………. 226

  68A. Kalang Advertising Limited …………………………………………………………………………………….. 231 68B. PNG Directories Limited ………………………………………………………………………………………… 234

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• SECTION C – NATIONAL GOVERNMENT SHAREHOLDINGS IN OTHER COMPANIES

  PARA SUBJECT PAGE NO. NO.

  69. Foreword …………………………………………………………………………………………………………………………. 237 70. Bougainville Copper Limited ……………………………………………………………………………………………….. 239 71. CTP (PNG) Limited …………………………………………………………………………………………………………… 241 72. Gogol Reforestation Company Limited…………………………………………………………………………………. 242 73. Ok Tedi Mining Limited………………………………………………………………………………………………………. 243 74. Pacific Forum Line Limited …………………………………………………………………………………………………. 244 75. PNG Sustainable Development Program Limited ………………………………………………………………….. 245

  SECTION D – PROBLEM AUDITS

  PARA SUBJECT PAGE NO. NO.

  77. Foreword………………………………………………………………………………………………………………………… 249

  77.1 Dormant Entities…………………………………………………………………………………………………… 249 77.2 Exclusion of Entities from Future Reports ………………………………………………………………… 249

  78. Audits in Arrears ……………………………………………………………………………………………………………… 250

  78.1 General ……………………………………………………………………………………………………………… 250 78.2 Responsibility for preparation of Financial Statements ……………………………………………… 250 78.3 Legislative Requirements …………………………………………………………………………………….. 251 78.4 Current Year Audits (2011 Audits) …………………………………………………………………………. 251 78.5 Status of Current Year Audits ……………………………………………………………………………….. 253 78.6 Audits in Arrears (2010 and prior years) …………………………………………………………………. 255 78.7 Long Outstanding Financial Statements …………………………………………………………………. 258 78.8 Status of Audits as at 30 June 2011 ………………………………………………………………………. 261

  Acknowledgements ………………………………………………………………………………………………………….. 263

  Schedule A – Current Year Audits ………………………………………………………………………………………. 265

  Schedule B – Status of Audits in Arrears ……………………………………………………………………………… 268

  Schedule C – Long Outstanding Financial Statements ………………………………………………………….. 270

  Schedule D – Non-Operational Entities and Others ………………………………………………………………. 272

  Schedule E – Prior year Audits completed during 2011/2012 …………………………………………………. 273

  Schedule F – Status of Audits during the year 2011/2012 ………………………………………………………. 275

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• GENERAL

  A. FOREWORD

  My Annual Report to the National Parliament for the 2011 financial year is presented in four Parts. Part I deals with the Public Accounts of Papua New Guinea. Part II deals with National Government Departments and the Provincial Treasury Offices, whilst Part III deals with the audit of the Provincial Governments and Local-Level Governments.

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

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

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

  B. AUTHORITY TO AUDIT

  B.1 Constitution

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

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

  B.2 Audit Act

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

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• General

  B.3 Auditing and Reporting Requirements

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

  B.4 Matters of Significant Importance

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

  B.5 Audit Opinion on Financial Statements

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

  (i) whether the financial statements are based on proper accounts and records; (ii) whether the financial statements are in agreement with those accounts and records; and (iii) whether they show fairly the financial operations for the period which they cover and the state of affairs at the end of that period.

  B.6 Public Finances (Management) Act, 1995

  The submission of the financial statements of the public bodies for audit is required under Section 63(4) of the Public Finances (Management) Act, 1995.

  The section requires each public body to prepare and furnish to its Minister before 30 June each year, a report on its operations for the year ended on 31 December preceding, together with financial statements in respect of that year duly audited by me.

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

  B.7 Companies Act, 1997

  I am required to audit National Government owned companies and subsidiary companies under the provisions of the Companies Act, 1997.

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• General

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

  C. AUDIT OF PUBLIC BODIES

  C.1 Scope of Audit

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

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

  C.2 Audit Objectives

  Under the Companies Act, I am required to ascertain whether proper accounting records have been kept; whether the financial statements comply with generally accepted accounting practice; and whether those financial statements give a true and fair view of the matters to which they relate. The Act also requires the auditor to report the instances of non-compliance with these requirements. More details on the audit responsibilities under the Companies Act are provided in paragraph 57 which covers the National Government owned companies.

  C.3 Reporting Framework

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

  D. APPOINTMENT AND USE OF AUTHORISED AUDITORS

  Section 8(5) of the Audit Act, 1989 (as amended), empowers me to employ registered company auditors to assist me in undertaking my constitutional duties, where such assistance is required.

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

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• 2011 AUDITOR-GENERAL‟S REPORT – PART IV

  E. EXECUTIVE SUMMARY

  E.1 Report Coverage

  This Report covers the audit reports issued by my Office on the audits of Public Bodies and their Subsidiaries, Government Owned Companies and National Government‟s shareholdings in Other Companies during the period July 2011 to June 2012 (2011/2012 Audit Cycle). The Report covers the audits of these entities‟ financial statements for a number of years, and not just 2011.

  In 2011 there were 85 public entities subject to audit by my Office, consisting of 70 Public Bodies and their Subsidiaries and 15 National Government Owned Companies.

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

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

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

  E.3 Submission of current year Financial Statements

  Section 63(4) of the Public Finances (Management) Act, 1995 requires a „… public body to prepare and furnish to its Minister before 30 June each year, a performance and management report of its operations for the year ended 31 December preceding, together with financial statements to enable the Minister to present such report and statements to the Parliament …‟ Before submitting the financial statements to the Minister, Section 63(4) requires a public body to submit the financial statements to the Auditor-General and for the Auditor-General to report to the Minister in accordance with Part II of the Audit Act, 1989 (as amended).

  Despite these legislative requirements, 51 entities had not submitted their 2011 financial statements to be audited and overall some 34 financial statements for 2010 and prior years had not been submitted for audit (Refer Table 1).

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• Executive Summary

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

  Table 1

  STATUS OF AUDITS DURING THE YEAR 2011 (END OF 2011/2012 CYCLE)

  Audits Audits Audits in Audits to Financial Total Total Year Completed Substantially Progress Commence Statements 2011/2012 2010/2011 Completed Shortly not Submitted 2011 8 4 8 14 51 85 82 2010 24 12 10 7 20 73 70 2009 18 9 8 3 5 43 48 2008 18 5 5 1 3 23 31 2007 3 7 1 – 2 13 11 2006 – 6 – – 1 7 10 2005 1 5 – – 1 7 9 2004 1 5 – – 1 7 7 2003 1 3 – – 1 5 3 2002 – – – – – – 1 2001 – – – – – – 1 2000 – – – – – – 1 1999 – – – – – – 1 Total 65 56 32 25 85 263 275

  Table 1 also shows that 153 audits were completed, substantially completed or still in progress as at 30 June, 2012. The details are graphically depicted in Attachment „C‟, which also included the arrears of prior years. Table 1 also shows that of the 65 audits completed, only 8 were for the current year (2011), with 12 current year‟s audits substantially completed or were in progress. A further 14 audits were to commence shortly. Graphical description of status of current year (2011) audits (excluding arrears) is given in Attachment „A‟. The list of entities is at Schedule „A‟ (i), (ii), (iii) and (iv).

  E.4 Type of Audit Opinions Issued1

  In the period covered by the audit, 65 audit opinions were issued. Of the 65 audit opinions issued, 17 were unqualified, 30 were qualified and 18 were Disclaimer Opinions.

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

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• Executive Summary

  Of the 17 unqualified opinions issued, 11 related to prior years and only 6 were for 2011 as follows:

   Bank of Papua New Guinea;  Independent Consumer and Competition Commission;  Civil Aviation Development Investment Programme;  National Agriculture Research Institute;  Post (PNG) Limited; and  Parliamentary Benefits Retirement Benefits Fund.

  Two of the qualified opinions related to 2011 and others were for prior years. The numbers of Disclaimer Audit Opinions issued are reflection of the poor state of accounting record keeping in a number of public bodies.

  The list of entities and the type of audit opinions issued during the period July 2011 to June 2012 are provided in Attachment „D‟.

  E.5 Key Findings

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

  E.6 Non-Submission of Financial Statements

  As stated earlier, Section 63(4) of the Public Finances (Management) Act, 1995, requires each public body to prepare and furnish to its Minister before 30 June each year, a report on its operations for the year ended 31 December preceding together with financial statements in respect of that year duly audited by me for tabling in Parliament.

  This legislative requirement has not been strictly adhered to by all respective public entities‟ management. To comply with this requirement, the financial statements are required to be submitted to my Office well before 30 June each year for my audit and inspection. Consequently, out of 85 public entities (excluding 2 entities transferred to Provincial Government Audit Branch) only 34 entities (Refer Schedule A (i), (ii), (iii) & (iv) submitted their financial statements for 2011 for my audit and inspection up to the time of preparing this Report. Fifty-one (51) entities (Refer Schedule A(v)) failed to comply with these provisions.

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• Executive Summary

  The non-compliance of the public entities mentioned above has resulted in:

   My Office not being able to report adequately on the accountability of the use of public resources in a timely manner;

   A build up of audits in arrears; and

   The non-tabling of Annual Reports on performance and management by public entities in the Parliament.

  Responsibility for Submission of Financial Statements

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

  My Office recommends

   A vigorous enforcement of the provisions of Section 63 of the Public Finances (Management) Act; and

   A legislative requirement to make the renewal of contracts of Chief Executive Officers subject to submission of financial statements and prudent financial management.

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

  Details of audits that have gone into arrears due to non-submission of financial statements from 2010 or earlier are given below in Table 2 and Schedule „C‟.

  Table 2

  Financial Statements not Submitted

  No. Section Para Entity Year in Audits in Arrears 2010 No. Arrears & Prior Years 1 A 8 Government Printing Office 1 2010 2 A 17 Mineral Resources Authority 1 2010 3 A 22 National Broadcasting Corporation 1 2010 4 A 23A National Capital District Botanical Enterprises 2 2009 & 2010 Limited 5 A 23B Port Moresby City Development Enterprises 3 2008 – 2010 Limited

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  No. Section Para Entity Year in Audits in Arrears 2010 No. Arrears & Prior Years 6 A 24 National Cultural Commission 1 2010 7 A 25 National Economic and Fiscal Commission 4 2007 – 2010 8 A 31 National Narcotics Bureau 1 2010 9 A 33 National Road Safety Council 1 2010 10 A 40 Papua New Guinea Forest Authority 1 2010 11 A 43 Papua New Guinea Maritime College 2 2009 & 2010 12 A 44 Papua New Guinea National Institute of 1 2010 Standards and Industrial Technology 13 A 46 Papua New Guinea Sports Foundation 8 2003 – 2010 14 A 47 Papua New Guinea University of Technology 1 2010 15 A 49 PNG Waterboard 1 2010 16 A 51 Security Industries Authority 1 2010 17 A 54A Unigor Consultancy Limited 1 2010 18 A 56 University of Papua New Guinea 1 2010 19 A 56A Univentures Limited 1 2010 20 B 61 Motor Vehicle Insurance Limited 1 2010

  My Arrears Reduction Strategies

  During the last Audit Cycle, I have taken steps as in the past to remind various entities of their responsibilities to submit the financial statements on a timely basis. These steps include but are not limited to the following:

  (i) Forwarding reminder letters to entities on a regular basis until the submission of the financial statements.

  (ii) Copies of these reminder letters were forwarded to the Public Accounts Committee and to the Secretary for Finance for their necessary action.

  (iii) My officers have visited various entities and had meeting with the Chief Executive Officers regarding non-submission of the financial statements and drew their attention to the responsibility under the Public Finances (Management) Act and resultant breach of the Public Finances (Management) Act.

  E.7 Non-Compliance of the Salaries and Conditions Monitoring Committee Act, 1988

  The SCMC was established as the regulatory mechanism for salaries and wages in the public sector. Sadly, some public bodies do not comply with the provisions of this Act because of legislative changes in their constituent Acts. As a result, these bodies pay salaries and allowances without any monitoring from this Committee. Consequently, they have contravened Section (3) of the Salaries and Conditions Monitoring Committee Act, (SCMC) 1988 which stipulates:

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• Executive Summary

  “(1) The provisions of this Act apply notwithstanding anything in any other law relating to the determination of salaries and conditions or employment of employees of a public authority; and (2) Where by or under any law, power is given to a public authority, to determine or vary the salaries and conditions of employment of employees of the public authority, that power shall be exercised subject to this Act.”

  E.8 Non-compliance with the Audit Act, 1989

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

  (i) Petromin Limited (ii) National Development Bank Limited

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

  As reported in previous years, I noted serious deficiencies in accounting and record keeping and maintenance of internal controls during the course of audits. These deficiencies, which contributed to the limitation on the scope of my audit procedures, included:

   bank reconciliation statements not being prepared in a timely way or not being prepared at all;  transactions not having supporting documentation;  fixed asset registers not being properly kept or maintained;  no consistent and proper valuation of assets;  physical asset stock-takes not being carried out;  property being acquired or disposed of without proper procedures being followed;  failure to comply with International Financial Reporting Standards in the preparation of the financial statements;  travel and other allowances not being fully acquitted;  Internal Revenue Commissions regulations on payment of taxes not being followed;  entities paying housing allowances and Boards members allowances without tax but allowing officers to pay the tax;  accounting, administrative and procedural manuals not being available;  public servants serving on Statutory Boards receiving Board allowances contrary to regulations;

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• Executive Summary

   ineffective internal audit functions; and  ineffective budget controls.

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

  E.10 Poor Financial Management

  Over a number of years, I have expressed my concern about public bodies‟ poor accounting records, weaknesses in internal controls and management information systems, and non-compliance with legislative requirements and International Financial Reporting Standards.

  I also consider that a large number of Chief Executive Officers do not pay sufficient attention to financial management in their entities. In my view, the concept of effective, prudent and efficient financial management is yet to be absorbed by many Chief Executive Officers.

  E.11 Recommendations for Improvement

  Consistent with comments in previous years‟ Reports, I will report to the Parliament in future that proper accounting records and adequate internal control systems must exist in all public entities subject to my audit. For that to be achieved, I believe that Chief Executive Officers are required to exercises proper leadership that provides an environment where there is:

   Timely submission of financial statements;  Improved record keeping and documentation;  Maintenance and provision of quality information;  Effective implementation of internal control systems; and  Entity financial management that is carried out by qualified and experienced accountants.

  E.12 Improvement Strategies

  In my view, for improvement to occur:

   Chief Executive Officers must employ trained accounting staff to manage the financial affairs of the organization;

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• Executive Summary

   Chief Executive Officers must understand the value of and how to implement a strong governance framework and their performance assessed against implementation of the framework; and

   Parliament must increase its reviews of the management of public entities and provide Chief Executive Officers with the incentives to improve their management structures.

   Department of Finance & Treasury must exercise its discretion to invoke on Section 63(8) of the Public Finances (Management) Act, 1995 (as amended) by withholding funds for those entities that have not submitted its financial statements until the financial statements are submitted and/or completion of the audit.

  E.13 Structure of the Report

  This Report is structured as follows:

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

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  ATTACHMENT „A‟

  STATUS OF CURRENT YEAR AUDITS 2011

  No. Status of Current Year Audits Number of Entities 2011 2010 (1) Audits completed and reports issued thereon (Schedule A) 8 11 (2) Audits substantially completed (Schedule A) 4 11 (3) Audits in progress (Schedule A) 8 8 (4) Audits to commence shortly (Schedule A) 14 3 (5) Financial Statements not submitted (Schedule A) 51 49 (6) Ceased Companies (Schedule A) 0 4 (7) Audit Portfolios transferred to Provincial Government Audit 2 2 Branch (Schedule A) Others – National Government shareholdings in other 6 6 (8) companies (Schedule D) 93 94

  Status of Current Year Audits

  Others – National Audits completed Audit Portfolios Government and reports issued transferred to Audits substantially shareholdings in thereon (Schedule A) Provincial completed other companies 9% Government Audit (Schedule A) (Schedule D) Branch (Schedule A) 4% 6% 2% Audits in progress (Schedule A) 9%

  Audits to commence shortly (Schedule A) 15%

  Financial Statements not submitted (Schedule A) 55%

  Please refer to Pages 265 to 275 for Schedules A to F.

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• Executive Summary

  ATTACHMENT „B‟

  STATUS OF AUDITS IN ARREARS BY NUMBER OF AUDITS (2010 AND PRIOR YEARS)

  No. Status of Audits in Arrears by No. of Audits Number of Audits (2010 & prior years) 2011 Report 2010 Report (1) Audits substantially completed (Schedule B) 52 28 (2) Audits in progress (Schedule B) 24 23 (3) Audits to commence shortly (Schedule B) 11 4 (4) Financial Statements not submitted (Schedule B) 34 62 121 117

  Status of Audits in Arrears by number of Audits (2010 and prior years)

  Financial Statements not submitted Audits substantially (Schedule B) completed 28% (Schedule B) 43%

  Audits to commence shortly (Schedule B) Audits in progress 9% (Schedule B) 20%

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  ATTACHMENT „C‟

  STATUS OF AUDITS AS AT 30 JUNE 2012

  Number of Audits No. Status of Audits 2011/2012 2010/ 2011 (1) Audits completed and reports issued thereon (Schedule A & E) 65 87 (2) Audits substantially completed (Schedule A & B) 56 39 (3) Audits in progress (Schedule A & B) 32 31 (4) Audits to commence shortly (Schedule A & B) 25 7 (5) Financial Statements not submitted (Schedule A & B) 85 111 263 275

  Status of Audits as at 30 June 2012

  Financial Statements Audits completed and not submitted reports issued thereon (Schedule A & B) (Schedule A & E) 32% 25%

  Audits substantially completed (Schedule A & B) 21%

  Audits to commence shortly (Schedule A & B) 10% Audits in progress (Schedule A & B) 12%

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  ATTACHEMNT „D‟

  TYPES OF AUDIT OPINIONS ISSUED

  (i) UNQUALIFIED OPINION

  No. Section Para. No. Entity Year No. of Audits

  1 A 2 Bank of Papua New Guinea 2011 1 2 A 10 Independence Fellowship Trust 2010 1 Independent Consumer and Competition 3 A 11 Commission 2011 1 4 A 15 Kokonas Indastri Koperesen 2010 1 5 A 15A Papua New Guinea Coconut Extension Fund 2010 1 6 A 15B Papua New Guinea Coconut Research Fund 2010 1 7 A 16 Legal Training Institute 2010 1 8 A 20 National Agriculture Research Institute 2011 1 9 A 32 National Research Institute 2010 1 10 A 38 Oil Palm Industry Corporation 2008 1 11 A 42 PNG Institute of Public Administration 2010 1 Parliamentary Members’ Retirement Benefits 12 A 48 Fund 2010 & 2011 2 Mineral Resources Development Company 13 B 60 Limited 2009 1 Civil Aviation Development Investment 14 B 62A Programme 2011 1 15 B 67 Post PNG Limited 2011 1 16 B 68 Telikom (PNG) Limited 2010 1 17

  (ii) QUALIFIED OPINION

  No. Section Para. No. Entity Year No. of Audits

  1 A 5 Cocoa Board of Papua New Guinea 2009 & 2010 2 2 A 5A Cocoa Stabilisation Fund 2009 & 2010 2 3 A 7 Coffee Industry Corporation Limited 2010 1 4 A 7A Coffee Industry Fund 2010 1 5 A 7B Patana No. 61 Limited 2010 1 National Agriculture Quarantine and 6 A 19 Inspection Authority 2010 & 2011 2 7 A 26 National Fisheries Authority 2009 1 8 A 27 National Gaming Control Board 2008 – 2011 4 9 A 33 National Road Safety Council 2009 1 10 A 34 National Roads Authority 2010 1 11 A 37 National Youth Commission 2010 1 Papua New Guinea Institute of Medical 12 A 41 Research 2009 & 2010 2 13 A 49 PNG Waterboard 2009 1 14 A 52 Small Business Development Corporation 2010 1 University of Natural Resources and 15 A 55 Environment (Former University of Vudal) 2009 1 16 B 58 Air Niugini Limited 2009 & 2010 2

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  No. Section Para. No. Entity No. of Audits

  17 B 61 Motor Vehicles Insurance Limited 2008 1 18 B 62A Civil Aviation Development Investment 2010 1 Programme 19 B 64 NCD Water and Sewerage Limited (Eda 2010 1 Ranu) 20 B 68 Telikom (PNG) Limited 2009 1 21 B 68A Kalang Advertising Limited 2008 & 2009 2 30

  (iii) DISCLAIMED OPINION

  No. Section Para. No. Entity No. of Audits

  Civil Aviation Safety Authority of Papua 1 A 4 New Guinea 2008 1 2 A 17 Mineral Resources Authority 2009 1 3 A 21 National AIDS Council Secretariat 2008 1 4 A 22 National Broadcasting Corporation 2008 & 2009 2 Port Moresby City Development Enterprises 5 A 23B Limited 2003 – 2005 3 Unitech Development and Consultancy 6 A 47A Company Limited 2007 – 2009 3 7 A 50 Public Curator of Papua New Guinea 2009 & 2010 2 8 A 54 University of Goroka 2007 & 2008 2 9 A 56 University of Papua New Guinea 2007 1 Papua New Guinea Ports Corporation 10 B 65 Limited 2009 1 11 B 66 PNG Power 2009 1 18

  65

  (iv) INTERNAL CONTROLS REVIEW REPORTS

  No. Section Para.No. Entity 1 A 50 Public Curator of Papua New Guinea 31 Dec 2009-30 1 Jun 2010 1

  66

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• SECTION A

  PUBLIC BODIES AND

  THEIR SUBSIDIARIES

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• 1. FOREWORD

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

  The auditing and reporting requirements of the public bodies and their subsidiaries are stipulated in Section 8 of the Audit Act, 1989 (as amended). My findings in that regard are detailed in paragraphs 2 to 56A of this part of my Report.

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• 2. BANK OF PAPUA NEW GUINEA

  2.1 INTRODUCTION

  2.1.1 Legislation and Objectives of the Bank

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

  The main objectives of the Bank of Papua New Guinea as stipulated in the new Act are:

  (a) to formulate and implement the monetary policy with a view to achieving and maintaining price stability;

  (b) to formulate financial regulation and prudential standards to ensure stability of the financial system in Papua New Guinea;

  (c) to promote an efficient national and international payments system; and

  (d) subject to the above, to promote macro-economic stability and economic growth in Papua New Guinea.

  2.1.2 Functions of the Bank

  The primary functions of the Bank are to:

  (a) issue currency;

  (b) act as banker and agent of the Government;

  (c) regulate banking, credit and other financial services as empowered by the Act or by any other law of the Independent State of Papua New Guinea;

  (d) manage the gold, foreign exchange and other international reserves of Papua New Guinea;

  (e) perform any function conferred on it by or under international agreement to which Papua New Guinea is a party;

  (f) perform any other functions conferred on it by or under any other law of Papua New Guinea; and

  (g) advise the Minister as soon as practicable where the Bank considers that a body regulated by the Central Bank is in financial difficulty.

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  2.1.3 Structural Reforms at the Bank

  In addition to the Central Banking Act which was enacted in June 2000, three (3) other Acts were legislated in 2000 which gave enormous responsibilities to the Bank. These other Acts are:

  (a) The Banks and Financial Institutions Act, 2000; (b) The new Superannuation Act, 2000; and (c) The new Life Insurance Act, 2000.

  Each of these Acts provides additional responsibilities to the Bank.

  2.2 AUDIT OBSERVATIONS

  2.2.1 Comments on Financial Statements

  My report to the Minister under Section 8(4) of the Audit Act, 1989 (as amended), on the financial statements of the Bank for the year ended 31 December, 2011 was issued on 12 June, 2012. The report did not contain any qualification.

  2.2.2 Audit Observations Reported to the Minister

  My report to the Minister under Section 8(2) of the Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records of the Bank for the year ended 31 December, 2011 was issued on 12 June, 2012. The report contained the following comments:

  1. Net Asset Deficiency – Going Concern

  The Bank recorded a total comprehensive loss of K1,737 million (2010: Profit of K195 million) and experienced negative operating cashflows of K3,658 million (2010: positive cashflow of K216 million) for the year. The Bank‟s financial statement showed that the Bank was in a negative net asset position of K1,241 million as at 31 December, 2011. This was a direct result of significant loss incurred through revaluation of foreign currency asset as a result of substantial appreciation of kina against all major currencies.

  The Bank also continued to incur losses after year end due to the effect of continuing appreciation of the kina against other foreign currencies denominated mostly in US Dollar, Euro and Australian Dollar. Appreciation of PNG Kina against these currencies has resulted in significant unrealized losses in relation to these investments.

  Given the positive future outlook of the PNG economy there is reasonable expectation that kina could remain strong. Therefore, the condition of the loss and deficiency in net assets may continue. This situation may have some impacts on the financial independent and the ability of the Bank to maintain price stability.

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  The Central Banking Act, 2000, Section 50 (2) states that;

  “where anytime the Central Bank incurs a loss due to value of any asset or liability held by the Central Bank, that in the opinion of the Board may lead to a significant reduction in the reserve funds of the Central Bank, the Minister shall cause to be paid to the Central Bank out of the Consolidated Revenue Fund such amount as the Board reasonably considers necessary to avoid such a reduction.”

  2. Contravention of the Central Bank Act, 2000

  The Bank distributed K22 million in dividends to the State based on the National Executive Council‟s decision in September, 2011. However, the Board of Directors of the Bank had passed a resolution in June 2011 not to make any distribution relating to 2011 and recommended to transfer the operating profit to Capital Reserves.

  Section 49 (3) of the Central Banking Act, 2000 specifies that no distribution will be made where the distribution will result in a deficiency in net assets. This distribution was made in contravention to the Central Banking Act, 2000.

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• 3. BORDER DEVELOPMENT AUTHORITY

  3.1 INTRODUCTION

  3.1.1 Legislation

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

  3.1.2 The Objectives of the Authority

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

  3.1.3 Functions of the Authority

  The functions of the Authority generally are to consult with relevant agencies and to supervise and co-ordinate all development activities in each of the border provinces and, without prejudice to the generality of the foregoing, are:-

  (a) the co-ordination of the planning, and implementation of capital works, infrastructure and socio-economic programs in respect to:-

  (i) education, health care, road network, communication, transport system, electricity, water, sewerage and all activities relevant to the improvement of basic living standards in the border provinces;

  (ii) liaison with public bodies, non-government organisations and private enterprise in identifying and negotiating sources of funding for short to medium term activities;

  (iii) the co-ordination of the development of specifications for contracts for all capital and infrastructure works and the advertising, evaluation and awarding of such contracts;

  (iv) the supervision and monitoring of the implementation of all contracts relating to such capital and infrastructure works;

  (v) the transformation of border provinces into agro financial sector by developing their respective natural resources; and

  (vi) the promotion of investors both foreign and local into the border provinces and to encourage and facilitate international cross border and inter border trade.

  (b) the establishment of programs and regulatory framework for immigration including the monitoring of immigrants and immigrant activity along the border with respect to:-

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  (i) establishment of proper state of the art offices, and facilities for relevant government agencies including customs, immigration, quarantine, police, defence force such as security monitoring systems, communication, transport, electricity, water, sewerage, staff accommodation, computers and all other facilities that would be relevant to the administration of border activities;

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

  (iii) the development of long term activities for the establishment of infrastructure and other facilities.

  (c) such other functions as are likely to assist in the border administration activities.

  3.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and records and examination of the financial statements of the Authority for the year ended 31 December, 2010 was completed. The responses to the management letter were awaited from the Authority to enable me to issue the audit report.

  The Authority did not submit its financial statements for the year ended 31 December, 2011 for my inspection and audit.

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• 4. CIVIL AVIATION SAFETY AUTHORITY OF PAPUA NEW GUINEA

  4.1 INTRODUCTION

  4.1.1 Legislation

  The Civil Aviation Safety Authority of Papua New Guinea was established on 1 January, 2010 after the enactment of the Civil Aviation Act, 2000.

  4.1.2 Functions of the Authority

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

  4.2 AUDIT OBSERVATIONS

  4.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the Authority‟s financial statements for the year ended 31 December, 2008 was issued on 09 February, 2012. The report was a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  1. Limitation of Scope regarding Opening Balances

  My report on the financial statements of the Authority for the year ended 31 December, 2007 was disclaimed on the basis of limitation of scope due to lack of information and adequate supporting evidence. Consequently, I am unable to determine the accuracy of the opening financial position of the Authority as at 1 January, 2008 because the results for the year ended 31 December, 2007 enter into the determination of the opening balances as at January, 2008 and therefore the financial performance for the year ended 31 December, 2008. Due to the size and fundamental nature of the matters referred to, I am unable to determine whether the results of the Authority for the year and the net assets at year end are fairly stated.

  2. Fixed Assets – K1.425b (Transfer of State Assets – K1.420b)

  As explained in Note 11 to the financial statements, the State transferred assets from the Department of Civil Aviation to Civil Aviation Authority at the net book value of K1,420,382,222. The value of these fixed assets was obtained from a “Kramer Report”.

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• Civil Aviation Safety Authority of Papua New Guinea

  As per the agreement between the State and Civil Aviation Authority, dated March 2007, all assets in the twenty two (22) airports and various other locations in the nineteen (19) provinces including National Capital District were transferred. However, the full Kramer Report was not provided for audit purposes and no detailed fixed assets register was provided to confirm the values and the items transferred. I was also not provided with any revaluation report and physical verification report to support the transfer of these significant assets. In addition, no internal audit report on fixed assets came to my notice.

  Further, I was not provided the documentation to verify whether the prior year‟s carrying values of K1.418b were included or revalued at the same time. Due to the uncertainty, size and the fundamental nature of the transfers referred to, I am unable to determine the values, existence, location and the propriety of the fixed assets transfers and the value now stated for the year ended 31 December, 2008.

  3. Trade & Other Creditors – K15.4m

  Trade and Other Creditors are stated as K15.4m in the financial statements. However, no appropriate supporting documents to support the balances were disclosed and further, no third party confirmations regarding the account balances were presented in relation to trade creditors. Also, no invoice register was maintained to check and authenticate that all unrecorded liabilities had been properly recorded in the books of accounts for the year ended 31 December, 2008. Consequently, I was unable to satisfy myself as to the completeness and accuracy of the total liabilities balance of K71.2m which comprises K15.4m of trade and other payables and K55.8m of unused grants as at 31 December, 2008.

  4. Total Revenue – K119m

  Revenue was disclosed as K119m in the financial statements. However, revenue transactions totaling K112m were not verified to confirm their accuracy and completeness due to the lack of supporting documentation. Therefore, I am unable to confirm the completeness and accuracy of the total revenue disclosed in the financial statements at year end.

  5. Total Expenses – K115m

  The total expenditure of the Authority was disclosed as K115m in the financial statements. Included in this amount is depreciation expenses of K7m which related to assets transferred by the State as disclosed in Note 7 & 11. I am unable to confirm the completeness and accuracy of these balances disclosed in the financial statements as I was not provided the supporting documentation to verify these expenses for the year ended 31 December, 2008.

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  6. Equity – K1.43b

  The total equity balance is made up of capital reserve (K1,418,863,000) and government reserve (K9,679,000). The capital reserve balance resulted from the transfer of fixed assets from the Department of Civil Aviation to the Authority, whereas the government reserve is made up of this year‟s opening and closing operating balances and adjustments. I was unable to verify the validity and the correctness of the account balance due to the lack of appropriate supporting documents and schedules.

  DISCLAIMER OF AUDIT OPINION

  Because of the significance of the matters described in the Basis for the Disclaimer of Opinion paragraphs, I have not been able to obtain sufficient audit evidence and accordingly, I am unable to express an opinion on the financial statements of the Civil Aviation Authority for the year ended 31 December, 2008.

  OTHER MATTERS

  In accordance with the Audit Act, 1989 (as amended), I have a duty to report on significant matters arising out of the financial statements, to which the report relates. I draw attention to the following issues:

   Goods and Services Tax (GST)

  The Authority did not prepare and submit GST returns to the Internal Revenue Commission (IRC) for the year under review. The failure to comply with the GST provisions may result in late payment and non-lodgement penalties being levied by IRC against the Civil Aviation Authority; and

   Internal Audit

  The Internal Audit Division of the Authority did not appear to be functioning effectively as was evidenced by the lack of internal audit work performed during the year under my review.”

  4.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements for the years ended 31 December, 2009, 2010 and 2011 had been submitted for my inspection and audit, and arrangements are being made to commence the fieldwork shortly.

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• 5. COCOA BOARD OF PAPUA NEW GUINEA

  5.1 INTRODUCTION

  5.1.1 Legislation

  The Cocoa Board of Papua New Guinea was established under the provisions of the Cocoa Act, 1981.

  5.1.2 Functions of the Board

  The principal functions of the Board are: to control and regulate the growing, processing, marketing and export of cocoa and cocoa beans and the equalisation and stock holding arrangements within the cocoa industry; to promote research and development programmes for the benefit of the cocoa industry; and to promote the consumption of Papua New Guinea cocoa beans and cocoa products.

  5.1.3 Subsidiary

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

  5.2 AUDIT OBSERVATIONS

  5.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Board for the years ended 30 September, 2009 and 2010 were issued on 20 February, 2012. These reports contained similar Qualified Audit Opinions hence, only the 2010 report is reproduced as follows:

  “BASIS FOR QUALIFIED AUDIT OPINION

  1. Debtors and Prepayments

  Included in the total debtors and prepayments account balance of K312,971, are transactions totalling K68,067 which consist of fraudulent payments made to former employees who had left the employ of the Board. I was unable to satisfy myself as to the recoverability of these amounts, since no documentary evidence was provided for my review. Consequently, I am unable to satisfy myself as to the completeness of the closing debtors and prepayment balance for the year ended 30 September, 2010.

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  2. Investments

  The financial statements disclose investments as K480,006 at year end of which K280,006 represents shares held in PNG Cocoa Coconut Institute Limited (Formerly PNG Cocoa and Coconut Research Institute & PNG Cocoa Coconut Extension Agency). However, PNG Cocoa Coconut Institute Limited disclosed only K266,003 as 50% investment from Cocoa Board in its financial statements. Since no share certificates were made available for my verification, I was unable to verify the accuracy of the investment balance as stated at year end.

  3. Fixed Assets

  The Board had not taken a physical count of its inventory and neither was the Assets Register up-dated. As such, a number of assets already disposed/traded-in still remain unadjusted. Further, the Fixed Assets Register does not show the dates of purchase for most of the assets. Consequently, I am unable to determine the depreciation charged, existence, proliferation, ownership and valuation of the assets valuing K1,534,000 at the year end.

  4. Going Concern

  The Board has prepared its financial statements on a going concern basis. However, the National Court in its ruling of 19 March, 2010 awarded Agmark Pacific Limited K4,885,260 plus 8% interest and costs. This was subsequent to an earlier decision on 27 July, 2007 whereby an award of K6,292,441 was made against Cocoa Board. These rulings resulted from legal proceedings against Cocoa Board of Papua New Guinea allegedly for collections of Stabilisation Bounty illegally without the Minister‟s approval.

  Further, should the appeal made in 2010 fail, the Board will not be able to pay the K4,885,260 within its current financial position unless an agreement is reached with Agmark Pacific Limited to pay the award over a period of time, or the State agrees to bail out the Board by paying the award, otherwise the Board may be considered as insolvent and may be placed under receivership.

  QUALIFIED AUDIT OPINION

  In my opinion, except for the effects of the matters described in the Basis for Qualified Audit Opinion paragraphs, the financial statements of the Cocoa Board of Papua New Guinea for the year ended 30 September, 2010.

  (a) give a true and fair view of the financial position and the results of its operations for the year then ended; and

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  (b) with exception of instances of non compliance described under Other Matters, the financial statements have been prepared in accordance with the Public Finances (Management) Act, 1995 and generally accepted accounting practice.”

  OTHER MATTERS

  In accordance with the Audit Act, 1989 (as amended), I have a duty to report on other significant matters arising out of the financial statements to which the report relates. I draw attention to the following issues:

  i. Gratuity

  In my review of the gratuities paid to members of the senior executive management, I observed that gratuities were not paid according to the stipulated amounts as stated in the respective contracts. The contracts including the CEO‟s had expired in 2007, however, these officers continued to receive gratuities without a valid and enforceable contract of employment. As a result of this oversight, I was not able to verify and confirm the validity of the gratuity payments totaling K36,640 made during the year.

  ii. Meals and Accommodation

  Meals and accommodation expenses contributed to a large proportion of the Board expenses during the year. I was not provided the documentation in relation to meals and accommodation expenses totalling K58,853. Consequently, I was unable to verify and confirm the validity and the authenticity of the payment of these expenses.

  iii. Acquittals

  In compliance with the Public Finances (Management) Act, 1995, overseas and domestic travels are supposed to be acquitted within 14 days and 7 days respectively. However, I was unable to ascertain whether, travel expenses totalling K199,553 was properly acquitted accordingly as the payment vouchers lack attachment of ticket butts, itineraries and boarding passes to confirm actual expenditure and as a result, I was unable to confirm and verify the validity, correctness and completeness of the travels undertaken.

  iv. Duty Travels

  Of the above, the Board incurred overseas travelling expenses totalling K108,712 for the year ended 30 September, 2010. In the absence of a properly constituted Board, I was unable to state whether the overseas travel expenditure had been properly approved.

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  v. Staff Appraisals

  The Board did not review and appraise its staff in accordance with the requirements of the Public Service General Orders in the last three (3) years (30 September 2010, 30 September 2009 and 30 September 2008). As a result, there were no strategic control and monitoring on the performance of the Board staff.

  vi. PNG Cocoa Coconut Institute Limited Liability – K2,590,192

  As stated in note 9 to the financial statements PNG Cocoa Coconut Institute Limited was owed more than K2.5 million and to date this balance is not swiftly paid and reduced. I am of the view that due to the current liquidity and working capital deficiency situation, the Board may not be able to sustain this liability if the whole amount is requested for urgent remittance.

  vii. Appointment of Board Directors

  The Cocoa Board of PNG did not have a full composition of the Board of Directors in place. The Board was operating without a Board for the last three (3) years (30 September, 2010, 30 September, 2009 and 30 September, 2008). As there was no Board, executive and strategic decisions were made without the Board‟s consent and as a result, the Board‟s governance structure appeared weak and lacked effective executive direction and control.

  viii. Report under Public Finances (Management) Act, 1995

  The Board is required to submit an annual report on performance and management and a quarterly report on all investment decisions, a detailed report on investments, performance and returns for each year and a five year investment plan (up-dated each year) setting out investment policies, strategies and administrative systems to be pursued and providing forecasts of investment flows and returns. However, I noted that the management did not submit its relevant reports as required under Section 63 (2) of the Public Finances (Management) Act, 1995 to the Minister for the year ended 30 September, 2010.

  5.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Board for the year ended 30 September, 2011 had been submitted and the inspection and audit of the accounts and records will commence shortly.

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• 5A. COCOA STABILISATION FUND

  5A.1 INTRODUCTION

  5A.1.1 Legislation

  The Cocoa Stabilisation Fund was established under Section 18 of the Cocoa Act, 1981. The Fund is administered by the Cocoa Board of Papua New Guinea with the objective of establishing price stabilisation, price equalisation and stockholding arrangements within the cocoa industry.

  5A.2 AUDIT OBSERVATIONS

  5A.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Fund for the years ended 30 September, 2009 and 2010 were issued on 02 February, 2012. The reports contained similar Qualified Audit Opinions, hence, only the 2010 audit report is reproduced as follows:

  “BASIS FOR QUALIFIED AUDIT OPINION

  1. In Note 2 to the financial statements, Loans advanced to the Cocoa Board of Papua New Guinea were stated as K622,240, however the audited financial statements of the Cocoa Board for the year ended 30 September, 2010 disclose the amount as K536,585 payable to the Stabilisation Fund. I was not provided the necessary explanations and the supporting documentation regarding the variance of K85,655 that was evident in the disclosure and as a result, I am unable to satisfy myself as to the accuracy or correctness of the account balance.

  2. As stated in the Statement of Receipts and Payments, the total stabilisation receipts were disclosed as K51,389. I was not provided with confirmations from the exporters to substantiate the outstanding amount. Consequently, I am unable to conclude on the accuracy of this amount.

  QUALIFIED AUDIT OPINION

  In my opinion, except for the effects on the financial statements of the matters referred to in the Basis for Qualified Opinion paragraphs, the financial statements of Cocoa Stabilisation Fund for the year ended 30 September, 2010;

  (i) give a true and fair view of the financial position and the results of its operations for the year then ended; and

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  (ii) with the exception of instances of non-compliance described under Other Matters, the financial statements have been presented in accordance with the Public Finances (Management) Act, 1995, International Financial Reporting Standards and other generally accepted accounting practice in Papua New Guinea.

  OTHER MATTERS

  In accordance with the Audit Act, 1989 (as amended), I have a duty to report on significant matters arising out of the financial statements to which the report relates. I draw attention to the following issues;

   Stabilisation Receipts (K51,389)

  As stated in the Statement of Receipts and Payments, the total stabilisation receipts were banked into the Cocoa Board‟s Account and was stated as K51,389. I was not provided with confirmations from the exporters to substantiate the outstanding amount. Consequently, I was unable to conclude on the accuracy of this amount. The management informed me that this amount represented levies that were incorrectly paid into the Cocoa Board‟s main account by an exporter, as proper records were not kept then. This amount was still being included in the provision for doubtful debts.

   Cocoa Quality Improvement (K57,557)

  As a directive from the then Vice Minister for Agriculture and Livestock, K57,557 was paid to several suppliers in the year ended 30 September, 2010 to comply with the National Government‟s export driven policy to increase the country‟s Cocoa production by increasing the supply of seedlings. However, the disbursement of these funds were made without following stipulated guidelines and policy for the application of these monies. The Fund‟s activities were to be measured against its outputs in the industry. Contrary to this, I was informed by the Board that, “the NEC had approved the amount of K2.5 million that was held in the Cocoa Stabilisation Fund Account for Grant Assistance to the industry and was to be used for Cocoa Quality Improvement program, Seeds Garden Establishment and Subsidy Scheme and a Strategic Review Program.”

   Non Compliance with Cocoa Act, 1981

  Section 24 of the Cocoa Act, 1981 relates to Payments from the Cocoa Stabilization Fund. All costs necessarily incurred by the Board in administering the Fund are to be reimbursed by the Fund with the approval of the Minister and in compliance with the Board’s duty under Section 10(e); and for the purchase of cocoa beans, and cocoa products in accordance with Section 23. However, in two (2) instances, the Fund may have unlawfully paid amounts totalling K8,725 of which I was not provided adequate supporting documentation to verify the validity and the correctness of these payments as required by the aforementioned legislation. In the absence of the documentation, I was not able to certify the legality of those payments.

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  I was informed by the management that, “the payments made from the Cocoa Stabilisation Fund were done after the National Executive Decision (NEC Decision No. 319/2006) to write off the outstanding Cocoa Industry Price Support Loan (K26.2 Million) and abolish the Cocoa Stabilisation Fund and convert the K2.5 million as Grants Assistance to the Industry.”

  5A.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Fund for the year ended 30 September, 2011 had been submitted and the inspection and audit of the accounts and records will commence shortly.

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• 5B. PRODUCTIVE PARTNERSHIP IN AGRICULTURE PROJECT

  5B.1 INTRODUCTION

  5B.1.1 Legislation

  The Productive Partnership in Agriculture Project (PPAP) has been approved by the Government through NEC Decision No. 26/2010, dated 01 March 2010 and commenced in April, 2011.

  This Project is largely funded through the World Bank‟s International Development Association (IDA), International Fund for Agricultural Development (IFAD) with a total of US$ 46 m and co- funded by the Government and is currently being implemented by the Cocoa Board, Coffee Industry Corporation and the Department of Agriculture and Livestock. The project is intended to run for a period of six (6) years.

  5B.1.2 Functions of the Project

  The Productive Partnerships in Agriculture Project in Cocoa and Coffee Industry has been developed and adopted by the Government to improve financial returns to those in and along the value chains of the PNG Cocoa and Coffee Industries.

  5B.1.3 Objectives of the Project

  1. The development objective of the proposed project would be to improve the livelihoods of smallholder cocoa and coffee producers through the improvement of the performance and the sustainability of value chains in cocoa-and-coffee-producing areas. This would be achieved through strengthening industry coordination and institutions, facilitating linkages between farmers and agribusiness for the provision of market access, technologies and services, and through the provision of critical public infrastructure.

  2. Key outcomes would be that:

  (i) smallholder farmers adopt efficient, market responsive and sustainable production practices;

  (ii) demand-drive productive partnerships are scaled-up and sustained; and

  (iii) key infrastructure bottlenecks in the targeted value chains are addressed.

  3. The project would like four groups of stakeholders into public-private partnerships to enhance the performance of the sector, these are:

   smallholder farmers,  agribusiness,

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   governments (national, provincial and local) and knowledge providers (research and training institutions, technical experts).

  5B.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Project for the year ended 31 December, 2011 had been submitted for my inspection and audit and arrangements are being made to commence the audit shortly.

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• 6. COCOA COCONUT INSTITUTE LIMITED OF PAPUA NEW GUINEA (FORMERLY PNG COCOA AND COCONUT RESEARCH COMPANY LIMITED)

  6.1 INTRODUCTION

  6.1.1 Legislation

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

  6.1.2 Functions of the Company

  The principal functions of the Company are: to conduct research into all aspects of Cocoa and Coconut growing and production and all aspects of the Cocoa and Coconut industries; to promote research and beneficial programs for these industries; to provide assistance to all persons and bodies engaged in any aspect of the Cocoa and Coconut industries; to produce planting materials for the Cocoa and Coconut industries; and to provide consultancy services.

  6.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Institute for the years ended 31 December, 2008 and 2009 had been completed and the results were being evaluated.

  The financial statements for the year ended 31 December, 2010 had been submitted and the inspection and audit of the accounts and records will commence shortly. The financial statements for the year ended 31 December, 2011 had not been submitted for my inspection and audit.

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• 7. COFFEE INDUSTRY CORPORATION

  7.1 INTRODUCTION

  7.1.1 Legislation

  The Coffee Industry Corporation Limited was incorporated under the Companies Act as a company limited by guarantee, and was conferred with statutory powers relating to the control and regulation of the production, processing, marketing and export of coffee by the Coffee Industry Corporation (Statutory Functions and Powers) Act, 1991. Under this Act, the undertakings of the Coffee Industry Board, the Coffee Development Agency and the Coffee Research Institute were, on 1 October, 1991, transferred to and vested in the Coffee Industry Corporation Limited.

  The members of the Corporation, according to the Articles of Association are from the Growers Associations, the Coffee Exporters Association, the Plantation Processors Association, the Block Development Association, the Secretary – Department of Agriculture and Livestock, the Secretary – Department of Finance and the Secretary – Department of Trade and Industry. The liability of each member is limited to an amount not exceeding one hundred kina.

  7.1.2 Functions of the Corporation

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

  7.1.3 Subsidiary of the Corporation

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

  7.2 AUDIT OBSERVATIONS

  7.2.1 Comments on the Financial Statements

  In accordance with the provisions of the Companies Act, 1997, my report on the financial statements of the Corporation for the year ended 31 December, 2010 was issued on 02 December, 2011. The report contained a Qualified Audit Opinion:

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  “BASIS FOR A QUALIFIED AUDIT OPINION

  1. TRADE AND OTHER DEBTORS-K5,284,185

  1.1 Goods and Service Tax Receivables (GST)-K4,019,380

  The financial statements disclosed K5,284,185 as Trade and Other Debtors, of which K4,019,380 was GST receivables. This amount had accumulated from 1999 but was not reconciled with the GST liability of the Corporation to arrive at a correct balance. The National Executive Council (NEC) had made a decision to waive the GST liability of the Coffee Industry Corporation for the period up to 2005 in respect of export levy. In that regard, an amount of K4,840,600 was paid in 2007 by the State to Internal Revenue Commission (IRC) to settle the GST liability.

  Although this amount was paid to IRC and an assessment letter was received from them, the GST receivable was not properly adjusted in the accounts and disclosed.

  1.2 Rent Receivables-K336,428

  The financial statements disclosed K336,428 as rent receivables. However, I was not provided with all the lease agreements signed between the tenants and the complete schedule of the rent receivables. Further, some of the tenants vacated the property without settling their outstanding rents which have been outstanding for a long period. In addition, I was not provided with the Corporation‟s policy statement in respect of provision for unrecoverable outstanding debts to determine the completeness of the rental outstanding.

  1.3 Directors‟ Advances-K52,198

  Directors‟ advance of K52,198 was related to unrecovered advances made to Directors who are no longer with the Corporation‟s Board.

  I was informed earlier that these Directors refused to have their debts deducted from their final entitlements/payouts. Therefore, the Management decided to keep these debts receivable so as to act as a deterrent mechanism to stop these individuals returning to the CIC Board.

  However, I have now been informed that some of the Directors who refused to pay their debts are back as members of the CIC‟s Board.

  I was not provided with the Corporation‟s policy statement on outstanding advances and also did not sight any evidence in the form of follow up letters notifying the Directors of their debts.

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  1.4 Department of Lands-K50,000

  A receivable of K50,000 from the Lands Department has been outstanding since 1998. The previous correspondence and follow up letter was made in 2006 and a recent one was done on 28 June, 2010 after the field audit was completed.

  1.5 Legal Fees Receivables-K3,400,000

  An amount of K3,400,000 disclosed as a receivable related to the legal cost awarded to CIC by the National Court against Panga Coffee Factory. However, the principal owner who was the only shareholder of the company died in 2007. Further, the company was deregistered on 22 June, 2002. As a result, the recovery of this legal cost is considered doubtful.

  1.6 Levy Receivables-K251,962

  A sum of K251,962 was disclosed as levy receivable from Panga Coffee Factory. The recovery of this levy was also doubtful, since the company was deregistered in 2002 and the principal owner of the company died in 2007.

  1.7 Other Debtors-K898,116

  Other receivables amounted to K898,116. However, adequate source documents were not made available to me to review their accuracy and their receivable status at the time of audit.

  Consequently, I am unable to ascertain the accuracy and completeness of the balance of K5,284,158 (after provision for doubtful debts of K3,759,354) taken up as trade and other receivables as at 31 December, 2010.

  2. FIXED ASSETS–K9,922,199

  2.1 Incomplete Depreciation Schedules/General Ledger; and Fixed Asset Register and Variances

  The assets depreciation schedule provided was not updated with details of serial numbers and the identities of the custodians for control purposes. Further, the general ledger balances of the cost values of the assets, accumulated depreciations and depreciation charges for the year were not in agreement with the fixed assets register balances.

  2.2 Non-Capitalisation of Completed Work in Progress

  An amount of K769,487 was included in fixed assets as work in progress (WIP), of which K751,158 was carried forward since 2005. My physical verification of the Capital WIP revealed more than 95% of work was completed except the waste treatment system.

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  However, I was unable to determine the valuation of work completed for want of documentation. WIP completed and not transferred to the appropriate assets would overstate the net assets as depreciation on these assets would not be provided.

  2.3 Lack of Valuation of Land and Buildings; and Policy

  The Corporation has no policy in place in respect of valuation of its land and buildings and was not revalued for more than 7 to 10 years. As per IAS-16, Property, Plant and Equipment assets shall be carried either at the cost or at revaluation as per the policy of the organisation. Since the Corporation does not have a policy in this regard, I was unable to determine the value of land and building taken up in the financial statements totaling K6,689,174 is appropriate.

  In the above circumstances, I am unable to determine whether the net assets of K9,922,199 have been appropriately depreciated, measured and accounted for at year end.

  3. CREDITORS AND ACCRUALS-K10,726,578

  3.1 Goods and Service Tax Payables (GST)-K6,508,764

  The financial statements disclosed K10,586,264 as Creditors and Accruals, of which K6,508,764 as GST payables. This amount accumulated from 1999. The National Executive Council (NEC) made a decision to waive the GST liability of the Coffee Industry Corporation for the period up to 2005 in respect of export levy. In that regard, an amount of K4,840,600 was paid in 2007 to pay the GST liability to Internal Revenue Commission (IRC). Although this amount was paid to IRC and an assessment letter was received from them, the GST payable was not properly adjusted. As a result, the exact status whether there is a net receivable or payable to IRC cannot be established.

  3.2 Group Tax-K3,121,007

  Group tax payable to Internal Revenue Commission (IRC) amounting to K3,121,007 was outstanding and accumulated since 1992. I was informed that this liability will be off-set against the GST receivables, once the GST payables issue is resolved. However, the documents made available to me disclosed that K1,481,624 of the above outstanding tax liability has already been off-set against the balance of K4,840,600 paid to IRC in 2007 towards the Corporation‟s GST liability. The Corporation has not balanced the accounts based on the available documents and the amount disclosed was not appropriate.

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  Further, the IRC documents made available for my review disclosed that no returns were filed with IRC in respect of Group Tax for the period from 2007 to 2010, only assessment amounts were mentioned for 2006, 2007 and 2008 and not for 2009 and 2010. Also, in 2010 Group Tax amounting to K221,671 was paid to IRC but the same was not adjusted in the above liability and to that extent the liability was overstated.

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

  As such, I am unable to determine the appropriateness and completeness of the balance of K3,121,007 as group tax payable disclosed in the financial statements as at 31 December, 2010.

  3.3 Rental Bond Payables-K66,153

  The documents and schedules provided did not agree to the amount of K66,153 taken up as rental bonds in the financial statements. The internal controls in maintaining documents were not adequate and insufficient to confirm this balance.

  3.4 Business Withholding Tax (BWHT)-K197,326

  An amount of K197,326 was disclosed as business withholding tax (BWHT) outstanding as at 31 December, 2010. I was not provided with adequate documents to determine when this tax was deducted for the contractors and when it became due to Internal Revenue Commission (IRC).

  3.5 Employee Provisions – K106,810; (current) and K593,595 – (non-current)

  I was not provided with the detailed break-up listing or proper schedules of the accrued long service leave and annual leave as at 31 December, 2010 for me to verify the accuracy and appropriateness of the balance disclosed in the financial statements.

  Consequently, I am unable to determine the appropriateness of the balance of K10,726,578 taken up as creditors and accruals in the financial statements as at 31 December, 2010.

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  4. RENTAL INCOME – K1,011,129

  The Corporation did not provide me a complete schedule for all its rentals received during the year to determine the completeness of the income received.

  In the above circumstances, I am unable to ascertain the accuracy of the balance of K1,011,129 taken up as Rental Income as at 31 December, 2010.

  QUALIFED AUDIT OPINION

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

  (a) The financial statements of Coffee Industry Corporation Limited;

  (i) give a true and fair view of the financial position and the results of its operations and the cash flows for the year ended on that date; and

  (ii) the financial statements have been presented in accordance with the Companies Act, 1997, International Financial Reporting Standards and other generally accepted accounting practice in Papua New Guinea.

  (b) Except as noted under Other Matters paragraph, proper accounting records have been kept by Coffee Industry Corporation Limited; and

  (c) I have obtained all the information and explanations required.

  OTHER MATTERS

  (i) Coffee Export Levy-K5,048,612

  The Corporation collects levy from the coffee exports as empowered by the Coffee Industry Corporation Act, 1991. However, the act of determining the levy amount receivable by the Coffee Industry Corporation Board was not gazetted as required by Section 7(2) of the Act.

  As such, the appropriateness of charging the levy could not be verified.

  (ii) Short Term Loan-K138,755,002

  I bring your attention to the matter noted in Note 11 to the financial statements. An amount of K138,755,002 was shown as loans receivable and then off-set by a provision of an equal amount thus reducing the net balance to nil. This loan represented the principal plus interest accrued for a number of years from a loan provided in 1988 to the exporter, Panga Coffee Factory Pty Limited.

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  However, the Panga Coffee Factory (the Company) was deregistered in 2002 by the Investment Promotion Authority (IPA) for non-compliance of its requirements. The only shareholder of the Company also died in 2007 and the company was subsequently liquidated. As such, the recoverability of the principal loan and interest thereon were considered not possible.

  My review of the Board minutes revealed that in December, 2009 the board had resolved to write-off the amount in full, but was awaiting to seek the approval in the Annual General Meeting from the CIC shareholders.

  Therefore, the Corporation should make a final decision to determine whether to carry this amount as an asset in its books in future.

  (iii) Salaries and Allowances

  The Corporation‟s senior officers were paid accommodation and motor vehicle allowances in accordance with their contracts of employment in full but without deducting appropriate taxes as per the Income Tax Act, 1959 (as amended).

  I was informed that an accounting firm advised the Corporation to pay the allowances in full and the respective officers to lodge their annual returns with Internal Revenue Commission (IRC).

  My review of the advice revealed that unless a variation has been obtained from the IRC by the respective officers both housing and motor vehicle allowances must be fully taxed.

  (iv) Inventories

  The operation of internal control over inventories was inadequate. My stock-take attendance revealed that records of movements of inventories were not properly maintained. Officers responsible for recording the movements of the stock did not update the stock cards and some did not maintain these cards. No monthly stock-takes were conducted.

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

  (v) Goods and Services Tax

  The GST rate applied on the coffee export levy was below the approved 10% rate as per GST Act, 2003. The Corporation has to ensure that it complies with the relevant legislation.

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  (vi) Status of the Coffee Industry Corporation Limited

  Audit was provided with the copy of the Coffee Industry Corporation (Statutory Functions and Powers) Act, 1991 and according to this Act, this Coffee Industry Corporation was a Corporation and not a “Limited Company”. Unless Parliament by an Act amended the existing Act to corporatize the Coffee Industry Corporation the word “Limited” used by the Corporation may not be appropriate.

  (vii) Lease Agreement

  The lease agreements made available for my review, expired and some tenants paid rent more than the rates specified in the lease agreements.”

  7.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Corporation had submitted its financial statements for the year ended 31 December, 2011 for my inspection and audit and arrangements are being made to commence the audit shortly.

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• 7A. COFFEE INDUSTRY FUND

  7A.1 INTRODUCTION

  The Coffee Industry Corporation (Statutory Functions and Powers) Act, 1991 provided for the establishment of the Coffee Industry Fund (CIF). The main purpose of the Coffee Industry Fund is to stabilize the coffee industry by giving the Coffee Industry Corporation the financial ability to implement schemes relating to stabilization and equalization of coffee prices and stock holding of coffee.

  7A.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  7A.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Fund for the year ended 31 December, 2010 was issued on 02 December, 2011. The report contained a Qualified Audit Opinion.

  “BASIS FOR A QUALIFIED AUDIT OPINION

  1. OTHER DEBTORS AND PREPAYMENTS-K273,347

  1.1 Goods and Service Tax Receivables (GST)-K77,902

  The financial statements disclosed K273,347 as Other Debtors and Prepayments, of which K77,902 was GST receivables. The GST receivables were accumulated from 2002. However, the receivables figure is not certain as no proper reconciliation of receivables and payables was made by CIC after the NEC had made a decision to waive all tax liabilities for periods up-to 2005 and the payment of K4,840,600 paid in 2007 for the same liabilities.

  As such, I am unable to determine the appropriateness of showing K77,902 as receivables in the financial statements.

  1.2 Interest Withholding Tax- K52,321

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

  However, the interest withholding tax was deducted from the interest received on the interest bearing deposit (IBD) since the Coffee Industry Corporation (CIC) was incorporated as a company.

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  Consequently, I am unable to ascertain whether it is appropriate that K52,321 taken up as interest withholding tax receivable as at 31 December, 2010.

  1.3 Short-Term Loan – K143,124

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

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

  2. TRADE AND OTHER CREDITORS – K309,338

  2.1 Business Withholding Tax-K47,000

  An amount of K47,000 was deducted from various contractors as business withholding tax and not paid to Internal Revenue Commission (IRC) since 2003. I was not provided with adequate documentation for not remitting this long outstanding liability.

  Therefore, I am unable to determine the appropriateness of the balance of K47,000 shown as business withholding tax as at 31 December, 2010.

  2.2 Group Tax-K231,250

  The amount of K231,250 group tax has been payable since 2003. This was deducted from the remuneration of the employees and liable to be paid within seven (7) days in the following month of the deduction but was outstanding for the last six (6) years.

  I was not provided with adequate documentation for not remitting this long outstanding tax liability.

  As such, I am unable to determine the appropriateness of the balance of K231,250 as group tax payable in the financial statements as at 31 December, 2010.

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  3. GOODS AND SERVICES TAX (GST) PAYABLE – K1,421,157

  According to Note 8 of the financial statements, this amount was the Goods and Service Tax (GST) on variable levy for the period July, 1999 to December, 2000. However, I was not provided with the complete documentation in respect of total GST liability to determine the exact liability of the Fund.

  In the above circumstance, I am unable to ascertain the accuracy of the balance of K1,421,157 taken up as Goods and Services Tax as at 31 December, 2010.

  QUALIFIED AUDIT OPINION

  In my opinion, except for the effects on the financial statements of the matters referred to in the Basis for Qualified Opinion paragraphs, the financial statements of Coffee Industry Fund for the year ended 31 December, 2010:

  (i) give a true and fair view of the financial position and the results of its operations for the year then ended; and

  (ii) the financial statements have been presented in accordance with the Public Finances (Management) Act, 1995, IFRS and other generally accepted accounting practice in Papua New Guinea.”

  7A.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Fund for the year ended 31 December, 2011 had been submitted for my inspection and audit and arrangements were being made to commence the audit shortly.

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• 7B. PATANA NO. 61 LIMITED (A SUBSIDIARY OF COFFEE INDUSTRY CORPORATION LIMITED)

  7B.1 INTRODUCTION

  Patana No. 61 Limited was incorporated under the Companies Act, 1997. The Company was acquired by the Coffee Industry Corporation Limited on 10 February, 1994 and has a total issued capital of two (2) ordinary shares of K1.00 each. The Company is wholly owned by the Coffee Industry Corporation Limited. The principal activity of the Company is to invest in property.

  7B.2 AUDIT OBSERVATIONS

  7B.2.1 Comments on the Financial Statements

  My report to the members of Patana No. 61 Limited in accordance with the provisions of the Companies Act, 1997, on the financial statements for the year ended 31 December, 2010 was issued on 02 December, 2011. The report contained a Qualified Audit Opinion:

  “BASIS FOR A QUALIFIED AUDIT OPINION

  Fixed Assets-K607,797 The Company has not maintained a fixed assets register to enable me to verify the measurement and completeness of the assets, its present status and the accuracy of the depreciation claimed on these assets for the year ended 31 December, 2010. Further, the assets purchased over the years and used by the Company were accounted for in the parent company‟s (Coffee Industry Corporation) (CIC) fixed assets register, which is not appropriate. In the above circumstances, I am unable to determine the measurement of the assets and the accuracy of the depreciation claimed on these assets and the net value of the fixed assets stated as K607,797 in the financial statements for the year ended 31 December, 2010. Inter-Company Loan-K806,393 I was not provided with the loan agreement entered into between the Company and the parent organization – CIC to verify the terms and conditions of the loan and the repayment schedule. There was no movement in the loan amount since the loan was obtained from the parent entity. I am therefore, unable to ascertain the validity and accuracy of the loan amount disclosed as K806,393 in the financial statements at 31 December, 2010. Going Concern The attached financial statements are prepared on a going concern basis. However, the Company has not generated any income since being incorporated except claiming only depreciation on the fixed assets and disclosed a negative balance of K198,600 as reserves. I was also not provided with any documentary evidence that the parent Corporation will provide all the necessary financial support for its continued operation.

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

  Non-Compliance of International Financial Reporting Standards (IFRS)

  The financial statements did not include the Cash Flow and the Changes in Equity Statements which are mandatory. As a consequence, the Company did not comply with the International Financial Reporting Standards, Presentation of Financial Statements (IAS-1) and Statement of Cash Flows (IAS-7). Operating Loss – K8,648 No rental income was received from the tenants occupying the Company‟s facilities (units and houses) for the year. I was informed that CIC officers are occupying these properties, but no rents had been collected from the occupants. Alternatively, no lease rentals were paid by the parent organization – CIC. This practice of rent free accommodation provided to another organization was not a sound business practice. Once a company is incorporated it becomes a legal person doing commercial business and as such, it should be operating on its own to generate income and meet the expenses and determine whether any profit or loss is made for the year. Consequently, I was unable to ascertain the appropriateness of the business practice followed by the Company and disclosing a business loss of K8,648 on account of providing depreciation on its fixed assets for the year ended 31 December, 2010.

  QUALIFIED AUDIT OPINION

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

  (a) The financial statements of Patana No. 61 Limited for the year ended 31 December, 2010;

  (i) give a true and fair view of the financial position and the results of its operations for the year ended on that date; and

  (ii) the financial statements have been presented in accordance with the Companies Act, 1997, IFRS and other generally accepted accounting practice in Papua New Guinea.

  (b) Proper accounting records have been kept by Patana No. 61 Limited as far as appears from my examination of those records; and

  (c) I have obtained all the information and explanations required except for the matters referred to in the qualification paragraphs.”

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  7B.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Company had submitted its financial statements for the year ended 31 December, 2011 for my inspection and audit and arrangements are being made to commence the audit shortly.

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• 8. GOVERNMENT PRINTING OFFICE

  8.1 INTRODUCTION

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

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

  8.1.2 Objective of the Government Printing Office

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

  8.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and records and the examination of the financial statements of the Printing Office for the year ended 31 December, 2009 was completed and the results were being evaluated.

  The Government Printing Office had not submitted its financial statements for the years ended 31 December, 2010 and 2011 for my inspection and audit.

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• 9. PAPUA NEW GUINEA IMMIGRATION AND CITIZENSHIP SERVICE AUTHORITY

  9.1 INTRODUCTION

  9.1.1 Legislation

  The Papua New Guinea Immigration and Citizenship Services Authority was established under the Immigration and Citizenship Service Act, 2010. This Act came into operation on 9 July, 2010.

  Under this Act, all assets used for the Authority services (other than land held by the State) which immediately before the coming into operation of this Act, were held by the Department of Foreign Affairs and Trade and which, by agreement between the Department Head of that Department and the Authority, are necessary to be transferred to the Authority for the purposes of the Authority, are, on that coming into operation, transferred to and become assets of the Authority.

  9.1.2 The Objectives of the Authority

  The objectives of the Authority are the following:

  (a) the management, development and protection of the nation‟s interest in so far as the security of the nation is protected; (b) elimination of corruption and increase in accountability; (c) provision of a more flexible operational working environment; (d) increased operational and management efficiency in financial management, accountability and performance management; (e) provision of a mechanism for the achievement of best practice; (f) provision of financial and administrative autonomy; (g) increased levels of client service delivery; (h) encouragement of study and research in areas which will contribute to the protection and security of the nation; (i) increased acquisition and dissemination of skill, knowledge and information in immigration and citizenship through education and training; (j) pursuit of effective strategies including improved administrative and legal machinery for managing immigration, citizenship and passport matters; (k) ensure the Authority retains its primacy and leadership role with regard to the provision of effective border control and security through the effective management of entry and stay of people of Papua New Guinea.

  9.1.3 FUNCTIONS OF THE AUTHORITY

  (1) The functions of the Authority are:- (a) to perform the functions and exercise the powers conferred on an authorised person or an officer under the Migration Act (Chapter 16) or the Passports Act (Chapter 17);

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  (b) to assist the Ministers responsible for the administration of the Migration Act (Chapter 16) and Passport Act (Chapter 17) in the performance of their functions under those Acts respectively; (c) to assist the Minister responsible for citizenship in the performance of his functions under Part IV of the Constitution and the Citizenship Act (Chapter 12); (d) to collect fees, penalties and other revenue authorised under the Migration Act (Chapter 16), Passport Act ( Chapter 17) and Citizenship Act (Chapter 12); (e) to administer the APEC Business Travel Card Scheme under the Migration Act (Chapter 16); (f) to collect, monitor, secure and maintain information and technological systems to enable fully integrated and supported immigration, citizenship and passport operations; (g) undertaken development of legislation and policy to support the operations of the Authority and the effective administration of the Migration Act (Chapter 16), Passport Act (Chapter 17) and the Citizenship Act (Chapter 12); (h) advise the Minister on policy issues which relate to this Act and the effective administration of the Migration Act (Chapter 16), Passport Act (Chapter 17) and the Citizenship Act (Chapter 12); (i) exercise and carry out such functions and powers and perform all duties which under any other written law are or may be or become vested in the Authority or delegated to the Authority by this Act or any other law; and (j) carry out such other duties as are necessary, supplementary, incidental to or consequential to achieve the objectives or the discharge of its functions under this Act.

  9.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements for the period ended 31 December, 2010 had been submitted for my inspection and audit and arrangements were being made to commence the fieldwork shortly. The financial statements for the year ended 31 December, 2011 had not been submitted for my inspection and audit.

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• 10. INDEPENDENCE FELLOWSHIP TRUST

  10.1 INTRODUCTION

  10.1.1 Legislation

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

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

  10.1.2 Functions of the Trust

  The functions of the Trust are:

   to make selections of candidates to receive the awards of fellowships;  to determine the number and value of awards; and  to invest the funds of the Trust.

  10.2 AUDIT OBSERVATIONS

  10.2.1 Comments on the Financial Statements

  My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements for the year ended 31 December, 2010 was issued on 12 September, 2011. The report did not contain any qualification.

  10.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, despite my reminders, the financial statements for the year ended 31 December, 2011 had not been submitted by the Trust for my inspection and audit.

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• 11. INDEPENDENT CONSUMER AND COMPETITION COMMISSION

  11.1 INTRODUCTION

  11.1.1 Legislation

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

  11.1.2 Functions of the Commission

  The main functions of the Commission are: to formulate and submit to the Minister, policies in the interest of consumers; consider and examine and, where necessary, advise the Minister on the consolidation or updating of legislation providing protection to the consumer; liaise with Departments and other agencies of Government on matters relating to consumer protection legislation; receive and consider complaints from consumers on matters relating to the supply of goods and services; investigate any complaint received; make available to consumers general information affecting the interests of consumers; liaise with business, commercial and professional bodies and associations in order to establish codes of practice to regulate the activities of their members in their dealings with consumers; advise consumers of their rights and responsibilities under laws relating to consumers protection; promote and participate in consumer education activities; establish appropriate systems whereby consumer claims can be considered and redressed; liaise with consumer organisations, consumer affairs authorities and consumer protection groups overseas and to exchange information on consumer issues with those bodies; arrange for the representation of consumers in court proceedings relating to consumer matters; and to do all other things relating to consumer affairs.

  11.2 AUDIT OBSERVATIONS

  11.2.1 Comments on the Financial Statements

  My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements for the year ended 31 December, 2011 was issued on 13 February, 2012. The 2011 report did not contain any qualification.

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• 12. INDEPENDENT PUBLIC BUSINESS CORPORATION

  12.1 INTRODUCTION

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

  The above Act was amended through the Independent Public Business Corporation of Papua New Guinea (Amendment) Act, 2007 and the objectives and functions of the Corporation were changed.

  A major impact of the amendments made in the amended Act was that the Corporation, the Trusts, the State Owned Enterprises or any other enterprises in which the Corporation, the Trusts or a State Owned Enterprise holds any interest shall not be subject to the Public Finances (Management) Act, 1995. The amended Act also excludes the Corporation from the application of the Public Services (Management) Act, 1995 and the Salaries and Conditions Monitoring Committee Act, 1988.

  These amendments came into operation on 08 June, 2007.

  12.1.1 The objectives of the Corporation shall be:-

  (a) to act as trustee of the Trust and hold assets and liabilities that have been vested in or acquired by it, on behalf of the State;

  (b) to act as a financial institution for the benefit of and the provision of financial resources and services to State Owned Enterprises and the State, where this is approved by the National Executive Council;

  (c) to enhance the financial position of the State or State Owned Enterprises; and

  (d) to enter into and perform financial and other arrangements that in the opinion of the Corporation have as their objective either:-

  (i) the advancement of the financial interests of the State or State Owned Enterprises; or

  (ii) the development of the State or any part thereof.

  12.1.2 Functions of the Corporation

  (1) The Corporation shall administer the Trusts and monitor the performance of the assets of the Trusts in such manner as provided under this Act and shall perform such other functions as are required under this Act.

  (2) Without limiting the generality of Subsections (1) but subject to the provisions of this Act, the Corporation:

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• Independent Public Business Corporation

  (a) may undertake the function of holding and monitoring corporation for State owned assets and Majority State Owned Enterprises;

  (b) may undertake the function of planning, coordinating and managing State assets, infrastructure and projects; and

  (c) may determine policies regarding:

  (i) the conduct of its affairs and the affairs of any of the Trusts;

  (ii) the administration, management and control of the Corporation and any of the Trusts; and

  (d) may borrow, raise or otherwise obtain financial accommodation in Papua New Guinea;

  (e) may advance money or otherwise make financial accommodation available to the State or State Owned Enterprises;

  (f) may act as a central borrowing and capital raising authority for State Owned Enterprises;

  (g) may act as agent for State Owned Enterprises in negotiating, entering into and performing financial arrangements;

  (h) may provide a medium for the investment of funds of State Owned Enterprises;

  (i) may manage or cause to be managed the Corporation‟s financial rights and obligations; and

  (j) has such other functions and duties as are prescribed by the Act or any other Act.

  12.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and records and the examination of the financial statements of the Corporation for the year ended 31 December, 2010 was completed and the report will be issued shortly.

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

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• 12A. AQUARIUS NO. 21 LIMITED (A SUBSIDIARY OF INDEPENDENT PUBLIC BUSINESS CORPORATION)

  12A.1 INTRODUCTION

  12A.1.2 Legislation

  Aquarius No. 21 Limited was incorporated under the Companies Act, 1997. It was acquired by the Motor Vehicles Insurance (PNG) Trust, now Motor Vehicles Insurance Limited, in 1998.

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

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

  12A.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Company had not submitted its financial statements for the year ended 31 December, 2011 for my inspection and audit.

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• 12B. GENERAL BUSINESS TRUST (TRUST UNDER INDEPENDENT PUBLIC BUSINESS CORPORATION)

  12B.1 INTRODUCTION

  The General Business Trust was established under Section 31 of the Independent Public Business Corporation of Papua New Guinea Act, 2002 (as amended) which came into operation on 20 June, 2002.

  12B.1.1 Objectives of the Trust

   The Independent Public Business Corporation of Papua New Guinea (IPBC) was appointed as Trustee of the Trust and all moneys belonging to the Trust shall be invested or dealt with by IPBC in accordance with the Act.

   At anytime before or after the commencement date of the Act, the Minister responsible for privatization matters may vest certain assets and liabilities in the IPBC as Trustee of the Trust.

   All the State Owned Enterprises and other investments owned by the State of Papua New Guinea are vested in the Trust by the Minister responsible for privatisation as approved by the National Executive Council from time to time.

  12B.2 STATUS OF THE FINANCIAL STATEMENTS

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

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• 12C. LAE PORT DEVELOPEMENT PROJECT

  12C.1 INTRODUCTION

  12C.1.1 Legislation

  The Lae Port Development Project has been approved by the Government through NEC Decision No: NG39/2007.

  This Project was mainly funded by Asian Development Bank loan and is being co-funded by the Government and is currently being implemented by Independent Public Business Corporation. A Project Management Unit (PMU) has been set up and staffed within the IPBC to manage the project.

  12C.1.2 Functions of the Project

  The function of the Project is to construct a tidal basin (700mX400m), a multipurpose berth, terminal work including all buildings, storage areas, roads, drainage, water, electricity, and sewerage service, with built-inflexibility to increase the capacity further in a cost effective manner; and Consulting service in project management, construction supervision, financial management, resettlement and socioeconomic monitoring.

  12C.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and records and examination of the financial statements of the Project for the year ended 31 December, 2010 was completed and awaiting the management response and signed financial statements to enable me to issue the report.

  The financial statements for the year ended 31 December, 2011 had not been submitted for my inspection and audit.

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• 12D. PNG DAMS LIMITED (A SUBSIDIARY OF INDEPENDENT PUBLIC BUSINESS CORPORATION)

  12D.1 INTRODUCTION

  12D.1.1 Legislation

  PNG Dams Limited was incorporated under the Companies Act, 1997 on 05 June, 2002. This Company was established under Section 3(1) of the Electricity Commission (Privatisation) Act, 2002 (the „Act‟) by transferring to it the Sirinumu Dam and Yonki Dam from Papua New Guinea Electricity Commission (“ELCOM”). This was Gazetted through Gazettal Notification No. G114 dated 16 July, 2002. The Company was vested with Independent Public Business Corporation (IPBC) through the Gazettal Notification No. G125 dated 02 August, 2002.

  12D.1.2 The Objective of the Company

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

  12D.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and records and the examination of the financial statements of the Company for the years ended 31 December, 2004 to 2010 were completed. I am awaiting the responses to my management letters and signed financial statements from the Company to enable me to issue the audit reports under the Companies Act, 1997.

  The Company had not submitted its financial statements for the year ended 31 December, 2011 for my inspection and audit.

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• 12E. PORT MORESBY PRIVATE HOSPITAL LIMITED (A SUBSIDIARY OF INDEPENDENT PUBLIC BUSINESS CORPORATION)

  12E.1 INTRODUCTION

  12E.1.1 Legislation

  Port Moresby Private Hospital Limited (formerly Negliw No. 81 Limited) was incorporated under the Companies Act, 1997 and was acquired by the Motor Vehicles Insurance (PNG) Trust, now Motor Vehicles Insurance Limited, on 30 September, 1994 as a subsidiary. Port Moresby Private Hospital Limited changed its name from Negliw No. 81 Limited in 1996.

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

  12E.1.2 Objective of the Company

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

  12E.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Company had not submitted its financial statements for the year ended 31 December, 2011 for my inspection and audit.

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• 13. INDUSTRIAL CENTRES DEVELOPMENT CORPORATION

  13.1 INTRODUCTION

  13.1.1 Legislation

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

  13.1.2 Functions of the Corporation

  The main functions of the Corporation are overall planning and implementation of the Government‟s industrial centre development programme; preparation of feasibility studies in order to identify appropriate forms of industrial development, to identify therewith or otherwise, regions and sites in the country for industrial centres, and to do such supplementary, incidental or consequential acts, as are necessary for the development and promotion of industrial centres in Papua New Guinea.

  13.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and records and examination of the financial statements of the Corporation for the year ended 31 December, 2009 was completed. Management responses were awaited from the Corporation for my management letter to enable me to conclude the audit and issue the audit report.

  The fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements for the year ended 31 December, 2010 was completed and the results were being evaluated. The financial statements for the year ended 31 December, 2011 had not been submitted for my inspection and audit.

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• 14. INVESTMENT PROMOTION AUTHORITY

  14.1 INTRODUCTION

  14.1.1 Legislation and Objective of the Authority

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

  14.1.2 Functions of the Authority

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

  14.2 STATUS OF FINANCIAL STATEMENTS

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

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• 15. KOKONAS INDASTRI KOPORESEN (FORMERLY COPRA MARKETING BOARD OF PAPUA NEW GUINEA)

  15.1 INTRODUCTION

  15.1.1 Legislation

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

  The Kokonas Indastri Koporesen Act, 2002 subsequently established Papua New Guinea Coconut Extension Fund and Papua New Guinea Coconut Research Fund. Comments in relation to these Funds are contained in paragraphs 15A and 15B respectively, of this Report (Part IV).

  15.1.2 Functions of the Koporesen

  The principal functions of the Koporesen are to regulate and assist in the export and marketing of copra in the best interest of the copra producers of Papua New Guinea, and to administer the Papua New Guinea Coconut Extension Fund and the Papua New Guinea Coconut Research Fund.

  15.2 AUDIT OBSERVATIONS

  15.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Koporesen for the year ended 31 December, 2010 was issued on 15 February, 2012. The 2010 report did not contain any qualification.

  15.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements for the year ended 31 December, 2011 had been submitted and arrangements were being made to commence the audit shortly.

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• 15A. PAPUA NEW GUINEA COCONUT EXTENSION FUND

  15A.1 INTRODUCTION

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

  15A.1.1 Objective of the Fund

  The objective of the Fund is to engage in extension services and related programmes by itself or in co-operation with other persons or bodies for the benefit of the Copra Industry.

  The Fund was administered by the Copra Marketing Board, up to 3 June, 2002 and has since been administered by Kokonas Indastri Koporesen.

  15A.2 AUDIT OBSERVATIONS

  15A.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Fund for the year ended 31 December, 2010 was issued on 15 February, 2012. The report did not contain any qualification, but had the following comment:

  Payment Out of Extension Fund

  Section 41 of Kokonas Indastri Koporesen Act, 2002 states that no money shall be paid out of the Extension Fund except for the purpose of extension under Section 4 (1) (e). However, I noted that payments were made for purchase of motor vehicle for the Institute‟s acting Chief Executive Officer, audit fees, board stipends, hire cars and other board meeting expenses. Although these payments were made for the benefit of coconut extension projects, the payments were made in violation