Part IV- Report of the Auditor-General 2011 on the Accounts of Public Authorities and Statutory Bodies and Government Owned Companies

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    Report on Public Bodies and their subsidiaries, National Government owned Companies and 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 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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  • Executive Summary

    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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  • Executive Summary

    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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    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

    -xix-

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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-

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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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    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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    (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 of the above Act.

    15A.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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  • 15B. PAPUA NEW GUINEA COCONUT RESEARCH FUND

    15B.1 INTRODUCTION

    15B.1.1 Legislation and Objective of the Fund

    The Papua New Guinea Coconut Research Fund was established by the Kokonas Indastri Koporesen Act, 2002 following the repeal of the Copra Marketing Board (Amendment) Act, 1986, and the cessation of the Papua New Guinea Copra Research Fund. The Kokonas Indastri Koporesen deducts a copra research CESS of K4 per tonne of copra purchased from producers and pays it to the Research Fund. The Research Fund in turn, pays this CESS to the Cocoa Coconut Institute of Papua New Guinea.

    15B.2 AUDIT OBSERVATIONS

    15B.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 Research Fund

    Section 37 of Kokonas Indastri Koporesen Act, 2002 states that no money shall be paid out of the Research Fund except for the purpose of research under Section 4 (1) (c). 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 research projects, the payments were made in violation of the above Act.

    15B.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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  • 16. LEGAL TRAINING INSTITUTE

    16.1 INTRODUCTION

    16.1.1 Legislation

    The Legal Training Institute was established in 1972 under the Post Graduate Legal Training Act (Chapter 168).

    16.1.2 Functions of the Institute

    The functions of the Institute are to provide practical training in law, the conduct and management of legal offices, trust accounts and related subjects for candidates for admission, to a standard sufficient to qualify them for admission to practice as lawyers under the Admission Rules as contained in the Lawyers Act of 1986.

    16.2 AUDIT OBSERVATIONS

    16.2.1 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 Institute for the year ended 31 December, 2010 was issued on 21 October, 2011. The report contained an Emphasis of Matter.

    “EMPHASIS OF MATTER

    Without qualifying my opinion, I wish to draw your attention to the following matter which I consider significant.

    Fixed Assets

    The Institute does not have a fixed assets register to date. The Notes to the financial statements as at 31 December, 2010 disclosed that the Institute owned fixed assets with a total value of K1,496,734. However, I observed that the Institute had records only for the additions made in 2009 (K242,797) and in 2010 (K474,696), but there were no records to confirm or verify for the balance of K779,241 brought forth from prior years. Therefore, I am unable to attest to the completeness, accuracy and correctness of the fixed assets value stated in the financial statements as at 31 December, 2010.

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    OTHER MATTERS

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

    1. Internal Controls

    The internal controls on; receipting and depositing of cash and cash equivalents, checking and verifying the accuracy of bank reconciliations, payroll processes and raising of payments had been generally ineffective. There was no proper supervision and monitoring in respect of the above functions and responsibilities.

    Therefore, I have highlighted to management that in the absence of supervision and proper segregation of duties, risks of fraudulent acts, embezzlement or mishandling of cash and cash equivalents may occur. Also, errors in computation of taxes and other deductions may not be detected in a timely manner if the payroll is not supervised and reviewed by a senior officer for accuracy.

    2. Proper Accounting System

    The Institute did not have an appropriate accounting package to prepare regular management accounts on a timely manner. The accounts were summarized manually in a spreadsheet without any general ledger and general journals. I have highlighted to management that without having a proper accounting package in place all accounting transactions and information might not be captured and recorded accurately and in a timely manner resulting in the financial statements provided being not accurate.

    3. Council Meeting Minutes

    The Council of the Institute held seven (7) meetings in 2010. However, I observed that minutes of meeting number three (3) held on 2 March, 2010 was not signed by the Chairman and the Director of the Institute. I have highlighted to management that where minutes are not signed, the resolutions passed may not be valid and applicable.

    4. Cash at Bank – Project Account

    The Project Account was previously operated under the name of Trust Account. However, neither Trust Instruments governing the operation of the account nor approval from the Department of Treasury was with the Institute. Therefore, in 2010 the Institute changed its name to Project Account. However, I did not sight any Council approval or resolution regarding change of the trust account to project account and any documents as to the purpose of the project account.

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    5. Payment made to Supplier without an Agreement

    The review of the expenses for the year 2010 revealed that a cheque payment of K25,000 (cheque#563349) was paid as 50% installment to a supplier for the purchase of 46 chairs for the computer lab. This payment was approved by the Acting Director, but only 17 benches were collected from the company before the supplier went into liquidation. I was not provided with the contract agreement entered into between the Institute and the supplier for verification and copies of the quotes including others received in determining the award.

    6. Fixed Assets Register

    There was no fixed assets register maintained by the Institute. I have highlighted to the management that a Fixed Assets Register serves as the main control of all properties owned by the Institute. If a loss or theft occurs it may be difficult to identify the loss by the Institute.

    Also, the Institute should undertake a periodic stock take of all fixed assets currently in place to establish their existence, custody and value.

    7. Receipts

    I noted that apart from the Government Grants received and other direct deposits being made, the Institute receipted K14,088 (cash and cheques) in 2010. However, I observed that only K12,852 had been deposited in to the bank. The balance of K1,236 may have been misused or used for other daily operational needs without keeping proper records in the cash book.

    It was obvious that cash or cash equivalent was handled without proper accountability. The non segregation of duties and lack of supervision may lead to theft or misuse of the fund.

    8. Payroll/Staff Personnel Records

    8.1 Salaries and Tax Deductions

    My review of the payroll revealed that certain officers were not paid according to their contracts. I was unable to justify the increases in their base salaries as their personal files were not up to date. Information indicating the increases such as rewards for improved performance or CPI increases was not available in their personal files.

    Consequently, I noted that overall tax calculation on the gross earnings of the staff in 2010 was not as per Income Tax Act, 1959 (as amended).

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    Therefore, I recommended to management that appropriate care and expertise must be utilized in managing the payroll efficiently and to ensure that personal files of individual officers are maintained and updated regularly.

    8.2 Allowances for Utilities, Telephone and Entertainment

    I noted from the payroll selected that the allowances for utilities, telephone and entertainment for the Acting Director and the Deputy Director (Course Work & Legal Aid) were not taxed. Therefore, I have requested management to provide the IRC approval and the signed employment contract stipulating that these allowances are non- taxable but they were not made available for my review at the time of issuing this report.

    8.3 Director‟s Employment Contract

    I observed that in the Council meeting number four (4) held on 17 March, 2010 (agenda item 5), the Council resolved that the position of the incumbent Director of the Institute was extended for a term of another four (4) years. However, I was not provided with the signed contract instruments issued by the Department of Personnel Management (DPM) validating the contract.

    8.4 Staff Ledgers

    I noted that maintenance of staff ledgers/employees history cards was not up to date. As a consequence, I was unable to determine the accuracy of the accrued annual leave, leave availed, sick leave, compassionate leave and leave without pay accorded to staff members.

    I highlighted to management that inadequate record keeping of the staff details/history exposes the Institute to the risk of paying incorrect employee benefits.

    8.5 Overtime

    I noted that the control over the checking and verification of overtime paid was weak. In numerous instances, the payee did not sign to confirm the accuracy of the number of overtime hours worked and there was no officer counter-signing to confirm the hours claimed as overtime. I have indicated to management that without proper approval for overtime, checking and verification, false claims and payments can be made.

    8.6 Group Tax

    I observed that the Institute was not remitting Group Tax payments to Internal Revenue Commission (IRC) for each month on the 7th day of the following month as stipulated in the Income Tax Act, 1959 (as amended). Also, Group Tax for the months of April and May 2010 had not been remitted to date.

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    I have highlighted to management that by not complying with Income Tax Act, 1959 (as amended) the Institute may be subject to penalties.

    9. Repair/Adding Capital Goods to Director‟s House

    In 2010, a washing machine and a lawn mower costing K3,209 had been purchased for the Director‟s residence. The house rented for the Director is owned by the National Housing Corporation (NHC) and they have no legal obligation to do major renovations and equip the house with properties and household white goods. These expenses were not recurring in nature and not budgeted. Also, the house was not owned by the Institute which gives incorrect information in the financial statements.

    Consequently, I recommended to management that the Institute should initiate all possible steps to recover the above replacement costs from the NHC by deducting an agreed amount from the monthly rental. Also, it would be appropriate to disclose this replacement costs separately to notes to and forming part of the financial statements since the issue of recouping the money is still pending.

    10. Council Approved Shut Down Period Extension of One Week and CPI Increases

    I noted that as per meeting minute number 1/2010 dated 20th January, 2010 agenda 4.1.4, the Council approved CPI increases in 2010 and an extra one week extension of shut down period in addition to the official DPM issued closure of work of five (5) days at year end 2009. The DPM‟s approval for the CPI increases and the extra one week extension was not provided for my review.”

    16.3 STATUS OF FINANCIAL STATEMENTS

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

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  • 17. MINERAL RESOURCES AUTHORITY

    17.1 INTRODUCTION

    17.1.1 Legislation

    The Mineral Resources Authority was established by the National Parliament under the Mineral Resources Act, 2005 on 9 November, 2005. This Act came into force on January 2006 but commenced operations in June 2007.

    17.1.2 Objectives of the Authority

    The objective of the Authority is to able to achieve stability, industry growth and a degree of assurance of future revenues from the mineral industry. More effective management of issues concerning landowners and their participation in the development process and allow for the development of a more settled investment climate and industry development.

    17.1.3 Functions of the Authority

    The functions of the Authority are described as follows:

    (a) to advise the Minister on matters relating to mining and the management, exploitation and development of Papua New Guinea‟s mineral resources;

    (b) to promote the orderly exploration for the development of the country‟s mineral resources;

    (c) to oversee the administration and enforcement of the Mining Act, 1992, the Mining (Safety) Act (Chapter 195A), the Mining Development Act (Chapter 197), the Ok Tedi Acts and the Ok Tedi Agreement, the Mining (Bougainville Copper Agreement) Act (Chapter 196) and the agreements that are scheduled to that Act, and any other legislation relating to mining or to the management, exploitation or development of Papua New Guinea‟s mineral resources;

    (d) to negotiate mining development contracts under the Mining Act, 1992 as agent for the State;

    (e) to act as agent for the State, as required, in relation to any international agreement relating to mining or to the management, exploitation or development of Papua New Guinea‟s mineral resources;

    (f) to receive and collect, on its own account and on behalf of the State, any fee, levy, rent, security, deposit, compensation, royalty, costs, penalty, or other money, or other account payable under the Mining Act, 1992, the Mining (Safety) Act (Chapter 195A), the Mining Development Act (Chapter 197), the Ok Tedi Acts and the Ok Tedi Agreement, the Mining (Bougainville Copper Agreement) Act (Chapter 196) and the agreements that are scheduled to that Act, or any other Act the administration of which is the responsibility of the Authority from time to time;

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    (g) on behalf of the State, to receive and collect from persons to whom a tenement has been granted under the Mining Act, 1992 the security for compliance with the person‟s obligations under the Mining Act, 1992 required to be lodged with the Registrar, and to hold and such security received or collected;

    (h) on behalf of the State, to administer and be responsible for the administration of any public investment programme relating to mining;

    (i) to conduct systematic geoscientific investigations into the distribution and characteristics of Papua New Guinea‟s mineral and geological resources, located on, within or beneath the country‟s land mass, soil, subsoil and the sea-bed;

    (j) to provide small scale mining and hydrogeological survey data services, and occupational health and safety community awareness programs;

    (k) to collect, analyse, store, archive, disseminate and publish (in appropriate maps and publications) on behalf of the State geoscientific information about Papua New Guinea‟s mineral and geological resources;

    (l) to carry out such other functions as are given to the Authority by this Act or by any other law; and

    (m) generally to do such supplementary, incidental, or consequential acts and things as are necessary or convenient for the Authority to carry out its functions.

    17.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    17.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended) on the financial statements of the Authority for the year ended 31 December, 2009 was issued on 23 April, 2012. This report contained a Disclaimer of Opinion.

    “BASIS FOR DISCLAIMER OF OPINION

    Production Levy

    Production levy of K17,684,742 was recognized as an income in the period in which it was received with a computation done by the respective operating/producing mines. The Authority did not have any mechanism to ensure the accuracy of the production levy of K17,684,742 computed during the year. As a result, I was unable to verify the accuracy of the production levy income recognized in the financial statements.

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    Tenement Rent Income

    The Authority had recorded K7,687,031 as tenement income and K4,339,941 as deferred income for the year ended 31 December, 2009. As of the date of my audit report, I was unable to reconcile the difference of K1,247,078 between tenement rental income per general ledger and tenement division records. The Authority did not maintain proper documentation for tenement rentals, as a result, I was unable to determine the completeness of deferred income and tenement rental income earned during the year due to non availability of information.

    Operating Expenses

    The Authority had recorded K9,969,302 as operating expenses which excluded personnel cost of K4,801,358. I was not provided with any supporting document to perform my audit tests. As a result, I was unable to verify the existence and accuracy of the operating expenses.

    Recovery of Goods and Service Tax Inputs

    The Authority does not render any taxable activities which are defined by the Goods and Services Tax (GST) Act, 2003. According to the Act, input tax in relation to the acquisition of goods and services by a registered person for the principle purpose of making taxable activities can claim only in relation to the taxable activities. Due to unavailability of reconciliations, I was unable to extent my audit tests to verify the recoverable amount of GST for K995,352 as reported in the financial statements.

    Interest Income and Accrued Interest

    The Authority had recorded K1,860,990 as interest income and K2,446,303 as accrued interest. There were no calculations or any other evidence to test the interest income and accrued interest from Interest Bearing Deposits. Therefore, I was unable to verify these amounts and balances reported in the financial statements.

    Cash and Cash Equivalents

    There were no proper reconciliations done for cash at bank and no evidences provided for interest bearing deposits. As a result, I was unable to verify the existence and accuracy of these balances.

    Other Payables and Security Deposit

    Other payables include unallocated receipts of K1,226,881 of which there was no supporting documents provided for my verification. In addition, I was also not provided with the supporting documents for the Security Bond Refundable of K1,268,060. As a result, I was unable to conclude on the accuracy and existence of these balances.

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    Non Compliance with Public (Finances) Management Act and Mineral Resource Authority Act

    The audit of the 2009 Statutory Financial Statements was not finalized by 31 May, 2010 due to weaknesses in Authority‟s accounting system and overall internal control environment. As such management was unable to meet the deadline required by Section 36(1) of the Mineral Resource Authority Act, 2005 which requires audited financial statements of the Authority to be furnished to the Minister before 31 May, 2010.

    Disclaimer of Opinion

    Because of the significance of the matters described in the Basis for Disclaimer of Opinion, I was not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, I was unable to express an opinion on the financial statements of Mineral Resources Authority for the year ended 31 December, 2009.”

    17.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records of the Authority for the year ended 31 December, 2009 was issued on 23 April, 2012. The report contained the following comments:

    1. Internal Control Environment

    During the course of my audit I identified several weaknesses in the Authority‟s accounting system and overall internal control environment operated during the year under audit. It should also be noted that inefficient management information systems resulted in an undue delay in the preparation and audit of the financial statements.

    2. Bank Reconciliation

    Differences between bank balance per bank ledger and bank balance per bank reconciliation were not investigated or corrected during the year. I further noted that bank reconciliations were not reviewed and approved by an authorized officer.

    I recommended management that bank reconciliation differences should be investigated, corrected and should be reviewed and signed off by an authorized officer on a monthly basis. The management concurred with my recommendation.

    3. Recording of Trade Debtors

    Tenement rental income sub ledger was not integrated with the general ledger and no tenement rental debtors sub ledger was maintained by the Authority. I recommended management to integrate tenement rental sub ledger to the general ledger and also maintain tenement rental sub debtor ledger.

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    In addition, these sub ledgers should be reconciled with the general ledger on a monthly basis. Any differences should be investigated and corrected.

    The management responded to my observation as follows:

    “The Mineral Tenement system to be developed and funded by the World Bank will greatly enhance MRA‟s tenement management including rental income. In the meantime, Tenement Branch is finalising their records so we can conduct proper reconciliations between the tenement rental income and tenement rental sub ledgers with the general ledger against tenement branch records.”

    4. Board of Directors and Other Committee Meetings Minutes

    The board meeting minutes and other board sub-committee (e.g. Human Resource & Finance) meeting minutes were not provided for my review. I recommended management to begin recording detailed minutes of all Board of Directors and other committee meetings to provide adequate documentation of corporate decisions made throughout the year. This will ensure that every top-level decision relating to MRA‟s strategic direction, executive compensation, and other important matters are documented and supported from a financial and legal standpoint.

    5. Purchase Orders (Originally raised in 2007)

    As pointed out in prior year audit report, the Authority did not raise purchase orders for procurements of goods and services. However, I was unable to test purchase of goods and services due to unavailability of information and documentation. The management responded to my observation as follows:

    “Most purchases now are on the basis of cheque for supply of goods and services and have limited procurement by purchase orders. Management plans to review MRA‟s procurements methods to ensure proper accountability and efficient implementation of operational activities including procurement by purchase orders.”

    6. Monthly Accruals

    I was unable to determine if journals were processed at the year end as I was not provided with a list of processed journals that related to December 2009. Moreover, as I was not provided with a list of processed journals, I could not verify the authorization, accuracy and validity of journals. I recommend to management that a monthly journals listing should be prepared and authorized by a senior officer. Journals should only be processed after the approval from the senior officer.

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    7. Internal Audit Function

    It was a requirement under Section 39(5) of the Mineral Resources Authority Act, 2005 to establish an internal audit division. Even though management stated that an internal auditor was appointed, I did not receive any written audit reports on work carried out by the internal auditor. I recommended management to establish the internal audit division in line with the terms of the MRA Act. The management responded that they would establish an internal audit division within the Authority.

    17.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Authority had not submitted its financial statements for the years ended 31 December, 2010 and 2011 for my inspection and audit.

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  • 18. MOTU-KOITABU COUNCIL

    18.1 INTRODUCTION

    18.1.1 Legislation

    The Motu-Koitabu Interim Assembly was established under Section 12 of the National Capital District Government (Preparatory Arrangements) Act (Chapter 392).

    18.1.2 Functions of the Interim Assembly

    The Principal functions of the Interim Assembly were: to control, manage and administer the Motu-Koitabu areas, and to ensure the welfare of the Motu-Koitabu areas and of the persons therein; to assist in the preparations for the establishment of the proposed Assembly; and to make preparations for the establishment of a Motu-Koitabu business arm.

    This Act was repealed by the National Capital District Commission Act, 1990, which came into operation on 5 November, 1990. The assets and liabilities of the Interim Assembly were transferred to the Commission by virtue of the requirements of the new Act. Subsequent to this, the National Capital District Commission (Amendment) Act, 1992, came into effect on 30 November, 1992 and hence the establishment of the Motu-Koitabu Council.

    This Act was further amended by the National Capital District Commission (Amendment) Act, 1995, which became effective on 19 July, 1995 and this facilitated the establishment of a system of Local Level Government for National Capital District. The government of the National Capital District comprises the National Capital District Commission, the Motu-Koitabu Council and the Local-Level Governments in the National Capital District.

    The Interim Assembly had a subsidiary Company, Tabudubu Limited, which operated as the business arm of the Interim Assembly. The shares in the Company were transferred to the Commission as required by the National Capital District Commission Act, 1990, and are held in trust for the Motu-Koitabuan people. Comments in relation to this subsidiary are contained in paragraph 18A of this Report (Part IV).

    With the introduction of the Motu Koita Assembly Act, 2007, a system of Local Government was established for the Motu Koita people of the National Capital District.

    18.2 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 Council for the years ended 31 December, 2003 to 31 December, 2007 had been completed and the results were being evaluated.

    My reports on the entities for the years ended 31 December, 2008 to 31 December, 2011 will be reported under Part III of my Annual Report.

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  • 18A. TABUDUBU LIMITED (A SUBSIDIARY OF MOTU-KOITABU COUNCIL)

    18A.1 INTRODUCTION

    18A.1.1 Legislation

    Tabudubu Limited was incorporated under the Companies Act, 1997. It is a subsidiary of Motu-Koitabu Council.

    Motu-Koitabu Interim Assembly, which held 99 percent of the shares in Tabudubu Limited, was established under the National Capital District Government (Preparatory Arrangement) Act (Chapter 392). This Act was repealed by the National Capital District Commission Act, 1990, which became effective on 5 November, 1990.

    With the introduction of the National Capital District Commission Act, 1990, Motu-Koitabu Interim Assembly was amalgamated with the Commission and the “Interim Assembly” became the Council. The assets, liabilities and the obligations of the Interim Assembly were absorbed by the Commission on the commencement date.

    The shares in Tabudubu Limited were transferred to the Commission to be held in Trust for the Motu-Koitabu people of the National Capital District by virtue of Section 47(2) of the National Capital District Commission Act, 1990.

    18A.1.2 Functions

    The main functions of the Company as per the Memorandum of Association are:

    (a) to promote the development of the Motu-Koitabu people living within the National Capital District by the promotion of trade, commerce, communication and co-operation; and

    (b) to implement the directives of the Motu-Koitabu Council and the National Capital District Commission.

    18A.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 Company for the years ended 31 December, 2003 to 31 December, 2007 had been completed and the results were being evaluated.

    My reports on the entities for the years ended 31 December, 2008 to 31 December, 2011 will be reported under Part III of my Annual Report.

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  • 19. NATIONAL AGRICULTURE QUARANTINE AND INSPECTION AUTHORITY

    19.1 INTRODUCTION

    19.1.1 Legislation

    The National Agriculture Quarantine and Inspection Authority (NAQIA) was established by the National Agriculture Quarantine and Inspection Authority Act, 1997. This Act came into operation on 29 May, 1997.

    Under this Act, all assets used for Quarantine and Inspection Services (other than land held by the State) and previously held by the Department of Agriculture and Livestock which were necessary to be transferred to the Authority for the purposes of the Authority, were transferred to and became the assets of the Authority at commencement.

    19.1.2 Objective of the Authority

    The main objective of the Authority as mentioned in the Act, are the conduct of quarantine and inspection of: any animal and species; any fish species; any plant species; any products derived from animals, fish and plants; and to prevent pests or diseases from entering in or going out of Papua New Guinea.

    19.1.3 Functions of the Authority

    The functions of the Authority, as mentioned in the Act, are:

     to advise the Ministry and the National Government on policy formulations and legislative changes pertaining to agriculture quarantine and inspection matters;

     to monitor and inspect all imports of animals, fish and plants and their parts and products, including fresh, frozen and processed food to ensure that the imports are free from pests, diseases, weeds and any other symptoms;

     to regulate and control all imports of animals, fish and plants and their parts and products, including fresh, frozen and processed food to ensure the imports are free from pests, diseases, weeds and any other symptoms;

     to undertake all necessary actions to prevent arrival and spread of pests, diseases, contamination, weeds, and any undesirable changes pertaining to animals, fish and plants and their parts and products, including fresh, frozen and processed foods;

     to monitor, inspect and control the export of animals, fish and plants and their parts and products to ensure that they are free from pests, diseases, weeds and any other symptoms;

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     to undertake all necessary actions to ensure that the export of animals, plants, fish and their parts and products are free from pests, diseases, weeds and any other symptoms so as to provide quality assurance to meet the import requirements of importing countries;

     to issue permits, certificates and endorsements pertaining to imports and exports of animals, fish and plants and their parts and products to provide quality assurance and to ensure that they are free from pests, diseases, weeds and any other symptoms;

     to inspect and treat vessels, aircraft, vehicles, equipment and machinery, that are used in importing and exporting animals, fish and plants to ensure that they are free from pests, diseases, weeds and any other symptoms;

     to regulate the movement of animals and plants from one part of the country to another, to control and prevent the spread of pests, diseases, weeds and any other symptoms;

     to undertake and maintain inspection and quarantine surveillance pertaining to pests, diseases, weeds and any other symptoms on animals, fish and plants within and on the borders of the country;

     to monitor, assess and carry out tests on animals, fish and plants and their parts and products that are introduced into the country, to ensure that they are free of pests, diseases, weeds and any other symptoms;

     to liaise with other countries, international agencies and other organizations in developing policies, strategies and agreements relating to quarantine, quality and inspection matters in respect of animals and plants;

     to provide quarantine and inspection information and services to individuals, agencies and other organizations within the country and overseas in respect of animals and plants;

     to levy fees and charges for any of the purposes of this Act and any regulations made thereunder;

     to exercise all functions and powers and perform all duties which, under any other written law, are or may be or become vested in the Authority or are delegated to the Authority; and

     to do such matters and things as may be incidental to or consequential upon the exercise of its power or the discharge of its functions under this Act.

    19.2 AUDIT OBSERVATION

    19.2.1 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 years ended 31 December, 2010 and 2011 were issued on 27 February, 2012 and 22 June, 2012 respectively. These reports contained similar Qualified Audit Opinion, hence, only the 2011 report is reproduced.

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    “BASIS FOR QUALIFIED AUDIT OPINION

    Fees and Charges – K14,855,320

    The Authority disclosed its revenue as K14,855,320 at the year end. My examination of invoices on a sample basis revealed that some of the sales invoices were missing from the file. All of the missing invoices related to cash sale. I was unable to quantify the actual sales amount unaccounted for from the missing sales invoices. I also noted that customers were allowed to pay at a later date for cash sales by the Authority. This highlights the weakness in the internal control surrounding the sales and cash receipt function. As a result of the internal control weakness in the revenue cycle, I was unable to confirm the accuracy and completeness of the fees and charges stated in the financial statements.

    QUALIFIED AUDIT OPINION

    In my opinion, except for the effects of the matters referred to in the Basis for Qualification paragraph above:

    (a) the financial statements of the Authority are based on proper accounts and records; and

    (b) the financial statements are in agreement with those accounts and records, and show fairly the state of affairs of the Authority as at 31 December, 2011, and the results of its financial operations and cash flows for the year then ended.”

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  • 20. NATIONAL AGRICULTURAL RESEARCH INSTITUTE

    20.1 INTRODUCTION

    20.1.1 Legislation

    The National Agricultural Research Institute (NARI) was established by the National Agricultural Research Institute Act, 1996. This Act came into operation on 10 October, 1996.

    Under this Act, all monies allocated to or standing to the credit of the research division of the Department of Agriculture and Livestock, and all assets used for research and research related functions (other than Land held by the State) and previously held by the Department of Agriculture and Livestock prior to the operationalisation of the Act, were transferred to the Institute to become the assets of the Institute at commencement.

    20.1.2 Objectives of the Institute

    The main objectives of the Institute stated in the Act are to conduct and foster research into:

     any branch of biological, physical and natural sciences related to agriculture;

     cultural and socioeconomic aspects of the agricultural sector, especially of the smallholder agriculturalists; and

     matters relating to rural development, relevant to Papua New Guinea.

    20.1.3 Functions of the Institute

    The primary functions of the Institute spelt out by the Act are:

     to generate and adapt agricultural technologies and resource management practices appropriate to the needs, circumstances and goals of smallholder agriculturalists;

     to promote and facilitate applied and adaptive research in food crops, livestock, alternative cash crops, and resource management;

     to promote the use of appropriate agricultural technologies and provide essential technical services to improve the productivity, income, nutritional status and food security, resource base and quality of life of rural households and communities;

     to develop and promote ways of improving the output, quality, harvesting, post-harvesting, handling and processing, and marketing of food crops, livestock produce and alternative crops;

     to maintain and conserve the diversity of genetic resources for food and agriculture, act as custodian for these resources and promote the effective utilization of these resources in the country;

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     to update and maintain the national inventory on soil resources; and to develop, promote and maintain sustainable practices in agriculture;

     to provide agricultural information services, extension service support and other such assistance packages to the agricultural sector; and to provide liaison and access to international agencies that promote agricultural development;

     to perform such other functions as are given to it under this Act or any other law;

     to formulate national agricultural research policies, define sectoral research priorities and allocate funds and advise the Minister and the National Executive Council on these matters; and

     generally, to do all such things as may be incidental or consequential upon the exercise of its powers and the performance of its functions.

    20.2 AUDIT OBSERVATIONS

    20.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements for the year ended 31 December, 2011 was issued on 21 May, 2012. The report did not contain any qualification.

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  • 21. NATIONAL AIDS COUNCIL SECRETARIAT

    21.1 INTRODUCTION

    21.1.1 Legislation

    The National AIDS Council Secretariat was established under the National AIDS Council Act, 1997. This Act was certified and became operational on 19 January, 1998.

    21.1.2 The Objectives of the Council

    The objectives of the Council are to take multi sectoral approaches with a view to prevent, control and to eliminate HIV/AIDS transmission in PNG; to organise measures to minimise the personal, social and economic impact of HIV/AIDS; and safeguard personal privacy, dignity and integrity in the face of the HIV/AIDS epidemic in PNG.

    21.1.3 Functions of the Council

    The functions of the Council include formulation, implementation, review and revision of national policy in accordance with its objects for the prevention, control and management of HIV/AIDS:

    (a) to make recommendations and provide guidelines on the related issues to the NEC, PGs and LLGs;

    (b) to foster, co-ordinate and monitor HIV/AIDS prevention, control and management strategies and programme;

    (c) to accept, administer and account for the funds and other resources allocated to it;

    (d) to consult and co-ordinate with the appropriate state agencies and other persons and organisations on matters related to its activities;

    (e) to initiate, encourage, facilitate and monitor preparation and dissemination of information, counselling, care and legal services, research on or in relation to HIV/AIDS; and

    (f) to perform such other functions given to it under Section 5 of this Act or any other law.

    21.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    21.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the financial statements for the year ended 31 December, 2008 was issued on 22 June, 2012. The report contained a Disclaimer of Audit Opinion.

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    “BASIS FOR DISCLAIMER OF AUDIT OPINION

    1. Opening Balance

    My report for the year ended 31 December, 2007 was a disclaimer due to the qualifications of opening balances, fixed assets, prior year adjustments, adjustments to opening balances and limitation of scope arising from the Council‟s disclosures. I am not able to satisfy myself as to the accuracy and completeness of the opening balances of the above accounts and these opening balances entered into the determination of the results of the operations and cash flows of the Council in 2008. Consequently, I am unable to determine whether, adjustments to the results of the operations and cash flows might have been necessary for the year ended 31 December, 2008.

    2. Departure from Accounting Policies

    In Note 1 to the financial statements, the accounting policy was altered from the former Accrual Basis of Accounting to the Cash Basis of Accounting method. This policy change was not approved by the Governing Council of the Secretariat for the year ending 31 December, 2008. In the absence of a legitimate authority for the accounting policy change, I was unable to state whether the change was legitimate.

    3. Development Funds Records

    The balance of the Development Fund was stated as K6,621,389 in the financial statements. However, no financial statements were prepared for the account in the prior years and only the recurrent funds were reported and not the non recurrent funds. Consequently, no audits were conducted on these accounts as the subsidiary records in relation to these funds were kept separately from the recurrent account. Further, the financial statements in relation to the non recurrent funds were incomplete. Therefore, I am unable to verify and confirm whether, the funds allocated for each province were used for the intended purposes.

    4. Assets Register

    In Note 9 to the financial statements, assets purchased for the year ended 31 December, 2008 were stated as K13,879. However, the Council did not maintain a proper Asset Register to record all the assets purchased, nor a stock take conducted annually to verify their existence and values. The Assets Register furnished for my review was incomplete and had inaccurate listing of assets without any depreciation schedule and proper classification of all assets, including costs. The schedule of assets in the financial statements was prepared without any basis as it did not properly reflect the real value of the fixed assets as at 31 December, 2008. Further, a total of forty-eight (48) items stated in the assets register were purchased in 2008, but the assets register did not disclose the respective costs of those assets. As a result of this discrepancy, I am unable to verify and confirm the total amounts as stated in the assets register and the amount disclosed at 31 December, 2008.

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    5. External Confirmation

    Government appropriation was stated as K5,587,400 in the financial statements. However, I was not provided any grant confirmation certificate from the Department of Finance to confirm the monthly and total appropriation received by the Council. Further, grants and other assistance were stated as K78,397 in the financial statements, however, supporting schedules and documentation such as telegraphic transfer certificates or transfer advices from donors were not provided for my review and verification and as a result, I was unable to verify and confirm the grants and other assistance received during the year.

    6. Expenditure of the Council

    The Council expended a total of K28,016,708 during the year ended 31 December, 2008. Included in this amount is K7,591,157 and K20,425,551 from its Operational and Development Accounts respectively. I was not provided with sufficient and appropriate supporting documentation in relation to expenses totaling K918,359 for Administrative and Consultancy (K649,051), Consultancy Agreements (K238,908) and Property Rental (K30,400). Consequently, I was unable to verify and confirm the validity and the correctness of these payments for the year ended 31 December, 2008.

    DISCLAIMER OF OPINION

    Because of the significance of the matters referred to in the Basis for Disclaimer Opinion, I have not been able to obtain sufficient appropriate evidence and accordingly, I am unable to express an opinion on the Council‟s financial statements for the year ended 31 December, 2008.”

    21.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records of the Council for the year ended 31 December, 2008 was issued on 22 June, 2012. The report contained the following observations:

    1. Vehicle Expense

    A total of K119,141 was paid to a hire car company for negligent damages caused to a hired vehicle. The claim was improperly paid from the recurrent account for the motor vehicle which was hired for a Development Budget Activity. As this issue was raised in the October 2008 FMIU report and was addressed by the NACS Disciplinary Committee, I was informed by management that it had instructed its lawyers to issue a Garnishee Order against the concerned officer to effect recovery proceedings over the period of his employment contract.

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    2. Fixed Assets Register

    The Council did not maintain an Assets Register to record all its assets purchased, nor a stock take conducted annually to verify their existence and values. The Assets Register furnished for my review was incomplete and had inaccurate listing of assets without any depreciation schedule and proper classification of all assets, including costs. As such, the schedule of assets in the financial statements was prepared without any basis as it did not properly reflect the real value of the fixed assets as at 31 December, 2008. I was informed by management that an administration team has been tasked by the Procurement and Assets Disposal Committee to immediately commence a complete stock take of the existing assets and update the fixed assets register and dispose obsolete assets.

    3. Payroll Liabilities

    The payroll liabilities included employee contributions to POSF (Nambawan Super) (K46,806) and group tax (K205,537) which were not settled during the year. I was not provided with any explanations for these delays. I informed the Council that such delays may incur penalties under the Superannuation Act, 2002 as well as the Income Tax Act, 1959. Delays in remitting POSF (Nambawan Super) contributions would adversely affect any interest calculations that may have been added for its members during the year.

    4. Payroll Allowances

    A total of K175,537 paid to some officers of the Council was in excess of the normal fortnightly rates. I raised this concern with management and its response was that some staff had repaid their advances through salary deductions whilst others were advised to produce acquittals for all monies disbursed to them.

    5. Retirement Benefits and Gratuities

    My review of the retirement benefits and gratuities revealed that some contract staff whose employment contracts had expired after three (3) years from the commencement of their respective contracts were not renewed since then. Therefore, I was unable to verify the correctness and the validity of the salary and gratuities that were paid to these contract officers during the year.

    6. Government Grants

    Government grants were stated as K5,587,400 in the financial statements, however, I was not provided the Grants Confirmation Certificates from the Department of Finance for my verification. In the absence of the independent confirmation from the Department of Finance and Treasury, I was not able to confirm and verify the account balance of K5,587,400 as stated.

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    7. Administrative Consultancy Cost

    A total of K649,051 was spent on consultancy fees during the year ended 31 December, 2008. Included in this amount, is a total of K325,000 paid to a consultant for consultancy services provided. I noted that there were no supporting documents provided to justify the amounts paid. I raised this concern with management and its response was that it was unsuccessful in locating the documents and the matter was referred to the Fraud Squad for investigation in 2009.

    8. Consultancy Agreements

    The Council engaged two (2) law firms to provide legal services. I noted that a total of K211,838 and K27,070 was paid to the law firms respectively. However, I was not able to verify the completeness, correctness and validity of the rates used and the payments made as their contracts or letters of engagement were not provided for my review and verification.

    9. Property Rental

    A total of K30,400 was paid to a company for renting a property to store condoms. However, the lease agreement was not provided for my review and verification and as a result, I was unable to confirm the correctness and the validity of the monthly rentals paid.

    10. Employment Contracts

    In my review of payroll, I noted that there were no employment contracts in place for most of the Contract Officers of the Council. Further, I noted that there were no letters of offer and acceptance for most of the officers of the Council. Consequently, I was unable to determine the validity and the correctness of the salary and gratuity paid to the respective officers.

    11. Tax Declaration Forms

    In my review of the staff personal files, I noted that there were no records of tax declaration forms to verify the number of dependents claimed and the validity of tax computations. Further, I noted that the personnel files were not updated. I raised this concern with management and it responded that this was as a result of poor record management and maintenance and they are working to ensure that records are properly recorded and kept.

    12. Procurement Procedures

    The National AIDS Council Secretariat, as a government entity, is required to comply with the provisions of the Public Finances (Management) Act, 1995. However, in many instances, I observed that the Council failed to comply with these requirements and had committed public monies totaling K684,500 to two (2) suppliers without due care to economy, wastage and extravagant usage. -74-

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    13. Payment Vouchers

    In my review of the expenses, I noted several instances where payment vouchers totaling K658,597 were missing and could not be located. As a result, I was not able to verify the validity and the correctness of these payments. I raised the issue with management and they responded that due to the poor filing of records the missing paid vouchers could not be located.

    14. General Advance Management

    In my review of the advance register, I observed that advances made during the year were not recorded and traced to the beneficiaries and perused for acquittal purposes. I was unable to verify the appropriateness and the completeness of the register due to inadequate information provided in the advance register. I noted that travel and accommodation related expenses revealed a substantial amount of K510,649 was paid for overseas and domestic travels but the acquittals were not provided for my review. This practice was contrary to the requirements of the Public Finances (Management) Act, 1995 in relation to acquittal of advances.

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

    The Council 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 (5) 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 31 December, 2008.

    21.3 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 Council for the year ended 31 December, 2009 was completed. The Management however, had not responded to the matters raised in my management letter to date in order for me to finalise and issue my report under the Audit Act, 1989 (as amended).

    The fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Council for the year ended 31 December, 2010 had been completed and the results were being evaluated.

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

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  • 22. NATIONAL BROADCASTING CORPORATION

    22.1 INTRODUCTION

    22.1.1 Legislation

    The National Broadcasting Commission was established under the Broadcasting Commission Act (Chapter 149). This Act was amended in 1995 by the National Broadcasting Commission (Change of Name and Corporate Structure) Act, 1995.

    In terms of Section 4 of the Broadcasting Commission (Change of name and Corporate Structure) Act No.49 of 1995, the name of the Commission was changed to Corporation.

    The Amendment Act No.49 of 1995 came into operation on 23 April, 1996 as per Gazettal Notification No.G.32.

    22.1.2 Functions of the Corporation

    The principal functions of the Corporation are to provide balanced, objective and impartial broadcasting services and in so doing, to take in the interests of the community, all such measures as in its opinion are conducive to the full development of suitable broadcasting programmes.

    The Corporation‟s other functions are: to ensure that the services that it provides, when considered as a whole, reflect the drive for national unity and at the same time give adequate expression to the culture, characteristics, affairs, opinions and needs of the people of the various parts of the country and in particular of rural areas; to do all in its power to preserve and stimulate pride in the indigenous and traditional cultural heritage of Papua New Guinea; to take extreme care in broadcasting material that could inflame racial or sectional feelings; and to co-operate with the Government in broadcasting social, political, economic and educational programmes.

    22.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    22.2.1 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 Corporation for the years ended 31 December, 2008 and 2009 were issued on 25 October, 2011 and 30 April, 2012 respectively. The reports contained similar Disclaimer of Opinions, hence only the 2009 report is reproduced.

    “BASIS OF DISCLAIMER OF OPINION

    Internal Control Environment

    During my review, I identified significant weakness in the Corporation‟s overall internal control environment operated during the period under audit.

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    The accounting system (Attaché) and internal control environment at the National Broadcasting Corporation continued to be severely deficient. The inefficient management information system, inexperienced and/or incompetent staff and inadequate financial reporting structure had contributed to the undue delay in the preparation of the financial statements and delay in providing information for management decision making. The reports that were produced by the system were inaccurate and management was unable to substantiate most of the balances included in the general ledger. This effectively meant that the management could not place reasonable reliance on the accounting system for ensuring completeness and accuracy of the books of the accounts maintained.

    Limitation of Scope due to Disclaimer of Audit Opinion on the previous year‟s Financial Statements

    I issued a disclaimer of opinion in my audit report for the year ended 31 December, 2008. The reason for such a disclaimer of opinion was the limitation of scope arising from my inability to obtain accounting records and proper explanations for the differences that arose between the general ledger balances and the financial statements. Consequently, I was unable to quantify the effects of any material misstatements in the opening balances that might have a consequential effect on the financial statements of the Corporation for the year ended 31 December, 2009. As a result, I was unable to perform sufficient audit procedures to satisfy myself as to the completeness and accuracy of the opening balances or the comparatives presented in the financial statements.

    Limitation of Scope on the General Ledgers

    As noted in prior year audit, the Corporation did not provide a General Ledger and Trial Balance for the year ended 31 December, 2009 which forms the basis for the preparation of the annual financial reports. The accrual basis of accounting for debtors and creditors was incorrectly applied. I noted that the Corporation‟s chart of accounts had so many unnecessary similar accounts where only one could be used to record same transactions.

    Posting of transactions to their correct accounts was also inconsistent. Due to the above, I was unable to place reliance on the accounts and records submitted for my audit verification to establish whether the National Broadcasting Corporation had fully complied with the statutory requirements for maintaining proper accounts and records.

    Limitation of Scope Arising from Lack of Information/Records on Fixed Assets

    The carrying value of the Corporation’s fixed assets was K41,516,804 as at 31 December, 2009. This represents 73% of the total assets of the Corporation. During my review, I was neither able to establish nor confirm the ownership of the revalued land and buildings totaling K38,052,277. Further, the evidence of ownership of various fixed assets and details of their effective lives were not made available for my examination and verification. Also, no proper fixed assets register was maintained and the Corporation did not undertake a physical stock-take of its fixed assets during the year under review.

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    In addition, I could not confirm the depreciation amount for the year totaling K6,700,446 as correct because of poor maintenance of the fixed assets register and depreciation schedule. As a result, I was unable to verify the physical existence, ownership, usefulness and valuation including the adequacy or otherwise of the provision for depreciation of fixed assets.

    Scope Limitation – Accounts Receivable and Other Debtors – K8,388,348

    The financial statements disclosed trade debtors as K2,416,844 and prepayments as K5,971,504 at the year end. In the absence of sufficient documentary evidence of the trade debtors and prepayment balances, I was unable to verify the accuracy, completeness and validity of the account balance at the year end.

    Scope Limitation – Cash and Cash Equivalents – K7,156,868

    The cash and cash equivalents disclosed as K7,156,868 at 31 December, 2009. The Bank reconciliations were not available for some of the bank accounts operated by the National Broadcasting Corporation. Further, the Corporation disclosed an overdraft bank balance of K18,671,828 as a current liability in the financial statements. However, I noted that the Corporation did not have overdraft facility with any banking institutions. In the absence of proper reconciliations of the bank accounts and overdraft facilities, I was unable to confirm on the completeness, accuracy and existence of the bank and petty cash balances and the bank overdraft balances disclosed in the financial statements at the year end.

    Scope Limitation – Trade Creditors and Accruals – K10,251,550

    The Corporation disclosed trade creditors balance as K6,455,766 and accruals balance of K3,795,784 respectively in the financial statements at the year end. The Corporation did not provide any reconciliations and appropriate documentary evidence to support the amounts. As a result, I was not able to confirm the accuracy, completeness and existence of trade creditors and accruals at the balance date. Furthermore, I was unable to perform the cut-off procedures test of sundry creditors to ascertain whether all credit transactions were recorded in the correct accounting period and that the accruals were fairly recorded and that the method of accounting for accruals was consistently applied. As a result, I was unable to confirm whether the account balances were fairly stated at the year end.

    Scope Limitation – Deferred Income – Donations

    The Corporation disclosed K10,699,324 as deferred income for donations at the year end, however, the amount lacked appropriate supporting documentation. The annual amortization amount as K3,728,669 was transferred to grant income which I could not verify due to the lack of supporting documentations. As a result, I was unable to confirm the validity, completeness and accuracy of the deferred income and the amortized amounts as stated in the financial statements.

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    Scope Limitation – Provisions

    Note 10 to the financial statements, disclosed staff entitlements totaled K5,731,526 at the year end. This amount comprised of K4,377,131 for recreation leave and K1,354,395 for furlough leave. I was unable to validate the existence, accuracy and completeness of the account balance due to the absence of sufficient and appropriate documentary evidence.

    Scope Limitation – Profit and Loss Account

    The Corporation reported total revenue as K29,621,512, expenditure as K39,280,831 and recorded a net loss of K9,659,319 for the year ended 31 December, 2009. I was not provided with appropriate supporting documentary evidence in respect of the sources of revenue and expenditure accounts for the period under review to substantiate the subsidiary account balances. Because of the limitation in documentary evidence, I was unable to verify the accuracy, completeness and validity of the account balances at the year end.

    Non-Compliance with the Public Finance (Management) Act, 1995

    The Corporation failed to comply with the Public Finance (Management) Act, 1995, Section 64(2) by not submitting the financial statements on a timely basis to enable me to conduct the audit and support the results before the statutory deadline.

    DISCLAIMER OF OPINION

    In my opinion, because of the limitation of the scope of my work and other matters referred to in the Basis for Disclaimer Opinion paragraphs, and the effects of such adjustments, if any, as might have been determined to be necessary had the limitations and other matters not existed, I am unable to and did not express an opinion on the financial statements of the National Broadcasting Corporation for the year ended 31 December, 2009.”

    22.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Corporation for the years ended 31 December, 2010 and 2011 had not been submitted for my inspection and audit, despite my reminder correspondences to the Corporation.

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  • 23. NATIONAL CAPITAL DISTRICT COMMISSION

    23.1 INTRODUCTION

    23.1.1 Legislation

    The National Capital District Government (Preparatory Arrangements) Act, 1982, established the National Capital District Interim Commission. The purpose of this Act was to establish an interim government for the National Capital District, and make preparatory arrangements for the establishment of a government for the National Capital District as required by Section 4(4) of the National Constitution. The National Capital District Government (Preparatory Arrangements) [Amendment] Act, 1987, came into operation in 1987.

    The National Capital District Commission Act, 1990, which became operational on 5 November, 1990, established the National Capital District Commission.

    The introduction of this Act resulted in the amalgamation of Motu-Koitabu Interim Assembly with National Capital District Commission. Consequently, the assets, liabilities and the obligations of the Interim Assembly were absorbed by the Commission on the commencement date.

    Amendments through the National Capital District Commission (Amendment) Act, 1992, which came into effect on 30 November, 1992 resulted in the establishment of the Motu-Koitabu Council.

    That was followed by the establishment of the system of government for the National Capital District through the National Capital District Commission (Amendment) Act, 1995, which came into operation on 19 July, 1995. The National Capital District comprises the National Capital District Commission, the Motu-Koitabu Council and Local-Level Governments in the National Capital District.

    23.1.2 Functions of the National Capital District Commission

    The functions of the National Capital District Commission are:

    (a) to control, manage and administer the National Capital District, to ensure its welfare and that of the persons in its jurisdiction; and

    (b) to ensure that an adequate level of assistance is given towards the successful operation of Tabudubu Limited – the Company established by the Motu-Koitabu Interim Assembly for the Motu-Koitabu people of the National Capital District.

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    23.2 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 Commission for year ended 31 December, 2009 had been completed and the results were being evaluated.

    The fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Commission for the year ended 31 December, 2010 was in progress.

    The financial statement for the year ended 31 December, 2011 had been submitted for my inspection and audit, and arrangements are being made to commence the fieldwork shortly.

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  • 23A. NATIONAL CAPITAL DISTRICT BOTANICAL ENTERPRISES LIMITED (A SUBSIDIARY OF NATIONAL CAPITAL DISTRICT COMMISSION)

    23A.1 INTRODUCTION

    The National Capital District Botanical Enterprises Limited was incorporated under the Companies Act, 1997 on 17 January, 2000.

    The main objective of the Company was to take control over the operations of the Botanical Gardens.

    Port Moresby City Development Enterprises Limited, a 100% owned subsidiary of the National Capital District Commission, holds 94% of the shares and the National Capital District Commission holds the remaining 6% shares directly or indirectly through trust.

    23A.1.1 Activities

    The Company‟s activities includes the sale of flowers and conducting research relating to orchids and horticulture.

    23A.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with inspection and audit of the accounts and records and the examination of the financial statements of the Company for the years ended 31 December, 2003 to 31 December, 2007 had been completed and the results were being evaluated.

    The Company had submitted its financial statements for the year ended 31 December, 2008 and preparations were being made to commence the audit shortly.

    The financial statements of the Company for the years ended 31 December, 2009, 2010 and 2011 had not been submitted for my inspection and audit.

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  • 23B. PORT MORESBY CITY DEVELOPMENT ENTERPRISES LIMITED (A SUBSIDIARY OF NATIONAL CAPITAL DISTRICT COMMISSION)

    23B.1 INTRODUCTION

    The National Capital District Commission acquired 100% shares of Vatar No. 16 Pty Limited in 1994 with the intention to utilise the land called „Duran Farm‟ for the construction of houses for its staff on the Home Ownership Scheme. The Company changed its name in November, 1996 to Port Moresby City Development Enterprises Limited. This Company is a fully owned subsidiary of National Capital District Commission.

    23B.1.1 Activities

    The Company‟s activities include business promotions in NCD and the management of Taurama Leisure Centre‟s Gymnasium.

    23B.2 AUDIT OBSERVATIONS

    23B.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 City Development Enterprises Limited for the years ended 31 December, 2003, 2004 and 2005 were issued on 21 May, 2012. These reports contained similar Disclaimer of Opinions, hence, only the 2005 report is reproduced as follows:

    “BASIS FOR DISCLAIMER OF OPINION

    1. Limitation of Scope Regarding Accounting Records

    I did not receive the accounting records and other necessary information from the management of the company for the year ended 31 December, 2005. I am therefore unable to perform appropriate audit procedures.

    2. Going Concern

    The company has been making losses in the past and is in a net liability position at year end. The continuity of the entity a going concern depends on the grants received from the National Capital District Commission, however, the entity has not received any written commitment from the Commission that grants will continue to be given for the foreseeable future. Accordingly, there is significant uncertainty about the ability of the company to continue as a going concern should the Commission discontinue the grants. No disclosures are made in the financial statements in relation to this uncertainty.

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    DISCLAIMER OF OPINION

    Because of the significance of the matters described in the Basis for Disclaimer of Opinion, I have not been able to obtain sufficient appropriate audit evidence and accordingly I am unable to express an opinion on the financial statements of Port Moresby City Development Enterprises Limited for the year ended 31 December, 2005.

    OTHER MATTER

    In accordance with the Audit Act, I have duty to report on significant matters arising out of the financial statements, to which the report relates. Without qualifying the audit opinion, I draw attention to the following issue:

     Port Moresby City Development Enterprises Limited has not prepared its financial statements within five months after the balance date and has consequently breached Section 179 (1) of the Companies Act, 1997.”

    23B.3 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 Company for the years ended 31 December, 2006 and 2007 had been completed and the results were being evaluated.

    The Company had not submitted its financial statements for the years ended 31 December, 2008 to 2011 for my inspection and audit inspite of numerous reminders.

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  • 24. NATIONAL CULTURAL COMMISSION

    24.1 INTRODUCTION

    24.1.1 Legislation

    The National Cultural Commission was established under the National Cultural Commission Act, 1994. This Act came into operation on 15 November, 1994 thereby repealing the National Cultural Committee (Interim Arrangements) Act, 1993.

    Under the Act, all assets held by, and obligations and liabilities imposed on the former National Cultural Committee immediately before the operationalisation of the Act, were, on that date, transferred to the Commission.

    24.1.2 Functions of the Commission

    The main functions of the Commission are to perform the cultural functions of the former National Cultural Committee and in this connection: to assist and facilitate, preserve, protect, develop and promote the traditional cultures of the indigenous people of Papua New Guinea; to encourage the development, promotion and protection of the contemporary cultures of Papua New Guinea; to facilitate the marketing of selected and approved aspects of the cultures of Papua New Guinea; to co-ordinate with related Government and Non-Government Agencies on cultural matters; to co-ordinate cultural activities with Provincial Cultural Bodies; to liaise with Non- Government Organisations on cultural matters; and to liaise with International Cultural Organisations.

    24.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Commission had not submitted its financial statements for the years ended 31 December, 2010 and 2011 for my inspection and audit, despite my various reminder letters to the Commission.

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  • 25. NATIONAL ECONOMIC AND FISCAL COMMISSION

    25.1 INTRODUCTION

    25.1.1 Legislation

    The National Economic and Fiscal Commission was established in April 1996 under the National Economic and Fiscal Commission Act, 1996 and Section 117 of the Organic Law on Provincial and Local Level Governments.

    25.1.2 Functions of the Commission

    The main functions of the Commission are to:

    (a) provide assessment and views on national macro and micro economic issues and their relevance on the overall development of rural and urban communities;

    (b) consider and co-ordinate requests by Provincial Governments and Local-Level Governments for foreign grants, loans and other financial assistance for development purposes;

    (c) ensure that Provincial Governments and Local-Level Governments obtain a fair share of national wealth and make recommendations to the National Executive Council on the allocation of grants to Provincial Governments and Local-Level Governments;

    (d) recommend suitable economic development strategies and sound fiscal management policies to the Minister responsible for financial matters;

    (e) carry out cost and benefit analysis on the development of all natural resources and the impact of such development on national development and make such analysis available to the National Executive Council;

    (f) review public accounting and related practices;

    (g) make yearly reports and recommendations to the National Executive Council through the Minister responsible for financial matters;

    (h) assist the Provincial and Local-Level Service Monitoring Authority with assessments and views on the planning and implementation systems of the Provincial Governments and Local-Level Governments;

    (i) establish and maintain a gradation system for the purpose of classifying provinces and districts according to the stages of development of each;

    (j) assist the Provincial and Local-Level Service Monitoring Authority in carrying out its other functions; and

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    (k) provide advice to the Minister responsible for Provincial Government and Local-Level Government (now Inter Government Relations) matters as and when required.

    25.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements for the years ended 31 December, 2007, 2008, 2009, 2010 and 2011 were not submitted for my inspection and audit, despite numerous reminders from my Office.

    In my correspondences to the Commission, I requested it to comply with the provisions of the Public Finances (Management) Act, 1995, especially its responsibilities under Section 63 where amongst other things, it is required to furnish its financial statements around March of the subsequent year for my inspection and audit and for that report to be tabled in Parliament.

    The Commission did not comply with these requirements.

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  • 26. NATIONAL FISHERIES AUTHORITY

    26.1 INTRODUCTION

    26.1.1 Legislation

    The National Fisheries Authority was established under the Fisheries Management Act, 1998. This Act came into operation on 11 February, 1999 and replaced the Fisheries Act, 1994. Under this Act, all assets including monies held in trust accounts which were held or occupied by the National Fisheries Authority established under the Fisheries Act, 1994, were transferred to and became assets of the Authority.

    26.1.2 Functions and Powers of the Authority

    The primary functions and powers of the Authority are described as follows:

    (1) The Authority shall:-

    (a) manage the fisheries within the fisheries waters in accordance with this Act, taking into account the international obligations of Papua New Guinea in relation to tuna and other highly migratory fish stocks;

    (b) make recommendations to the Board on the granting of licences and implement any licensing scheme in accordance with this Act;

    (c) liaise with other agencies and persons, including regional and international organisations and consultants, whether local or foreign, on matters concerning fisheries;

    (d) operate research facilities aimed at the assessment of fish stocks and their commercial potential for marketing;

    (e) subject to the Pure Foods Act, the Commerce (Trade Descriptions) Act, the Customs Act, the Customs Tariff Act, and the Exports (Control and Valuation) Act, control and regulate the storing, processing and export of fish and fish products;

    (f) appraise, develop, implement and manage projects, including trial fishing projects;

    (g) prepare and implement appropriate public investment programmes;

    (h) collect data relevant to aquatic resources;

    (i) act on behalf of the government in relation to any domestic or international agreement relating to fishing or related activities or other related matters to which the Independent State of Papua New Guinea is or may become a party;

    (j) make recommendations on policy regarding fishing and related activities;

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    (k) establish any procedures necessary for the implementation of this Act, including tender procedures; and

    (l) implement any monitoring, control, and surveillance scheme, including co- operation, agreements or arrangements with other States or relevant international, regional or sub-regional organisations, in accordance with this Act.

    (2) The Authority has, in addition to the powers otherwise conferred on it by this Act and any other law, full powers to do all things that are necessary or convenient to be done for or in connection with the performance of its functions and the achievement of its objectives.

    26.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    26.2.1 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, 2009 was issued on 12 March, 2012. The report contained a Qualified Audit Opinion.

    “BASIS FOR QUALIFIED OPINION

    Limitation of scope and departure from International Financial Reporting Standards.

    1. Non-Compliance with IAS 16 “Property, Plant and Equipment”

    The Authority adopts the revaluation model for the measurement of property, plant and equipment. The last revaluation of property, plant and equipment was undertaken in 2001. This, in my opinion, is not in accordance with International Accounting Standard 16 “Property, Plant and Equipment” (IAS 16). Where this revaluation model is being adopted, International Accounting Standard 16 (IAS 16) paragraph 31 requires that the revaluations should be made with sufficient regularity to ensure that the carrying amounts of property, plant and equipment do not materially differ from the fair values determined through revaluation. As a result of non compliance with IAS 16 paragraph 31, I was unable to satisfy myself as to the carrying value of property, plant and equipment of K37,211,116 at the balance date.

    2. Limitation of Scope – Land and Buildings

    The Authority has been physically verifying and compiling all its land and building to ensure that appropriate title deeds are in place as evidence of ownership of property. The documentation provided for audit examination was inadequate to enable me to perform the audit procedures and satisfy myself that the Authority holds appropriate titles to its recorded land and buildings. As a result, I was unable to verify the Authority‟s ownership of land and buildings.

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    3. Limitation of Scope – Long Term Loan Transfer to Equity – K19,139,858

    The statement of changes in Government Reserve reflects that a long term loan of K19,139,858 was transferred to equity during the year ended 31 December, 2006. I understand that the Independent State of Papua New Guinea (the “State”) negotiated with the Asian Development Bank (“ADB”) and then signed a subsidiary loan agreement with the Authority. The loan was completely drawn down in 2003 and was forgiven by the State hence the write back to equity. I have not been provided with the subsidiary loan agreement or documentation to support the fact that the loan was forgiven and is now the responsibility of the State. In the absence of such documentation, I was unable to satisfy myself as to the validity and completeness of this account balance at the year end.

    4. Limitation of Scope – Asian Development Bank Loan – K11,793,695

    The Independent State of Papua New Guinea (the “State”) negotiated a loan amounting to K11,793,695 (4,284,000 Special Drawing Rights (SDR)) with the Asian Development bank for the Coastal Development and Fisheries Management and Development Project. As in 3 above, the State signed a subsidiary agreement with the Authority. I have not been provided with independent confirmation of the loan amount and the terms from the State and accordingly I was unable to satisfy myself as to the validity and completeness of the loan amount of K11,793,695 at the year end.

    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 above:

    a) the financial statements are based on proper accounts and records;

    b) the financial statements are in agreement with those accounts and records, and show fairly the state of affairs of the National Fisheries Authority as at 31 December, 2009 and the results of its financial operations, its cash flows and the changes in equity for the year then ended.”

    26.3 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 Authority for the year ended 31 December, 2010 had been completed and the results were being evaluated. The financial statements of the Authority for the year ended 31 December, 2011 had not been submitted for my inspection and audit.

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  • 27. NATIONAL GAMING CONTROL BOARD

    27.1 INTRODUCTION

    27.1.1 Legislation

    The National Gaming Control Board was established in September, 1993 by the enactment of the Gaming Machine Act, 1993.

    27.1.2 Functions of the Board

    The principal functions of the Board are to consider applications for, and where appropriate, grant permits and licences under this Act and to control the operations of gaming machines as specified in this Act, and any other law.

    27.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    27.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the Board‟s financial statements for the years ended 31 December, 2008, 2009, 2010 and 2011 were issued on 25 June, 2012. These reports contained similar Qualified Opinions, hence, only the 2011 report is reproduced as follows:

    “BASIS FOR QUALIFIED OPINION

    Opening Balances

    I am unable to confirm the correctness of the opening balances as at 1st January, 2011 due to errors and material limitations of scope expressed in previous audit reports. As a result of these limitations, I was unable to perform tests to verify the completeness and accuracy of these balances as at 31 December, 2011.

    Fixed Assets

    Included in the fixed assets balance in the balance sheet and elaborated in Note 10 of the financial statements, is an amount of K16,882,031 and related to depreciation charge of K11,342,031 in relation to poker machines. The Board did not maintain a proper assets register for the poker machines. In the absence of a proper register, I am unable to comment on the completeness, accuracy and existence of the poker machines. Further, included in the K16,882,031 is an amount of K4,000,000, funds advanced from Community Benefit Fund for the purpose of purchasing poker machines. I am not able to determine whether the poker machines were purchased and delivered.

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    QUALIFIED OPINION

    In my opinion, except for the effect of the matters described in the Basis for Qualified Opinion, the financial statements of the National Gaming Control Board for the year ended 31 December, 2011:

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

    (b) with exception of instances of non-compliance described under Other Matters, the financial statements have been prepared in accordance with International Financial Reporting Standards, Public Finance (Management) Act and other generally accepted accounting practices in Papua New Guinea.”

    27.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended) on the inspection and audit of the accounts and records for the years ended 31 December, 2008, 2009, 2010 and 2011 were issued on 25 June, 2012. These reports contained similar observations, hence, only the 2011 observations are reproduced as follows:

     Board Composition and Decisions

    Pursuant to Section 11 of Gaming Control Act, 2007, board membership comprised of ten people, (six (6) non ex officio members and four (4) ex officio members). Pursuant to Section 20, five (5) members constitute a quorum for any board meetings and deliberation issues. For the period 1 January, 2011 to 30 September, 2011, the chairman was the only non ex officio board member appointed and made all decisions relating to the affairs of the Gaming Board.

     Community Benefit Fund

    For the period under review, K7,470,293 was transferred from the Community Benefit Fund to the main operating account of National Gaming Control Board. The purpose of the transfer was to enable the Chief Executive Officer to approve and make payments falling under his delegated expenditure limit of K50,000. No proper reconciliation of the transfers was carried out during the period under review, thus resulting in a difference of K5,562,699 in the fund balance. The difference is shown in Note 9 of the financial statements as Transfers (Main Operating Account).

     Board Meetings

    I noted during my review that no board meetings have being called for and issues of the NGCB deliberated and resolved. Instead, the acting chairman solely acted as the board and unilaterally decided and acted on the issues of National Gaming Control Board.

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    I recommended that management seek legal opinion on the decisions made by the chairman with a view to ratifying them or to recover assets lost. Management noted my views and stated that they now have a full board in place and meetings are held frequently and issues deliberated via board meetings.

     Strategic Business Plan

    I noted that the management did not have a strategic business plan or at least a business plan for the period under review. As a result, the operations were on an ad hoc basis. I recommended management to ensure a strategic plan is in place.

     Under and Over Banking of Daily Takings by Site Owners

    I noted differences in respect of reports generated by Central Control Monitoring System (CCMS) and actual bank deposits. This is mainly due to site owners over or under banking. I recommended management to ensure that the site owners are inducted to do banking in line with the CCMS reports. Management stated that the finance section is in constant dialogue with the site owners to ensure such differences are kept to minimum levels.

     Segregation of Duties over end user Function, System Administration and Software Development Functions

    At present, the software Developer Company is using the Central Control Monitoring System (CCMS) to monitor the gaming machines, also administers the system and further is the developer of the CCMS software. The three functions are incompatible functions (from internal controls perspective) and need to be segregated and brought under different company or organizational structure and reporting arrangements to safeguard the integrity of the information channeled through the system. I recommended management to ensure the functions are segregated.

     CCMS Source Code

    Management has not yet obtained the source code from the CCMS developer. Source code is the basis upon which the software was built. Any modifications to the system will be via the source code, which without it, is impossible. I recommended management to make attempts to secure the source codes.

     Business Continuity Plan

    At present, the only person who has the knowledge of the CCMS is the Operations Manager of the Software Developer Company. There is also only one person from another Company, an Australian based company (Contractor to the Software Developer Company) who has knowledge about the software. No other persons are understudying them to ensure continuity in the event that the two persons are absent.

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    I recommended management to bring back the function under its purview so that it can control the overall operation.

     Register of Poker Machines

    I noted from my review that NGCB does not maintain a comprehensive register of poker machines purchased by the Software Developer Company. I have requested the Company to forward us a complete list of poker machines purchased by them. To date, a list is yet to be furnished. I recommended management to ensure a comprehensive register of poker machines is in place.

     Purchase of Poker Machines – K5,540,000

    Payments totaling K5,540,000 were paid to the Software Developer Company during the period under review for purchase of gaming machines. Whilst proper tendering procedures were not followed in the engagement of the Company, the company is carrying on business only restricted to licensed operators. Only National Gaming Control Board is required to import gaming machines under Section 130(3) of the constituent Act. I recommended management to ensure processes are in place to ensure National Gaming Control Board is compliant with the requirements of its own Act. I also recommended that the matter be referred to fraud squad for further investigation. On the process, management noted my recommendations for actioning. On the fraud squad referral, management stated that an internal investigation was carried out and the issues raised are before the fraud squad for further investigation.

     Book Making System Upgrade – K1,705,000

    A payment of K1,705,000 was paid to the Software Developer Company to supply software and equipment to monitor Horse race gaming activity which will replace the current manual system. The contract was given to the Company via Certificate of Inexpediency (COI) and Central Supplies and Tenders Board (CSTB) approved the contract at K5,100,000. I noted the following issues in respect of the payments.

    – The board is responsible for licensing bookmakers. The system developed does not fit into the functions of the board. It is considered more a function of the Internal Revenue Commission to ensure tax revenue is protected.

    – My enquiry into the physical existence of the system proved futile. Management is not aware of whether the system has been completed and delivered.

    I recommended management to ensure appropriate measures are taken to ensure that the system is delivered. I also recommended that the matter be referred to fraud squad for further investigation. On the system delivery, management stated that they would take measures to ensure that the system is delivered. On the fraud squad referral management stated that an internal investigation was carried out and the issues raised are before the fraud squad for further investigation.

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     Trust Deed – Community Benefit Fund

    The Trust Deed was never gazetted as required. I recommended that the Trust Deed is gazetted with retrospective effect to 4 December, 2007.

     Adequacy of Trust Deed Guidelines

    I have reviewed the Trust Deed signed between the NGCB and the Trustees and noted that the deed is inadequate in the following areas:

    i) Application of Public Finances (Management) Act, 1995 – Public Finances (Management) Act, 1995 requirements are still applicable to the operations of the trusts and a mention of that was not made in the deed. The trustees must have a process of ensuring that funds are spent in accordance with Public Finances Management Act;

    ii) Who should apply for the fund – The trust deed is too general in terms of who should apply. It should make it very specific to avoid ambiguity;

    iii) Acquittal of funds – The acquittal process was not explicitly defined;

    iv) Investment of excess funds – The deed was in silent on investment of excess funds; and

    v) Accountability – Certain clause of the trust deed appeared to waive scrutiny and accountability for the actions of the Trustees.

    I recommended management to review the Trust Deed with a view to incorporating the deficiencies.

     Payments to Consultants and Contractors

    Payments totaling K236,000 were paid to various consultants and contractors during the period under review. Proper bidding process was not followed in their engagements.

    I recommended management to ensure requirements of Public Finances (Management) Act, 1995 are complied with in awarding contracts.

     Gaming Machine Monitoring Fees – K2,884,552

    Payments totalling K2,884,552 were paid to the Software Developer Company as Gaming Machine Monitoring Fees during the period under review. Proper tendering procedures were not followed in engaging the company. I also noted that the amount of fees paid to the company was excessive considering that the system is owned by NGCB and the nature of work was not complex.

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    I recommended management to ensure Public Finances (Management) Act, 1995 requirements are complied with in awarding of contracts. I also recommended that the matter be referred to fraud squad for further investigation. On the compliance aspect, management noted my recommendations for actioning.

    On the fraud squad referral, management stated that an internal investigation was carried out and the issues raised are before the fraud squad for further investigation.

     Management Fees – K1,272,816

    Payments totaling K1,272,816 were paid to a Management Company as Gaming Machine Management Fees during the period under review. Proper tendering procedures were not followed in engaging the company to supply the poker machines. I recommended management to ensure Public Finances (Management) Act, 1995 requirements are complied with in awarding of contracts. I also recommended that the matter be referred to fraud squad for further investigation. On the compliance aspect, management noted my recommendations for actioning. On the fraud squad referral, management stated that an internal investigation was carried out and the issues raised are before the fraud squad for further investigation.

     Community Benefit Fund – Check and Balance System

    I noted that a dedicated unit within the National Gaming Control Board (NGCB) is established to facilitate the activities of the Trustee. The unit at present is performing a secretarial function in that they put together the incoming applications for trustee approval and facilitating payments after approval by the Trustees. They were not involved in active screening of the applications and making sure that the applications were within the terms of the trust deed and comply with other funding criteria. I also noted that the Director is remunerated equivalent to the director, Corporate Affairs or Director, Operations with National Gaming Control Board. I recommended to management to ensure the CBF Unit within NGCB make proper assessment of the funding applications prior to deliberating on them and approval.

     Trustee Remuneration

    I noted that Trustee remuneration is far in excess of normal public service standards. Refer Details below:

    Annual Stipend Per Trust Deed Per Ministers Directive K K Chairman 70,000 15,000 Deputy Chair 60,000 10,500 Members 50,000 8,500

    Sitting Allowances Chairman 2,500 300 Deputy Chair 2,000 200 Members 1,000 100

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    I recommended that the management should bring down the remuneration levels down to public service standards.

     Unacquitted Payments – K24,782,391

    I noted during my review that payments made by the trustees amounting to K24,782,391 for the period 1 January to 31 December, 2011 remain unacquitted. The trustees have written off the payments against the community benefit fund. Further, approvals to write off the payments have not being sighted within the requirements of Section 51 to 61 of the Public Finances (Management) Act, 1995. I recommended management to ensure recipients sign grant agreement with certain conditions and acquit in line with the grant agreement.

     Payments made to NGCB Operating Account – K7,470,293

    I noted during the year under review that funds amounting to K7,470,293 were transferred to NGCB main operating account from the CBF account. The amount represents 15% of CBF monthly receipts from gaming revenue and the transfer was approved by the Board of Trustees. The purpose of the transfer was to enable the CEO to make funding requests below K50,000 submitted by applicants. There were no proper reconciliation and acquittal of this funds back to the CBF account thus resulting in deficiencies of K5,562,699 in the fund balance as at year end. I recommended that timely acquittals should be made of the transfers to NGCB operating account.

     Gaming Machine Operators Accounts not being Checked for Compliance

    I noted from my review that the operators trust accounts have never being checked to ensure that moneys coming into the account from site owners are correctly taken up in line with CCMS reports and the payments to various parties are correctly made. I recommended management to carry out a review of the operators to ensure that the operations of the operators are in line with requirements of the NGCB and constituent Act.

     Disposal of Motor Vehicles – K580,142

    I noted from my review that management disposed off the motor vehicles at the cost of K580,142. In most cases the vehicles were disposed off to persons using the vehicles and at depreciated values. The practice has resulted in a loss of K16,996 to the Board. I recommended that management should ensure public tendering procedures are followed in the disposal of vehicles.

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  • 28. NATIONAL HOUSING CORPORATION

    28.1 INTRODUCTION

    28.1.1 Legislation

    The National Housing Commission Act (Chapter 79) was repealed by the National Housing Corporation Act, 1990. The assets and liabilities of the former National Housing Commission were transferred to the National Housing Corporation in March 1990.

    28.1.2 Functions of the Corporation

    The principal functions of the Corporation are: to improve housing conditions; to provide adequate and suitable housing or letting to eligible persons; to sell houses to eligible persons; to make advances to eligible persons and approved applicants to enable them to become the owners of houses occupied by them; to develop residential land by way of providing adequate services for human settlements; to carry out and promote research or investigations into matters connected with urban development and human settlements; and to maintain dwellings and associated buildings vested in the Corporation.

    28.2 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 years ended 31 December, 2008, 2009 and 2010 were in progress.

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

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  • 29. NATIONAL MARITIME SAFETY AUTHORITY

    29.1 INTRODUCTION

    29.1.1 Legislation

    The National Maritime Safety Authority was established by the National Maritime Safety Authority Act, 2003.

    29.1.2 Functions of the Authority

    The functions of the Authority are:

    (a) to perform the functions and exercise the powers as are conferred upon it by this Act or under any other law; and

    (b) to co-ordinate search and rescue operations for vessels in distress or lost at sea pursuant to the terms and conditions of a search and rescue plan prepared by the Minister, from time to time, and approved by the Authority; and

    (c) to co-ordinate with other agencies and persons, including regional and international organizations and consultants, whether local or foreign, on matters concerning maritime safety, marine pollution prevention or search and rescue operations at sea; and

    (d) to collect data relevant to maritime safety, marine pollution prevention and search and rescue operations at sea; and

    (e) to act on behalf of the State in relation to any domestic or international agreement relating to maritime safety, marine pollution prevention or search and rescue operations at sea to which the State is or may become a party; and

    (f) to make recommendations on policy to the Minister regarding maritime safety, marine pollution prevention and search and rescue operations at sea; and

    (g) to provide consulting services, training and management services relating to any of its functions whether in Papua New Guinea or overseas; and

    (h) where appropriate to consult with:

    (i) other agencies of National Government; or (ii) Provincial Governments; or (iii) Local Level Governments; or (iv) commercial, industrial and other relevant bodies and organizations, in relation to matters affecting them in the performance of its functions; and

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    (i) generally to do such supplementary, incidental or consequential acts and things as are necessary or convenient for carrying out its functions.

    29.2 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 for the year ended 31 December, 2010 was completed. However, the Management had not responded to the matters raised in my management letter to date in order for me to finalise and issue my report under the Audit Act, 1989 (as amended).

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

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  • 30. NATIONAL MUSEUM AND ART GALLERY

    30.1 INTRODUCTION

    30.1.1 Legislation

    The National Museum and Art Gallery was established under the provisions of the National Museum and Art Gallery Act, 1992. This Act came into operation on 15 April, 1992.

    30.1.2 Functions of the Museum

    The main functions of the Museum are: to protect and conserve the cultural and natural heritage of Papua New Guinea; to research and document the prehistory of Papua New Guinea and manage the national archaeological collections, and monitor archaeological research in Papua New Guinea; maintain the national register of traditional and archaeological sites; identify, maintain a register of national cultural property and monitor the collection and export of artefacts; and issue permits and perform other duties as required by the National Cultural Property (Preservation) Act (Chapter 156).

    30.2 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 Museum for the years ended 31 December, 2009 and 2010 were in progress.

    The Museum had submitted its financial statements for the year ended 31 December, 2011 and preparations were being made to commence the audit shortly.

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  • 31. NATIONAL NARCOTICS BUREAU

    31.1 INTRODUCTION

    31.1.1 Legislation

    The National Narcotics Bureau was established in April, 1992 by the enactment of the National Narcotics Control Board Act, 1992.

    31.1.2 Functions of the Bureau

    The principal functions of the Bureau are to make recommendations to the Board on policies, plans, matters or projects relating to abuse of drugs; coordinate and monitor the Government and Non-Government drug education, awareness and re-habilitation program, and conduct surveys and gather and evaluate information, on the consumption, cultivation, trafficking and manufacture of drugs.

    31.2 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 for the years ended 31 December, 2008 and 2009 were completed and the results were being evaluated. The Bureau had not submitted its financial statements for the years ended 31 December, 2010 and 2011 for my inspection and audit.

    The Bureau was also requested to resubmit the financial statements for the years ended 31 December, 2003 to 2007 on 20 October, 2008, 6 July, 2009 and 16 February, 2010 as these financial statements were incomplete. These requests and reminders were not responded and adhered to respectively.

    I also conducted an Internal Control Review (ICR) on the Bureau and the results of my findings were reported to the Management. However, the Management had not responded to my findings at the time of preparing this Report. As a result, this ICR report when concluded will be included in my next Report.

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  • 32. NATIONAL RESEARCH INSTITUTE

    32.1 INTRODUCTION

    32.1.1 Legislation

    The National Research Institute (NRI) was established under the Institute of Applied Social and Economic Research Act (Chapter 165). The name of the Institute was changed from „Papua New Guinea Institute of Applied Social & Economic Research‟ to „National Research Institute‟ following the approval of the National Executive Council through its Decision No. 42/90 of 7 March, 1990.

    The Institute of Applied Social and Economic Research (Amendment) Act, 1987, came into operation on 1 January, 1988, and on this date, the promotion and cultural functions of the former Institute of Papua New Guinea Studies; and functions to do with Educational Research for National and Provincial Departments of Education carried out by the former Educational Research Unit (UPNG), formed part of the National Research Institute.

    32.1.2 Functions of the Institute

    The functions of the Institute include the promotion of research into Papua New Guinea society and economy; the undertaking of research into social, political and economic problems of Papua New Guinea in order to formulate practical solutions to such problems; where practicable, the provision, by agreement with the body concerned, of consultancy services to the Government and to Government institutions; the promotion of the functions and objects of the Institute of Papua New Guinea Studies; and research into all aspects of education for National and Provincial Departments of Education.

    32.2 AUDIT OBSERVATIONS

    32.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended) on the financial statements for the year ended 31 December, 2010 was issued on 28 March, 2012. The report did not contain any qualification, but had the following comment in relation to other matters.

    OTHER MATTERS

    1. Title Deeds to Leasehold Land

    The Institute did not have title deeds for three (3) properties located at Section 482 Allotment 61, Section 482 Allotment 62 and Section 484 Allotment 35. These three properties were registered under Mimino & Associates and not under the Institute‟s name.

    2. Appointment of Council Members

    The appointment of Institute Board Chairman and the Council member representing the Community expired in January 2010, but have not been renewed during the year under audit.

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    3. Security Contracts

    Security contracts with the two security firms providing security services to NRI main campus and real estate properties did not have proper contracts in place.

    32.3 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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  • 33. NATIONAL ROAD SAFETY COUNCIL

    33.1 INTRODUCTION

    33.1.1 Legislation

    The National Road Safety Council was established under the National Road Safety Council Act, 1997. This Act came into operation on 1 May, 1998. The Council commenced its operational activities from May 1998.

    33.1.2 Functions of the Council

    The principal functions of the Council are:

    (a) to determine the goals and objectives in the promotion of road safety in Papua New Guinea;

    (b) to advise the National Government on all matters relating to road safety which the Council may from time to time consider desirable or which the National Government may refer to the Council;

    (c) to recommend to appropriate authorities the adoption of precautionary measures of all kinds calculated to prevent accidents involving the use of motor vehicles;

    (d) to foster, promote and conduct educational campaigns designed to stimulate compliance with acceptable and proven principles of road safety;

    (e) to enlist the aid of all agencies and individuals who in the opinion of the Council are able to promote any acceptable and proven principles of road safety;

    (f) to procure sufficient personnel and finance for purposes of the Council and to co-ordinate and control their use;

    (g) to foster and promote road safety research;

    (h) to determine measures which will lead to the improvement of road safety and implementation of such measures;

    (i) to monitor and evaluate the effectiveness of programs and strategies of organizations involved in the promotion of road safety;

    (j) to formulate, monitor and update an appropriate long term national programme for the improvement of road safety in Papua New Guinea and to supervise its implementation;

    (k) to consider and implement any other aspects of road safety as may be referred to it from time to time;

    (l) to perform such other functions as are given to it under this Act or any other law;

    (m) to advise the Minister and the National Executive Council on all or any of its functions specified in this section; and

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    (n) generally to do all such things as may be incidental or consequential upon the exercise of its powers and the performance of its functions.

    33.2 AUDIT OBSERVATIONS

    33.2.1 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 Council for the year ended 31 December, 2009 was issued on 01 February, 2012. The report contained a Qualified Audit Opinion:

    “BASIS FOR QUALIFIED AUDIT OPINION

    1. Traffic Infringement Fees – K1,015,579

    The Council disclosed in its financial statements K1,015,579 as motor traffic infringement fees collected for various offences committed by motor vehicle users during the year. The break-up and the supporting documents in relation to this balance were not provided for my verification and examination. As such, I was unable to verify the accuracy and completeness of this balance as at 31 December, 2009.

    2. Fixed Assets

    Audit noted that the Council‟s accounts were prepared on cash basis. As such, the fixed assets register is a vital record of all assets purchased by the Council, their estimated market condition and their movements. I also noted that the Council did not maintain a proper fixed assets register. The fixed assets register maintained by the Council did not include all the assets disclosed in the Statement of Assets. Further, supporting documents for new assets purchased during the year totalling K37,566 were not provided for my examination. As such, I was unable to verify the accuracy and completeness of the fixed assets balance as disclosed in the financial statements.

    QUALIFIED AUDIT OPINION

    In my opinion, except for the effects of the matters described in the Basis for Qualified Audit Opinion paragraphs above:

    (a) the financial statements are based on proper accounts and records; and

    (b) the financial statements are in agreement with those accounts and records and show fairly the state of affairs of the Council as at 31 December, 2009 and the results of its financial operations for the year then ended.”

    33.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Council did not submit its financial statements for the years ended 31 December, 2010 and 2011 for my inspection and audit.

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  • 34. NATIONAL ROADS AUTHORITY

    34.1 INTRODUCTION

    34.1.1 Legislation

    The National Roads Authority was established by the National Roads Authority Act, 2003, and came into operation in 2004.

    34.1.2 Objectives of the Authority

    The objectives of the Authority are:

    (a) to raise funds for the maintenance of public roads;

    (b) to ensure the efficient preparation of effective annual road maintenance programmes; and

    (c) to ensure that all routine, specific and emergency maintenance of roads and road rehabilitation and reconstruction funded by the Authority are executed in a transparent, effective and efficient manner, in order to optimise the contribution of road assets to the economic and social development of Papua New Guinea.

    34.1.3 Functions of the Authority

    The functions of the Authority are:

    (a) to establish and operate a Road Fund from road user charges, budget and other sources;

    (b) to establish resources and an organization to enable the Authority to perform its functions;

    (c) to maintain and manage updated data on asset conditions using the Road Asset Management System, Bridge Inventory and Bridge Maintenance and other approved systems;

    (d) to formulate and determine prioritised annual road maintenance plans and programmes using the Road Asset Maintenance System, Bridge Inventory and Bridge Maintenance and other approved systems to be supported by the road sector cost recovery revenues;

    (e) to establish annual road maintenance funding requirements in accordance with the future annual road maintenance plans;

    (f) to determine and implement road user charges in accordance with the financial resource requirements of the annual road maintenance plans;

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    (g) to deliver the required routine, specific and emergency road maintenance in accordance with the maintenance service levels established for each class or type or road, through the contracting of independent contractors, and to monitor and supervise the contracts as they are executed;

    (h) to deliver road improvement, and road restoration when required, by undertaking the design studies necessary for the programmed road improvement or rehabilitation projects:

    (i) by preparing corresponding construction plans, specifications, cost estimates, and the other documents required for the proper tendering of the programmed works;

    (ii) by monitoring and supervising the works as are executed, by such qualified consultants and/or contractors as are engaged; and

    (iii) by ensuring safety audits on design, construction, maintenance and safety aspects of road; and

    (i) to establish and sustain contract management capacity to ensure the validity of contracts and the effective management of contracts awarded for the execution of agreed road maintenance works and rehabilitation and reconstruction projects;

    (j) to ensure that all contracts are tendered through a transparent and competitive procedure to ascertain economic efficiency and sustainability in delivery of road maintenance and rehabilitation works;

    (k) to keep adequate records and to maintain a management information system which provides the Board and staff with accurate and timely information on commitments, expenditures and revenue for the purchase of consultancy and contracting services and other purchases and outlays;

    (l) to report publicly and transparently on collection of user charges, revenues, and in detail on the use of the revenues on the road maintenance programmes in accordance with internationally accepted accounting principles;

    (m) to establish environmental management capacity;

    (n) to provide a continuing programme of professional staff development and required skills training for non-professional staff; and

    (o) to construct, erect or affix signs or marks on road transport infrastructure in accordance with the Motor Traffic Act (Chapter 243).

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    34.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    34.2.1 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 Authority for the year ended 31 December, 2010 was issued on 22 June, 2012. The report contained a Qualified Audit Opinion.

    “BASIS FOR QUALIFIED AUDIT OPINION

    1. Balance of Contract Payable and Retentions

    In note 4 to the financial statements, the contract and retentions balance was stated as K8,547,985. Included in this amount is K704,538 for contract payments retentions made in the year ended 31 December, 2010. However, I noted that during the year, K397,037 was retained from payments made to contractors and the balance of the Contract retention at 31 December, 2010 was K9,707,778. A variance of K307,501 and K1,159,793 was noted respectively in the balances for the amounts retained and the cumulative account balance at year end. I was not provided sufficient and appropriate evidence to enable me to confirm and verify these differences. Therefore, I am unable to attest to the completeness, accuracy and correctness of the balance of the liability owed by the Authority as at 31 December, 2010.

    2. Revenue – Other Receipts

    Other Receipts was disclosed as K35,685 in the financial statements. Included in this amount was a total of K18,500 in tender fees for purchase of bid documents. I was informed that the other K17,185 consisted of differences/surplus from bank telegraphic transfers and foreign currency transactions with overseas suppliers. However, I was not able to verify the accuracy and the completeness of the amount as no supporting documents were provided for my review. Consequently, I am unable to confirm the accuracy and completeness of the Other Receipts balance disclosed in the financial statements as at 31 December, 2010.

    QUALIFIED AUDIT OPINION

    In my opinion, except for the effects of the matters referred to in the above paragraphs, the financial statements of National Roads Authority for the year ended 31 December, 2010;

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

    (ii) 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 practices.”

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    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;

    1. Paid Vouchers not Authorized, Checked and Certified

    Payment vouchers for payments totaling K40,428, were not authorized, checked and certified by appropriate officers‟ in-charge. I highlighted these irregularities to the Management and they responded as follows “All claims for expenditures are authorized by the Chief Executive Officer and certified by Assistant Manager Finance & Budget (AMF&B) and checked by Road Fund Manager before payments are made”. However, the Authority‟s Management did not furnish the respective paid vouchers for my verification.

    2. Payments not made on Actual Invoices

    I also noted that several payments totaling K56,897 were made to respective suppliers based on quotations or pro-forma invoices other than the actual invoices. I highlighted this irregularity in the procurement process to the Management and they informed me that the actual invoices and receipts issued by the supplier may have been misplaced.

    34.3 STATUS OF FINANCIAL STATEMENTS

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

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  • 35. NATIONAL TRAINING COUNCIL

    35.1 INTRODUCTION

    35.1.1 Legislation

    The National Training Council was established under the National Training Council Act, 1991. Although the Act came into operation on 5 December, 1991, the Council formally began operating in April 1992 following its inauguration.

    35.1.2 The Objectives of the Council

    The objectives of the Council are to foster the comprehensive development of training with regard to the needs and the resources of the country; to foster the co-ordination of training institutions so that the most effective use can be made of resources available for training which ensures increased productivity and capacity building in the workforce; to make the benefits of training as widely as possible; to plan and encourage the development of a system of training fitted to the requirements of the country and its people; to establish, preserve and improve standards of training throughout the country; to make the most effective use of the resources available for training related purposes in so far as this can be done by legislative and administrative measures; and to generally augment and support the role and functions of the Commission for Higher Education as specified in the Higher Education Act (Chapter 397).

    35.1.3 Functions of the Council

    The principal functions of the Council are to be responsible for supervising and managing the implementation of the National Training Policy and for monitoring, reviewing and revising the National Training Policy when necessary; to provide guidelines to the National Executive Council, Provincial Government, and the In-service Training Institution‟s Governing Councils on any issues related to training; and to formulate and publish guidelines on human resource requirements, localisation and indigenisation issues and related matters.

    35.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements for the year 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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  • 36. NATIONAL VOLUNTEER SERVICE

    36.1 INTRODUCTION

    36.1.1 Legislation

    The National Volunteer Service was established on 12 April, 1990 under the National Volunteer Service Act, 1990.

    36.1.2 Functions of the Service

    The principal functions of the National Volunteer Service are to promote a spirit of sacrifice and service to the people of Papua New Guinea; to provide labour, skills, education and training to the community for development projects; to cooperate and assist National and Provincial Government agencies as well as other organisations whose goals include the development of the people of Papua New Guinea, in achieving their plans and purposes; and to encourage and participate generally in the advancement of the development of Papua New Guinea.

    36.2 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 Service for the years ended 31 December, 2007 to 2011 were in progress.

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  • 37. NATIONAL YOUTH COMMISSION

    37.1 INTRODUCTION

    37.1.1 Legislation

    The National Youth Commission was established under the National Youth Service Act, 1991. This Act came into operation on 3 July, 1991.

    37.1.2 Functions of the Commission

    The functions of the National Youth Commission are: to train youths in vocational and related livelihood skills and in self discipline; to provide opportunities to enable youths to participate meaningfully in community activities; to promote self-reliance among youths and to discourage dependability on outside assistance; to provide the means to enable youths to contribute actively towards the maintenance of law and order, and establish better relationship between law enforcing agencies and the community; to assist and encourage youths to improve their education, and attain competency in numerical and communication skills; to provide the means for tertiary students to enter into the Service; to promote and maintain amongst youths acceptable social norms and values; and generally to do such supplementary, incidental or consequential acts and things as are necessary or convenient for carrying out its functions.

    37.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    37.2.1 Comments on the Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Commission for the year ended 31 December, 2010 was issued on 01 December, 2011. The report contained a Qualified Audit Opinion.

    “BASIS FOR QUALIFIED AUDIT OPINION

    Internal Control

    During my examination of accounts and records of the Commission for the year ended 31 December, 2010, I noted that the Commission‟s overall internal control environment was weak. The Commission had not implemented segregation of duties within its Accounting and Finance division. The staff employed by the Commission both permanent and casual lacked necessary skills and qualifications to undertake the tasks allocated to them.

    Travel Expenses

    The Commission incurred K797,104 on travel and subsistence for the year ended 31 December, 2010. Out of that, payments totalling K131,466 did not have supporting documentation and was not acquitted on a timely basis.

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    QUALIFIED AUDIT OPINION

    In my opinion, except for the issues discussed in the Basis for Qualified Opinion paragraphs:

    (a) The financial statements of the Commission are based on proper accounts and records; and

    (b) The financial statements are in agreement with those accounts and records, and show fairly the state of affairs of the Commission as at 31 December, 2010 and the results of its financial operations for the year then ended.

    OTHER MATTERS

    Non Compliance with National Youth Commission Act, 1999

    The Commission did not have an Interim Council during the year 2010 and consequently breached the Section 79(1) of the National Youth Commission Act, 1999.

    Non Compliance with Public (Finances) Management Act, 1995

    The Commission had not submitted its financial statements on a timely basis to enable me to carry out the audit of the Commission within the time frame stipulated in the Act. As a consequence, it had breached the Section 63(2) of the Public (Finances) Management Act, 1995.”

    37.3 STATUS OF FINANCIAL STATEMENTS

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

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  • 38. OIL PALM INDUSTRY CORPORATION

    38.1 INTRODUCTION

    38.1.1 Legislation

    The Oil Palm Industry Corporation was established by the Oil Palm Industry Corporation Act, 1992, which came into operation on 1 June, 1992. Under the Act, all assets (other than land held by the State) and liabilities previously held or occupied by the Division of the Department of Agriculture and Livestock responsible for the provision of extension services to oil palm industry, were transferred to the Corporation at commencement date.

    38.1.2 Functions of the Corporation

    The main functions of the Corporation are: to promote the development of the oil palm industry; to encourage the increase in productivity by efficient provision of extension services to smallholders; to provide advice and disseminate information and educate smallholders regarding oil palm production methods; and to consult, liaise and collaborate with the State and other agencies involved in the oil palm industry.

    38.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    38.2.1 Comments on the Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the financial statements of the Corporation for the year ended 31 December, 2008 was issued on 12 June, 2012. The report did not contain any qualification but contained the following comment.

    Submission of Financial Statements

    The Corporation did not prepare and submit their financial statements to my office before 31 March, 2009 to enable me to complete the audit within the timeframe stipulated by the Act. Consequently, the Corporation has breached Section 63(2) and 63(4) of the Public Finance (Management) Act, 1995.

    38.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records of the Corporation for the year ended 31 December, 2008 was issued on 12 June, 2012. The report contained the following comments:

    Fixed Assets

    The Corporation has not up-dated its fixed assets register despite my previous recommendations. I again recommended the Corporation to have a complete stock take of its assets since most of the fixed assets were purchased a long time ago and their existence may be in doubt. The management responded that with the recruitment of extra staff, the matter is now being addressed.

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    Budget Overspending

    Some of the Project expenditures exceeded the budgeted amounts. Approvals from the Local Planning Committee for the over expenditures were not sighted. I recommended management to regularly review expenditures and to obtain ratification from Local Planning Committee on over expenditures incurred.

    Cheque Payments and Encashment

    On several occasions, I noted that cheque payments were made open for encashment and the vouchers were not signed by the preparer. This practice makes the internal control system very weak and may expose to irregularities. I recommended management should ensure proper control procedures are in place. Cheques raised should be made payable directly to the suppliers and all cheques should be marked not negotiable and officer who prepares the voucher should also sign.

    Management responded that the internal control system was implemented with a supervisory control mechanism, however, due to the size and nature of the organization, some suppliers did not accept cheques from OPIC and required cash payments and hence cheque was made payable to Cash.

    Other Internal Control Weaknesses

    Other weaknesses noted were:

     Some Projects meeting minutes were not provided and/or signed by the Chairman in order to confirm the minutes to be true and correct records of the meetings.  No proper tools to correctly measure the fuel stock on hand.  Bank confirmation for KDC Karato bank account was not provided.  Some of the OPIC bank reconciliations were not cleaned up with long outstanding cheques. In addition, bank reconciliations were not prepared on monthly basis and not signed by the preparer and the reviewer.

    I drew management‟s attention to these weaknesses and I was advised that corrective measures were being taken to address them.

    38.3 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 Corporation for the years ended 31 December, 2009 and 2010 were in progress.

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

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  • 39. OMBUDSMAN COMMISSION OF PAPUA NEW GUINEA

    39.1 INTRODUCTION

    39.1.1 Legislation

    The Ombudsman Commission was established under the provisions of the Constitution of the Independent State of Papua New Guinea. The principal objectives of the Commission are: to ensure that all governmental bodies are responsive to the needs and aspirations of the people; to help in the improvement of the work of governmental bodies and the elimination of unfairness and discrimination by them; to help in the elimination of unfair or otherwise defective legislation and practices affecting or administered by governmental bodies; and to supervise the enforcement of the Leadership Code.

    39.1.2 Functions of the Commission

    The functions of the Commission are:

    (a) to investigate on its own initiative or on complaint by a person affected, any conduct on the part of any State or provincial or local governmental, or other governmental body or a member or officer or employee of any such body, any member of the personal staff of the Governor-General, Minister or the Leader or Deputy Leader of the Opposition, or any other body or person as may be declared by an Organic Law or an Act of Parliament, to which the Leadership Code applies;

    (b) to investigate any defects in any law or administrative practice appearing from any such investigation;

    (c) to investigate any case of an alleged or suspected discriminatory practice within the meaning of a law prohibiting such practices; and

    (d) any functions conferred upon it by Part III Division 2 (Leadership Code) of the National Constitution.

    39.2 STATUS OF FINANCIAL STATEMENTS

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

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  • 40. PAPUA NEW GUINEA FOREST AUTHORITY

    40.1 INTRODUCTION

    40.1.1 Legislation

    The Papua New Guinea Forest Authority was established under the Forestry Act, 1991, which came into operation on 25 June, 1992.

    The prime objective of the Authority is to provide for and to give effect to the National goals and the directive principles regarding:

     the management, development and protection of the Nation‟s forest resources and environment in such a way as to conserve and renew them as an asset for succeeding generations;

     the maximization of Papua New Guinea‟s participation in the wise use and development of the forest resources as a renewable asset;

     the utilization of the Nation‟s forest resources to achieve economic growth, employment creation and increased “downstream” processing of the forest resources;

     the encouragement of scientific study and research into forest resources so as to contribute towards a sound ecological balance, consistent with the national development objectives;

     the increased acquisition and dissemination of skills, knowledge and information in forestry through education and training; and

     the pursuit of effective strategies, including improved administrative and legal machinery, for managing forest resources and the management of National, Provincial and Local interests.

    The Authority was formed by the amalgamation of the Department of Forests, the Forest Industries Council, the Provincial Divisions of Forestry, the Forestry College in Bulolo, the Timber Industry Training College and the Research Institute in Lae.

    With the establishment of the Authority the following Acts were repealed: the Forest Industries Council Act (Chapter 215); the Forestry Act (Chapter 216); and the Forestry (Private Dealings) Act (Chapter 217).

    40.1.2 Functions of the Authority

    The principal functions of the Authority are:

     to provide advice to the Minister on forest policies and legislation pertaining to forestry matters;

     to prepare and review the National Forest Plan and recommend it to the National Executive Council for approval;

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     through the Managing Director, to direct and supervise the National Forest Service;

     to negotiate Forest Management Agreements;

     to select operators and negotiate conditions on which timber permits, timber authorities and licences may be granted in accordance with the provisions of the Forestry Act;

     to appoint and supervise the State Marketing Agency;

     subject to the Customs Act, Customs Tariff Act and Exports (Control and Valuation) Act to control and regulate the export of forest produce;

     to oversee the administration and enforcement of the Forestry Act and any other legislation pertaining to forestry matters, and of such forestry policy as is approved by the National Executive Council;

     to undertake the evaluation and registration of persons desiring to participate in any aspect of the forestry industry;

     to act as agent for the State, as required, in relation to any international agreement relating to forestry matters; and

     to carry out such other functions necessary to achieve its objectives or given to it under the Act or other relevant law.

    40.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the Authority‟s financial statements for the year ended 31 December, 2008 was in progress. The Authority‟s financial statements for the year ended 31 December, 2009 had been submitted for my inspection and audit, and arrangements were being made to commence the fieldwork shortly.

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

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  • 41. PAPUA NEW GUINEA INSTITUTE OF MEDICAL RESEARCH

    41.1 INTRODUCTION

    41.1.1 Legislation

    The Papua New Guinea Institute of Medical Research was established by the Institute of Medical Research Act (Chapter 166) on 1 January, 1980.

    41.1.2 Functions of the Institute

    The primary functions of the Institute are to conduct and foster research into any branch of medical science or biology, anthropological and sociological aspects of health, and matters relating to public health generally, that are of relevance to Papua New Guinea.

    41.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    41.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the Institute‟s financial statements for the years ended 31 December, 2009 and 2010 were both issued on 13 April, 2012. These reports contained similar qualifications, hence, only the 2010 report is reproduced as follows:

    “BASIS FOR QUALIFIED AUDIT OPINION

    Bank Accounts – K11,057,330

    In 2010, the Institute maintained thirty five (35) bank accounts and two (2) fixed term deposit amounts. My examination revealed that several bank accounts were not properly reconciled and prepared on time. Further, I noted that only one person was responsible for all thirty five (35) bank accounts from data entry to reconciliation and there was no independent verification on whether postings were made to correct accounts. I also noted that bank reconciliations were performed on three (3) monthly basis rather than on a monthly basis. Thus mistakes and errors were never rectified on time, which resulted in unnecessary variance at year end. Consequently, bank closing balances were overstated by K12,565 and expenses account understated by same amount. Based on the findings, I was unable to place reliance on the controls surrounding the bank reconciliation processes. Therefore, I was unable to comment on whether the bank balances have been fairly stated in the accounts or not.

    Non Compliance with the Public Finance (Management) Act

    The Institute did not submit its financial statements for the year ended 31 December, 2010 on a timely basis to enable me to conduct the audit and submit the audit report within the time frame prescribed by the Public Finance (Management) Act, 1995 (as amended). Consequently, the Institute has breached the Section 63(2) and 63(4) of the Public Finance (Management) Act, 1995.

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    QUALIFIED AUDIT OPINION

    In my opinion, except for the effects of the matters referred to in the Basis for Qualified Opinion paragraphs above:

    (a) the financial statements of the Institution are based on proper accounts and records; and

    (b) the financial statements are in agreement with those accounts and records, and show fairly the state of affairs of the Institution as at 31 December, 2010 and the results of its financial operations and cash flows for the year then ended.”

    41.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Institute for the year ended 31 December, 2011 was not submitted by the Institute for my inspection and audit.

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  • 42. PAPUA NEW GUINEA INSTITUTE OF PUBLIC ADMINISTRATION

    42.1 INTRODUCTION

    42.1.1 Legislation

    The Papua New Guinea Institute of Public Administration was established in 1993 under the Papua New Guinea Institute of Public Administration Act, 1993.

    42.1.2 Functions of the Institute

    The functions of the Institute are to plan, organize, conduct and assess a wide range of practices and relevant training programmes and, if applicable, in the South Pacific Region and to undertake relevant research and consultancies on issues and problems of management and administration and to act as a centre for collection, storage, retrieval and dissemination of information.

    42.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    42.2.1 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 Institute for the year ended 31 December, 2010 was issued on 12 October, 2011. The report did not contain any qualification, but had the following comments in relation to Other Matters.

    1. Maintenance of Motor Vehicle – Hyundai Terrancan (BBT 990)

    The above vehicle was purchased by the Acting Director at a book value of K10,787.74 on 18 March, 2009. The Institute made two payments for repair to this vehicle amounting K12,768.45 and K10,069.13 on 18/06/2010 and 11/08/2010 respectively. I queried why such payments were made by the Institute as the vehicle was purchased by the Acting Director and not owned by the Institute. Management responded to my query as follows:

    “The above motor vehicle was owned by the Institute (the State) and later was purchased at book value by the Acting Director as part of his terms and conditions. However, the former management then failed to transfer the title to the current Acting Director. Therefore, the title of the vehicle was still under the Institute.”

    2. Acting Director‟s Legal Cost

    I sighted payments of legal fees and reimbursement of legal fees totalled K25,820 in relation to the case between the Acting Director and the PNGIPA (the State). I noted that legal services were incurred and/or rendered by his lawyer prior to his appointment as Acting Director of PNGIPA. I was unable to ascertain why the legal costs were paid by the Institute (the State) as the court case was against the Institute. There was no legal document or Court Order instructing the Institute to pay the legal costs. Management provided the following in response to the above query.

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    “The Acting Director instituted legal proceedings against wrongful dismissal. However, this was settled administratively by NEC by re-appointing the Acting Director to the position. Legal advice was provided to have the legal costs reimbursed.”

    42.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Institute for the year ended 31 December, 2011 was not submitted by the Institute for my inspection and audit.

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  • 43. PAPUA NEW GUINEA MARITIME COLLEGE

    43.1 INTRODUCTION

    43.1.1 Legislation

    The Papua New Guinea Maritime College was established under the Papua New Guinea Maritime College Act (Chapter 355). It was previously known as the Nautical Training Institute. However, by virtue of the Nautical Training Institute (Change of Name) Act, 1985, which became effective on 25 July, 1985, the names of Nautical Training Institute and Nautical Training Institute Act were changed to Papua New Guinea Maritime College and Papua New Guinea Maritime College Act, respectively.

    43.1.2 Functions of the College

    The principal functions of the College are to provide training and other instructional facilities for the theoretical and practical training of persons in maritime skills and any other objects incidental or ancillary thereto.

    43.2 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 College for the year ended 31 December, 2008 was completed. The responses for the management letter were awaited from the College to enable me to issue the audit report. My office had continuously followed up with the College to submit the responses along with the signed financial statements to finalise the audit.

    The College had not submitted its financial statements for the years ended 31 December, 2009, 2010 and 2011 for my inspection and audit. I reminded the College of its responsibility to submit the financial statements for the above years.

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  • 44. PAPUA NEW GUINEA NATIONAL INSTITUTE OF STANDARDS AND INDUSTRIAL TECHNOLOGY

    44.1 INTRODUCTION

    44.1.1 Legislation and Objectives of the Institute

    The Papua New Guinea National Institute of Standards and Industrial Technology was established by the National Institute of Standards and Industrial Technology Act, 1993 and this came into operation on 3 January, 1994. The objectives of the Institute are: to carry out scientific and technological research and to develop a National Standards system; to co-operate with international organisations of measurement and technical standards; to promote and undertake industrial integrated standardisation and quality assurance; and to enter into any agreement both within and outside Papua New Guinea to further the objectives and functions of the Institute.

    The National Standards Act (Chapter 378) and the National Technical Standards Act (Chapter 379) were repealed, and all funds standing to the credit of and on accounts operated under the authority of the repealed Acts, and all assets and liabilities owned or held by the bodies established under the repealed Acts were transferred to and became the assets and liabilities of the Institute on the commencement of the new Act.

    44.1.2 Functions of the Institute

    The main functions of the Institute are: to safeguard Papua New Guinea against the dumping and supply of unsafe, unhealthy and inferior or substandard products; to establish and co- ordinate the National Standardisation system; to provide education, training and industrial extension and consultative services to assist industries; to promote public and industrial welfare, health and safety; to recognise as testing authorities, bodies and institutions; to establish a National Certification System of conformity; to assist industries overcome technical barriers on its products and services to international trade; and to assist industries to produce quality products and services.

    44.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Institute had not submitted its financial statements for the years ended 31 December, 2010 and 2011 for my inspection and audit.

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  • 45. PAPUA NEW GUINEA RADIO COMMUNICATIONS AND TELECOMMUNICATIONS TECHNICAL AUTHORITY (PANGTEL)

    45.1 INTRODUCTION

    45.1.1 Legislation and Objectives of Pangtel

    The Papua New Guinea Radio Communications and Telecommunication Technical Authority (PANGTEL) was established on 1 January, 1997 by the Telecommunications Act, 1996. Its creation was part of the Government‟s policy to corporatise Post and Telecommunication Corporation (PTC) and to have it divided into three (3) different organisations namely Telikom PNG Limited, Post PNG Limited, and Pangtel. Pangtel, which is a 100% Government-owned statutory authority, was established to regulate the telecommunication industry in Papua New Guinea.

    Under the Post and Telecommunication Corporation (Corporatisation) Act, 1996, assets, rights and liabilities as well as employees of the Corporation were transferred to Pangtel as per the allocation statement approved by the then Minister for Communications, at the net book value recorded in the books of the Corporation as at 31 December, 1996.

    45.1.2 Functions of Pangtel

    The main functions include:

     Granting of licences to carriers and suppliers of telecommunication services and equipment;  Monitoring of practices of licences;  Regulation of telecommunications industry to ensure competitiveness;  Protection of fairness and efficiency in the industry;  Providing arbitration to conflicting parties in the industry;  Administration of rural telecommunication projects; and  Monitoring of pricing of telecommunication services.

    45.2 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 Authority for the period ended 29 October, 2010 was in progress.

    On 29 October, 2010, National Information and Communication Technology Authority (NICTA) succeeded PANGTEL. This effectively means that my Report on PANGTEL will cover the period up to 29 October, 2010 only and my next Report will be on NICTA.

    The Authority had not submitted its financial statements for the months of 30 November to 31 December, 2010 and for the year ended 31 December, 2011 for my inspection and audit.

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  • 46. PAPUA NEW GUINEA SPORTS FOUNDATION

    46.1 INTRODUCTION

    46.1.1 Legislation

    The Papua New Guinea Sports Foundation was established by the Papua New Guinea Sports Foundation Act, 2005. This Act was certified on 08 August, 2006 and became operational on the same date and replaced the Papua New Guinea Sports Commission Act, 1992.

    Under this Act, all assets held or occupied by and all liabilities and obligations of the Papua New Guinea Sports Commission prior to the operation of this Act were transferred to and became assets and liabilities and obligations of the Foundation at commencement.

    46.1.2 Objectives of the Foundation

    The principal objectives of the Foundation are: to encourage the private sector to contribute to the funding of sports to supplement assistance by the government of Papua New Guinea; to provide leadership in the development of Papua New Guinea‟s performance in sports; and to encourage increased participation and „Sport for All‟ by Papua New Guineans in sports.

    46.1.3 The Functions of the Foundation

    The principal functions of the Foundation are to: to advise the Minister in relation to the development of sports; to co-ordinate activities in Papua New Guinea for the development of sports; and to develop and implement programs to promote equality of access to and participation in sports by all Papua New Guineas; and to develop and implement programs for the recognition and development of persons who excel it, or who have the potential to achieve standards of excellence as sports coaches, umpires, referees or officials essential to the conduct of sports; and to undertake research development related to sports science and sports medicine; and to provide sports medicine services and sports science services to persons participating in programs of the Foundation; and to establish, manage, develop and maintain facilities for the purposes of the Foundation; and to collect and distribute information and provide advice to matters related to the activities of the Foundation; and for the purpose of fostering co-operation in sports between Papua New Guinea and other countries; and to provide access to persons from other countries to the resources, services and facilities of the Foundation; and to raise money through the National Sports Trust or by other means for the purposes of the Foundation; and to administer and expand money appropriated by the Parliament or raised in accordance with and for the purpose of the Foundation; and to consult and co-operate with appropriate authorities of the National Government or the Provinces and Local-Level Governments and with other persons, associations and organisations on matters related to the activities of the Foundation; and to provide advice on matters related to sports to the Papua New Guinea National Olympic Committee or other persons, bodies or associations; and to co-operate with districts, provincial, national and international sporting organisations in aiming to foster a sporting environment that is free from the unsanctioned use of performance enhancing drugs and doping methods.

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    46.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements for the years ended 31 December, 2003 to 2011 had not been submitted for my inspection and audit in spite of numerous reminders from my Office and meetings with Management. The Management had advised that they have engaged a Private accounting firm to prepare the outstanding financial statements for audit, however, I wish to reiterate that the Foundation had failed to comply with the provisions of Section 63(4) of the Public Finances (Management) Act, 1995 by not submitting its financial statements on time for audit despite undertakings made by the management of the Foundation to my Office. The fact that 2003 financial statements were yet to be submitted in 2012 should be a matter of great concern.

    I also conducted an Internal Control Review (ICR) on the Foundation and the results of my findings were reported to the Management. However, the Management had not responded to my findings at the time of preparing this Report. As a result, this ICR report when concluded will be included in my next Report.

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  • 47. PAPUA NEW GUINEA UNIVERSITY OF TECHNOLOGY

    47.1 INTRODUCTION

    47.1.1 Legislation and Objectives of the University

    The Papua New Guinea University of Technology was established under the University of Technology Act (Chapter 170).

    The University‟s aims are to provide tertiary educational facilities and to produce qualified men and women to play an important part in the development of Papua New Guinea.

    47.1.2 Functions of the University

    The University‟s principal functions are to encourage and provide facilities for study, education and training of technological subjects and branches of learning at tertiary level, and to assist in research and the practical application of technological branches of learning.

    47.1.3 Subsidiary

    The University has a wholly owned subsidiary Company, Unitech Development and Consultancy Company Limited, which was incorporated under the Companies Act.

    Comments in relation to the subsidiary are contained in paragraph 47A of this Report.

    47.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the inspection and audit of accounts and records and the examination of the financial statements of the University for the year ended 31 December, 2009 was still in progress. However, the University had not submitted its financial statements for the years ended 31 December, 2010 and 2011 for my inspection and audit.

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  • 47A. UNITECH DEVELOPMENT AND CONSULTANCY COMPANY LIMITED – (A SUBSIDIARY OF PNG UNIVERSITY OF TECHNOLOGY)

    47A.1 INTRODUCTION

    Unitech Development and Consultancy Company Limited is a Company incorporated under the Companies Act, 1997.

    47A.1.1 Functions of the Company

    The primary function of the Company is to carry on the business and activities of consultants, and to render management, industrial, commercial, financial, secretarial, public relations, industrial relations and other related services to any person, firm or corporation engaged in any business, trade or activity. The Company also carries on a business of insect farming.

    47A.2 AUDIT OBSERVATIONS

    47A.2.1 Comments on Financial Statements

    My reports in accordance with the provisions of the Companies Act, 1997 on the Company‟s financial statements for the years ended 31 December, 2007, 2008 and 2009 were issued on 21 September, 2011, 29 May, 2012 and 31 May, 2012 respectively. These reports contained similar Disclaimer of Opinions, hence, only the 2009 report was reproduced as follows:

    “BASIS FOR DISCLAIMER OF OPINION

    1. Unverified Bank Balances

    I was not provided with the Bank Reconciliations, Bank Statements and supporting documents for the following bank accounts:

    Account Balance K UDC Main IBD 78,974.72 NAL BMA Account 50,404.38 NAL Cheque Account 142,491.51 UDC BSP Account (24,109.20)

    Accordingly, I was unable to confirm the accuracy of the above bank account balances stated in the accounts as at 31 December, 2009.

    2. No Fixed Assets Register

    The Company disclosed its fixed assets as K6,791,383 in its financial statements. However, I was not provided with the Fixed Assets Register. Therefore, I was unable to verify the accuracy and completeness of any significant additions or disposals of fixed assets made during the year.

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    3. No Supporting Schedules

    The Company was unable to provide the source documents and supporting schedules for some of its accounts for my verification. Consequently, I was unable to perform the necessary audit procedures to determine the accuracy and reasonableness of these account balances.

    4. Provision for Annual and Long Service Leave

    The Company was unable to provide the supporting schedules and workings for the following accounts. Per Trial Balance Per Calculation Difference K K K Annual leave provision 2,534 35,553 (33,018) Long service leave provision 10,433 166,088 (155,655) 12,967 201,641 (188,674)

    Accordingly, I was unable to determine the accuracy of the provisions made and disclosed in the financial statements.

    5. GST Payable

    The Company disclosed in its accounts GST payable as K215,946 whilst the IRC Statement showed K28,021 resulting in a difference of K187,925. I was not provided any valid explanation for this variance together with their supporting documents. Accordingly, I was unable to confirm the accuracy of this balance.

    6. Non-Calculation of deferred Tax provision

    The Company did not account for deferred taxes on its provision for bad debts, provisions for employee benefits and taxable losses carried forward. Therefore, the financial statements did not comply with the International Accounting Standards (IAS) 12, Income Taxes.

    DISCLAIMER OF OPINION

    Because of the significance of the matters described in the Basis for Disclaimer of Opinion paragraphs, I have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion:

    (a) Accordingly, I am unable to and did not express an opinion as to whether the financial statements of Unitech Development & Consultancy Limited were drawn up as required by the Companies Act, 1997, and presented in accordance with International Financial Reporting Standards and Statements of Accounting Standards of the Certified Practising Accountants of Papua New Guinea and other statutory requirements so as to give a true and fair view of the Company‟s financial position as at 31 December, 2009 and of the results of its operations, changes in equity and its cash flows for the year then ended; and -131-

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    (b) I have not been given all the information and explanations and assistance necessary for the conduct of my audit.

    In my opinion, the Company had not kept proper accounts and records.”

    47A.3 STATUS OF FINANCIAL STATEMENTS

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

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  • 48. PARLIAMENTARY MEMBERS‟ RETIREMENT BENEFITS FUND

    48.1 INTRODUCTION

    48.1.1 Legislation

    The Parliamentary Members‟ Retirement Benefits Fund was established under the Parliamentary Members‟ Retirement Benefits Fund Act, 1997, which came into operation on 16 July, 1997.

    48.1.2 Objectives of the Fund

    The objective of the Fund was to provide pensions and retirement benefits for Members and former Members of Parliament and the former House of Assembly, and to provide benefits to dependant spouses and juvenile dependants. This Act repealed the Parliamentary Members‟ Retirement Benefits Act, which came into operation in 1982.

    48.2 AUDIT OBSERVATIONS

    48.2.1 Comments on Financial Statements

    My reports to the Minister under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Fund for the years ended 31 December, 2010 and 2011 were issued on 02 December, 2011 and 31 May, 2012 respectively. The reports did not contain any qualification.

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  • 49. PNG WATERBOARD

    49.1 INTRODUCTION

    49.1.1 Legislation

    PNG Waterboard was established by the National Water Supply and Sewerage Act, 1986, which came into operation on 1 January, 1987. The 1986 Act repealed the National Water Supply and Sewerage Act, (Chapter 393), and thereby abolished the National Water Supply and Sewerage Board.

    49.1.2 Functions of the Waterboard

    PNG Waterboard is entrusted with co-ordinating, planning, designing, construction, management and charging for water supply and sewerage services throughout the country.

    49.2 AUDIT OBSERVATIONS

    49.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 19