Report of the Auditor General 2009 Part IV 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 – 2009

    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

    10 October, 2010

    The Honourable Jeffery Nape, MP The Speaker of National Parliament Parliament House WAIGANI National Capital District

    Dear Sir,

    In accordance with the provisions of Section 214 of the Constitution of the Independent State of Papua New Guinea, I forward herewith a copy of my report signed on 10 October, 2010 upon the inspection and audit of the financial statements of the Public Bodies and their subsidiaries and National Government owned companies for tabling in the National Parliament. This Report (Part IV) also contains information on companies in which the Government does not hold majority interest. Section D of this Part of the Report contains information on the status of certain entities which have ceased operations and those entities audits of which have been in arrears.

    Yours sincerely,

    GEORGE W. SULLIMANN Auditor-General

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  • REPORT OF THE AUDITOR-GENERAL – 2009

    PART IV

    TABLE OF CONTENTS

    PARA SUBJECT PAGE NO. NO.

    1 General …………………………………………………………………………………………………………………………….. v 1.1 Foreword ……………………………………………………………………………………………………………….. v 1.2 Authority of Audit ……………………………………………………………………………………………………… v 1.3 Audit of Public Bodies ……………………………………………………………………………………………… vii 1.4 Appointment and use of Authorised Auditors ………………………………………………………………. vii 1.5 Executive Summary ……………………………………………………………………………………………….. viii

    SECTION A PUBLIC BODIES AND THEIR SUBSIDIARIES

    PARA SUBJECT PAGE NO. NO. 1A. Foreword …………………………………………………………………………………………………………………………… 1 2. Bank of Papua New Guinea …………………………………………………………………………………………………. 3 3. Border Development Authority ………………………………………………………………………………………………. 8

    4. Civil Aviation Safety Authority of Papua New Guinea ……………………………………………………………… 10

    5. Cocoa Board of Papua New Guinea ……………………………………………………………………………………. 14

    5A. Cocoa Stabilization Fund ………………………………………………………………………………………… 21 6. Cocoa Coconut Institute of Papua New Guinea ………………………………………………………………………. 23 7. Coffee Industry Corporation Fund ……………………………………………………………………………………….. .28 7A. Patana No. 61 ……………………………………………………………………………………………………….

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  • 29 7B. Coffee Industry Fund ……………………………………………………………………………………………… 30

    8. Government Printing Office ………………………………………………………………………………………………….. 31 9. Independence Fellowship Trust …………………………………………………………………………………………. .. 34 10. Independent Consumer and Competition Commission …………………………………………………………….. 37 11 Independent Public Business Corporation …………………………………………………………………………….. 38

    11A. General Business Trust …………………………………………………………………………………………… 44 11B. Aquarius 21 Limited ……………………………………………………………………………………………….. 49 11C. Port Moresby Private Hospital Limited ………………………………………………………………………. 50 11D. Privatisation (Gardens Hills) Limited …………………………………………………………………………. 51 11E. PNG Dams Limited ………………………………………………………………………………………………… 52 11F. Kroton No. 2 Limited ………………………………………………………………………………………………. 53

    PARA SUBJECT PAGE NO. NO.

    12. Industrial Centres Development Corporation ………………………………………………………………………….. 55 13. Investment Promotion Authority …………………………………………………………………………………………… 58 14. Kokonas Indastri Koporesen and its Subsidiaries ……………………………………………………………………. 61

    14A. PNG Coconut Extension Fund …………………………………………………………………………………. 63 14B. PNG Coconut Industry Fund ……………………………………………………………………………………. 65 14C. PNG Coconut Research Fund………………………………………………………………………………….. 67

    15. Legal Training Institute ………………………………………………………………………………………………………… 69 16. Mineral Resources Authority ……………………………………………………………………………………………….. 70 17. Motu Koitabu Council and its Subsidiary ………………………………………………………………………………… 72

    17A. Tabudubu Limited …………………………………………………………………………………………………..

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  • 74

    18. National Agriculture Quarantine and Inspection Authority …………………………………………………………. 75 19. National Agriculture Research Institute ………………………………………………………………………………….. 80 20. National Aids Council ………………………………………………………………………………………………………….. 83 21. National Airports Corporation Limited…………………………………………………………………………………….. 84

    21A PNG Air Services Limited………………………………………………………………………………………… 85

    22. National Broadcasting Corporation ……………………………………………………………………………………….. 87 23. National Capital District Commission and its Subsidiaries ………………………………………………………… 91

    23A National Capital District Botanical Enterprises Limited ……………………………………………….. 100

    23B. Port Moresby City Development Enterprises Limited …………………………………………………. 101

    24. National Cultural Commission …………………………………………………………………………………………….. 102 25. National Economic and Fiscal Commission ………………………………………………………………………….. 103 26. National Fisheries Authority ……………………………………………………………………………………………….. 105 27. National Gaming Control Board ………………………………………………………………………………………….. 109 28. National Housing Corporation …………………………………………………………………………………………….. 112 29. National Maritime Safety Authority ………………………………………………………………………………………. 119 30. National Museum and Art Gallery ……………………………………………………………………………………….. 123 31. National Narcotics Bureau ………………………………………………………………………………………………….. 124 32. National Research Institute ……………………………………………………………………………………………….. 125 33. National Road Safety Council …………………………………………………………………………………………….. 127 34. National Roads Authority ……………………………………………………………………………………………………. 130 35. National Training Council ………………………………………………………………………………………………….. 133 36. National Volunteer Service …………………………………………………………………………………………………. 134 37. National Youth Commission ……………………………………………………………………………………………….. 135 38. Oil Palm Industry Corporation ……………………………………………………………………………………………. 139

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  • 39. Ombudsman Commission of Papua New Guinea ………………………………………………………………….. 142 40. PANGTEL ……………………………………………………………………………………………………………………….. 144 41. Parliamentary Members Retirement Benefits Fund ………………………………………………………………… 148 42. PNG Forest Authority ………………………………………………………………………………………………………… 150 43. PNG Institute of Medical Research ……………………………………………………………………………………… 159 44. PNG Institute of Public Administration………………………………………………………………………………….. 160 45. PNG Maritime College ……………………………………………………………………………………………………….. 161 PARA SUBJECT PAGE NO. NO.

    46. PNG National Institute of Standards and Industrial Technology ……………………………………………….. 162 47. PNG Sports Commission ………………………………………………………………………………………………….. 165 48. PNG University of Technology and its Subsidiary ………………………………………………………………….. 170

    48A. Unitech Development and Consultancy Company Limited …………………………………………. 171

    49. PNG Waterboard ………………………………………………………………………………………………………………. 174 50. Public Curator of Papua New Guinea…………………………………………………………………………………… 176 51. Small Business Development Corporation ……………………………………………………………………………. 181 52. Security Industries Authority ………………………………………………………………………………………………. 184 53. Tourism Promotion Authority ……………………………………………………………………………………………… 186 54. University of Papua New Guinea and its Subsidiary ……………………………………………………………… 187 54A. Unisearch PNG Limited …………………………………………………………………………………………. 188 54B Univentures Limited …………………………………………………………………………………………….. 189

    55. University of Goroka ………………………………………………………………………………………………………….. 190

    55A. Unigor Consultancy Limited ………………………………………………………………………………….. 195

    56. University of Vudal

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  • …………………………………………………………………………………………………………… 196

    SECTION B – NATIONAL GOVERNMENT OWNED COMPANIES PARA SUBJECT PAGE NO. NO. 57. Foreword …………………………………………………………………………………………………………………………. 203 58. Air Niugini Limited …………………………………………………………………………………………………………….. 205 59. Livestock Development Corporation Limited …………………………………………………………………………. 209 60. Mineral Resources Development Company Limited ………………………………………………………………. 214 61. Motor Vehicles Insurance Limited ……………………………………………………………………………………….. 229 62 NCD Water & Sewerage Limited (Eda Ranu) ………………………………………………………………………… 230 63. Niugini Insurance Corporation Limited …………………………………………………………………………………. 233 64. North Fly Highway Development Company Limited ……………………………………………………………….. 234 65. PNG Ports Corporation Limited …………………………………………………………………………………………… 235 66. PNG Power Limited …………………………………………………………………………………………………………… 236 67. Post PNG Limited …………………………………………………………………………………………………………….. 238 68. Telikom PNG Limited and its Subsidiaries ……………………………………………………………………………. 242

    68A. Kalang Advertising Limited …………………………………………………………………………………….. 247 68B. PNG Directories Limited ………………………………………………………………………………………… 250

    SECTION C – NATIONAL GOVERNMENT SHAREHOLDINGS IN OTHER COMPANIES

    PARA SUBJECT PAGE NO. NO.

    69. Foreword …………………………………………………………………………………………………………………………. 253 70. Bougainville Copper Limited ……………………………………………………………………………………………….. 255 71. Gogol Reforestation Company Limited…………………………………………………………………………………. 258 72. Ok Tedi Mining Limited ………………………………………………………………………………………………………. 259 73 Pacific Forum Line Limited

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  • …………………………………………………………………………………………………. 260 74. CTP (PNG) Limited …………………………………………………………………………………………………………… 261 75 PNG Sustainable Development Program Limited ………………………………………………………………….. 262

    SECTION D – PROBLEM AUDITS

    PARA SUBJECT PAGE NO. NO. 76. Foreword ………………………………………………………………………………………………………………………… 267

    76.1 Dormant Entities …………………………………………………………………………………………………… 267 76.2 Exclusion of Entities from Future Reports ………………………………………………………………… 267

    77. Audits in Arrears ……………………………………………………………………………………………………………… 268

    77.1 General ……………………………………………………………………………………………………………… 268 77.2 Responsibility for preparation of Financial Statements ……………………………………………… 268

    77.3 Legislative Requirements …………………………………………………………………………………….. 269

    77.4 Current Year Audits (2009 Audits) …………………………………………………………………………. 269 77.5 Status of Current Year Audits ……………………………………………………………………………….. 271

    77.6 Audits in Arrears (2008 and prior years) …………………………………………………………………. 273 77.7 Long Outstanding Financial Statements …………………………………………………………………. 276

    Acknowledgements ………………………………………………………………………………………………………….. 281

    Schedule A – Current Year Audits ………………………………………………………………………………………. 282

    Schedule B – Status of Audits in Arrears ……………………………………………………………………………… 285

    Schedule C – Long Outstanding Financial Statements ………………………………………………………….. 288

    Schedule D – Non-Operational Entities and Others ………………………………………………………………. 290

    Schedule E – 2007 Audits completed during 2009/2010 ………………………………………………………… 291

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  • Schedule F – Status of Audits during the year 2009/2010 ………………………………………………………. 294

    Schedule G – Types of Audit Opinions Issued during 2009/2010 …………………………………………….. 295 GENERAL 1.1 FOREWORD

    My Annual Report to the National Parliament for the 2009 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.

    1.2 AUTHORITY TO AUDIT 1.2.1 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.

    1.2.2 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 National 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.

    1.2.2(a) 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.

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  • 1.2.2(b) 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.

    1.2.2(c) 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.

    1.2.3 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.

    1.2.4 Companies Act, 1997

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

    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.

    1.3 AUDIT OF PUBLIC BODIES

    1.3.1 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.

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  • 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.

    1.3.2 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 69 which covers the National Government owned companies.

    1.3.3 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.

    1.4 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.

    2009 AUDITOR-GENERAL.S REPORT – PART IV

    1.5 EXECUTIVE SUMMARY

    1.5A Report Coverage

    1.5A.1 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 2009 to June 2010 (2009/2010 Audit Cycle). The Report covers the audits of these entities. financial statements for a number of years, and not just of 2009.

    In 2009 there were 881 public entities subject to audit by my Office, consisting of 75 Public Bodies and their Subsidiaries and 13 National Government Owned Companies. 1In 2009, the Auditor-General became responsible for four additional public bodies – Kronton No.2 Ltd, PNG Dams Ltd, National Airports Corporation and Unigor Consultancy Services. Of 88 audits conducted in 2009, the 2006 audits of two (2) entities – Motu Koitabu Council and Tabudubu Ltd – were still in progress. The results of these audits will be reported in my Part IV Report in 2011 for the last time. My future audit reports on these entities will be covered in Part III Report. A further two entities – Privatisation (Garden Hills) Ltd and Unisearch (PNG) Ltd – were

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  • deregistered in 2008 and 2006 respectively. The audit of Privatisation (Garden Hills) Ltd 2007 was still in progress, and will be reported for the last time in 2011. The audit report for 2006 audit for Unisearch (PNG) Ltd, is my last report to Parliament.

    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.

    1.5A.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.

    1.5A.3 Submission of current year Financial Statements

    Section 63(2) (a)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, 48 entities had not submitted their 2009 financial statements to be audited and overall some 106 financial statements for 2009 and prior years had not been submitted for audit (see Table 1 and Schedule „F.).

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

    Table 1

    STATUS OF AUDITS AS AT 30 JUNE 2010 (END OF 2009/10 CYCLE)

    Year Audits Completed Audits substantially Completed Audits in Progress Audits to Commence Shortly Financial Statements not Submitted Total T2009/2010 Total 2008/2009

    2009

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  • 11 10 7 8 48 84 82

    2008 25 14 5 8 22 74 72

    2007 18 11 9 3 10 51 41

    2006 16 1 3 2 7 29 24

    2005 5 – 4 2 6 17 16

    2004 2 – 5 1 5 13

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  • 10

    2003 – – 3 1 5 9 7

    2002 1 – 2 1 2 6 4

    2001 – – 1 – 1 2 3

    2000 – – 1 – – 1 2

    1999 – – 1 – – 1 1

    1998 – – 1

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  • – – 1 0

    Total 78 36 42 26 106 288 262

    Table 1 shows that 156 audits were completed, substantially completed or still in progress as at 30 June, 2010. Table 1 also shows that of the 78 audits completed, only 11 were of the current year (2009), with 17 current year.s audits substantially completed or in progress. A further 8 audits were to commence shortly. The list of entities is at Schedule „A. (i), (ii), (iii) and (iv).

    1.5A.4 Type of Audit Opinions Issued2 2 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 transaction of the Company being audited. Disclaimer – When insufficient competent evidential matter exist to form an audit opinion due to scope limitation or uncertainties Disclaimer of Opinions issued. Adverse – The Company’s financial statements do not present fairly the financial position, results of operation, or changes in financial position or are not in conformity with General Accepted Accounting principles.

    In the period covered by the audit, seventy-eight (78) audit opinions were issued. Of the seventy- eight (78) audit opinions issued, thirty-one (31) were unqualified, twenty- two (22) were qualified, and twenty-five (25) were Disclaimer Opinions. Of the thirty-one (31) unqualified opinions issued, twenty-one (21) related to prior years and only ten (10) were for 2009 as follows:

    . Bank of Papua New Guinea;

    . Post (PNG) Limited;

    . Independent Consumer and Competition Commission;

    . Tourism Promotion Authority;

    . Security Industries Authority;

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  • . PNG Institute of Public Administration;

    . General Business Trust;

    . Kroton No. 2 Limited;

    . National Agriculture Research Institute; and

    . Ombudsman Commission.

    All of the 22 qualified opinions were for prior years. The number of Disclaimer Audit Opinions issued are reflection of the poor state of accounting and record keeping in a number of public bodies.

    The list of entities and the type of audit opinions issued during the period July 2009 to June 2010 are provided in Schedule „G..

    1.5B Key Findings

    The key findings from the audits centred around on the non submission of the financial statements, non compliance with the 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:

    1.5B.1 Non-Submission of Financial Statements

    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 respective public entities. managements. 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 84 public entities (excluding those whose audits are done by private auditors) only 36 entities submitted their financial statements for 2009 for my audit and inspection up to the time of preparing this Report. Forty-eight (48) entities failed to comply with these provisions. Paragraph 77.5 of this Report provides the details.

    As I have stated in previous years. reports, the failure of public entities to comply with this legislative requirement results in:

    . My Office may not be 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

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  • 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 current 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 are given below in Table 2 and Schedule „C..

    Table 2

    Financial Statements not Submitted

    No.

    Section Para No.

    Entity Year in Arrears Audits in Arrears 2008 & Prior Years

    1 B 64 North Fly Highway Development Company Limited 8 2001-2008

    2

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  • A 31 National Narcotic Bureau 6 2003-2008

    3 A 47 Papua New Guinea Sports Commission 6 2003-2008

    4 A 50 Public Curator of Papua New Guinea 5 2004-2008

    5 A 11E Papua New Guinea Dams Limited 4 2002-2003, 2007-2008

    6 A 17A Tabudubu Limited 4 2003-2006

    7 A 55A Unigor Consultancy Limited 4 2005-2008

    8 A 23B Port Moresby City Development Enterprises Limited 3 2006-2008

    9 A 22

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  • National Broadcasting Corporation 2 2007-2008

    10 A 25 National Economic and Fiscal Commission 2 2007-2008

    11 A 36 National Volunteer Service 2 2007-2008

    12 A 8 Government Printing Office 1 2008

    13 A 11B Aquarius No. 21 Limited 1 2008

    14 A 11C Port Moresby Private Hospital Limited 1 2008

    15 A 20 National Aids Council 1 2008

    16 A 21 National Airports Corporation Limited

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  • 1 2008

    17 A 24 National Cultural Commission 1 2008

    18 A 27 National Gaming Control Board 1 2008

    19 A 28 National Housing Corporation 1 2008

    20 A 38 Oil Palm Industry Corporation 1 2008

    21 A 42 Papua New Guinea Forest Authority 1 2008

    22 A 48A Unitech Development and Consultancy Company Ltd 1 2008

    23 B 68A Kalang Advertising Limited 1 2008

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  • My Arrears Reduction Strategies

    During the last 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 meetings with the Chief Executive Officers about the non-submission of the financial statements and drew their attention to their responsibilities under the Public Finances (Management) Act and resultant breach of the Public Finances (Management) Act.

    1.5B.2 Non-Compliance with the Salaries and Conditions Monitoring Committee Act (SCMC), 1998

    The Salaries and Conditions Monitoring Committee (SCMC) was establishes 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) 1998 which stipulates:

    “(1) The provisions of this Act apply notwithstanding anything in any other relating to the determination of salaries and conditions or employment of employees of a public authority; and

    (2) Whereby 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.”

    1.5B.3 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;

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  • . transactions not having supporting documentation;

    . fixed assets. 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 Board members allowances without tax but allowing officers to pay the tax;

    . accounting, administrative and procedural manuals not being available;

    . public Servants serving on Statutory Board receiving Board allowances contrary to regulations;

    . ineffective internal audit functions; and

    . ineffective budget controls.

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

    1.5B.4 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 the financial management in their entities. In my view, the concept of effective, prudent and efficient finance management is yet to be absorbed by many Chief Executive Officers.

    1.5B.5 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 exist in all public entities subject to my audit. For that to be achieved, I believe that Chief Executive Officers are required to exercise proper leadership that provides an environment where there is:

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  • . Timely submission of financial statements;

    . Improved record keeping and documentation;

    . Provision of quality information;

    . Effective implementation of internal control systems; and

    . Entity financial management that is carried out by qualified and experienced accountants3.

    3 In my view, policies be reviewed to ensure that the Chief Finance Officers of Government are qualified accountants and members of CPA PNG. Although this may take some time to achieve, Government should consider this as one way of improving financial management in the Public Sector.

    1.5B.6 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;

    . Chief Executive Officers must understand the value of and how to implement a strong governance framework; and

    . Parliament must increase its reviews of the management of public entities and their accountability.

    1.5B.7 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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  • SECTION A

    PUBLIC BODIES AND THEIR SUBSIDIARIES 1A 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 responsibilities in that regard are detailed in paragraph 1.2 of this part of my Report.

    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;

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  • (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.

    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 AND RECOMMENDATIONS 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, 2009 was issued on 18 June, 2010. 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, 2009 was issued on 19 July, 2010. The report contained the following comments: 1. Internal Control Reports for External Fund Managers Internal Control reports (commonly referred to as SAS 70 reports) on two of the Fund Managers. operations were not made available to me. It was unacceptable when such reports were not provided on the operations of outsourced service providers, especially when providing services to such an institution as the Bank of Papua New Guinea. Given the magnitude of the investments managed by these Fund Managers on behalf of the Bank and the level of reliance placed by the Bank on the information generated by these Fund Managers, there is a potential risk that weak internal controls in the fund managers may result in material misstatements in the information generated by them and consequently in the Bank.s financial records. Internal control assurance over the operations of external service providers, particularly where the information provided by such a service provider forms a significant input in the Bank.s financial information is an important aspect of the Bank.s overall control environment. I strongly recommended the Bank to take this matter up with the Fund Managers concerned and arrangements to be put in place to ensure that such internal control assurance reports were provided to the Bank. This will enhance the reliability of the information provided by the Fund Managers. Management responded that: There was an understanding between the Bank and the EFM to ensure compliance with their respective internal governance policies and the charter in the Investment Management Agreement (IMA). The Bank noted the audit concerns and agreed to make amends in the next EFM review of the Fund Managers. operations.

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  • 2. Significant build up of Notes and Coins As a standard policy, the Bank was expected to reorder approximately five (5) years. supply of currency, with a reorder point occurring when the currency on hand falls below one year supply projection. However, the Bank currently holds in stock certain denominations of notes and coins in excess of fifteen (15) years. supply. As a result of bulk ordering, the Bank did not only incurred significant notes production cost, but also faces major storage issues and associated risks. As a matter of priority, I urged the Bank to resolve the storage issues in the most secured manner. It was important that the Bank reviews the current policy in relation to the reordering level. Also, the associated issues such as storage capacity and the costs involved be considered prior to commitments being made. Management concurred with my comments and added that corrective measures will be taken. Further, the Bank sought assistance from the Reserve Bank of Australia (RBA) to draft the currency policy in relation to stock level management, risks, quality standard and other currency issues. 3. Information Technology Related Issues . Monitoring of the effectiveness of internal controls

    I acknowledged that Bank Management established formal mechanisms for reporting over the effectiveness of IT General Controls. Nevertheless, I noted that there was still lack of effective monitoring to ensure remedial action is taken in a timely manner. Several IT issues were repetitively identified along the years, including some noted in this audit. The lack of formality in monitoring the progress and remedial action of IT issues, introduced the risk that: . IT issues may be overlooked or left unmonitored; and

    . Inappropriate assignment of responsibility over remedial actions and timeframes.

    I recommended the Management of the Bank to establish formal procedures for defining a timeframe, assigning overall responsibility for remedial actions and follow up in relation to IT issues raised regarding the effectiveness of IT General controls. I also requested the Management of the Bank to consider producing a formal periodic report or minute for the Board and relevant business line management detailing all issues requiring corrective action and the resolution timeframes. Management responded to my comments as follows; “Our planned corrective action was not carried out. ITD Management will readjust work in the next three weeks to define an overall IT process monitoring procedure for adoption by Operations Unit. The Department has acquired the international standards for IT Process Management, ITIL, to help fill the gaps in our current procedures”. . Logical Access to Applications

    After a high level review of logical user access in Oracle Financials, there were instances of access by users without access rights, as well as business areas managers accessing using administrator access rights. Administrative or privileged access rights were to be limited only to system administrators in the IT group. Administrator access provides unauthorized users with full access privileges. Any task in any module in the system could be undertaken without restriction, as a result of such uncontrolled access thereby bypassing the normal segregation of duties. Additionally, with such access, user accounts could be created, modified or removed. As system

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  • administrators had the highest level of access, such access should be reserved only for those users who are qualified and authorized as administrators. Where possible, I recommended system administration procedures to be carried out centrally by the IT Department and to ensure privileged access rights such as system administrator be restricted only to those who require this high level access for administration purposes. Enabling audit logs were recommended to allow monitoring and tracking of tasks performed by these privileged users. Management responded to my comments as follows: “This issue will be addressed through improvement to the User Accounts Administration process”. . Lack of Segregation of Duties within IT Functions

    It was noted that a developer had Database Administrator (DBA) access rights in Oracle. The risk was even higher considering that audit trial was not enabled in the Oracle Database to allow monitoring of tasks performed by privileged users, such as Database Administrator (DBA). Unauthorised changes to the database or the systems functionality could be made without following Bank of Papua New Guinea.s policies and procedures. I recommended sensitive IT functions such as systems security and database administration and configuration, development and deployment to production to be segregated. When resource constraints prevent the segregation of such functions, I strongly recommended audit logs (or other compensating controls) to be enabled and to be periodically monitored by an independent individual. Management responded as follows: “Staff shortage contributed to this problem when Development Unit Staff have also been used to support their own products when migrated to the production environment. This is something we cannot avoid but ITD believes once we adopt proper programming standards, controls can be put in place to better coordinate development work and porting of completed work to production environment”. . Logging and Monitoring of Privileged Access to Operating Systems, Applications and Database

    Audit trail and logging were not enabled in operating systems, applications and at the database levels. These include Oracle Financials, Alesco, CLS, SWIFT, GTS, RMS, Oracle Databases and BPNG computer network. Uncontrolled privileged user access pose potentially higher risk for the Bank. I recommended management to enable the audit logs over privileged accounts at operating systems, applications and more importantly at Oracle Database, including the monitoring of security activities in order to identify, escalate and report security violations or abnormal behavior to senior management. Management responded as follows: “Audit trail for all privileged users has not been done as planned. We are now embarking on this task as a matter of priority. A four weeks effort is required to configure and test”.

    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

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  • 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:- (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 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    3.2.1 Comments on Financial Statements My report to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the Authority.s financial statements for the two (2) months period ended 31 December, 2008 was issued on 29 January, 2010. The report did not contain any qualification. 3.2.2 Audit Observations Reported to the Ministers My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the audit and inspection of the accounts and records of the Authority for the two (2) months period ended 31 December, 2008 was issued on 29 January, 2010. The report contained the following observation: Accounting Systems, Personnel and Statutory Records The Border Development Authority (BDA) was established by an Act of Parliament in October, 2008 and commenced its operations in November, 2008. Since the Authority was in operation for only two (2) months as at 31 December, 2008, a properly established Office with adequate management and staff were not in place. As such, a lone officer (Executive Chairman) was involved in setting up the Office and involved in the day to day operation of the Authority.

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  • I recommended the Authority to establish proper procedures in relation to accounting, administration and work process, and employ properly skilled staff with sufficient knowledge and expertise to perform key functions and tasks of the Authority.

    3.3 STATUS OF FINANCIAL STATEMENTS At the time of preparing this Report, the financial statements of the Authority for the year ended 31 December, 2009 had not been submitted for my inspection and audit.

    4. CIVIL AVIATION SAFETY AUTHORITY OF PAPUA NEW GUINEA

    4.1 INTRODUCTION

    4.1.1 Legislation

    The Civil Aviation Authority of Papua New Guinea was established in November, 2000 by 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 AND RECOMMENDATIONS

    4.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the Authority.s financial statements for the year ended 31 December, 2006 was issued on 26 October, 2009. The report was a disclaimer of opinion.

    “BASIS FOR DISCLAIMER OF OPINION

    Limitation of Scope regarding Opening Balances

    My report on the financial statements of the Authority for the year ended 31 December, 2005 was disclaimed on the basis of limitation of scope due to lack of information and adequate supporting evidence. Consequently, I was unable to determine the accuracy of the opening financial position of the Authority as at 1 January, 2006 because the results for the year ended 31 December, 2005 enter into the determination of the opening balances as at 1 January, 2006 and therefore the financial performance for the year ended 31 December, 2006. Due to the size and fundamental nature of the matters referred to, I was unable to determine whether the results of the Authority for the year and the net assets at year end are fairly stated.

    Transfer of State Assets and Liabilities

    As explained in Note 1(a) to the financial statements, the Civil Aviation Authority, in conjunction with the State, is currently determining the most appropriate process by which to transfer the State.s assets and liabilities to the Authority.

    Consequently, it is not yet in compliance with Sections 328 to 333 of the Civil Aviation Authority

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  • Act, 2000 which stipulate that State assets and liabilities should be transferred to the state aviation enterprise. The financial statements therefore, do not include substantial assets owned by the State. Trade Creditors and Other Creditors – K7.1m

    Trade creditor.s balance includes K2.6m in trade payables and K4.5m in other creditors. However, the other creditors and accruals balance of K4.5m could not be supported by any form of reconciliations and my attempts to carry out unrecorded liabilities tests to confirm the possible understatements was not made possible. Hence, I was unable to confirm the correctness of other creditors balance.

    Employee Provisions – K3.4m

    Annual leave provisions of K1m and Long Service leave provisions of K2.4m included in the financial statements were properly supported by employee provisions listings. However, further information requested to carry out detailed work to confirm the calculations, existence, completeness and accuracy of the listings was not provided. I was therefore, unable to confirm if the employee provisions included in the financial statements were fairly stated.

    Trade Debtors & Other Debtors – K14.2m

    Trade and other debtors balance of K14.2m includes K8m of trade debtors, K2.1m in other debtors and prepayments and K4.1m in GST receivables. I was only provided with information on the trade debtor.s balance of K8m but the other debtors and prepayments and the GST receivable balances could not be supported by any reconciliations and GST returns. Therefore, I was unable to confirm the completeness, accuracy and existence of these balances.

    Revenue – K59m

    I was not provided any supporting documents to support the significant components of the total revenue of Air Navigational Support revenue of K17.6m, Government Grants and Subsidies of K20.6m and Community Service Obligation income of K6.5m. Therefore, I was unable to confirm the completeness and accuracy of these significant revenue amounts and the total revenue of K59m recorded for the year.

    Payroll & Personnel Costs – K27.7m

    Payroll and personal costs of K27.7m included in the profit and loss statement were not supported by supporting documents. Further, information requested to carry out normal audit procedures to verify the payroll and personal costs were also not provided. Accordingly, I was unable to confirm the completeness and accuracy of this amount.

    DISCLAIMER OF AUDIT OPINION

    Due to the limitation in my audit procedures referred to in the preceding paragraphs, I was unable to express an opinion as to whether the financial statements present fairly, and in accordance with the Civil Aviation Authority Act, 2000, International Financial Reporting Standards and other Generally Accepted Accounting Practices in Papua New Guinea, the financial position of the Civil Aviation Authority as at 31 December, 2006 and its performance for the year ended on that date.

    4.2.2 Audit Observations Reported to the Ministers

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  • 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, 2006 was issued on 26 October, 2009. The report contained the following observations.

    1. PNG Air Traffic Services Limited

    The Civil Aviation Authority Act, 2000, gave authority for the incorporation of the PNG Air Traffic Services Limited as a subsidiary of the Authority. However, the Authority was unable to produce any financial records in respect of this company and is unaware of its existence. I recommended Management to review the requirements of the Act in respect of this subsidiary and to take the necessary action to comply with the provisions of the Act. The Management has advised as follows:

    “The CAA has subsequently incorporated a company called Papua New Guinea Air Services Limited and the company has commenced operations on 1 January, 2008.” 2. 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 the IRC against the Civil Aviation Authority. I drew Management.s attention to this and I was advised by Management that it was aware of this issue and was in negotiations with the IRC to rectify the situation.

    3. 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 audit. Management advised me that CAA has been in the process of developing and strengthening the Internal Audit function and have now recruited qualified personnel who started leading the team in the 2008 financial year.

    4.3 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, 2007 and a Special Investigation as directed by the Public Accounts Committee were in progress.

    The financial statements of the Authority for the year ended 31 December, 2008 had been submitted. The fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Authority will commence shortly.

    The financial statements of the Authority for the year ended 31 December, 2009 was not submitted for my inspection and audit.

    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 Subsidiary

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  • Cocoa Coconut Institute Limited of PNG (formerly PNG Cocoa and Coconut Research Institute) was amalgamated with PNG Cocoa and Coconut Extension Agency Ltd 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).

    5.1.3 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.

    5.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    5.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the financial statements of the Board for the years ended 30 September, 2006 and 2005 were issued on 18 June, and 29 January, 2010 respectively. The 2005 and 2006 reports contained similar Qualified Audit Opinions hence, only the 2006 report is reproduced as follows:

    “BASIS FOR QUALIFIED AUDIT OPINION

    1. Debtors and Prepayments

    Included in the total debtors and prepayments of K205,662 reported in the financial statements, are amounts totalling K68,067 which consist of fraudulent payments made to former employees who had left the employ of the company. As a result, I was unable to satisfy myself as to the recoverability of these amounts and whether the closing Debtors and Prepayments balance was complete since no documentary evidence was provided for my review.

    2. Investments

    The financial statements disclosed investments of K280,006 at year end representing 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.s total Fixed Assets amounted to K1,674,171 for the year ended 30 September, 2006. Included in this account balance are land and buildings with a carrying value of K86,264 and K779,054 respectively. I was not provided the registered title deeds in relation to these land and buildings. Further, the Board did not carry out any physical stock-take to ascertain the assets owned by the Board and its physical condition. As a result, I was unable to state the propriety and the ownership of these buildings as disclosed by the Board at 30 September, 2006.

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  • 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 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 for the year ended 30 September, 2006:

    (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 the Public Finances (Management) Act, 1995 and generally accepted accounting practice.

    OTHER MATTERS

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

    1. Differences in the Opening Balances of the General Ledger

    Differences were noted in the opening balances of the general ledger in relation to PNG Cocoa Coconut Institute Limited (K1,374,600), Trade Creditors (K130,035), Group Taxes (K259,055), Staff Advances (K36,587) and Rental Bonds (K2,367). Adjusting journal entries were passed to correct the opening balances on the general ledger to agree to the audited financial statements of 30 September, 2005. However, I was not provided the relevant journals and supporting documentation in relation to the adjustments, which I consider as immaterial on aggregate to further qualify the financial statements for the year ended 30 September, 2006.

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

    The Board is required to submit an annual report on performance and management and a

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  • 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, 2006.”

    5.2.2 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 of the Board for the years ended 30 September, 2006 and 2005 were issued on 18 June, and 29 January, 2010 respectively. My reports contained the following observations:

    2006 Report:

    OTHER MATTERS

    1. Board of Directors

    The Cocoa Board of Papua New Guinea was operating without a Board for the Cocoa season ending 30 September, 2008 and 30 September, 2009. As there was no Board, executive and strategic decisions may have been made without the Board.s consent. I noted that the corporate governance structure of the Board was weak and lacked executive direction and control.

    The management responded that it had made several submissions regarding the appointment of Board members to the Minister and to date no appointments were made. Further, I was also informed that decisions requiring the Board.s deliberation and approval in those periods were referred to the Secretary of the Department of Agriculture and Livestock as stipulated by the Cocoa Act, 1981.

    2. Accounting, Administration and Procedural Manual

    The Board did not have an Accounting, Administration and Procedural Manual in place for its daily operations. In the absence of the documentation in relation to systems and controls, I had no basis to measure the standards of operations in existence. I also noted that the Board was not aware of the requirements of the General Orders or the Public Finances (Management) Act, 1995.

    In response to my recommendation for the Board to adopt an Accounting, Administration and Procedural Manual in line with the General Orders of the Public Services and the Public Finances (Management) Act, 1995 the Board informed me that a manual would be drafted for formal adoption by the Board.

    3. Review of Board.s Salary and Wages

    In my review of the staff positions and the pay structure, I noted that there were no reviews conducted by the Board on a periodic basis. In the absence of a salary review and a restructure of the Board positions, staff and job marketability of the Board positions were deemed to have been non competitive and had affected staff morale for staff performing comparable job classifications

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  • as those in the market.

    I recommended the Board to review the salary structure, the staff and organizational requirements and restructure to cater for CPI adjustments and comparable job marketability. The Board concurred with my observations and advised that a review was done by a consultant but was not implemented.

    4. Staff Advances – K60,832

    Note 14 to the financial statements shows that advances granted to the staff members had increased by K24,245 (2005: K36,587) in the year ended 30 September, 2006. The Public Finances (Management) Act, 1995 requires outstanding advances to be recouped in the year of the advance. However, I noted that the Board did not comply with the requirements of advance acquittal and recoveries.

    I recommended management to take heed of the requirements of the Public Finances (Management) Act, 1995 and was informed that the Board had since ceased paying such advances. However, that had not been the case as was evidenced by additional advances of K24,245 during the year.

    5. Amount of K4,885,260 awarded by National Court against the Board

    Note 8 to the financial statements refers to events after balance date whereby the National Court in its ruling of 27 July, 2007 awarded K6,292,441 to Cocoa Board. On 19 March, 2010 the Court changed the award to K4,885,260 to Agmark Pacific Limited. The latter Court Order, ordered the Board and the State to pay with 8% interest within 21 days and to meet the costs of the proceedings. Agmark Pacific Limited had sued the Board for illegal collection of Stabilisation Bounty since the Minister had not gazetted the bounty collection as required under the Cocoa Act, 1981 and thereby deeming as illegal the bounty collected and used by the Board between January, 1997 and October, 1999.

    In my view this case was not defended adequately and the Board had appealed against the verdict. I brought this to the attention of Management and have since been advised that the Board had engaged a private lawyer to take the matter further and an appeal was lodged at the Supreme Court of Papua New Guinea in 2010.

    6. Fixed Assets

    The Board did not provide registered title deeds and documentary evidence for all the buildings that were stated as owned by the Board. I was unable to determine the propriety and the validity of the ownership of those land and buildings totalling K86,264 and K779,054 respectively as the title deeds provided of the mentioned properties were not registered in the name of the Board. I was promised by the Board that the title deeds for the property mentioned as Section 34, Allotment 11 would be provided in due course. Further, the Board had not carried out any physical stock-take to ascertain the assets owned by the Board and its physical condition.

    In response to my observations the Board informed me that a staff had been recruited to perform the stock-take of all fixed assets and a new software program was adopted to cater for the Board.s assets in the future.

    7. Differences in Opening Balances

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  • Differences were noted in the opening balance of the general ledger in relation to PNG Cocoa Coconut Institute Limited (K1,374,600), Trade Creditors (K130,035), Group Taxes (K259,055), Staff Advances (K36,587) and Rental Bonds (K2,367). I noted that adjusting journal entries were passed to correct the opening balances on the general ledger to agree to the audited financial statements of 30 September, 2005. However, I was not provided the relevant journals and supporting documentation in relation to these adjustments.

    In response to my queries, the management informed that the variances came about due to the incorrect opening balances that were inherited from the previous years. Due to the backlog of outstanding financial statements, the accounts were rolled over without closing the accounts in the MYOB Accounting System and as a result, incorrect balances were reported as opening balances in the subsequent accounting period.

    2005 Report:

    OTHER MATTERS

    1. 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 had not submitted 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, 2005.

    2. Goods and Services Tax – K88,030

    Note 14 to the financial statements disclosed Goods and Services Tax as K88,030. However, in my review of the account I noted that remittance of the GST Returns were not periodically remitted to the Internal Revenue Commission as stipulated by the Goods and Services Tax Act, 2003.

    I recommended management to lodge the GST returns periodically as stipulated by the Act and the management concurred to pursue the recommendation.

    3. Staff Advances – K36,548

    Also in Note 14 to the financial statement, advances granted to the staff members had increased by K29,803 (2004: K6,745) in the year ended 30 September, 2005. In compliance with the Public Finances (Management) Act, 1995 outstanding advances were to have been recouped in the year of the advance, however, I noted that the Board had not complied with the recovery and acquittal of advances.

    I recommended management to take heed of the requirements of the Public Finances (Management) Act, 1995 and was informed that the Board had since ceased paying such advances.

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  • 4. Amount of K6,292,441 awarded by National Court against the Board

    Note 8 to the financial statements refers to events after balance date whereby the National Court in its ruling of 27 July, 2007 awarded K6,292,441 to Agmark Pacific Limited. This Company had sued the Board for illegal collection of Stabilisation Bounty since the Minister had not gazetted the bounty collection as required under the Cocoa Act, 1981 and thereby deeming as illegal the bounty collected and used by the Board between January, 1997 and October, 1999.

    It appeared that this case was not defended adequately and the Board had appealed against the verdict. I brought this to the attention of Management and have since been advised that the Board had engaged a private lawyer to take the matter further and an appeal was lodged at the Supreme Court of Papua New Guinea in 2008.

    5. Going Concern

    The Board had prepared its financial statements on a going concern basis. However, should the appeal made in 2008 fail, the Board will not be able to pay the K6,292,441 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.

    5.3 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 Board for the years ended 30 September, 2007 and 2008 were completed and the results were being evaluated.

    The Board did not submit its financial statements for the year ended 30 September, 2009 for my inspection and audit. 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 AND RECOMMENDATIONS

    5A.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 Fund for the year ended 30 September, 2005 was issued on 29 January, 2010. The report was a Disclaimer of Opinion.

    “BASIS FOR DISCLAIMER OF OPINION

    1. I audited the Statement of Receipts and Payments of Cocoa Stabilisation Fund for the year ended

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  • 30 September, 2004 and issued a disclaimer of opinion on them. Consequently, I was unable to quantify the effects of any material misstatement on the opening balances that might have a bearing on the balances reported for the year ended 30 September, 2005. Therefore, I was unable to perform sufficient audit procedures to satisfy myself as to the accuracy or completeness of the opening balances that would have consequential effect on the Statement of Receipts and Payments for the year ended 30 September, 2005, and the comparative amounts presented.

    2. The Cocoa Board is responsible for the administration of the Cocoa Stabilisation Fund. The Cocoa Stabilisation Fund had a net deficit of K22,835,965 (2004: K22,063,320), which represents borrowed funds. The ability of the Cocoa Stabilisation Fund to repay the borrowed funds totalling K26,219,934 (2004: K26,219,934) depends on the Government.s preparedness to inject more funds, guarantee additional loans for the operations of the Fund or substantial increases in cocoa prices above the trigger price to occur to be able to collect bounty to be used for the repayment of the Loan.

    As mentioned in Note 1 to the Statement of Receipts and Payments, the Government has committed K26,219,934 (2004: K26,219,934) as a loan to the Cocoa Board of Papua New Guinea to assist the Cocoa Support Scheme as detailed below:

    2.1 Total loan balance as at 30 September, 2005 stood at K26,219,934. I was unable to satisfy myself as to the completeness and accuracy of the loan balance as I was not provided a confirmation from the bank. 2.2 Total outstanding levies/bounties were disclosed as K626,205 as there were no movements during the year. 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 figure. 2.3 The Cocoa Stabilisation Fund.s Statement of Receipts and Payments disclosed bank balance as K3,383,969. The bank balance included debit adjustments totalling K821,594 and credit adjustments totalling K232,614 of which details were not provided for my verification. DISCLAIMER OF OPINION In my opinion, because of the significance of the matters discussed in the preceding paragraphs, I am not in a position to and do not express an opinion as to whether the accompanying statement gives a true and fair view of the revenue collected and loan repayments by the Cocoa Stabilisation Fund during the year ended 30 September, 2005 in accordance with the receipts and disbursements basis as described in Note 1 (IV).”

    5A.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 Fund for the year ended 30 September, 2005 was issued on 29 January, 2010. This report revealed generally satisfactory results.

    5A.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the field work associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Fund for the years ended 30 September, 2006, 2007 and 2008 were completed and the results were being evaluated.

    The Fund had not submitted its financial statements for the year ended 30 September, 2009 for my inspection and audit.

    6. COCOA COCONUT INSTITUTE LIMITED OF PAPUA NEW GUINEA (FORMERLY PNG COCOA AND

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  • COCONUT RESEARCH COMPANY LIMITED)

    6.1 INTRODUCTION 6.1.1 Legislation Cocoa Coconut Institute Limited of PNG (formerly PNG Cocoa and Coconut Research Company Ltd) was amalgamated with PNG Cocoa and Coconut Extension Agency Ltd 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 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    6.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the Company.s financial statements for the year ended 31 December, 2006 was issued on 31 May, 2010. The report contained a disclaimer of opinion.

    “BASIS FOR DISCLAIMER OF OPINION

    Accounting Records

    The general ledger and trial balance for the year 2006 were very unreliable. The opening balances of assets, liabilities and equity accounts did not agree to the 2005 audited financial statements and most closing balances as per the 2006 trial balance were not supported by appropriate schedules or reconciliations. Consequently, I was unable to utilise the general ledger to confirm the accuracy of the amounts disclosed in the financial statements as at 31 December, 2006.

    Financial Statements

    The financial statements for the year ended 31 December, 2006 is unreliable as a result of anomalies indentified in the disclosures therein. The Balance Sheet has an unexplained difference of K1,595,401 between the Net Assets amount of K9,718,566 with total Share Capital and Reserves amount to K8,123,166. No explanation was provided for these discrepancies. As a result, I was unable to rely on the accuracy and completeness of the financial statements balances as at balance date.

    Fixed Assets

    The carrying value of fixed assets at 31 December, 2006 was K8,456,450. The depreciation schedule for the year 2006 was not provided to me for audit review and a difference of K273,157 existed between the fixed assets value recorded in the financial statements and the balances as per the general ledger. An amount of K346,088 recorded as works in progress in the assets listing comprises of fixed assets additions are yet to be allocated to the respective asset.s categories and

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  • depreciated accordingly. Consequently, I was unable to determine the completeness, existence, accuracy and valuation of the fixed assets balance and the impact of these factors on the financial statements as at 31 December, 2006.

    Closing Stock

    The Company has recorded stock as K726,575 in the financial statements as at 31 December, 2006. I observed that the Company did not undertake any physical stock-take at the year end and due to the nature of inadequate stock records, I was unable to satisfy myself as to the quantities and valuation of the materials and supplies. As a result, it was not practical to extend my audit procedures to satisfy myself as to the existence and valuation of the stock on hand at the balance date.

    Trade Debtors

    No reconciliation and supporting documents for debtors were available. No provision for doubtful debts were made despite some debtors balances remaining unchanged from previous years. As a result of the above, I was not able to confirm the completeness and accuracy of the debtors balance of K1,052,508 disclosed in the financial statements as at 31 December, 2006.

    Cash and Bank

    Bank reconciliation for twenty five (25) out of a total fifty-six (56) bank accounts maintained were not available for my audit verification. A difference of K381,111 also existed between the cash at bank disclosed in the financial statements and the general ledger. No details of this difference were available. Further, a difference of K466,845 exists between the cash at bank balance and cash flow statement balance in the financial statements. As a result, I was unable to confirm the accuracy of K4,203,926 disclosed as bank balance in the financial statements as at 31 December, 2006.

    Trade Creditors and Accruals

    Trade creditors and accruals were recorded as K3,342,488 in the financial statements. No reconciliations and supporting documentation were available to verify the balances recorded in the financial statements. Consequently, I was not able to perform the necessary tests to satisfy myself as to the accuracy and completeness of the creditors and accrual balances taken up in the financial statements at 31 December, 2006.

    Provisions

    The Company was unable to provide satisfactory records in respect of Cocoa and Coconut Extension Agency Limited staff provisions of K299,552 transferred to the Company after the Extension Agency merged with the Company. An under provision of K661,009 exists between the Attaché Payroll System leave liability report of K1,421,054 and financial statements gross balance of K760,045. Further, the staff net provision of K346,163 included a debit balance of K413,883 as staff leave fares which was not appropriate in a provision account. As a result, I was unable to satisfy myself as to the accuracy of the provisions included in the financial statements.

    Inter-company Account Balance

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  • The amount of K205,146 disclosed as Inter-company account in the financial statements was incorrect. This comprised transfer of funds from one (1) bank account to another within PNGCCI Limited itself. This account should have a zero balance at balance date. As a result of this inconsistency, I was unable to satisfy myself as to the accuracy of this balance.

    Issued Share Capital

    The records currently held at the Investment Promotion Authority office disclosed the issued share capital to be 100,000 ordinary shares of K1.00 each and not 100,000 ordinary shares valued at K532,006 as recorded in the financial statements as at 31 December, 2006. As a result, I was unable to confirm as true and correct the amount disclosed in the financial statements as at 31 December, 2006.

    Unspent Grants

    Unspent Grants (liability) balance of K543,201 disclosed in the financial statements include INCO Beetle Grant account with a debit balance of K67,529 but no explanation was provided. Therefore, I was unable to confirm the accuracy of the unspent grants balance of K543,201 as at 31 December, 2006.

    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 the PNG Cocoa Coconut Company Limited for the year ended 31 December, 2006.”

    6.2.2 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 Company for the year ended 31 December, 2008 was issued on 31 May, 2010. The report contained the following observations.

    Control over Assets

    A proper fixed assets register was not maintained to record and monitor the location, custody, usage and condition of all assets controlled by PNGCCI and further, management had not undertaken any physical inspection of the assets. In addition, the depreciation schedule for 2006 was not made available for my inspection and material differences were noted between the general ledger and the financial statements. As a result, it was not practical to satisfy myself as to the existence and control over these assets.

    Trade Creditors and Accruals

    The incurrence of liabilities is a major concern with total trade creditors and accruals standing at K3,342,488 for 2006. There was an apparent weakness in the management.s ability to take measures to manage the escalating costs.

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  • Collection of Debtors

    Total receivables of K1,052,508 recorded as at 31 December, 2006 must be confirmed and aggressively pursued and collected. These are significant funds needed by the Company but tied up. The management was advised to take measures to realize these debts to enable the settling of its liabilities.

    Company Statutory Records

    Serious differences were noted between the statutory records maintained by the Company and those records held by the Investment Promotion Authority (IPA). I advised management to identify the outstanding issues with IPA to avoid deregistration as well as to confirm the validity of the Company.s issued share capital and appointment of Company.s Secretary and Directors.

    Expenditure Control

    Analytical reviews done on expenses indicated substantial increases in operational costs incurred, and management was advised to apply cost control measures to create savings to offset the existing liabilities.

    Plantation Productivity

    Site inspections and interviews indicated that management of plantations was poor and that the full potential of these plantations were not fully utilized thus leading to under production. Management was advised to improve management practice and seek funding to increase its capacity to generate internal revenue.

    6.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the field work associated with the inspection and audit of the accounts and records for the year ended 31 December, 2007 was completed and the results were being evaluated.

    The financial statements for the years ended 31 December, 2008 and 2009 had been submitted for my inspection and audit and arrangements are being made to commence the field work shortly.

    7. COFFEE INDUSTRY CORPORATION LIMITED AND ITS SUBSIDIARIES

    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

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  • 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, Patana No. 61 Limited and Coffee Industry Fund. Comments in relation to the subsidiary and the Fund are contained in paragraphs 7A and 7B, respectively, of this Report (Part IV).

    7.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the field work associated with 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, 2009 was substantially completed and the results were being evaluated.

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

    7A.1 INTRODUCTION

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

    7A.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the field work associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Company for the year ended 31 December, 2009 was substantially completed and the results were being evaluated.

    7B. COFFEE INDUSTRY FUND

    7B.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.

    7B.2 STATUS OF FINANCIAL STATEMENTS At the time of preparing this Report, the field work associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Fund for the year ended 31 December, 2009 was substantially completed and the results were being evaluated.

    8. GOVERNMENT PRINTING OFFICE

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  • 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 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    8.2.1 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 Printing Office for the year ended 31 December, 2007 was issued on 7 January, 2010. The report contained a disclaimer of opinion. “BASIS FOR DISCLAIMER OF OPINION 1. Limitation on the Scope of my Audit

    Due to the disclaimer of opinion issued in respect of the year ended 31 December, 2006, I was unable to satisfy myself as to the opening balances. I was also unable to quantify the effects of misstatements, if any, which might have a bearing on the results of the operations of the Office. The general ledger and trial balance generated by the present system did not agree with the financial statements by an aggregate amount of K202,079. I was not provided with any valid explanation for the differences. As a result, I was unable to form an opinion regarding the accuracy of the financial records maintained by the Office and the closing balances stated in the financial statements. 2. Trade Debtors

    The trade debtors balance was stated as K7,090,428 at the year end. I was unable to independently verify the existence, valuation and completeness of the debtors balance due to the absence of proper debtors ledger and lack of supporting documentations. 3. Inventory

    I was unable to independently verify and conclude on the accuracy, valuation and existence of the inventory balance of K559,774 stated in the financial statements as I was not able to physically verify the inventory held at the year end and due to lack of supporting documents.

    4. Trade Creditors

    Due to lack of supporting documentation, I was unable to independently verify the existence, valuation and completeness of the creditors balance of K39,835 as stated in the financial statements. 5. Other Creditors

    I was unable to conclude on the accuracy and completeness of other creditors balance of K60,000

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  • due to the unavailability of supporting documentation. 6. Group Tax and Goods & Services Tax

    The financial statements disclosed Group Tax as K87,148 and Goods and Services Tax as K747,474. I was unable to independently verify the group tax balance and GST balance due to lack of supporting documentation. The permanent staff salary cost and other entitlements had not been incorporated into the financial statements to reflect the true cost of the Office. Further, the Government Printer.s report on page 2 of the financial statements disclosed that permanent staff salaries and benefits of approximately K500,000 were paid directly by the State. I was unable to verify the correctness of this balance in the absence of any supporting documentation. DISCLAIMER OF OPINION Because of the significance of the matters referred to in the preceding paragraphs, I had not obtained sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, I did not express an opinion on the financial statements of the Government Printing Office for the year ended 31 December, 2007.” 8.2.2 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 Office for the year ended 31 December, 2007 was issued on 7 January, 2010. The report contained the following observations: 1. Property, Plant and Equipment

    The Printing Office disclosed fixed assets as K4,205,569 in the financial statements. However, it was noted that the Office did not maintain a proper fixed assets register to record details of purchases made, disposals done and those assets written off during the year. As a result, the ledgers for depreciation expense and assets written off did not agree with the financial statement figures by an aggregate amount of K104,049.

    2. Revenue

    The Government of Papua New Guinea through the Department of Prime Minister provides salaries for permanent staff only of the Printing Office. I noted that the principal activity of the Office is to provide printing services to the government and its arms which was fully funded from the internally generated revenue from the printing services. From my review of the revenue process, it was revealed that there was no clearly documented work process in place for the staff with fine lines of responsibility to follow from receiving of orders right through to collecting of monies and dispatching of the printed materials. As a result, the following weaknesses were noted: . The quotations were done by anyone within the sales section and they were not attached to the final invoices for validation which are filed at the sales sections;

    . The delivery dockets were not pre-printed and numbered with book fast copies in the dockets, instead photocopied dockets were used resulting in mismatches between orders and deliveries during reconciliation; and

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  • . Collection and receipting of cash and cheques had been a function within the Finance Section. I noted that the publication section, along with its own functions was performing the role of collecting cash and cheques. No segregation of duties were noted which may contribute to ineffective internal control, and may encourage fraud.

    3. Cash at Bank My review of the Bank reconciliations revealed that there were no monthly bank reconciliations done for January, July and August, 2007. Since the bank reconciliation is a basic control function of the cash collection I recommended that it must be performed on a regular basis and checked by a senior staff member. 4. Non-Acquittal of Travel Advances

    My review of the travelling advances revealed that travel advances totalling K41,646 were not acquitted on a timely basis and were still outstanding as at 31 December, 2007.

    I recommended that the advances be acquitted after return within seven (7) days.

    5. Financial Operations

    My review of the financial operations and the systems of the Office revealed the following;

    a) The Office does not have a financial manual or procedural manual;

    b) Documented segregation of duties with delegated financial limits was absent; and

    c) There were casual employees working with the Office for prolonged periods.

    8.3 STATUS OF FINANCIAL STATEMENTS At the time of preparing this Report, the financial statements of the Office for the years ended 31 December, 2008 and 2009 had not been submitted for my inspection and audit.

    9. INDEPENDENCE FELLOWSHIP TRUST 9.1 INTRODUCTION 9.1.1 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. 9.1.2 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

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  • . to invest the funds of the Trust.

    9.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS 9.2.1 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 Trust for the year ended 31 December, 2009 was issued on 25 May, 2010. The report contained the following disclaimer of opinion: “BASIS OF DISCLAIMER OF OPINION 1. Limitation of Scope with respect to Receipts

    The Trust reported receipts as K26,375 in the financial statements as at 31 December, 2009. This amount was taken from the transactions shown in the bank statements. In addition, this amount did not agree with the receipts register total of K20,220. There was no reconciliation and supporting documents available for my verification. As a result, I was unable to confirm the authenticity and completeness of the receipts disclosed in the financial statements. 2. Limitation of Scope in regards to Payments The Trust disclosed its total payments/withdrawals as K24,902 in the financial statements. A difference of K7,212 existed between the payment vouchers file and the financial statements. No additional supporting documents were made available for me to verify the completeness of payments. As a result, I was unable to satisfy myself as to the accuracy and correctness of the payments as reported in the financial statements. 3. IFT Recurrent Budget

    Personnel emoluments, and procurement of goods and services and assets paid by the Department of Labour and Industrial Relations on behalf of the Trust during the year and were not reported in the Trust.s financial statements as at 31 December, 2009. As a result, the Trust.s financial position and operation were not fairly presented in the financial statements. DISCLAIMER OF OPINION Because of the significance of the matters described in the Basis for Disclaimer of Opinion, I do not express an opinion as to whether the financial statements of the Independence Fellowship Trust are drawn up so as to give a true and fair view of the Trust’s financial position as at 31 December, 2009 and the results of its operations for the year then ended.” 9.2.2 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 Trust for the year ended 31 December, 2009 was issued on 25 May, 2010. The report contained the following comments. 1. Passbook Bank Account

    I noted that the Trust funds were kept in a passbook account instead of a cheque account. In this system, there was no audit trail while making payments as the passbook system cannot provide copy of the withdrawal slip. I brought this matter to the management and it responded as follows:

    “The idea of passbook account came about when there was no money to operate in 2002 to 2007. Payment records are there but during the transfer to AON Haus from Pacific Place the files were misplaced. We have already under taken the responsibility to establish a cheque book account at

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  • Bank of South Pacific.”

    2. Receipts – K26,319

    The Trust has no proper system in place to account for monies received during the year. The receipts reported in the financial statements were extracted from the bank statements and not from the original receipts and/or from a receipts register. In addition, there was no audit trail to confirm that receipts collected were subsequently banked. I brought this matter to the management and it responded as follows:

    “We do have a system to keep account of all receipts, however during the transfer of office the files were lost or misplaced.”

    3. Payments – K24,902

    I noted that payments reported in the financial statements were taken from the bank statements instead of actual source documents. It was further noted that many payments were not supported by required documents. I brought this matter to management and it responded as follows:

    “The Independent Fellowship Trust Secretariat has undertaken the necessary measures to maintain a proper cashbook to facilitate the receipts and payments. We have already undertaken to open up the cheque account for payment in the near future.”

    4. Other Internal Control Weaknesses

    Other weaknesses noted were:

    . Bank reconciliation was not done on a periodic basis.

    . Fixed Assets Register and records of liabilities were not maintained.

    I drew management.s attention to these weaknesses and it responded as follows:

    “The bank reconciliations were not done on a periodic basis due to capacity problem the Independent Fellowship Trust Secretariat is encountering. As recommended, to strengthen its finance and accounting, we have already put in place a proposed organization structure which will be submitted to the Corporate Services of the Department of Labour and Industrial Relations for its endorsement and approval. The Department of Labour and Industrial Relation is responsible for all Independent Fellowship Trust fixed assets and liabilities. Therefore, all copies of the fixed assets are maintained at the Account section of the Department and not with Independent Fellowship Scheme.”

    10. INDEPENDENT CONSUMER AND COMPETITION COMMISSION 10.1 INTRODUCTION

    10.1.1 Legislation

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  • 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.

    10.1.2 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.

    10.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS 10.2.1 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 for the year ended 31 December, 2008 and 2009 were issued on 28 September, 2009 and 4 May, 2010 respectively. The 2008 and 2009 reports did not contain any qualifications. 10.2.2 Audit Observations Reported to the Ministers My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the audit and inspection of the accounts and records of the Commission for the year ended 31 December, 2008 and 2009 were issued on 28 September, 2009 and 4 May, 2010 respectively. The reports revealed generally satisfactory results.

    10.3 STATUS OF FINANCIAL STATEMENTS At the time of preparing this Report, the financial statements of the Commission for the year ended 31 December, 2010 will be submitted to my Office by 31 March, 2011. 11. INDEPENDENT PUBLIC BUSINESS CORPORATION

    11.1 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 Enterprises 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.

    11.1.1 The objectives of the Corporation shall be:-

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  • (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.

    11.1.2 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:

    (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;

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  • (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.

    11.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    11.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the Corporation.s financial statements for the years ended 31 December, 2008 and 2007 were issued on 9 December, 2009 and 19 November, 2009 respectively. These reports contained similar qualified audit opinions, hence only the 2008 report is reproduced as follows:

    “BASIS OF QUALIFIED AUDIT OPINION 1. Non Compliance with International Accounting Standards

    The carrying value of certain Fixed Assets Held for Sale (Office Furniture and Fixtures) at 31 December, 2008 was K707,723. These assets were bought in 2000 for the 13th floor Deloitte Tower office, but this decision was later abandoned. The initial cost of these assets was K1,210,842 but was depreciated since 2003 up to 2006. The Corporation stopped providing depreciation in 2007. The net balance of K707,723 then has been shown as Assets Held for Sale. However, there was no consistency in applying the policy on depreciation on the assets which are held for sale, no respective adjustments on depreciation charged and no program of sale was evident. As a result, International Financial Reporting Standards (IFRS-5) – Non-current Assets Held for Sale and Discontinued Operations, (IAS-8)- Accounting Policies, Changes in Accounting Estimates and Errors, (IAS-16) – Property, Plant and Equipment were not complied with. Accordingly, I was unable to satisfy myself on the accuracy of the balance of the Assets Held for Sale shown as K707,723 and the fixed assets balance of K738,168 respectively disclosed in the financial statements. 2. Related Party Balances

    The financial statements disclosed K11,889,011 as receivables due from related parties under non-current assets. However, the components of this total had the following anomalies and incorrect accounting treatments;

    2.1 An amount of K2,212,439 was disclosed as receivable from Port Moresby Private Hospital Limited (POMPH). However, K117,500, K300,000 and another K300,000 received as rental income from the Hospital for the years 2006, 2007 and 2008 respectively were not adjusted from the K2,212,439, thus overstating this balance by a total of K717,500;

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  • 2.2 The above rental income were shown as payable in the books of General Business Trust (GBT) as at 31 December, 2008. The showing of rental income from the Hospital in the GBT accounts as payable and the expenses in the IPBC accounts as receivable was not based on an approved arrangement;

    2.3 Receivables from Investment Corporation of Papua New Guinea (ICPNG) were disclosed as K325,159. However, the accounts of the Investment Corporation of PNG (ICPNG) were not audited since 2002. Therefore, the exact status of its financial position could not be determined to ensure whether the receivable was infact payable in the books of ICPNG;

    2.4 Receivables from Aquarius No. 21 Limited were disclosed as K53,997. The only asset claimed as owned by Aquarius No. 21 Limited in its financial statements was a vacant land at Portion 1570 Granville, National Capital District.

    However, the lease of the land expired in 2000 which indicates that the land was not legally owned by the Company. As such, there was no asset owned by the Company to extinguish its liability owed to the parent entity; and

    2.5 Receivables from the Ministry of Public Enterprises and the Ministry of Communication and Information were disclosed as K2,319,521 and K6,977,895 respectively. These amounts were spent from the General Business Trust operational funds. The operational fund was allocated by the Trust to Independent Public Business Corporation for its own normal operations as Trustee. However, the above ministerial expenses were also paid out of this and shown as related party balances which were not appropriate. In addition, no operational/consultancy expenses during 2007 and 2008 and the specified time limits to refund was available.

    The above accounting treatments were not based on appropriate accounting practice or policy on fair presentation of the financial statements in compliance with International Financial Reporting Standards (IAS-1) -Presentation of Financial Statements.

    Consequently, I was unable to ascertain the correctness and validity of showing K11,889,895 as related party balances under Non-Current Assets in the financial statements for the year ended 31 December, 2008. In addition, the Corporation did not have a policy setting out the conditions in respect of expenses incurred on behalf of other government entities and accounting them in its books.

    QUALIFIED AUDIT OPINION

    In my opinion, except for the effects of the matters referred to in the qualification paragraphs, the financial statements of the Independent Public Business Corporation comply with generally accepted accounting practice, and give a true and fair view of the Corporation.s affairs as at 31 December, 2008 and of the results and cash flows for the year then ended.

    OTHER MATTER

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

    Non-Applicability of Public Finances (Management) Act, 1995, Public Service (Management) Act, 1995 and the Salaries and Conditions Monitoring Committee (SCMC) Act, 1988.

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  • In 2007, through the Independent Public Business Corporation (amendment) Act, 2007, amendments were made to the Independent Public Business Corporation Act, 2002 (as amended) which specifically excluded the applicability of the Public Finances (Management) Act, 1995, Public Services (Management) Act, 1995 and the Salaries and Conditions Monitoring Committee Act, 1988 to IPBC, its Trusts and State Owned Enterprises (SOE.s). However, these Acts were enacted by the Parliament as standard policies and procedures to be adopted for the public bodies and organizations owned by the State of Papua New Guinea. The Acts were the basis to ensure public funds are managed properly by the organizations and further to ensure that corporate governance is initiated for all the organizations owned by the State. I was concerned that removing the applicability of these Acts may not be in the spirit of the legislative framework.

    Further, I have noted that some Board members of the previous board have raised their concerns against the amendments. I have enquired whether appropriate corporate governance policies were in place before this legislation was enacted. Management responded that corporate governance policies and procedures will be developed in due course. At the time of preparing this report, it has been two (2) years since the enactment of the new legislation and no policy and procedures have yet been developed.”

    11.2.2 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 of the Corporation for the years ended 31 December, 2008 and 2007 were issued on 9 December, 2009 and 19 November, 2009 respectively. These reports contained similar observations and as such, only the comments in the 2008 report are reproduced as follows:

    1. Business Travel Advance

    Internal controls over business travel advances were not adequate. Most of the overseas travel advances were not acquitted as per the Corporations travel advance policy of 2004. I brought this to the attention of management and it responded that “we have written to the officers concerned to acquit the travel advances. In respect of the internal control system over business travel advances, we will review the current system during 2009/2010 and put in place additional control procedures wherever necessary.”

    2. Managing Director.s Remuneration

    The Managing Director.s position was confirmed by National Executive Council (NEC) on 07 July, 2008 for a period of four (4) years. The Board in its meeting held on 13 March, 2009 has approved the Contract of Employment of the Managing Director and recommended to the Salaries and Conditions Monitoring Committee (SCMC) for its final approval of the remuneration package. However, I was not provided the copy of the SCMC approval. The Management advised that “the Managing Director.s annual remuneration has been approved by the IPBC Board and is currently with the SCMC for endorsement. We will provide a copy of the signed contract when we receive it from the SCMC.”

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  • 3. Exemption of Allowances from Income Tax without Internal Revenue Commission (IRC) Approval

    The Managing Director was entitled to various non taxable allowances amounting to K70,990 per annum. These allowances were exempted from income tax under Section 29(1) of Income Tax Act, 1959, provided that the Corporation obtained prior approval from the Internal Revenue Commission for the exemption. However, these allowances were excluded from tax without prior approval from the IRC thereby contravening the requirements of the Act.

    I advised the management to seek the exemption approval from the IRC and it responded that “we do not consider it necessary to seek a separate exemption from the IRC for the present Managing Director.s allowances as the position is the same.” 4. Non-Compliance with Contract

    An expatriate officer.s contract of employment clearly stipulates that he is entitled to six (6) weeks annual leave or thirty (30) working days. However, forty five (45) working days has been claimed as annual recreation leave and provision made which is not appropriate. I brought this matter to management for correction and I was advised by the management that “we will amend the contract of the Senior Manager (Finance & Administration) in respect of his annual leave days from 45 to 30, then make the necessary changes to the employee annual leave provision for any annual leave accrued as at 31 December, 2009.”

    5. Dependent.s Leave Fares

    The Corporation had not developed a policy in respect of leave fares paid to dependents of the officers. In 2008, contract officers claimed leave fares to their dependents who were aged over eighteen (18) years. I brought this to the attention of management for their appropriate action and it advised that “the Corporation.s policies are currently being drafted. Therefore, at present we do not have any policy in respect of the payment of leave fares of dependents. However, with respect to the airfares for dependents, the payments have been made with reference to each individual staff.s contract of employment.”

    11.3 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 Corporation for the year ended 31 December, 2009 was completed and the results were being evaluated.

    11A. GENERAL BUSINESS TRUST (TRUST UNDER INDEPENDENT PUBLIC BUSINESS CORPORATION)

    11A.1 INTRODUCTION The General Business Trust was established under Section 31 of the Independent Public Business Corporation of Papua New Guinea Act, 2002 which came into operation on 20 June, 2002.

    11A.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.

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  • . 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 National Executive Council from time to time.

    11A.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    11A.2.1 Comments on the Financial Statements

    My reports to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended) on the financial statements for the years ended 31 December, 2009, 2008 and 2007 were issued on 18 June, 2010, 24 November, 2009 and 15 October, 2009 respectively. The 2009 report did not contain any qualification but the other matters reported are reproduced. The 2007 and 2008 reports contained similar qualified audit opinions, hence only the 2008 report is reproduced.

    2009 Report:

    Investments in PNG Series II and PNG Series III Notes

    Note 7 to the financial statements disclosed a loss of K430,836 from the investment in PNG Notes Series III in Lehman Brothers. In 2008, PNG Series II and Series III Notes have incurred losses of K9.432 million and K2.954 million respectively in investing with Lehman Brothers. According to a valuation done by Structured Credit Research & Advisory Pty Limited, if one or two of the borrowers default on large credits supplied by Lehman Brothers the value of the investment in PNG Notes Series III may also be wiped out.

    I was concerned that the Trustee had not done proper evaluations and failed to obtain the Board.s approval before the investments were made. In my view, investments in overseas financial/money markets are not the core purpose of the establishment of the Trust. Further, I still believe that the funds vested with the Trust and managed by the Trustee (IPBC) are owned by the State although the amendments made to the Independent Public Business Corporation Act, 2002 (as amended) specifically excluded the compliance of Public Finances (Management) Act, 1995. Accordingly, the management still needs to seek the necessary approval from the Board before making investment decisions in overseas money markets and the sale of assets vested with the Trust. Therefore, the Board needs to bring in an adequate and appropriate corporate governance regime in the management and affairs of the Trust which I believe was lacking.

    Foreign Exchange Loss on the issue of Exchange Bonds

    I draw your attention to the exchange difference loss of K1,232,024,814 disclosed in the Statement of Trust Operations in respect of foreign currency transactions and foreign currency balances held in the Quarantined Accounts. This foreign exchange loss on translating foreign currencies to the functional currency was incurred as a result of issuing the Exchange Bonds of AUD$ 1.681 billion (K3.183 billion) for funding towards the investment in the PNG LNG Project.

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  • The above amount was additional to the value of the Oil Search shares required by IPBC if the Bonds were redeemed or exchanged as per Bond Deed Poll of the Exchange Bonds agreement as at 31 December, 2009.

    2008 Report:

    “QUALIFICATION

    Value of Non-Current Investments

    The value placed on most of the investments as disclosed in Note 9 of the financial statements were based on the most recent financial statements derived from the books of the investee entities without an independent valuation. Accordingly, the value of these investments may not bear any relation to the amounts that could be exchanged between knowledgeable willing parties in an arms length transaction. As a result, I was unable to conclude as to whether the carrying value of non- current investments of K5,485,192,429 at 31 December, 2008 was appropriate. QUALIFIED AUDIT OPINION

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

    (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 General Business Trust as at 31 December, 2008 and the results of its financial operations and its cash flows for the year then ended.

    EMPHASIS OF MATTERS

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

    Loss on Investments in PNG Series II and III Notes

    Note No.7 (2) to the financial statements disclosed that a loss of K12.4million was incurred in the investments in PNG Series II and III Notes. The manager of the Trust, Independent Public Business Corporation (IPBC), invested K15.0 million (AUD$ 5,920,500) in PNG Series II on 01 June, 2007 and further invested K16.0 million (AUD$ 6,250,000) in PNG Series III Notes on 21 September, 2007 in Lehman Brothers through BSP Capital Limited. Both investments totaling K31 million were made without proper evaluations on the overseas money market and without the Board’s consent. The losses occurred in September, 2008 when Lehman Brothers filed for Bankruptcy in the United States as a result of the global financial crunch.

    I was concerned that the Trustee had not done a proper evaluation and failed to obtain the Board.s approval before the investments were made. Further, I still believe that the funds vested with the Trust and managed by the Trustee (IPBC) are owned by the State and although amendments made to the Independent Public Business Corporation Act, 2002 (as amended) specifically excluded the compliance of the Public Finances (Management) Act, 1995, the management still needed to seek necessary approval from the Board before making investment decisions in overseas money markets and also for the sale of assets vested with the Trust.

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  • Foreign Exchange Loss on Investments (AUD$ IBD, PNG Series II and III Notes)

    I draw your attention to the Note No. 7 disclosure of a foreign exchange net loss of K17,312,647 for the financial year. The Trustee made an investment of K39,192,418 (AUD$15.0 million) in Australian Dollar IBDs with the Bank of South Pacific Limited in 2007. At 31 December, 2008 the value of the investments had reduced to K29,142,471 as a result of foreign currency fluctuations and the investments suffered a foreign exchange loss of K9,629,287 (2007: foreign exchange loss of K3,034,670). Similarly, the investments made in the PNG Series II and III Notes have also incurred foreign exchange losses of K3,368,452 and K3,555,920 respectively for the year ended 31 December, 2008 as a result of foreign currency fluctuations.

    I was gravely concerned over these overseas currency investments (IBD.s and Notes) in a period of unstable and volatile financial markets.

    In my view, investment in overseas financial/money markets is not the core purpose of the establishment of the Trust. Since the exclusion of the Public Finances (Management) Act, 1995 in the amendments through the Independent Public Business Corporation Act, 2007 the Board needs to bring in an adequate and appropriate corporate governance regime in the management and the affairs of the Trust which I believe is lacking at present.

    Loss on the Investment in New Britain Palm Oil Limited (NBPOL) Shares

    I also draw your attention to the Note No. 7(1) disclosure that Ramu Agri Industries Shares of 5,954,480 (28.41%) were exchanged for New Britain Palm Oil Limited (NBPOL) shares of 1,349,682 (0.93%) at a value of K40,490,464 at a price of K30 per share. Of the 1,349,682 NBPOL shares, 1,000,000 shares were purchased from the London Stock Exchange whereas the balance was obtained from the Port Moresby Stock Exchange as advised by their Consultant. However, at 31 December, 2008 the NBPOL stock value at the London Stock Exchange fell to £1.5825 (K5.769)/share resulting in a loss of K24,230,000. The POM Stock Exchange share values also dropped to K12 at year end resulting in a loss of K6,294,276. The total loss experienced at year end was K30,525,276.

    The NBPOL shares were valued at K30.00/share at the time of exchange whereas the value of the shares quoted at the Port Moresby Stock Exchange was K20.00/share. I have not sighted any valid reason explaining why the NBPOL shares were purchased at a higher price at an overseas stock exchange when stocks were quoted for less at the POM stock exchange.

    Although, the National Executive Council (NEC) has approved this divestment of shares in Ramu Agri Industries, the investment trading on the London Stock Exchange was not properly managed resulting in the loss of the capital gain earned from the sale of Ramu Agri Industries shares.”

    11A.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8(2) of Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records for the years ended 31 December, 2009, 2008 and 2007 were issued on 18 June, 2010, 24 November, 2009 and 15 October, 2009 respectively. These reports contained similar observations and as such, only the comments in the 2009 report are reproduced as follows:

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  • 1. Sale of State Owned Assets without NEC Approval

    Several assets were sold between 2004 and 2007 totaling K4,865,176 without obtaining written National Executive Council (NEC) approval as required under Section 9(b)(1A) of the Independent Public Business Corporation Act, 2002 (as amended).

    When the matter was brought to the attention of management, it responded that “management will make a decision on making a submission to NEC to ratify the decisions made by IPBC to sell the above assets in the years specified above.” 2. Lease of Government Stores

    The Government Store located at Lot 136 Section 37 Badili/Matirogo was leased to POM Productions Limited for 20 years by IPBC, the trustee of GBT for the annual rental of K20,000 which was less than 1% of the property.s value of K2,524,500. No valid reason was made available for such a long term lease agreement made by IPBC. Further, the lease can be terminated by the lessee by notice to the lessor but not otherwise.

    I brought this matter to the attention of management and it responded, “IPBC is going through the process of reviewing this lease agreement between IPBC and POM Production Limited over the leasing of the Government Stores.”

    11B. AQUARIUS NO. 21 LIMITED (A SUBSIDIARY OF INDEPENDENT PUBLIC BUSINESS CORPORATION)

    11B.1 INTRODUCTION 11B.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.

    11B.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 year ended 31 December, 2007 was completed. In spite of repeated requests from my Office, responses for the management letter and signed financial statements were not provided by the Company to enable me to issue my report under Companies Act, 1997 and Section 8(2) of the Audit Act, 1989 (as amended).

    The Company had not submitted its financial statements for the years ended 31 December, 2008 and 2009 for my inspection and audit.

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  • 11C. PORT MORESBY PRIVATE HOSPITAL LIMITED (A SUBSIDIARY OF INDEPENDENT PUBLIC BUSINESS CORPORATION) 11C.1 INTRODUCTION 11C.1.1 Legislation 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. Negliw No. 81 Limited changed its name to Port Moresby Private Hospital Limited in 1996.

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

    11C.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.

    11C.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 year ended 31 December, 2007 was completed. In spite of repeated request from my office, response for the management letter and signed financial statements were not provided by the Company to enable me to issue the audit reports under the Companies Act, 1997 and the Audit Act, 1989 (as amended).

    The Company had not submitted its financial statements for the years ended 31 December, 2008 and 2009 for my inspection and audit.

    11D. PRIVATISATION (GARDEN HILLS) LIMITED (A SUBSIDIARY OF INDEPENDENT PUBLIC BUSINESS CORPORATION)

    11D.1 INTRODUCTION

    11D.1.1 Legislation Privatisation (Garden Hills) Limited was incorporated as a 100% owned company under the Company.s Act, 1997 by the Privatisation Commission on 21 March, 2002 to own the residential vacant plots which were transferred by Papua New Guinea Banking Corporation Limited (PNGBC) prior to its amalgamation with Bank of South Pacific Limited (BSP) as part of the non-banking assets to be transferred from the PNGBC to the Privatisation Commission.

    On 20 June, 2002, the Independent Public Business Corporation was established under the Independent Public Business Corporation of Papua New Guinea Act, 2002 and took over the assets and liabilities of the Privatisation Commission from the succession date of 30 June, 2002.

    11D.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 year ended 31 December, 2007 was completed. In spite of repeated request from my office, response for the management letter and signed financial statements were not provided by the Company to enable me to issue the report.

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  • The Company was deregistered in 2008. That being the case, my report on the Company for the year ended 31 December, 2007 in my next report to the Parliament would be the last.

    11E. PNG DAMS LIMITED (A SUBSIDIARY OF INDEPENDENT PUBLIC BUSINESS CORPORATION)

    11E.1 INTRODUCTION

    11E.1.1 Legislation

    PNG Dams Limited was incorporated under the Company.s 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. This Company was vested with Independent Public Business Corporation (IPBC) through the Gazettal Notification No. G125 dated 02nd August, 2002.

    11E.1.2 The Objective of the Company

    These dams are used as water storage and for the controlled release of water from the storage for the generation of electricity. 11E.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, 2005 and 2006 were still in progress. The Company has failed to provide the financial statements for the period ended 31 December, 2002, and the years ended 31 December, 2003, 2007 and 2008 for my inspection and audit.

    The Company had submitted the financial statements for the year ended 31 December, 2009 for my inspection and audit, however inspection and audit were not commenced because the financial statements for the years ended 31 December, 2007 and 2008 were not provided.

    11F. KROTON NO. 2 LIMITED (A SUBSIDIARY OF INDEPENDENT PUBLIC BUSINESS CORPORATION)

    11F.1 INTRODUCTION 11F.1.1 Legislation

    Kroton No. 2 Limited was incorporated under the Company.s Act, 1997 and was acquired by Independent Public Business Corporation on 24 November, 2008.

    Independent Public Business Corporation was approved as the State nominee in the PNG LNG Project as resolved by National Executive Council (NEC) in its Meeting No. 36/2008 through Decision No. 223/2008.

    11F.1.2 The Objective of the Company

    The objective of Kroton No. 2 Limited is to invest in the PNG LNG Project as PNG State nominee holding 19.6% Equity in the Project.

    11F.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

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  • 11F.2.1 Comments on Financial Statements

    In accordance with the provisions of the Companies Act, 1997, my report on the financial statements of Kroton No. 2 Limited for the year ended 31 December, 2009 and the period ended 31 December, 2008 were issued on 28 May, 2010. These reports did not contain any qualification. However, the 2009 report contained the following Other Matter:

    Related Party Payables

    During the year K787,481,725 was paid by Independent Public Business Corporation (IPBC) to ESSO Highland Limited, the operator of the PNG LNG Project, on behalf of Kroton as its 16.57 % participating interest in the project as Back-In Cost. IPBC funded this participating interest required by Kroton as a loan for the investment in the PNG LNG Project. The IPBC Board resolved that the funds advanced to Kroton should be refunded as agreed through a loan agreement. However, the signed loan agreement between Kroton and IPBC was not made available for me to determine whether the terms and conditions were agreed to by both organizations. Accordingly, I was unable to determine the actual terms and conditions of the loan that was disclosed as related party payables in the financial statements for the year ended 31 December, 2009.

    11F.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 accounts and records for the year ended 31 December, 2009 and the period ended 31 December, 2008 were issued on 28 May, 2010. These reports contained similar observations, hence the significant matter reported in 2009 is reproduced as follows:

    Appointment of Director of Kroton No.2 Limited

    According to Section 9A of the Independent Public Business Corporation Act, 2002 (as amended), prior to nominating a person as a member of the Board of a State Owned Enterprise, the Corporation must notify the Secretary of the National Executive Council (NEC) of the identity, experience and proposed remuneration of the person to be appointed. I was not provided with the necessary documentation or the Board minute and the NEC endorsement of the Director.s appointment in 2008. Accordingly, I could not determine whether the present Director.s term and position is valid.

    12. INDUSTRIAL CENTRES DEVELOPMENT CORPORATION

    12.1 INTRODUCTION

    12.1.1 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. 12.1.2 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.

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  • 12.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS 12.2.1 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 Corporation for the year ended 31 December, 2007 was issued on 04 May, 2010. The report contained a qualified opinion. “BASIS FOR QUALIFIED OPINION Employee Provisions Employee provisions disclosed in the financial statements was K182,388. This amount did not agree with the listing provided for audit. As a result, I was unable to satisfy myself as to the accuracy and correctness of the employee provisions of K182,388 at year end. Prior Year Adjustments Prior year adjustments amounting to K288,877 was made during the year for previous irregularities as mentioned in the Notes 10 to the financial statements. I could not verify this amount as no proper supporting documents were provided for my examination. Consequently, I was unable to satisfy myself with the completeness and accuracy of these adjustments. QUALIFIED AUDIT OPINION Except for the effects of the matters referred to in the Basis for Qualified Opinion paragraphs, in my opinion:

    (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 Corporation for the year ended 31 December, 2007 and the results of its financial operations and cash flows for the year then ended.”

    12.2.2 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, 2007 was issued on 4 May, 2010. The report contained the following comments: 1. Minister.s Approval of the Land Sale

    Most of the vacant land in Malahang Industrial Centre and Ulaveo Industrial Centre were sold during 2006 and 2007 without Ministerial approvals. Again, I brought this matter to the attention of management and it responded as follows: “The actual copy of the approval letter by the Minister according to the then acting Managing Director, Mr. Leo Goina, misplaced and that he is still looking for it.” 2. Bank Reconciliations

    Most of ICDC bank accounts were not reconciled in a timely manner. I brought this matter to management and it responded as follows:

    “Those staff responsible have been directed to adhere and do monthly bank reconciliations to be reviewed by the Financial Accountant each month as per the ICDC financial procedural manual.”

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  • 3. Budget against Actual

    The Corporation committed a significant overspending of expenditure without the Board.s approval. I advised the management to always follow the approved budget. The management responded that they are aware of the problem and have agreed to stick to the budget and any amendment to the budget will be submitted to the Board for approval. 4. Submission of Financial Statements

    The Corporation has not prepared and submitted their financial statements to the Minister and the Auditor-General prior to 30 June for the year ending December preceding, resulting in breaches of Section 63(2) and Section 63(4) of the Public Finances (Management) Act, 1995.

    5. Other Internal Control Weaknesses

    Other weaknesses noted were:

    . No adequate control procedures in place over payments made directly to suppliers by open cheque;

    . No maintenance of travel advance register;

    . No control on staff advances;

    . Purchase of Unbudgeted Motor vehicle;

    . GST returns were not prepared and submitted to IRC;

    . No maintenance of staff ledger and employees history cards;

    I drew management.s attention to these weaknesses and I was advised that these matters were now being looked into and addressed.

    12.3 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, 2008 was substantially completed and the results were being evaluated.

    The Corporation had not submitted its financial statements for the year ended 31 December, 2009 for my inspection and audit.

    13. INVESTMENT PROMOTION AUTHORITY 13.1 INTRODUCTION

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  • 13.1.1 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. 13.1.2 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.

    13.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS 13.2.1 Comments on Financial Statements My reports to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the Authority.s financial statements for the years ended 31 December, 2008 and 2007 were issued on 28 June, 2010 and 9 November, 2009 respectively. The 2008 report contained a qualified audit opinion. “BASIS FOR QUALIFIED OPINION Creditors and Accrual Balance The Authority disclosed K1,275,611 as the closing balance for Creditors and Accruals in the financial statement at the year end. However, I was not provided with valid explanations for a debit balance of K84,655 comprising of various accounts. As such, I was unable to confirm the accuracy and determine the value of over or understatement of this balance as stated in the accounts. QUALIFIED AUDIT OPINION In my opinion, except for the effects of the matter referred to in the Basis for Qualified Opinion paragraph 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 Authority as at 31 December, 2008 and the results of its financial operations of the year then ended.” The 2007 report contained a disclaimer of audit opinion. “BASIS FOR DISCLAIMER OF AUDIT OPINION Limitation of scope due to weaknesses in the Accounting System The Authority did not fully utilize the accounting system maintained and the reconciliations were not done on a timely basis to verify the differences between the general ledger, trial balance and the financial statements. My review of the accounts indicated that proper accounting entries were not passed in the General Ledger accounts to arrive at the year end account balances. Although, the records were maintained outside the accounting system to substantiate these balances, individual transaction details were not recorded in the accounting system maintained by the Authority. As a result, I was unable to place reliance on the adjusting entries posted to the general ledger. Further, proper rollover procedures were not followed by the Authority to reflect the correct opening balances. Accounting staff also lacked sufficient knowledge and expertise to perform key accounting functions and tasks of the Authority, thus reducing the level of reliance and integrity that could be placed on the financial statements and internal controls. Bank Reconciliations Basic accounting functions such as the preparation of bank reconciliation statements were not performed on a regular basis and neither were they checked nor verified by an independent person. My review of the Authority.s bank reconciliation into subsequent periods revealed K486,747 as an un-reconciled amount. The source documents for un-reconciled items were not

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  • made available for my examination. As a result, I was unable to confirm the accuracy and completeness of cash at bank balance of K349,850 at the year end. DISCLAIMER OF OPINION Because of the significance of the matters referred to in the preceding paragraphs, I am not in a position to, and do not express an opinion on the financial statements of the Investment Promotion Authority for the year ended 31 December, 2007.”

    13.2.2 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 and 2007 were issued on 28 June, 2010 and 9 November, 2009 respectively.

    The 2008 report contained the following matter: Lack of Segregation of Duties My review of the journal entries passed in the ledgers showed that there was no segregation of duties between the officer raising the journal and the officer approving and effecting the posting into the accounts. In addition, bank reconciliations prepared were neither checked nor verified by an independent person. I recommended that proper segregation of duties be implemented. The 2007 report contained the following comment: Non Acquittal of Travel Related Expenses From my sample tests carried out on traveling expenses, it was revealed that travel advances totaling K29,265 were not properly acquitted with relevant supporting documents as required by the Public Finances (Management) Act and the Financial Instructions. Further, the Authority did not maintain a proper advance register. As such, I was unable to ascertain whether the advances were used for the intended purposes. I brought this matter to the attention of the Authority and it agreed to take remedial action.

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

    14. KOKONAS INDASTRI KOPORESEN (FORMERLY COPRA MARKETING BOARD OF PAPUA NEW GUINEA) 14.1 INTRODUCTION

    14.1.1 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 KIK Act, 2002 subsequently established Papua New Guinea Coconut Extension Fund, Papua New Guinea Coconut Industry Fund and Papua New Guinea Coconut Research Fund. Comments in relation to these Funds are contained in paragraphs 14A, 14B and 14C respectively, of this Report (Part IV). 14.1.2 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 Industry Fund, the Papua New Guinea Coconut Research Fund and the

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  • Papua New Guinea Coconut Extension Fund. 14.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS 14.2.1 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 Koporesen for the year ended 31 December, 2007 was issued on 25 November, 2009. The report did not contain any qualification except for an emphasis of matter as follows: “EMPHASIS OF MATTER Copra Fund Loan Balance Without qualifying my opinion, I wish to draw your attention to Note 4 of the financial statements which disclosed K18,395,558 as overall outstanding loan balance for Copra Fund in the Koporesen.s capacity as Trustee of the Fund. Necessary supporting documents including confirmation from the Bank were not provided for audit verification. Consequently, I was unable to ascertain the accuracy of the loan balance.”

    14.2.2 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 financial statements of Kokonas Indastri Koporesen for the year ended 31 December, 2007 was issued on 25 November, 2009. The report contained the following observations:

    Purchases with no Invoice

    The fixed assets purchased on four (4) occasions to the value of K25,355.50 were based on quotation instead of proper invoices. I advised management to obtain proper invoice when making purchase and management responded to my observation as follows: “KIK does not have credit facilities with these suppliers. As a result, when items are required we request them to fax us invoices/quotes where payments are made based on them. We will improve on this in future.” Board Meetings Minutes KIK conducted five (5) Board meetings during the year but minutes of three (3) meetings were not signed by the Chairman. I recommended management to ensure that minutes are signed by the Chairman or his delegate to authenticate the actual proceedings discussed at these meetings.

    14.3 STATUS OF FINANCIAL STATEMENTS At the time of preparing the Report, the inspection and audit of the accounts and records and examination of the financial statements of the Koporesen for the year ended 31 December, 2008 was substantially completed and the results were being evaluated. The Koporesen did not submit its financial statements for the year ended 31 December, 2009 for my inspection and audit.

    14A. PAPUA NEW GUINEA COCONUT EXTENSION FUND 14A.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. 14A.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.

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  • 14A.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS 14A.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 Fund for the year ended 31 December, 2007 was issued on 25 November, 2009. The report contained a qualified audit opinion: “BASIS FOR QUALIFIED OPINION Trade Debtors I was unable to satisfy myself as to the validity and recoverability of the trade debtors balance of K87,000 as stated in the financial statements as over 50 percent of this amount remained outstanding for more than 90 days. QUALIFIED AUDIT OPINION In my opinion, except for the possible effect of the matter discussed in the Basis for Qualified Opinion paragraph: (a) The financial statements were based on proper accounts and records; and

    (b) The financial statements were in agreement with those accounts and records and show fairly the state of affairs of the Fund as at 31 December, 2007 and the results of its financial operations for the year ended on that date.”

    14A.3 Audit Observations Reported to the Minister 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 Fund for the year ended 31 December, 2007 was issued on 25 November, 2009. The report contained the following observation. Payment Out of Extension Fund Section 37 of Kokonas Indastri Koporesen Act, 2002 states that no money shall be paid out of the Fund except for the purpose of research under 4(1)(c). However, I noted that payments were made to various law firms for legal fees and PNG Cocoa Coconut Institute Board of Directors allowance and related expenses. The Fund responded to my concern as follows: “The legal fees were paid for legal services rendered to CCIPNG. Payments from the levy account were made after receiving direction from CCIPNG.”

    14A.4 STATUS OF FINANCIAL STATEMENTS At the time of preparing this Report, the fieldwork associated with the inspection and audit of the accounts and records of the Fund for the year ended 31 December, 2008 was substantially completed and the results were being evaluated. The Extension Fund had not submitted the financial statements for the year ended 31 December, 2009 for my inspection and audit.

    14B. PAPUA NEW GUINEA COCONUT INDUSTRY FUND 14B.1 INTRODUCTION

    14B.1.1 Legislation The Kokonas Indastri Koporesen Act, 2002, provided for the establishment of the Papua New Guinea Coconut Industry Fund for the purpose of receiving levies and fees and for making bounty payments in accordance with the terms of the Act. 14B.1.2 Objective of the Fund The objective of the Fund is to stabilize as far as possible, the copra prices payable to copra producers by collecting levies in times of favourable market prices and by making bounty payments in times of depressed prices, and also establishing credit facility for producer and

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  • investment promotion within the industry. The Fund is administered by the Kokonas Indastri Koporesen. 14B.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS 14B.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 Fund for the year ended 31 December, 2007 was issued on 25 November, 2009. The report contained a disclaimer of opinion. “BASIS FOR DISCLAIMER OF OPINION Limitation of the Scope on my Audit The Fund did not maintain proper books of accounts and records and neither did it maintain a general ledger to produce a trial balance for the preparation of the financial statements. Due to the above limitation on the scope on my audit, I was unable to conduct the necessary audit procedures and the necessary examination to enable me to verify the accuracy of the following account balances as at 31 December, 2007. Cash at Bank – K 15,649;

    Trade Debtors – K 127,426;

    Amount Receivable from Related Entity – K 5,926,112;

    Trade Creditors – K 21,343; and

    Non Current Liabilities – K22,395,558.

    As described in Note 2 to the financial statements, the continuing viability of Coconut Industry Fund and its ability to meet its debts as and when they fall due are dependent upon:

    a) The Independent State of Papua New Guinea waiving or deferring the requirement of the Fund to repay both the K4,000,000 Stabex loan and the Copra Support Scheme loan of K18,395,558 administered by the then Papua New Guinea Banking Corporation; and

    b) Receiving sufficient grants from the Independent State of Papua New Guinea or levies from the Kokonas Indastri Koporesen to enable the Fund to meet its obligations.

    The financial statements have been prepared on a going concern basis on the assumption that such support will continue to be available.

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  • Trade Debtors

    Trade debtors and amount receivable from Kokonas Indastri Koporesen are disclosed in the financial statements as K127,426 and K5,926,122 respectively. I was unable to satisfy myself on the recoverability of these amounts as they remained the same since 1999.

    Copra Price Support Scheme and Stabex Loans

    I did not receive any bank confirmations for the Copra Price Scheme Loan of K18,395,558 and the Stabex Loan of K4,000,000 and as a result, I was unable to satisfy myself as to the accuracy of these balances by alternate audit procedures.

    DISCLAIMER OF OPINION

    In my opinion, because of the potential effect of any adjustments to the financial statements that might have been found to be necessary had I been able to obtain sufficient evidence concerning the matters referred to in the preceding paragraphs, I was unable to, and did not form an opinion on the financial statements of the PNG Coconut Industry Fund for the year ended 31 December, 2007.”

    14B.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 Fund for the year ended 31 December, 2007 was issued on 25 November, 2009. The inspection and audit revealed generally satisfactory results.

    14B.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 of the Fund for the year ended 31 December, 2008 was substantially completed and the results were being evaluated.

    The Fund had not submitted the financial statements for the year ended 31 December, 2009 for my inspection and audit.

    14C. PAPUA NEW GUINEA COCONUT RESEARCH FUND 14C.1 INTRODUCTION

    14C.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. 14C.2 AUDIT OBSERVATIONS 14C.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 Fund for the year ended 31 December, 2007 was issued on 25 November, 2009.

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  • The report contained a qualified audit opinion.

    “BASIS OF A QUALIFIED OPINION Trade Debtors I was unable to satisfy myself as to the validity and recoverability of the trade debtors balance of K87,000 as stated in the financial statements as over 50 percent of this amount remained outstanding for more than 90 days. Qualified Audit Opinion In my opinion, except for the possible effect of the matter discussed in the Basis for Qualified Opinion paragraph: (a) the financial statements were based on proper accounts and records; and

    (b) the financial statements were in agreement with those accounts and records and show fairly the state of affairs of the Fund as at 31 December, 2007 and the results of its financial operations for the year ended on that date.”

    14C.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 Fund for the year ended 31 December, 2007 was issued on 25 November, 2009. The report contained the following observation:

    Payment Out of Extension Fund

    Section 37 of Kokonas Indastri Koporesen Act, 2002 states that no money shall be paid out of the Fund except for the purpose of research under 4(1)(c). However, I noted that payments were made to various law firms for legal fees and PNG Cocoa Coconut Institute Board of Directors allowance and related expenses. The Fund responded to my concern as follows:

    “The legal fees were paid for legal services rendered to CCIPNG. Payments from the levy account were made after receiving direction from CCIPNG.”

    14C.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 of the Fund for the year ended 31 December, 2008 was substantially completed and the results were being evaluated.

    The Research Fund had not submitted the financial statements for the year ended 31 December, 2009 for my inspection and audit.

    15. LEGAL TRAINING INSTITUTE

    15.1 INTRODUCTION

    15.1.1 Legislation

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

    15.1.2 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.

    15.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    15.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the financial statements of the Institute for the year ended 31 December, 2008 was issued on 29 October, 2009. The report did not contain any qualification.

    15.2.2 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 and the examination of the financial statements of the Institute for the year ended 31 December, 2008 was issued on 29 October, 2009. The report revealed generally satisfactory results.

    15.3 STATUS OF FINANCIAL STATEMENTS

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

    16. MINERAL RESOURCES AUTHORITY 16.1 INTRODUCTION 16.1.1 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. 16.1.2 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. 16.1.3 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;

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  • (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; (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.

    16.2 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 completed and the results were being evaluated. The Authority had not submitted its financial statements for the year ended 31 December, 2009 for my inspection and audit.

    17. MOTU-KOITABU COUNCIL AND ITS SUBSIDIARY

    17.1 INTRODUCTION

    17.1.1 Legislation

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

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  • 17.1.2 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 17A 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.

    17.2 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 and 2004 were still in progress due to the inability of the Council to provide the necessary information for the audits to be completed.

    The Council had submitted its financial statements for the years ended 31 December, 2005 and 2006 and arrangements were being made for the fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements to commence shortly.

    My reports on the entities for the years ended 31 December, 2007 to 31 December, 2009 will be reported in the future under Part III of my Annual Reports. Since, the audit portfolios were transferred to the Provincial and Local Level Government Audit Branch. 17A. TABUDUBU LIMITED (A SUBSIDIARY OF MOTU-KOITABU COUNCIL)

    17A.1 INTRODUCTION

    17A.1.1 Legislation

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

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  • 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-Koitabuan people of the National Capital District by virtue of Section 47(2) of the National Capital District Commission Act, 1990.

    17A.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.

    17A.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Company had not submitted its financial statements for the years ended 31 December, 2003 to 31 December, 2006 for my inspection and audit despite several reminders to the Company.

    My reports on the entities for the years ended 31 December, 2007 to 31 December, 2009 will be reported in the future under Part III of my Annual Reports. 18. NATIONAL AGRICULTURE QUARANTINE AND INSPECTION AUTHORITY

    18.1 INTRODUCTION 18.1.1 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.

    18.1.2 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; and any products derived from animals, fish and plants; and to prevent pests or diseases from entering in or going

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  • out of Papua New Guinea. 18.1.3 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;

    . 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;

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  • . 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.

    18.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS 18.2.1 Comments on Financial Statements My report to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the Authority.s financial statements for the year ended 31 December, 2008 was issued on 16 March, 2010 and contained a qualified audit opinion:

    “BASIS FOR QUALIFIED OPINION Fixed Assets – K5,598,860

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  • The Authority had not maintained proper accounts and records to record the movements and details of fixed assets under its custody. The fixed assets register did not capture the detailed description and location of various assets held by the Authority. I was unable to verify the additions of K820,212 made during the year due to lack of supporting documentation. The Authority carried out its last revaluation of its properties in 2002 and since then no revaluation was done. That was not in compliance with the requirement of International Accounting Standards 16 (IAS 16), Property, Plant and Equipment (paragraph 31) which requires an entity to revalue its assets at regular intervals. Further, the Authority has not maintained proper inventory reports for certain assets to identify its serviceability, therefore, I was unable to verify the accuracy, ownership and valuation of fixed assets at the year end. Staff Entitlements Provision – K561,728 The Authority paid K561,728 during the year to various staff members in respect of long service leave, annual leave and contract gratuity. I was not provided with necessary documentation to verify the amount. Further, I noted that the Authority adopts International Accounting Standards as a basis for preparation of financial statements. However, no provisions were made in respect of employee benefits in accordance with International Accounting Standards 19 (IAS 19) Employee Benefits. As a result, I was unable to verify the accuracy and completeness of the payments made during the year.

    Limitation of Scope – Expenses

    The Authority had not provided the necessary supporting documentation in respect of the following expenses to enable me to verify the expenses.

    K . Repair and Maintenance – 294,477

    . Management Charges – 227,546

    . Board Meeting Expenses – 91,415

    . Consultancy/Professional Charges – 38,119

    . Lease Expenses – 365,125

    As a result, I was unable to confirm the above account balances as stated in the financial statements. External Donor Grants – K883,708

    During the year, the Authority received K883,708 as Grants from various Donor Agencies. I was not able to verify the total receipts from Donor Agencies due to lack of supporting documentation. Further, I was not able to sight the Memorandum of Understanding or agreements with the Donor Agencies. Due to the limitation on the scope of my examination, I was unable to confirm the accuracy of the total grants received during the year.”

    QUALIFIED AUDIT OPINION

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

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

    (b) the financial statements were in agreement with those accounts and records, and show fairly the state of affairs of the Authority as at 31 December, 2008, and the results of its financial operations and cash flows for the year then ended.

    18.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the audit and inspection of the accounts and records for the year ended 31 December, 2008 was issued on 16 March, 2010. The report contained the following comments:

    Tender Committee

    During the year the Authority acquired assets amounting to K820,212. The assets purchased were within the limit approved by the Board. However, I was not provided with any Tender Committee approval documentation to ascertain the basis of selection of the suppliers. As a result, I was unable to ascertain whether proper procedures were followed in accordance with the Public Finances (Management) Act, 1995 in procuring the resources of the Authority.

    I brought this to the Authority’s attention and I had since been advised as follows: “All additions made during the year were approved by the full board based on the Authority’s annual budget which is inclusive of capital expenditure for the year and therefore it is needless to have an internal tenders committee members. approval as most of the tender committee members are members of the Board.”

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

    19. NATIONAL AGRICULTURAL RESEARCH INSTITUTE 19.1 INTRODUCTION

    19.1.1 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. 19.1.2 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;

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

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

    19.1.3 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;

    . 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;

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  • . 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.

    19.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    19.2.1 Comments on Financial Statements

    My reports to the Minsters under Section 8(4) of the Audit Act, 1989 (as amended), on the financial statements for the years ended 31 December, 2009 and 2008 were issued on 28 June, 2010 and 8 September, 2009 respectively.

    The 2009 report did not contain any qualification while the 2008 report contained a qualified audit opinion.

    “BASIS OF QUALIFIED AUDIT OPINION Kilakila Chemistry Laboratory Note 2(d) of the financial statements disclosed that the old Chemistry Laboratory located at Kilakila in Port Moresby had a carrying value of K1,120,000. However, this property was partly destroyed by fire in 2006. The estimated cost of destruction amounted to K488,000. I noted that this loss was not provided for in the accounts. As a result, the net assets of the Institute were overstated by K488,000. QUALIFIED AUDIT OPINION In my opinion, except for the effects of the matter referred to in the qualification paragraph above:

    (a) the financial statements were based on proper accounts and records; and (b) the financial statements were in agreement with those accounts and records, and showed fairly the state of affairs of the Institute as at 31 December, 2008 and the results of its financial operations for the year then ended.”

    19.2.2 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 of the Institute for the years ended 31 December, 2009 and 2008 were issued on 28 June, 2010 and 8 September, 2009 respectively. The reports when combined contained the following matters:

    1.0 Certificates of Occupancy Titles from Lands Department for about 10 portions of land that were under the possession of the Institute or in which the Institute had interest for research and development purposes were still outstanding. I brought this issue again to the attention of Management and it responded as follows:

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  • “Your continued pointing out on the issue of 10 land portions is acknowledged. This has remained to be a difficult area inspite of our sincere efforts in the past. Now that the Physical Facilities Planner has returned from his studies, he will be able to pursue with the Lands Department and also the respective Provincial Lands Offices. We hope that we should be able to formalise the land titles to National Agricultural Research Institute sooner than later.” 2.0 Tender Procedures

    I noted that the Council endorsed a proposal to build staff houses and after a tender process, the contract was awarded to a local contractor. From my examination, tenders were called but proper evaluations with strict guidelines were not followed. As a result, the contractor was unable to complete its project within the contract period and the costs exceeded the budgeted amount. I recommended that the Institute carry out a proper tender evaluation in future taking into consideration of all factors in addition to the cost of the contract. Management concurred with my comments and responded that; “The Institute has this as a first ever experience and has taken note that optional estimation and proper evaluation are always needed. This will be kept in view in all future capital works and contracts”.

    20. NATIONAL AIDS COUNCIL

    20.1 INTRODUCTION

    20.1.1 Legislation

    The National Aids Council was established under the National Aids Council Act of 1997. This Act was certified on 19th January, 1998 and became operational on the same date.

    20.1.2 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.

    20.1.3 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;

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  • (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.

    20.2 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, 2004 to 2007 were completed. However, Management had not responded to the matters raised in my management letters to date in order for me to finalise and issue my reports under Section 8(4) and 8(2) of the Audit Act, 1989 (as amended).

    The financial statements for the years ended 31 December, 2008 and 2009 had not been submitted by the Council for my inspection and audit despite repeated reminders. 21. NATIONAL AIRPORTS CORPORATION LIMITED

    21.1 INTRODUCTION National Airports Corporation was incorporated under the Companies Act, 1997. The Company had begun its operations in October, 2009 after its incorporation on 06 October, 2009. The establishment of the Company has been in accordance with Section 132 of the Civil Aviation Act, 2000 which envisaged the establishment of a subsidiary Company. The Corporation has a subsidiary company, PNG Air Services Limited. A comment in relation to the Company is incorporated in paragraph 21A of this Report.

    National Airports Corporation Limited is regulated by the Civil Aviation Authority Act, 2000 as an independent Company holding its own Operating Certificates and except for the governance requirements specified in the Civil Aviation Act, 2000; it operates independently from the Civil Aviation Authority incorporate a company under the Companies Act, 1997 that is, or is to become, owner, operator or manager of an aerodrome or airport and may subscribe for, hold, acquire and dispose of any equity securities or debt securities issued by any such company (in this Act called “as airport company”).

    21.1.2 Functions of National Airports Corporation

    The functions of the National Airports Corporation Limited are derived from Section 132 of the Civil Aviation Act, 2000.

    21.2 STATUS OF FINANCIAL STATEMENTS

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  • At the time of preparing this Report, the financial statements of the Company for the years ended 31 December, 2008 and 2009 had not been submitted for my inspection and audit.

    21A. PNG AIR SERVICES LIMITED

    21A.1 INTRODUCTION

    21A.1 Legislation

    PNG Air Services Limited was incorporated under the Companies Act, 1997. It is a wholly owned subsidiary of National Airports Corporation Limited. The Company began its operations in January, 2008 after its incorporation on 30 April, 2007. The establishment of the Company has been in accordance with Section 143 of the Civil Aviation Act, 2000 which envisaged the establishment of a subsidiary Company to deliver “air traffic services, aeronautical navigation services and aeronautical communication services and all related services in Papua New Guinea and the airspace for which it is responsible”.

    Papua New Guinea Air Services Limited as an Aviation Safety Regulator is an independent Company holding its own Operating Certificates, and except for the governance requirements specified in the Civil Aviation Act, 2000, it operates independently from the Civil Aviation Authority.

    21A.1.2 Functions of PNG Air Services Limited

    Papua New Guinea Air Services Limited was established with a purpose of delivering safe air navigation services to the airline industries and the travelling public. It ensures a provision of quality aeronautical navigation services to both domestic and international customers at a reasonable cost, hence, to be a leader in providing world standard air navigation services. Papua New Guinea Air Services Limited makes sure that the radio coverage in Papua New Guinea both VHF and HF are improved and that efficient and effective air traffic services are maintained.

    21A.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    21A.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the Company.s financial statements for the year ended 31 December, 2008 was issued on 15 March, 2010. The report contained a Qualified Audit Opinion.

    “Basis for Qualified Opinion – Transfer of Assets from Civil Aviation Authority

    The financial statements and the Fixed Assets Register disclosed only assets purchased in 2008 totaling K1,696,000. Assets reportedly transferred from Civil Aviation Authority such as: Air Traffic Control Centre – (Control Tower Building), ISS Building and Associate Building, HF Receiver Station, HF Transceiver Station, James Hill – (DOVOR/DME), Rader Hill, Burns Peak (VHF), 14/32 ILS and PY NDB Sites were not included in the financial statements.

    In addition, a Board Meeting No. 1/2008 had directed management to obtain actual valuations of all assets and sites and include in the Fixed Assets Register. I was not provided the necessary documentary evidence to confirm that such valuation was undertaken, nor was I provided evidence

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  • of actual transfers of assets from Civil Aviation Authority by way of a National Executive Council Decision or a Ministerial approval.

    Consequently, I was unable to determine the ownership, completeness and valuation of the fixed assets as at 31 December, 2008.

    In addition, the facilities/properties of Civil Aviation Authority were being used by the PNG Air Services Limited for its business operations. However, I have not been provided with any lease documents/transfers that supported the use of these facilities.

    QUALIFIED AUDIT OPINION

    In my opinion, except for the effects of the matter referred to in the qualification paragraph above:

    (a) the financial statements of PNG Air Services Limited for the year ended 31 December, 2008;

    (i) give a true and fair view of the financial position and the results of its operations and 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) proper accounting records have been kept by the Company; and

    (c) I have obtained all the information and explanations required for the purposes of my audit.”

    21A.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 Company for the year ended 31 December, 2008 was not issued as there were no matters of concern that required the Ministers. attention.

    21A.3 STATUS OF FINANCIAL STATEMENTS

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

    22. NATIONAL BROADCASTING CORPORATION 22.1 INTRODUCTION

    22.1.1 Legislation

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  • 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 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, 2006 was issued on 22 September, 2009. The report contained a disclaimer of opinion.

    “BASIS FOR A DISCLAIMER OF AUDIT OPINION 1. 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, 2005. The reason for such a disclaimer of opinion was the limitation of scope arising from my inability to obtain 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 had a consequential effect on the financial statements of the Corporation for the year ended 31 December, 2006. 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.

    2. Limitation of Scope on the General Ledgers Material differences were noted between the general ledger balances generated by the accounting system used by the Corporation and the amounts stated in the financial statements. I was not provided with details of all journal entries passed in relation to the adjustments made for some of the differences. 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.

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  • 3. Limitation of Scope Arising from Lack of Information/Records on Fixed Assets The carrying value of the Corporation’s fixed assets was K44,940,395 as at 31 December, 2006. This represents 98% of the total assets of the Corporation. I was neither able to establish nor confirm the ownership of the revalued land and buildings totaling K44,940,395. 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. As a result, I was unable to verify the physical existence, ownership, usefulness, charges, if any, and valuation including the adequacy or otherwise of the provision for depreciation of fixed assets.

    4. Government Grants and Expenditures for Provincial Radio Stations Expenses of National Broadcasting Corporation at the provincial radio stations were paid by Provincial Governments from annual appropriations to their respective radio stations for other operating commitments and expenses. However, the funds received in respect of the provincial radio stations and related expenses were not accounted for in the accounts. Consequently, the Corporation did not fully comply with IAS 20 – “Accounting for Government Grants and disclosure of Government Assistance”. Further, I was also unable to quantify the amount of funding received from the provincial governments due to the absence of accounting records and relevant documents.

    5. Statement of Changes in Equity – Non compliance with International Accounting Standards The Corporation had not prepared a statement of changes in equity and included it as part of the financial statements for the year ended 31 December, 2006 as required under International Accounting Standards 1 (IAS 1)-Presentation of Financial Statements. Accordingly, the requirements of this standard were not complied with.

    6. Trade Payable and Accruals The account balance at the year end was K3,873,956, however, this amount was understated by K3,237,145. The K3,237,145 comprised of amount payable to Internal Revenue Commission, POSF and other creditors. Further, I was not provided with any documentary evidence and/or independent confirmations of amounts owing to various Creditors. As a result, I was not able to validate the accuracy and the completeness of the account balance at the year end.

    DISCLAIMER OF OPINION In my opinion, because of the limitations on the scope of my work and other matters referred to in the above 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 was unable to and do not express an opinion on the financial statements of the National Broadcasting Corporation for the year ended 31 December, 2006.” 22.2.2 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, 2006 was issued on 22 September, 2009. The report contained the following comments:

    1. Bank Overdraft

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  • The Corporation.s main bank account had a credit balance of K2,974,744 as at 31 December, 2006. The balance included un-presented cheques totalling K3,237,145 drawn in favour of Internal Revenue Commission, POSF and other creditors. However, the cheques were never released to the intended payees due to insufficient funds and were improperly included in the overdrawn bank balance and not disclosed as separate liabilities in the balance sheet.

    I had since recommended the Corporation not to draw cheques when funds were insufficient and also to restate the un-presented cheques as separate liabilities in the balance sheet.

    2. Insurance

    The Corporation did not have any insurance cover for its fixed assets of K44,940,395. Considering that the fixed assets accounted for 98% of the total assets, it was essential for the Corporation to obtain some form of insurance cover to safe guard and minimize the risk of loss and damage to its fixed assets. I had since recommended the Corporation to consider requesting additional budget allocation from the Department of Finance for the purpose of insuring its fixed assets. 3. Legislative Requirements

    I noted that the Corporation did not prepare and furnish to the Minister for Finance the Performance and Management Report of its operations for the year ended 31 December, 2006 and thereby breached Section 63(2) of the Public Finances (Management) Act, 1995. I also noted that the Corporation did not submit its financial statements for the year ended 31 December, 2006 in a timely manner to the Auditor-General.s Office for audit and inspection and thereby breached Section 63(4) of the Act. 4. Trust Accounts

    Due to non availability of relevant records and financial reports, I was unable to verify deposits and disbursements transacted through the trust accounts maintained by the Corporation which comprise the NBC Election Publicity Account, NBC HOS Account and nineteen (19) separate bank accounts for the Provincial radio stations.

    22.3 STATUS OF FINANCIAL STATEMENTS

    The Corporation had not submitted its financial statements for the years ended 31 December, 2007, 2008 and 2009 for my inspection and audit. I have communicated and held meetings with the management in respect of the non-submission of the financial statements.

    23. NATIONAL CAPITAL DISTRICT COMMISSION

    23.1 INTRODUCTION

    23.1.1 Legislation

    The National Capital District Government (Preparatory Arrangements) Act, 1982, established the

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  • 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.

    23.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    23.2.1 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 Commission for the year ended 31 December, 2006 was issued on 07 October, 2009. The report contained a Disclaimer of Opinion.

    “BASIS FOR A DISCLAIMER OF OPINION

    Limitation of Scope Regarding Opening Balances

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  • Because of the disclaimer of opinion issued in respect of the prior year ended 31 December, 2005, I was not able to satisfy myself as to the resolution of the issues which formed the basis for the disclaimer on the opening balances. Since these opening balances enter into the determination of the results of operations, financial position and cash flows of the Commission in the current year, I was unable to determine whether adjustments to the results of operations, financial position and cash flows might be necessary as at and for the year ended 31 December, 2006.

    Deposits on Call

    As set out in Note 7 to the financial statements, deposits on call totalled K17,628,115. As I did not receive any third party confirmation acknowledging the existence of this balance and due to the absence of other appropriate evidence, I was unable to ascertain the existence and rights over this balance.

    Bookmakers. Tax Receivable

    At 31 December, 2006, Bookmakers. tax receivables amounted to approximately K4.0 million, and represented amounts purported to be owed by the Government of PNG. As I did not receive any confirmation acknowledging this debt from the Department of Finance and due to the absence of other appropriate evidence, I was unable to ascertain the accuracy, completeness, existence and valuation of the amount recorded as receivable.

    Staff and Other Debtors

    Staff and other debtors, net of provision for doubtful debt, totalled K408,376 at balance date. Due to the absence of general ledger reconciliations and supporting documentation, I was unable to confirm the completeness, accuracy, existence and rights over the amounts recorded as receivable.

    ST Input Credit GST input credit totalled K1,637,788 at balance date. Due to the absence of general ledger reconciliations and supporting documentation, I was unable to confirm the completeness, accuracy, existence and rights over the amounts recorded as receivable. Inventory

    Inventory on hand at 31 December, 2006 was K486,821. I was unable to satisfy myself through physical inspection or alternative procedures that these inventories existed at that date. In addition, as the Commission did not have in place a stock control system to record issues, transfers, purchases and value of inventories, I was unable to obtain assurance as to whether inventory was appropriately recorded and valued at the lower of cost or net realisable value.

    Property, Plant and Equipment

    The Commission.s property, plant and equipment were carried at K7,345,590. Not all fixed assets were included in the fixed assets register, particularly those assets which were received by way of donation. The Commission did not conduct extensive physical verification of all fixed assets including donated assets. I was therefore unable to satisfy myself with the completeness, accuracy and existence of fixed assets.

    Capital Road Works

    The Commission capitalised all road improvement costs in 2005 that were previously expensed. I

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  • was unable to satisfy myself with the existence, completeness and accuracy of the road improvement costs capitalised in 2005 due to the unavailability of appropriate supporting documentation. The carrying value of these assets at 31 December, 2006 was K130.1 million which primarily includes amounts capitalised in 2005. As a result, I was not able to satisfactorily substantiate these assets at year end.

    Investments

    As set out in Note 15 to the financial statements, the Commission has investments in various unquoted securities with a total carrying value of K0.8 million (before impairment provision of K0.6 million). No supporting documentation or valuations were provided to me to support the carrying values. Accordingly, I was unable to confirm whether the current valuation reflects the fair market value.

    Payables

    As set out in Note 12 to the financial statements, payables totalled approximately K15 million. Due to unavailability of supporting documentation, these balances could not be verified.

    Employee Benefits Provisions

    Employee benefits provisions comprising of long service leave, annual leave, gratuity and leave fares amounted to approximately K3.2 million. I was unable to substantiate these balances as I was not provided with appropriate supporting documentation. Consequently, I was unable to satisfy myself with the completeness and accuracy of these balances.

    Contingent Liabilities

    Note 21 to the financial statements outlined a significant number of pending legal cases. As I did not receive adequate information from the Commission or its legal advisors regarding the nature and likely outcome of these cases, I was unable to obtain comfort regarding whether or not the treatment of these claims as contingent liabilities was appropriate.

    Operating Costs

    Payments totalling K0.3 million could not be substantiated because the documents supporting the authorization of these payments were not provided. As a result, I was unable to satisfy myself over the completeness, accuracy and occurrence of these transactions underpinning these amounts.

    Salaries and Wages

    I noted a number of issues in relation to salaries and wages testing, primary among which were missing employees files, errors in calculation of tax applicable to benefits provided by the employer such as housing and motor vehicle, errors in calculation of taxable income, errors in calculation of salaries and wages tax and unsubstantiated deductions from and payments to employees. Consequently, I was unable to obtain comfort over the completeness, accuracy and occurrence of the transactions underpinning these amounts.

    Related Party Disclosures

    As stated in Note 14 to the financial statements, not all the disclosures required by IAS 24 –

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  • Related Party Disclosures were made. Some of these include the following related party transactions – grants to Motu-Koitabu Council, Tabudubu Limited and National Capital Botanical Enterprises Limited, stipends or sitting allowances to Commissioners and salaries and other employment benefits to key management personnel. This represents a departure from IAS 24 – Related Party Disclosures.

    DISCLAIMER OF AUDIT OPINION

    Because of the existence of the limitation of scope on my work and the departures from International Financial Reporting Standards, as described in the qualifications paragraphs, and the effects of such adjustments, if any, as might have been determined to be necessary had the limitations and departures not existed, I was unable to and do not express an opinion as to whether the financial statements of the National Capital District Commission have been properly drawn up so as to give a true and fair view of the financial position of the Commission as at 31 December, 2006 and of its financial performance and cash flows for the year ended on that date.

    23.2.2 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 Commission for the year ended 31 December, 2006 was issued on 07 October, 2009. The report contained the following observations:

    1. Internal Controls

    In addition to the specific issues I have identified in the course of my audit, my general observation was that the issues identified were symptomatic of a number of broader matters. In particular, it appeared that insufficient priority was being given to implement change in the internal control culture within the organization and improve the state of the finance function. It also appeared, based on my findings that the current people resources were inappropriately skilled to make the necessary changes required to address the matters identified. Accordingly, I recommended that the issues around internal controls, governance and appropriate resourcing be reviewed as a matter of priority.

    Further, while I was not required to specifically look for fraud, my audit suggested that the inadequate internal control environment provided an ideal opportunity for fraud or other improper activities to occur. It had subsequently came to my attention that certain members of the finance division have allegedly been involved in misappropriation of the assets of the Commission and an investigation was being carried out. This indicated that thorough investigation into all the matters identified in my report was required as a matter of priority to ensure that fraudulent activities were uncovered and prompt actions were taken. My key concern was in relation to the weak controls around the “purchase to pay” process. Accordingly, I recommended that a forensic audit be conducted as a matter of priority, together with a review to strengthen the process and procedures from “purchase to pay”.

    I raised my concerns with the Commission and it responded as follows:

    “It is incorrect to say that the Commission is not seriously addressing the internal control issues.

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  • The Commission has been taking various measures to strengthen the internal control system, to name a few; upgrading our accounting system, introduction of purchasing workflows, job rotation in Finance, etc. We admit that organisations are vulnerable to frauds and at the end of the day our internal control has the ability to detect it. We have also indemnity arrangements with the bank to recoup all the money lost through such frauds; this is another control that we have to protect our finances.

    The skill level of the staff in Finance is a major problem and we are addressing them through an organisation restructure program.

    The business objectives of ours is to encourage small people to do contract with NCDC with the view of diverting them from indulging in criminal activities; they don.t run sophisticated businesses to issue monthly statements. Obviously, NCDC cannot avoid “purchase to pay” process due to the core objective and requirements of commitment based accounting. We welcome all constructive suggestions as to how to mitigate the risks on “purchase to pay” process.”

    2. Trade and Other Debtors Reconciliations

    Although reconciliations were provided for land rates and garbage rates debtors, these reconciliations did not agree with the general ledger balances. Although it was explained to me that these differences related to write off and discount journals, they were not adequately supported. I recommended the Commission to reconcile and maintain adequate supporting documents.

    The Commission responded as follows:

    “All the journals for write off, adjustments and rectification are adequately authorised (by Revenue Manager, Financial Controller, Chief Internal Auditor and the Principal Ledger Officer). They are kept in our Revenue Section by officers who handle the clients.”

    3. Missing Payment Authorization Form

    Filing and safeguarding of payment authorisation forms and other supporting documents needed significant improvement. During the course of my audit a number of authorisation forms and the supporting documentation requested were not provided to me. These included supporting documentation for payments for expenses and some capital additions. I raised my concerns with the Commission and it responded as follows:

    “This is a big concern for the Finance Section. The reasons for the missing documents were mainly due to officers(for reconciliation purposes) and internal auditors (for audit) getting them from Treasury and either keeping them themselves for further review or those who take them keep them in the files they manage. Treasury is exploring the possibility of creating electronic storage of payment documents.”

    4. Payroll

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  • Controls over the payroll function and payroll transactions required significant improvement. For instance, I noted a number of instances in relation to missing employee files, application of incorrect tax on benefits provided by the employer, incorrect calculation of taxable income and salaries and wages tax, missing IRC salaries and wages tax declaration forms, and lack of payroll policy and procedures.

    The Commission responded as follows:

    “To address the above concerns, the management outsourced the payroll application to the professionals. We are now exploring the possibility of outsourcing the payroll processing as well. The administration of the payroll function is with an external firm and changes cannot be made to payroll transactions except with a signed pay variation instrument.”

    5. Accounting Manual

    The Commission.s accounting manual was outdated and had not been updated since 1994. I drew the Commission.s attention to this and its response was that it updated certain procedures as and when the need arose. However, the manuals would be formally updated in the future. Further, it has been developing “purchasing work flow”, which would supersede all the procurement manuals. Above all, a firm, Enabling QLD had been also contracted to develop Accpac and workflow manuals.

    6. General Controls relating to Information Technology

    General controls around information technology needed to be strengthened or improved. Some of the significant issues noted were:

    . Lack of documentation surrounding IT risk assessment;

    . Lack of information and communication on IT policies and procedures; and

    . Lack of a disaster recovery plan.

    I recommended the Commission to undertake the following:

    . IT policies and procedures should be formally documented and communicated to staff;

    . There should be a “help desk” log book in which staff can raise issues with the IT consultants;

    . Management to ensure that environmental risks (i.e. fire, smoke, water, power, temperature,

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  • humidity, destruction of accounting records and supporting documentation etc.) to the computer locations were appropriately mitigated; and

    . Management to ensure that disaster recovery plans were documented, tested and updated regularly as part of a business continuity plan and there should be records of when and how they were resolved.

    The Commission responded as follows:

    “The Management is working with Townsville City Council under the Hetura Project to find permanent solutions to all our IT related risks. Phase II of the Hetura Project will focus on the IT related issues and ensure that these will be adequately taken care of.

    We have not completely developed IT policies, nevertheless we do have basic policies such as usage of IT equipments, standardization of IT equipments, procurements, end user agreements, rights and responsibilities of category users and internet and email usage policies.

    Our IT has a help Desk with a logbook where staffs log in their complaints; those complains are not addressed timely due to lack of skilled staff.

    The maintenance of data and administration of respective applications are the responsibility of the respective managers; as such due care will be taken by the manager. Currently the installation of software of any form is restricted to the users who have administrator access, which is mostly by the IT staffs.”

    7. Payments to Blacklisted Companies

    I noted that payments continue to be made to certain companies that were blacklisted by the NCDC board, although purchases or payments to those companies were strictly prohibited. I recommended the Commission that credible workshops like Ela Motors and Boroko Motors should be awarded the job of repairing NCDC.s vehicle fleet and business with the blacklisted companies be stopped.

    8. Ownership of Land and Building

    I was unable to sight the relevant legal title documents for some of the land and buildings owned by the Commission. This creates an uncertainty over the legal title of the assets owned by the Commission. I recommended that the Commission should secure appropriate legal title documents for these assets as soon as possible.

    I raised my concerns with the Commission and it responded as follows:

    “We do have titles on properties that are acquired on the open market. For those properties and reserves, the Commission lost significant amounts of them and in order to recover the lost reserves and properties, a recovery project has been initiated and the responsibility for the management of

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  • this project has been given to a professional land consultant and external law firms.”

    9. Internal Audit

    The Internal Audit Department was not operating as intended although details such as the audit scope and charter have been documented by the Department of Finance in its Finance Instructions 01/2005 of February, 2005. I recommended that the Commission should ensure that the scope and responsibilities of the internal audit department were adequately determined and sufficiently resourced.

    The Commission responded as follows:

    “The operations of Internal Audit (IAD) are now redefined by the audit committee. IAD have plans for the recent years. A new structure has also been approved by the audit committee with clear requirements. Currently, internal audit department also assists in the pre-audit of claims over K5,000.”

    23.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, field work 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, 2007 was completed and the results were being evaluated.

    The Commission had submitted its financial statements for the years ended 31 December, 2008 and 2009 and the audits will commence shortly.

    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 object 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 include sale of flowers and conducting research relating to orchids and horticulture.

    23A.2 STATUS OF FINANCIAL STATEMENTS

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  • 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, 2003 to 31 December, 2006 were still in progress due to the failure of the Company to provide the necessary information to enable the audits to be finalised. The Company had submitted its financial statements for the years ended 31 December, 2007 and 2008 for my inspection and audit and arrangements were being made to commence the audits without any delay. The financial statements for the year ended 31 December, 2009 was not provided for my inspection and audit.

    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 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, 2002 to 31 December, 2005 were still in progress due to the failure of the Company to provide the necessary information to enable the audits to be finalised.

    The Company had not submitted its financial statements for the years ended 31 December, 2006 to 31 December, 2009 for my inspection and audit despite numerous reminders.

    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

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  • 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 financial statements of the Commission for the years ended 31 December, 2008 and 2009 had not been submitted for my inspection and audit. I have communicated with the Commission to submit these financial statements.

    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 the 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 the 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;

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  • (h) assist the Provincial and Local-level Service Monitoring Authority with assessment 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

    (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 and 2009 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.

    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;

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  • (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; (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(4) of the Audit Act, 1989 (as amended), on the Authority.s financial statements for the year ended 31 December, 2007 was issued on 11 February, 2010. The report contained a qualified audit opinion. “BASIS FOR QUALIFIED AUDIT OPINION 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 the 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, and whether fair value had been measured reliably at the balance date.

    2. Limitation of Scope – Land and Buildings – K20,185,753

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  • The Authority had not been compiling documentation for all their land and buildings and ensuring that appropriate titles deeds were in place. The available documentation was inadequate to allow me to perform 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 and therefore the account balance at the year end.

    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 was not 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 – K12,056,556 The Independent State of Papua New Guinea (the “State”) negotiated a loan amounting to K12,056,556 (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 was not 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 K12,056,556 at the year end. 5. Income from US Treaty – K7,282,519 The income from US Treaty of K7,282,519 stems from the Treaty signed between United States of America and 16 Pacific Island Nations (PIN). The Administrator of the fund is the Forum Fisheries Association (FFA) and the distribution of the funds was based on the catch by US fishing companies. During the year, the Authority received K7,282,519 as US Treaty income, which registered a decrease of 8.2 % compared to the prior year balance of K7,884,562. I was also unable to independently verify the balance. Consequently, I was unable to state whether the income from US Treaty had been fairly stated in the financial statements. QUALIFIED AUDIT OPINION In my opinion, except for the effect on the financial statements of the matters referred to in the Basis for Qualified Audit Opinion paragraphs: a) the financial statements were based on proper accounts and records;

    b) the financial statements were in agreement with those accounts and records, and show fairly the state of affairs of the National Fisheries Authority as at 31 December, 2007 and the results of its financial operations, its cash flows and the changes in equity for the year then ended.”

    26.2.2 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 for the year ended 31 December, 2007 was

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  • issued on 11 February, 2010. The report contained the following comments:

    Information Technology/System Manual

    Information Technology (IT) and Information System (IS) were integral parts of the Authority.s operations and its Strategies and Goals are outlined under the organization Corporate Plan (2002 to 2007). However, I noted that there was no IT/IS manual or policy for the Authority. It was noted that no forms or registers were completed and authorized prior to changes being made to master files. Further, there was no external computer back up facility for National Fisheries Authority (NFA) and National Fisheries College (NFC) apart from the daily backups on tapes kept in the office.

    I recommended the Authority to have an IT/IS system procedural manual for its operations. Master files changes be reviewed and approved before implementation. I further recommended the Authority that an outside computer back up facility be identified and the Authority should consider hiring an IT expert or additional IT Staff to assist the current Computer Services Officer.

    Management commented that there was lack of manpower, however an additional IT staff position had been advertised and will be in place as soon as interviews were completed. Management also agreed to produce an IT manual during 2009/2010. Registers to record changes in IT system would be created and implemented.

    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, 2008 was substantially completed and the results were being evaluated.

    The financial statements of the Authority for the year ended 31 December, 2009 was not submitted for my inspection and audit.

    I draw the Authority.s attention to Section 63(4) of the Public Finances (Management) Act, 1995 regarding the non-submission of the financial statements.

    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

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  • 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, 2005 and 2006 were issued on 26 February, 2010. These reports were Disclaimers of Opinion and similar, hence, only the 2006 report is reproduced as follows:

    “BASIS FOR DISCLAIMER OF OPINION

    1. Opening Balances

    The opening balances could not be confirmed as correct due to errors and material limitation of scope expressed in previous audit reports.

    2. Fixed Assets

    The Board had not maintained a comprehensive fixed assets register to record details of assets including depreciation, movements of assets during the year and net asset values at year end. In addition, I was not provided with any supporting documentation relating to the Leasehold Improvements of K89,974.

    Furthermore, the International Accounting Standard, 16 – Property, Plant and Equipment, requires that an asset item, after its initial recognition shall be carried at a revalued amount. Revaluations should be undertaken with sufficient regularity, to ensure that the carrying amount of assets does not materially differ from their fair value at the end of the reporting period. Fixed Assets as disclosed in Note 10 to the accounts have not been revalued. Consequently, I was unable to determine the ownership, existence and valuation of the fixed assets balance of K870,319 disclosed as at 31 December, 2006.

    3. Current Liabilities

    The financial statements disclose creditors and provisions of K382,071 and K407,600 respectively. Included in the provision balance are the amounts of K50,000 for Group Tax Exposure and K50,000 for Rentals in Dispute. I was not able to determine the accuracy of the provision made due to lack of supporting documentation. In addition, the uncertainties surrounding the measurement of expenses incurred during the year as discussed under paragraph 6 of this report place material limitation of scope on the current liabilities balance. As a result, I was unable to ascertain the accuracy and completeness of the current liabilities balance stated in the financial statements for the year ended 31 December, 2006.

    4. Current Assets

    The financial statements disclosed receivables of K145,133. Included in this account balance is an

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  • understatement of rental bonds of K23,437, an overstatement of staff debtors of K9,985 and a prepaid portion of the insurance premium amount of K9,905 not taken up in the above receivables account balance. Therefore, I was unable to determine the accuracy and completeness of the receivables balance as disclosed in the financial statements.

    5. Presentation of the Income and Expenditure Statement

    The Income and Expenditure Statement was not presented in accordance with the International Accounting Standard, IAS 1 – Presentation of Financial Statement. During the year, the Board expensed K5,185,768, however this component was not presented in the statement.

    6. Expenses

    I was unable to verify the accuracy and validity of expenses and subsequently the accuracy of the net deficit of K53,696 as at 31 December, 2006 due to:

    . Proper procedures were not being followed as required by the provisions of the Public Finances (Management) Act, 1995 for almost all services received and paid for including consultancy, legal and security procured by the Board during the year;

    . A security company was engaged by the Board to provide monitoring services of the gaming machines operated in PNG. However, no formal contract was in place to validate the correctness of K825,700 paid as fees during the year;

    . A total of K191,748 was paid as legal fees to various legal firms during the year, but the validity of these payments could not be established, due to the absence of proper documents;

    . The Board incurred security expenses amounting to K106,973 during the year. I was not provided a copy of the formal agreements to determine the terms and conditions of the agreements; and

    . The Board incurred expenses totalling K175,784 in relation to the operation of removing all illegal and unauthorised machines. The Board used the services of the Police and paid allowances, overtime, repair and maintenance of their vehicles. Further, I noted instances where cash allowances were paid to employees and non-employees of the Board. Other costs incurred were in the nature of security, entertainment and legal expenses. I was not able to ascertain the genuiness of these payments due to lack of adequate supporting documentation.

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  • DISCLAIMER OF AUDIT 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 was unable to express an opinion on the financial statements of the National Gaming Control Board for the year ended 31 December, 2006.

    OTHER MATTERS

    . The National Gaming Control Board has not prepared and submitted their financial statements to the Minister and the Auditor-General prior to 30 June for the year ending 31 December preceding, resulting in breaches of Section 63(2) and Section 63(4) of the Public Finances (Management) Act, 1995; and

    . The Chairman of the Board was performing responsibilities as Executive Working chairman on full time since his appointment to the Board and was paid an annual stipend. The fulltime appointment of an Executive Chairman was a breach of the Gaming Machine Act, 1993.”

    27.3 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 Board for the year ended 31 December, 2007 was still in progress.

    The Board had not submitted its financial statements for the years ended 31 December, 2008 and 2009 for my inspection and audit despite numerous reminders. 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 AUDIT OBSERVATIONS AND RECOMMENDATIONS

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  • 28.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the Corporation.s financial statements for the years ended 31 December, 2007, 2006, 2005 and 2004 were issued on 30 June, 2010. These reports contained similar Disclaimer of Opinions, hence only the 2007 report is reproduced as follows:

    “BASIS FOR DISCLAIMER OF OPINION

    1. Opening Balances

    The opening balances could not be confirmed as correct due to errors and material limitation of scope expressed in previous audit reports.

    2. Fixed Assets

    The carrying value of all fixed assets as at 31 December, 2007 was K14,307,605 as reported in the financial statements. There was no physical stock take performed at the end of the year neither was there any form of communication of the existence of fixed assets by the Corporation. Consequently, I was unable to verify the existence, valuation and completeness of all the fixed assets reported in the financial statements.

    3. Accruals, Provisions and Other Liabilities

    Accruals, Provisions and Other Liabilities balances as at 31 December, 2007 was K126,426 as stated in the financial statements. These accounts consist of Accrued expenses of (K380,934), GST Provision (K537,369), Group Tax Provision K736,819, Employee Benefits K144,393 and Payroll liabilities (K89,335). However, acceptable records were not maintained to enable me to verify the completeness, existence and accuracy of the balance as disclosed in the financial statements. As a result, I was not able to determine the accuracy and completeness of the Trade Payables, Accruals and Provisions balances at year end.

    4. Advance from PNG Government

    The financial statements disclosed Advance from PNG Government at K7,779,200 as at 31 December, 2007. However, acceptable records were not maintained to enable me to verify the completeness, existence and accuracy of the balance as disclosed in the financial statements. As a result, I was not able to determine the accuracy and completeness of the Advance from PNG Government balance at year end.

    5. Government Equity

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  • The financial statements disclosed Government Equity as K27,668,800 as at 31 December, 2007. However, I was unable to obtain direct confirmation from the Department of Finance that these amounts relate to equity contributions rather than advances. As a result, I was not able to determine the existence, completeness and valuation of the balance and its classification and recognition as Equity at year end.

    6. Cash and Bank Balances

    The financial statements disclosed Cash and Bank balances at K1,306,664 as at 31 December, 2007. However, Independent Bank Confirmations received from the banks revealed the existence of seven (7) bank accounts maintained in the name of the Corporation totaling K1,237,625 resulting in an unexplained variance of K69,039. Furthermore, bank reconciliations were not done for all the accounts in operation. As a result, I was not able to determine the existence, valuation and completeness of the Cash and Bank balances at year end.

    DISCLAIMER OF OPINION

    Because of the significance of the matters described in the Basis for Disclaimer of Opinion, I had not been able to obtain sufficient appropriate audit evidence and accordingly I was unable to express an opinion on the financial statements of National Housing Corporation for the year ended 31 December, 2007.”

    28.2.2 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 of the Corporation for the years ended 31 December, 2007, 2006, 2005 and 2004 were issued on 30 June, 2010. These reports contained similar comments, hence only the 2007 report is reproduced as follows:

    1.0 Internal Control Environment

    The accounting system and internal control environment at National Housing Corporation continued to be severely deficient. The ineffective management information system, inexperienced and/or incompetent staff and inadequate financial reporting structure had contributed to the undue delay in preparation of the financial statements and timely information for management decision making. There was no evidence of management.s review of the financial statements and related records. 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 as it was unavailable. This effectively meant that the management could not place reasonable reliance on the accounting system for ensuring completeness and accuracy of the books of accounts maintained.

    The management advised that “it acknowledges the weaknesses in the operational procedures within the Corporation. The weaknesses can be directly attributed to the absence of direct supervision of subordinates by the supervisors. However, the management has highlighted this situation for corrective measures to be taken.”

    2.0 Tenancy Variation Advices

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  • I observed that significant inadequacies still persist in the system of internal control over the completeness and processing of “Tenancy Variation Advices” (TVAs). The major weakness appeared to be lack of control over the production and input of the TVAs. I was unable to gain assurance that TVAs had been raised in all instances as required and that TVAs raised had been processed on a timely basis.

    The implications were that inadequate TVAs may result in the following:

    . understatement of interest and rental revenue;

    . understatement of rental and loan debtors;

    . overstatement of creditors balances (for cash received not processed to debtors but processed to suspense);

    . overstatement of assets (properties sold not posted);

    . overstatement of rental and interest revenue;

    . loss of revenue and possible misappropriation of rents; and

    . inaccurate debtors information being used for follow up and collection of outstanding debts and determining the provision for doubtful debts.

    I recommended a system to ensure that all TVAs are raised and processed on a timely basis to be introduced as a matter of priority. The processing of TVAs is central to the activities of the National Housing Corporation and this issue should be addressed at the highest level of management. 3.0 Unmatched Cash Receipts

    I noted that not all payments received from Tenants and Borrowers had been matched against a debtor.s balance and the unmatched receipts had been posted to clearing accounts.

    The suspense accounts were not being reconciled on a regular basis.

    The implications of the above weaknesses were that: . debtors balances and sundry creditors balances were overstated;

    . errors in the processing of rental and purchase agreements were not detected on a timely basis; and

    . accurate aged debtors information was not available. This information was needed for the follow up and collection of outstanding debts and for determining the Provision for Doubtful Debts.

    I advised that all clearing accounts should be reconciled on a monthly basis and items should be cleared to the correct account. The reconciliations should be regularly reviewed by the Financial Accountant.

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  • The management.s response to my advice was that “the unmatched cash receipts were dealt with only when the client enquired about their payments, but acknowledged that a programme should be installed to ensure that as and when transactions were entered they would offset the unmatched receipts in order to reduce the suspense accounts.”

    4.0 Debtors – Sub Ledger

    I noted that accurate debtors sub-ledgers were not being produced on a regular basis and a number of debtors sub-ledgers as at 31 December, 2007 could not be located.

    The implication was that information required for the follow-up and collection of outstanding debts and for determining the Provision for Doubtful Debts was not readily available. I advised that an aged debtors trial balance should be produced on a monthly basis. This sub- ledger should be reconciled to the general ledger and the reconciliation should be reviewed by the Financial Accountant.

    The management advised that “this ledger was reconciled previously by the Accounts Section to up-date the General Ledger-Sub-Ledger and should be continued in order to up-date our Housing Debtor General Ledger Accounts. The Accounts section no longer exists due to restructure.”

    4.1 Sundry Debtors

    I observed that there were a number of Sundry Debtors balances that were not supported by adequate documentation and had not been reconciled correctly.

    The absence of relevant reconciliations for Sundry Debtors may result in:

    . misstatement in the financial statements;

    . errors carried forward to future accounting periods; and

    . follow-up of balances is virtually impossible.

    I recommended all accounts to be reconciled on a monthly basis and the reconciliations reviewed by the Financial Accountant. Items in the accounts were to be identified and recovered or written- off as appropriate.

    The management had previously informed that the balances were mainly brought forward from prior years which were not properly identified, therefore, they should be written-off as recommended. However, no tangible action has been taken and no provisions for bad debts were provided.

    5.0 Bank

    I noted that relevant bank account reconciliations were not prepared during 2007.

    The absence of adequate bank reconciliations during the year as well as at year end may result in:

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  • . misstatement of the bank balance in the financial statements;

    . frauds, errors and misstatements not identified promptly;

    . inadequate information for managing cash flow; and

    . potential for fraud exists.

    I advised that bank reconciliations should be prepared on a monthly basis immediately after month-end and should be checked by the Accountant on a regular basis.

    6.0 Creditors

    6.1 Creditors Sub-Ledger

    I noted that creditors. sub-ledgers were being inadequately maintained and not being reconciled on a regular basis to the general ledger.

    Also, suppliers. statements were not being reconciled to the general ledger on a systematic basis.

    The absence of Creditors Reconciliations between supplier.s statements and general ledger may result in:

    . misstatement of creditors in the financial statements; and

    . possible overpayment or double payment of creditors.

    I advised a creditor.s ledger to be produced on a monthly basis and reconciled to the general ledger.

    All major supplier.s statements were to be reconciled to the creditors sub-ledger and the reconciliations reviewed by the Financial Accountant.

    6.2 Sundry Creditors

    I observed that there were a number of sundry creditors balances that were not supported by adequate documentation and were not reconciled correctly. Some balances were outstanding for a considerable period of time.

    The absence of adequate documentation may result in:

    . Misstatement in the financial statements; and

    . Errors carried forward to future accounting periods.

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  • I recommended all accounts to be reconciled on a monthly basis and the reconciliations reviewed by the Financial Accountant.

    The management agreed to undertake monthly reconciliation to clear items in the account.

    7.0 Fixed Assets Register

    There was no proper Fixed Assets Register maintained by the Corporation. The maintenance of complete Fixed Assets Register for property and other assets is an integral part of the Corporations operations. Without an accurate record of the assets owned, a lack of control over the assets and their related income will exist. Also without an Assets Register, there will be difficulties in performing accurate calculations of depreciation expense and profit and loss on disposal of assets.

    The management responded that „„in conjunction with the survey, the Corporation will be able to review, update and correct the Fixed Assets Register thoroughly to account for additions and disposals and values of assets to date. In addition, the assets will be appropriately categorised as recommended.”

    28.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Corporation had not submitted its financial statements for the years ended 31 December, 2008 and 2009 for my inspection and audit.

    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

    (1) 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

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  • (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 Governments; or (iv) commercial, industrial and other relevant bodies and organizations, in relation to matters affecting them in the performance of its functions; and

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

    29.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    29.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the Authority.s financial statements for the year ended 31 December, 2008 was issued on 23 April, 2010. The report contained a qualified audit opinion as follows.

    “BASIS FOR QUALFIED OPINION

    Fees and Levies

    Operating revenue was stated as K22,535,656 in the 2008 financial statements. Included in this account balance was revenue earned from fees and levies of K18,866,687. In my review of the billing and collection of the various fees and levies collected, I noted that there was no proper and accurate system or database to capture all the foreign vessels that trade in PNG waters. Further, the Authority did not keep a proper, accurate and a complete database for those ships operating in the waters of PNG including important information such as name of the vessels, owner, length of vessels, and the place of registration. I noted that billing and collection of these fees and levies were based on information provided by the shipping agents which was considered unreliable.

    In the absence of a proper database and a comprehensive revenue collection system, I was unable to state whether the revenue billing and collection by the Authority is accurate and complete.

    QUALIFIED AUDIT OPINION

    In my opinion, except for the effects of the matters referred to in the qualification paragraph:

    (a) the financial statements of National Maritime Safety Authority comply with generally accepted accounting practice and give a true and fair view of the financial position of the Authority as at 31

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  • December, 2008 and the results of its operations and its cash flows for the year ended on that date; and

    (b) proper accounting records have been kept by the Authority as far as appears from my examination of those records.”

    29.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the audit and inspection of the accounts and records of the Authority for the year ended 31 December, 2008 was issued on 29 April, 2010. The report contained the following observations:

    1. Internal Control Weaknesses

    I wish to draw your attention to the following internal control weaknesses revealed during the course of the audit: a) there was no segregation of duties in invoicing, receipting, recording, banking of cash, preparation of fortnightly payroll and postings to the general ledger; and

    b) there was no proper system or procedures in place to ensure adequate collection of fees and levies from vessels operating in Papua New Guinea waters, leading to a possible loss of revenue to the Authority.

    I recommended management to put in place proper internal control measures to rectify the above weaknesses. The management advised that it had taken note of my recommendations.

    2. Reports 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 31 December, 2008.

    3. Board Meeting Minutes

    Section 12(1) of the National Maritime Safety Authority Act, 2003, requires the Authority to meet not less frequently than once in every three (3) months or four (4) times in each year and to ensure that the minutes of its meetings are recorded and kept.

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  • I noted that the Authority.s Board was able to meet twice during the year, however I was only provided the minutes of one (1) meeting that was held during the year for my review. Consequently, I was unable to determine whether matters discussed were implemented in the year and the succeeding year and whether the Authority was governed properly. The management advised that, “among other reasons there was a lack of quorum and the vacancies in the appointment of the Board members.”

    29.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the field work 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, 2009 was completed and the results were being evaluated.

    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 artifacts; 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 fieldwork associated with 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, 2007 and 2008 were completed. However Management had not responded to the matters raised in my management letters to allow me to finalise and issue my reports under Section 8(4) and Section 8(2) of the Audit Act, 1989 (as amended). However, these reports will be issued shortly. The Museum had not submitted its financial statements for the year ended 31 December, 2009 for my inspection and audit.

    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 of the Bureau for the years

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  • ended 31 December, 1998 to 2002 had been completed. My management letters for these years were sent on 23 February, 2010 and at the time of preparing this report my letters were not responded to by the Management of National Narcotics Bureau. 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. Those requests and reminders were not responded and adhered to respectively. As the Bureau had not submitted its financial statements for the years ended 31 December, 2008 and 2009 for my inspection and audit, I have conducted internal controls and corporate governance review and the results of this review will be reported in my next report to Parliament.

    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 AND RECOMMENDATIONS 32.2.1 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 25 March, 2010. The report did not contain any q