Report of the Auditor-General Part III 2016 on the Accounts of Provincial and Local-level Governments and associated entities
Mentions of people and company names in this document
Name | References in this document | Mentions in other documents |
---|---|---|
THE NATIONAL
|
29 mentions
|
828 other documents
|
PORT MORESBY
|
18 mentions
|
756 other documents
|
P & O
|
9 mentions
|
540 other documents
|
SEARCH
|
3 mentions
|
398 other documents
|
THE INDEPENDENT
|
4 mentions
|
397 other documents
|
HIGHLANDS
|
88 mentions
|
368 other documents
|
AGO
|
12 mentions
|
365 other documents
|
INDEPENDENT STATE OF PAPUA NEW GUINEA
|
3 mentions
|
317 other documents
|
THE INDEPENDENT STATE OF PAPUA NEW GUINEA
|
3 mentions
|
297 other documents
|
SCOPE
|
44 mentions
|
282 other documents
|
SOUTH PACIFIC
|
2 mentions
|
278 other documents
|
MINISTER FOR FINANCE
|
4 mentions
|
270 other documents
|
[Missing]
|
9 mentions
|
248 other documents
|
BANK OF PAPUA NEW GUINEA
|
1 mentions
|
217 other documents
|
VI
|
2283 mentions
|
215 other documents
|
COMPLEX
|
2 mentions
|
210 other documents
|
... NIL
|
30 mentions
|
201 other documents
|
.... NIL
|
30 mentions
|
201 other documents
|
ADVANTAGE
|
1 mentions
|
200 other documents
|
FIRMS
|
5 mentions
|
197 other documents
|
AIR NIUGINI
|
2 mentions
|
177 other documents
|
ARMS
|
117 mentions
|
143 other documents
|
BANK SOUTH PACIFIC
|
2 mentions
|
123 other documents
|
INVESTMENT PROMOTION AUTHORITY
|
2 mentions
|
113 other documents
|
MANAGEMENT SERVICES
|
2 mentions
|
82 other documents
|
EFFECTIVE MANAGEMENT
|
4 mentions
|
71 other documents
|
NIUGINI LIMITED
|
2 mentions
|
69 other documents
|
RISK MANAGEMENT
|
2 mentions
|
69 other documents
|
Job POMAT
|
1 mentions
|
62 other documents
|
RESOURCES LIMITED
|
2 mentions
|
58 other documents
|
CASH ADVANCE
|
36 mentions
|
57 other documents
|
NATIONAL FISHERIES AUTHORITY
|
2 mentions
|
48 other documents
|
AS FINANCE
|
1 mentions
|
40 other documents
|
CENTRAL PROVINCIAL GOVERNMENT
|
14 mentions
|
39 other documents
|
NGI
|
12 mentions
|
36 other documents
|
AUTONOMOUS BOUGAINVILLE GOVERNMENT
|
5 mentions
|
33 other documents
|
BASIC SERVICES
|
1 mentions
|
33 other documents
|
A & H
|
16 mentions
|
32 other documents
|
FLY RIVER PROVINCIAL GOVERNMENT
|
18 mentions
|
31 other documents
|
BOROKO MOTORS
|
1 mentions
|
29 other documents
|
DATA BASE
|
4 mentions
|
28 other documents
|
EAST SEPIK PROVINCIAL GOVERNMENT
|
14 mentions
|
28 other documents
|
SOUTHERN HIGHLANDS PROVINCIAL GOVERNMENT
|
12 mentions
|
26 other documents
|
MANUS PROVINCIAL GOVERNMENT
|
5 mentions
|
25 other documents
|
NEW BRITAIN PALM OIL LIMITED
|
2 mentions
|
22 other documents
|
EAST NEW BRITAIN PROVINCIAL GOVERNMENT
|
16 mentions
|
21 other documents
|
MOROBE PROVINCIAL GOVERNMENT
|
14 mentions
|
20 other documents
|
TAX CREDIT
|
2 mentions
|
20 other documents
|
SANDAUN PROVINCIAL GOVERNMENT
|
16 mentions
|
19 other documents
|
ENGA PROVINCIAL GOVERNMENT
|
15 mentions
|
18 other documents
|
GULF PROVINCIAL GOVERNMENT
|
5 mentions
|
17 other documents
|
CONSTRUCTION WORKS
|
1 mentions
|
16 other documents
|
NEW IRELAND PROVINCIAL GOVERNMENT
|
32 mentions
|
16 other documents
|
WEST NEW BRITAIN PROVINCIAL GOVERNMENT
|
13 mentions
|
16 other documents
|
ORO PROVINCIAL GOVERNMENT
|
12 mentions
|
15 other documents
|
MADANG PROVINCIAL GOVERNMENT
|
12 mentions
|
14 other documents
|
MILNE BAY PROVINCIAL GOVERNMENT
|
11 mentions
|
14 other documents
|
MOTU KOITA ASSEMBLY
|
4 mentions
|
14 other documents
|
WESTERN HIGHLANDS PROVINCIAL GOVERNMENT
|
3 mentions
|
13 other documents
|
EASTERN HIGHLANDS PROVINCIAL GOVERNMENT
|
17 mentions
|
12 other documents
|
KAVIENG URBAN LOCAL LEVEL GOVERNMENT
|
14 mentions
|
10 other documents
|
LAE URBAN LOCAL LEVEL GOVERNMENT
|
3 mentions
|
10 other documents
|
KOKOPO VUNAMAMI URBAN LOCAL LEVEL GOVERNMENT
|
9 mentions
|
9 other documents
|
LOTTO
|
1 mentions
|
9 other documents
|
SIMBU PROVINCIAL GOVERNMENT
|
8 mentions
|
9 other documents
|
VANIMO FOREST PRODUCTS
|
1 mentions
|
9 other documents
|
BY LIMITED
|
1 mentions
|
8 other documents
|
FOODLAND
|
1 mentions
|
8 other documents
|
HELA PROVINCIAL GOVERNMENT
|
4 mentions
|
8 other documents
|
MADANG URBAN LOCAL LEVEL GOVERNMENT
|
3 mentions
|
8 other documents
|
BAY PROPERTIES LIMITED
|
1 mentions
|
7 other documents
|
GULF INVESTMENT TRUST FUND
|
2 mentions
|
7 other documents
|
KEI BESEU KAMPANI LTD.
|
2 mentions
|
7 other documents
|
MILNE BAY PROPERTIES LIMITED
|
1 mentions
|
7 other documents
|
PORGERA DEVELOPMENT AUTHORITY
|
1 mentions
|
7 other documents
|
RABAUL URBAN LOCAL LEVEL GOVERNMENT
|
12 mentions
|
7 other documents
|
RABAUL URBAN LOCAL-LEVEL GOVERNMENT
|
12 mentions
|
7 other documents
|
AKOGERE ESTATES LIMITED
|
1 mentions
|
6 other documents
|
KUNDIAWA URBAN LOCAL LEVEL GOVERNMENT
|
3 mentions
|
6 other documents
|
MANUS FISHING CORPORATION LIMITED
|
1 mentions
|
6 other documents
|
PETROHAUL LIMITED
|
1 mentions
|
6 other documents
|
TARI URBAN
|
3 mentions
|
6 other documents
|
VEGMARK LIMITED
|
1 mentions
|
6 other documents
|
WEST FARM RESOURCES LIMITED
|
2 mentions
|
6 other documents
|
ANDERSONS FOODLAND
|
1 mentions
|
5 other documents
|
ENGA CHILDREN'S FUND TRUSTEE LIMITED
|
1 mentions
|
5 other documents
|
SOUTHERN STAR LIMITED
|
1 mentions
|
5 other documents
|
AL'S AUTO REPAIRS LTD.
|
3 mentions
|
4 other documents
|
EAST NEW BRITAIN DEVELOPMENT CORPORATION LTD.
|
4 mentions
|
4 other documents
|
ENGINEERING MANAGEMENT LTD.
|
1 mentions
|
4 other documents
|
GULF PAPUA FISHERIES LIMITED
|
1 mentions
|
4 other documents
|
PUBLIC WORKS NEW IRELAND LIMITED
|
6 mentions
|
4 other documents
|
ANDERSONS FOODLAND LTD
|
1 mentions
|
3 other documents
|
G27 LIMITED
|
1 mentions
|
3 other documents
|
JIWAKA PROVINCIAL GOVERNMENT
|
4 mentions
|
3 other documents
|
Joseph NOMBRI
|
4 mentions
|
3 other documents
|
NEW IRELAND DEVELOPMENT CORPORATION LTD.
|
1 mentions
|
3 other documents
|
NIVANI
|
1 mentions
|
3 other documents
|
RABAUL METAL INDUSTRIES
|
1 mentions
|
3 other documents
|
BARAKOPO PLANTATION DEVELOPMENT CORPORATION LTD.
|
4 mentions
|
2 other documents
|
DAWAPIA CONSTRUCTION
|
1 mentions
|
2 other documents
|
ENB PORT SERVICES LIMITED
|
1 mentions
|
2 other documents
|
Enb Port Services LTD
|
1 mentions
|
2 other documents
|
INFRASTRUCTURE DEVELOPMENT COMPANY LIMITED
|
1 mentions
|
2 other documents
|
NEWCREST MINING LIMITED
|
2 mentions
|
2 other documents
|
PAIA INLET INFRASTRUCTURE DEVELOPMENT CO. LIMITED
|
1 mentions
|
2 other documents
|
POGERA DEVELOPMENT AUTHORITY
|
3 mentions
|
2 other documents
|
Sir Joseph NOMBRI
|
4 mentions
|
2 other documents
|
TRAVEL AND LOGISTICS AGENT
|
1 mentions
|
2 other documents
|
EASTERN HIGHLANDS PROPERTY DEVELOPERS LTD
|
2 mentions
|
1 other documents
|
ENGA RURAL INVESTMENTS HOLDINGS LIMITED
|
2 mentions
|
1 other documents
|
GEE HIRE CARS
|
1 mentions
|
1 other documents
|
GULF ECONOMIC DEVELOPMENT LIMITED
|
1 mentions
|
1 other documents
|
HARDWARE HAUS
|
3 mentions
|
1 other documents
|
MOKMOK DEVELOPMENT CORPORATION LTD
|
1 mentions
|
1 other documents
|
NIVANI LIMITED
|
1 mentions
|
1 other documents
|
PRIME TRAVEL SERVICES
|
1 mentions
|
1 other documents
|
REPO ENGINEERING & CONSULTING LTD
|
0 mentions
|
1 other documents
|
SEPIK INVESTMENTS LTD
|
4 mentions
|
1 other documents
|
WEST SEPIK INVESTMENTS LTD
|
4 mentions
|
1 other documents
|
4TY LIMITED
|
1 mentions
|
0 other documents
|
ALANDA TRADING LIMITED
|
1 mentions
|
0 other documents
|
AULSON CONSTRUCTION
|
2 mentions
|
0 other documents
|
BSP & COMPANY INC.
|
0 mentions
|
0 other documents
|
HIGHLANDS HOLDINGS LIMITED
|
1 mentions
|
0 other documents
|
Joe PARAIDE
|
1 mentions
|
0 other documents
|
MURUK LODGE
|
1 mentions
|
0 other documents
|
NORTHSEA ENGINEERING SERVICES
|
1 mentions
|
0 other documents
|
PNG SJ CONSTRUCTION LIMITED
|
3 mentions
|
0 other documents
|
SOUTHERN HIGHLANDS HOLDINGS LIMITED
|
1 mentions
|
0 other documents
|
WANEM YA LIMITED
|
1 mentions
|
0 other documents
|
It is not suggested or implied that simply because a person, company or other entity is mentioned in the documents in the database that they have broken the law or otherwise acted improperly. Read our full disclaimer
Document content
-
Part 3
Report of the Auditor-General
2016on the Accounts of Provincial and Local-level Governments and
associated entities
__________________________________________________________
Provincial Governments
Local-level Governments
Hospital Boards and Provincial Health Authorities
Business Arms and Subsidiary Corporations
Provincial Authorities
Other AuditsAuditor-General’s Office of Papua New Guinea
-
Page 2 of 226
-
Part 3
Report of the Auditor-General
2016on the Accounts of Provincial and Local-level Governments and
associated entities
__________________________________________________________
Provincial Governments
Local-level Governments
Hospital Boards and Provincial Health Authorities
Business Arms and Subsidiary Corporations
Provincial Authorities
Other AuditsAuditor-General’s Office of Papua New Guinea
-
Page 3 of 226
-
Page 4 of 226
-
Phone: (+675) 3012200 Fax: (+675) 325 2872 Email: [email protected] Website: www.ago.gov.pg
29 September 2017
The Honourable Job Pomat, MP
Speaker of the National Parliament
Parliament House
WAIGANI
National Capital DistrictDear Mr. Speaker
In accordance with the provisions of Section 214 of the Constitution of the Independent State of
Papua New Guinea, I have the honour to present to the National Parliament Part III of my
Report.The Part III 2016 Report covers the financial years ending 2016. This Report embodies the
results of audits of each of the Accounts of Provincial Governments, Local-level Governments,
their Business Arms and Statutory Corporations, Provincial Authorities, Trust Funds and
Hospital Boards and Provincial Health Authorities.Level 6
TISA Investment Haus
Kumul Avenue, NCD
P.O. Box 423, WAIGANI, NCD
Papua New Guinea -
Page 5 of 226
-
Table of Contents
FOREWORD……………………………………………………………………………………………………………. 1
1. ROLE OF THE AUDITOR-GENERAL AND AUDIT MANDATE …………………. 3
1.1 Role of the Auditor-General………………………………………………………………………………. 3
1.2 Mandate of the Auditor-General ………………………………………………………………………… 4
2. AUDIT AND DELIVERY OF GOVERNMENT PROGRAMS ………………………… 6
3. SCOPE OF AUDIT ………………………………………………………………………………………… 7
3.1 Introduction …………………………………………………………………………………………………….. 7
3.2 Appointment of an Agent Auditor ……………………………………………………………………… 7
3.3 Dispensation of Audits ……………………………………………………………………………………… 8
4. RESULTS OF THE AUDITS OF FINANCIAL STATEMENTS ……………………… 9
4.1 Audit Opinion …………………………………………………………………………………………………. 9
4.2 Financial Statements of Provincial and Local-level Governments ………………………… 10
4.3 Financial Statements of Hospital Boards and Provincial Health Authorities …….. 15
4.4 Financial Statements of Business Arms and Subsidiary Corporations ……………… 17
4.5 Financial Statements of Provincial Authorities ………………………………………………. 17
4.6 The Role of the Treasury Offices ……………………………………………………………………. 18
4.7 Other Audits …………………………………………………………………………………………………. 17
4.8 Audit Fees …………………………………………………………………………………………………….. 19
5. CONTROL ENVIRONMENT………………………………………………………………………. 20
5.1 Introduction …………………………………………………………………………………………………… 20
5.2 Responsibilities of Management ………………………………………………………………………. 20
5.3 Responsibility of the Auditor-General ………………………………………………………………. 21
5.4 Details of Control Issues …………………………………………………………………………………. 21
5.5 Conclusion ……………………………………………………………………………………………………. 26
6.0 RESULTS OF AUDITS PER PROVINCE ……………………………………………………. 28
6.1 AUTONOMOUS REGION OF BOUGAINVILLE …………………………………………………… 28
6.2 CENTRAL PROVINCE …………………………………………………………………………………….. 30
6.3 EAST NEW BRITAIN PROVINCE …………………………………………………………………….. 40
6.4 EAST SEPIK PROVINCE………………………………………………………………………………. 57
6.5 EASTERN HIGHLANDS PROVINCE ……………………………………………………………. 73
6.6 ENGA PROVINCE ………………………………………………………………………………………… 80
6.7 WESTERN PROVINCE …………………………………………………………………………………. 86
6.8 GULF PROVINCE ………………………………………………………………………………………. 102
6.9 HELA PROVINCE ………………………………………………………………………………………. 106 -
Page 6 of 226
-
6.10 JIWAKA PROVINCE ………………………………………………………………………………….. 107
6.11 MADANG PROVINCE ………………………………………………………………………………… 108
6.12 MANUS PROVINCE …………………………………………………………………………………… 114
6.13 MILNE BAY PROVINCE…………………………………………………………………………….. 116
6.14 MOROBE PROVINCE ………………………………………………………………………………… 122
6.15 NEW IRELAND PROVINCE ……………………………………………………………………….. 129
6.16 ORO PROVINCE ………………………………………………………………………………………… 164
6.17 SANDAUN PROVINCE ………………………………………………………………………………. 173
6.18 SIMBU PROVINCE …………………………………………………………………………………….. 187
6.19 SOUTHERN HIGHLANDS PROVINCE ……………………………………………………….. 192
6.20 WEST NEW BRITAIN PROVINCE………………………………………………………………. 198
6.21 WESTERN HIGHLANDS PROVINCE …………………………………………………………. 204
7. LEGAL FRAMEWORKS …………………………………………………………………………… 211
7.1 Organic Law on Provincial Governments and Local-level Governments …………….. 211
7.2 Provincial Governments and Local-level Governments …………………………………….. 211
7.3 Hospital Boards and Provincial Health Authorities …………………………………………… 212
7.4 Business Arms and Subsidiary Corporations ……………………………………………………. 212
7.5 Provincial Authorities …………………………………………………………………………………… 212
7.6 Other Audits ………………………………………………………………………………………………… 213
7.7 Dispensation of Audits ………………………………………………………………………………….. 213
8. STATUS OF FINANCIAL STATEMENTS…………………………………………………. 215
8.1 Provincial Government …………………………………………………………………………………. 215
8.2 Local-level Government………………………………………………………………………………… 216
8.3 Hospital Boards/Health Authorities ………………………………………………………………… 217
8.4 Business Arms & Subsidiary Companies ………………………………………………………… 218
8.5 Provincial Authorities …………………………………………………………………………………… 219
8.6 Trusts and Funds ………………………………………………………………………………………….. 220 -
Page 7 of 226
-
Foreword
FOREWORD
My Report to the National Parliament is being presented in four parts as follows:
Part I of my Report deals with the Public Accounts of Papua New Guinea;
Part II of the Report deals with National Government Departments;
Part III (this Part) of my 2016 Report deals with audits of the Provincial Governments, their Public
Bodies and Subsidiary Corporations, Local-level Governments, Provincial Authorities, Provincial
Health Authorities (Hospital Boards) and Trust Funds. With effect from 1996 an audit opinion on
the financial statements of each Provincial Government and Urban Local-level Government is
being issued in accordance with the requirements of the Organic Law on Provincial Governments
and Local-level Governments; and Finally, Public Bodies and Subsidiaries, National Government-owned Companies and National
Government’s shareholdings in Other Companies are covered in Part IV of my Report.Part III Report
Readers of this Report should note that my Part III Report covers the financial years ending
2016 and some previous years’ financial statements submitted subsequently. The Report covers
the audit of Provincial Governments, Urban Local-level Governments, Hospitals/Provincial
Health Authorities, Business Arms, Authorities and Trust Funds.The scope of audits included reviews of governance arrangements and examinations of internal
controls in place at the time the audits were conducted. All audit findings have been reported to entity
management for their comments.The Report provides a summary of significant internal control weaknesses identified, and types of
audit opinions expressed. Major financial and accounting issues which required remedial actions to be
taken by the agencies concerned have been summarized in this part of my Report. These issues have
been communicated to the respective Provincial Administrators or Executive Management through
the Management Letters.As required, and in addition to the Management Letters, audited financial statements together with the
audit opinions where applicable, were also provided to the relevant Minister(s) and to the Department
of Provincial and Local-level Government Affairs.Making this Report publicly available
This Report will be made available to the public through the AGO website (www.ago.gov.pg) once it
has been tabled in the Parliament.Part III 2016 Report Page 1
-
Page 8 of 226
-
Part III 2016 Report Page 2
-
Page 9 of 226
-
Role of the Auditor-General and Audit Mandate
1. ROLE OF THE AUDITOR-GENERAL AND AUDIT MANDATE
1.1 Role of the Auditor-General
Section 214 of the Constitution of the Independent State of Papua New Guinea (Constitution)
prescribes that the primary functions of the Auditor-General are to inspect, audit and report to
the National Parliament on the Public Accounts of Papua New Guinea (PNG) and on the
control of and on transactions with or concerning the public moneys and property of PNG.
The Organic Law on Provincial Governments and Local-level Governments (Organic Law)
extends these provisions to cover Provincial Governments and Local-level Governments.Section 113 of the Organic Law requires the Auditor-General to establish a Provincial Audit
Service and appoint a Provincial Auditor and additional officers in each Province. At the time
of this Report, no such Provincial Audit Services have been established in any of the
Provinces due to budgetary limitations confronted by the PNG Auditor-General’s Office
(AGO). These constraints greatly affect my resources and capability to service audit clients
based in the regions. The Office however, had established Regional Audit Offices in Port
Moresby (Southern), Kokopo (NGI), Mount Hagen and Goroka (Highlands) and Lae
(Momase).My Office is currently moving to strengthen the regional offices with adequate staff and
logistics in order to effectively perform my mandated audit functions and responsibilities at
the sub-national level of Governments and other Government entities.Section 213 of the Constitution provides for the independence of the Auditor-General in the
performance of his constitutional duties in that the Auditor-General is not subject to the
control or direction of any person or authority. This provision connotes an atmosphere of
complete objectivity and impartiality in the discharge of the audit responsibilities.Other than staff and administrative control of the AGO, neither the Constitution nor the
Organic Law provides for any executive or directive powers by the Auditor-General over the
organizations subject to audit. Although the evaluations and investigations conducted under
the direction of the Auditor-General assist management in detecting control and procedural
weaknesses, the Auditor-General has no executive responsibility in relation to the
formulation of accounting systems and policies or the setting of standards for administrative
and accounting purposes as this may impede the independence and objectivity requirements
of the Auditor-General in the execution of his primary audit function.However, it has been the policy of this Office to enter into discussions with Provincial and
Local-level Governments on matters relating to accounting systems, internal controls and
administrative procedures in general, and to provide related documentation where possible. In
providing such advice or information it is understood that the responsibility for executive
decision making remains with the auditee organizations.Part III 2016 Report Page 3
-
Page 10 of 226
-
Role of the Auditor-General and Audit Mandate
1.2 Mandate of the Auditor-General
Section 7 of the Audit Act 1989 (as amended) provides for the Auditor-General to report to
the Parliament on the results of audits undertaken. The Act specifically requires the Auditor
General to specify
Whether the financial statements, to which the report relates, are based on proper
accounts and records;
Whether the financial statements are in agreement with the accounts and records and
whether they show fairly the financial operations for the period;
Whether the receipt and payment and investment of moneys and the acquisition and
disposal of assets during the year have been in accordance with the Public Finances
(Management) Act 1995(PFMA); and
Such other matters arising out of the financial statements, to which the report relates, as
the Auditor-General considers should be reported.To meet these requirements I perform financial attest and regularity or compliance audits.
The main objective of the attest audit is to express an opinion on the fairness of the financial
statements, including compliance to disclosure requirements such as the format of the
financial statements issued under Finance Instructions. Regularity audits are conducted with
the main objective of ascertaining whether or not the expenditure had been applied for the
purposes for which they had been authorized and that the expenditure conformed to the
authority which governs it.In compliance with Part V of the Audit Act, my Office is performing both attest and regularity
audits concurrently and is responsible for 373 audits of different entities as shown in the table
below:
ENTITY No Table Pages
Provincial Governments 21 1
Local-level Governments 322 2
Provincial Health Authorities 21
Business Arms 4 5
Provincial Authorities 3 7
Trusts and Funds 2 9
TOTAL 373Provisions under the Organic Law as well as the Audit Act require that I furnish before 30
April of the following year, audit reports on the accounts of Provincial Governments and
Local-level Governments to the Minister for Inter-Government Relations, the Minister
responsible for Finance matters, Provincial and Local-level Governments concerned and the
National Economic and Fiscal Commission.I have endeavored to undertake audits to current status where possible within the resources
available to me resulting in this 2016 Part 3 Report. However, there have been considerable
difficulties in carrying out timely audits due to a number of factors including:
Long delays and/or inaccurate presentation and disclosure of information in the
financial statements by entities;Part III 2016 Report Page 4
-
Page 11 of 226
-
Role of the Auditor-General and Audit Mandate
Lack of experience, competency and cooperation of some Provincial Treasury,
accounting personnel and the provincial administrative officers in the provinces;
Administrative difficulties where the Provincial Treasurer does not report to the
Provincial Administrator but to the Secretary for Finance;
Delays in responding to issues raised in our Management Letters;
Absence of proper and adequate accounting and subsidiary records on fixed assets and
investments in the Business Arms of Provincial Governments; and
Significant resource constraints of my Office, especially in regard to the conduct of the
audits of Provincial Governments and their entities.My Office endeavors to improve on the past performance, thus catching up on the backlog of
audits and strives to constantly deliver quality output.Part III 2016 Report Page 5
-
Page 12 of 226
-
Audit and Delivery of Government Programs
2. AUDIT AND DELIVERY OF GOVERNMENT PROGRAMS
I have carried out audits of Provincial Governments and Local-level Governments, Hospital
Boards, Business Arms, Provincial Authorities and Other audits as mandated. These
government entities are tasked to deliver government services to the people of Papua New
Guinea.Although my Report provides opinions on the financial affairs of these entities, other audit
procedures performed by my Office give a picture of effectiveness of the delivery, by the
public sector, of government policies and programs particularly their contribution to National
Building through recovery, development and service delivery objectives of the Medium Term
Development Strategies (MTDS) including: Welfare
Health
Economic Development and Growth
Contribution to Nation Building
Good Governance
Rural Development
Poverty Reduction
Employment
Strengthening Public Expenditure
Management System including:
o Fiscal Sustainability
o Prioritisation of Resources, and
o Cost effective implementation of programs.In addition, my audit findings that have been repeatedly highlighted had shown a slow
progress in making improvements to governance structures and public accountability
mechanisms in relation to expending Public Finances. Without strong governance procedures
in the public sector, effective and efficient service delivery as envisaged by the National
Government will be difficult to achieve.
Besides the audit of financial statements, I have extended my audit programs into the audit of
service delivery, performance audit and major public works projects to enhance my Office’s
ability to deliver reports to Parliament on how well and effective the government programs
are being delivered.Part III 2016 Report Page 6
-
Page 13 of 226
-
Scope of Audit
3. SCOPE OF AUDIT
3.1 Introduction
In performance of the statutory audit responsibilities, the resources of this Office were
directed primarily to the evaluation of internal controls, together with such other
examinations as were considered necessary to examine the performance of financial
operations with a view to assessing the reliability and integrity of financial data and to
determine the extent of compliance with applicable laws, regulations and directives. The audit
procedures applied were intended to reveal systemic weaknesses which would result in losses
or errors, frauds and/or mismanagement of public funds.The examination on a sample basis included review of corporate governance, the work of
internal audit, appropriations management, revenue and payments, human resource
management processes, cash management, asset management, advance management and trust
account management.All audits were planned and performed in accordance with the International Standards of
Supreme Audit Institutions (ISSAI) as promulgated by the International Organization of
Supreme Audit Institutions (INTOSAI) to obtain reasonable assurance whether the financial
statements are free of material misstatement. The audit involved performing procedures to
obtain audit evidence about the amounts and disclosures in the financial statements.The nature of an audit is influenced by factors such as the use of professional judgment,
including the assessment of the risks of material misstatements of the financial statements,
whether due to fraud or error. The audit is not required to search specifically for fraud and
therefore, the audit cannot be relied upon to disclose all such matters. However, all audits
were planned and executed so that I can have a reasonable expectation of detecting material
misstatements resulting from irregularities, including fraud.Compliance with relevant legislation is of paramount importance in safeguarding the State’s
assets. My audits included reviews and tests to ascertain whether key provisions of the PFMA
and various Finance Instructions have been adhered to.The audit covers provincial governments, local-level governments, hospital boards
(provincial health authorities), business arms and subsidiary corporations, provincial
authorities, trust funds and other audits as directed by me.3.2 Appointment of an Agent Auditor
The provisions of the Audit Act allow the Auditor-General to appoint a Registered Company
Auditor as agent to assist in discharging audit responsibilities as and when considered
necessary. Contrary to these requirements, Provincial Governments and the management of
their business arms have been engaging private auditing firms without my knowledge to carry
out the audits of their businesses. Section 8(5A) of the Audit Act states clearly that “A body
which is liable to audit by the Auditor-General shall not appoint a Registered Company
Auditor to carry out the functions and powers of the Auditor-General under the Constitution
and this Act.”
Part III 2016 Report Page 7 -
Page 14 of 226
-
Scope of Audit
3.3 Dispensation of Audits
As mentioned in previous reports, this Office has continued to experience considerable
difficulties in carrying out timely audits of entities in the Provinces for a number of years.
The factors include long delays and/or submission of incomplete financial statements due to
high turnover of accounting staff and/or lack of suitably qualified personnel in most, if not, all
government agencies including provincial governments, local-level governments and hospital
boards. Of particular concern was non-preparation of financial statements by a large number
of Local-level Governments. These problems were further aggravated by limited manpower
and financial constraints which continued to affect my Office, making it practically
impossible to be able to carry out audits of number of entities. In view of the above
circumstances number of audits had to be dispensed with consistent with Audit Act that
allows me to dispense the audits. Details of audits dispensed are presented in Section 7.7 of
this Report.Part III 2016 Report Page 8
-
Page 15 of 226
-
Results of the Audits of Financial Statements
4. RESULTS OF THE AUDITS OF FINANCIAL STATEMENTS
4.1 Audit Opinion
Financial statements audits are an independent examination of the financial accounting and
reporting of Provincial Governments, Local-level Governments, Hospitals Boards and
Provincial Health Authorities, Business Arms of Provincial Governments and other entities.
The results of the examination are presented in this audit report, which expresses the auditor’s
opinion on whether the financial statements as a whole and the information contained therein,
fairly reflect the results of each entity’s operation and financial position. The disclosures and
management representations made in the financial statements by the entity are assessed
against relevant Finance Instructions and accounting standards, and legislative and other
reporting requirements.It is generally accepted that a good indicator of the effectiveness of financial management
processes is the timely finalization of the financial statements, accompanied by an unqualified
audit opinion.Every year, the entities enter into thousands of transactions in millions of Kina. As such,
errors are inevitable and may go undetected. It is therefore, important to appreciate that in
expressing my opinion, the absolute accuracy of the financial statements may not be
guaranteed. However, in conducting the audits of the entity’s financial statements, I seek to
ensure that there is a reasonable assurance that the financial statements are free of material
errors and misstatements.In determining the audit of the entity’s financial statements, two main factors are considered
to determine the nature and extent of the work required. The first of these is the “materiality”
level of the Kina amounts. This represents a threshold; if total errors fall below this threshold,
the financial statements present information fairly; if they exceed this threshold and are not
corrected, I refer to them as qualifications in my opinion. The second factor relates to “audit
assurance”. This represents the level of certainty and confidence that my audit will reveal
total errors that will be equal to or exceed the materiality threshold.At the conclusion of the audit, I determine whether the effect of undetected errors in the
financial statements would mislead those who use the financial statements. If the effect is
such that the financial statements are misleading, I include a qualification in my audit
opinion.An inability to form an opinion – commonly referred to as a “Disclaimer” – is expressed when
a scope limitation exists and sufficient appropriate audit evidence to resolve the uncertainty
resulting from the limitation cannot be reasonably obtained; and the possible effects of the
adjustments that might have been required, had the uncertainty been resolved, are of such a
magnitude, or so pervasive that I am unable to express an opinion on the financial report
taken as a whole.As reported in the past, only a handful of exceptional cases where Provincial Governments,
Provincial Health Authorities and Business Arms of Provincial Governments were issued
with audit opinions other than a disclaimer. The audit opinion reports issued to majority ofPart III 2016 Report Page 9
-
Page 16 of 226
-
Results of the Audits of Financial Statements
the entities during the current audit cycle however, were disclaimed. The reasons and the
problems encountered are detailed in the paragraphs below.4.2 Financial Statements of Provincial and Local-level Governments
I have concluded and reported that I was unable to form an opinion on virtually all Provincial
and Local-level Government’s financial statements. Whilst in the majority of cases the
financial statements had been prepared in the format required by the Finance Instructions
issued under the PFMA, I concluded that material errors, uncertainties and lack of adequate
records resulted in the overall financial position and results of operations that were not
reliable. As a result, I continue to report that I am unable to form an opinion.The failure of the Provincial and District Administrators to promote measures and
responsibilities for transparent and compliant spending of budget allocations continued to be
a major factor that has contributed to ineffective financial management processes. However,
whilst top management is tasked with effective management, control and accounting, the
Parliament has the right to demand answers on accountability and governance issues.Other factors affecting the poor level of financial management include:
Lack of experience and the competency of Provincial Treasury and accounting
personnel in the provinces;
Considerable abuse and diversion of government money for a long period of time
without consequential disciplinary proceedings.
Absence of regular monitoring and review by the Department of Finance on the work
of the Provincial/District Treasury, together with timely corrective action;
Lack of coordination and communication, for example Provincial/District Treasurers
not advising the Administrators on matters relating to the financial status of the
Province; and
A reduced incentive for efficient management of funding due to the Provincial/District
Treasury being in control of processing but the Administrator being responsible for the
outcome.During this audit cycle my Office finalized and issued 15 audit reports to the Provincial
Governments and 18 to Urban Local-level Governments. Details of these are presented in
Section 8.1, Table 1 and Section 8.2, Table 3 respectively, Pages 216 – 218.There are currently 321 Local-level Governments around the country (excluding the Local-
level Governments of the Autonomous Region of Bougainville) as shown in Table 2 of
Section 8.2, Page 217. Of these, there are 290 Rural Local-level Governments and 31 Urban
Local-level Governments in existence.As reported in my previous years reports, I was not able to carry out any audits of the Rural
Local-level Governments accounts and records as required by the Organic Law due to
financial and human resources constraints affecting my Office. I have satisfied myself that the
revenue and expenditure of the Provincial Governments are largely grants, salaries and
wages. No significant expenditures were incurred on major works and projects by the Rural
Local-level Governments.Part III 2016 Report Page 10
-
Page 17 of 226
-
Results of the Audits of Financial Statements
I have been able to carry out the audits of some of the major Urban Local–level Governments
as they are located in the main headquarters of the Provinces. Audits of some Urban Local-
level Governments were conducted for two to three years due to a backlog of audit in arrears.
The results of controls testing are reported under Chapter 5 of this report under the respective
Province headings.The financial statements of both Provincial and Urban Local-level Government comprise a
number of Statements and Appendices. Statements ‘A’, ‘B’, ‘C’, ‘E’, ‘J’ and ‘K’ are
maintained by the entities’ accounting system. Statements ‘D’, ‘F’, ‘G’, ‘H’ and ‘I’ are
memorandum statements that are drawn from the accounting system, but are nevertheless
financial statements in their own right that convey financial information to users and the
public.There are certain accounts, records and registers and procedures that also relate to the
financial statements through Appendices 1 to 6.4.2.1 Statement ‘A’ – Government’s Account Balances
This is a statement of cash position for the Provincial or Local-level Government at year-end
which should be supported by bank reconciliations. Statement ‘A’ is intended to show the
Public Account comprising the Revenue Fund and the Trust Fund as represented by the year-
end cashbook balances and other cash resources available to the Provincial or Local-level
Governments.Common problems associated with the audit of this Statement include the following:
Bank confirmations for the bank accounts and Interest Bearing Deposit (IBD)
Certificates were usually not provided to confirm the closing bank and investment
balances;
Cash books and ledgers were often not updated before preparing the bank
reconciliations and therefore the completed bank reconciliations were cumbersome and
difficult to audit to ascertain the correct cash balance;
Opening balances could not be confirmed as correct as these balances did not agree to
the corresponding closing balances from the previous year; and
There were adjustments made to opening or closing balances without any supporting
documents provided.Under these circumstances, I was unable to express an opinion on the accuracy of Statement
‘A’ and consequently on the financial position of the Governments as at year-end.4.2.2 Statement ‘B’- Summary of Receipts and Payments
This statement is an Operating Account and comparable to a Profit and Loss account in
commercial practice. Statement ‘B’ is intended to show the summary of actual receipts in
Statement ‘J’ and actual expenditure incurred in Statement ‘K’.Tracing figures from Statements ‘J’ and ‘K’ to this statement in almost all audits showed
material difference relating to either expenses or revenue. Another frequent error was an
omission of revenue and expenditure related to Staffing Grant and Teacher Salaries andPart III 2016 Report Page 11
-
Page 18 of 226
-
Results of the Audits of Financial Statements
Allowances. This occurred as a result of these salaries and allowances being controlled and
processed by the Department of Finance. Nevertheless, revenue and expenses arising from
Staffing Grant and Teacher Salaries and Allowances should have been accounted for by the
Provincial Government’s system.As a result of these omissions, I have qualified this statement due to the net surplus or loss
disclosed being materially inaccurate and unreliable.4.2.3 Statement ‘C’- Receipts and Payments of Trust Funds
This statement shows trust funds actual revenues and actual expenditure. The most common
error that frequently resulted in material overstatement was the inclusion of the National
Government Agencies’ trust accounts. These trust accounts are not related to the Provincial
Government and should have been excluded from this statement. Consequently, the closing
balances shown in the statement could not be relied upon. In addition, breaches of the Public
Finance Management Act (PFMA) were likely to have occurred due to payments made from
the trust accounts or revenue collected not being in accordance with the Trust Instruments.4.2.4 Statement ’D’- Sources and Application of Funds
This is a summary cash flow statement showing sources of revenue and where these funds
were applied. The statement also shows reconciliation of changes in bank balances to the net
movement of the cash flow statement. In all instances this Statement could not be confirmed
as correct and complete due to audit observations regarding materially incorrect Statements
‘B’, ‘J’ and ‘K’.4.2.5 Statement ‘E’- Financial Investments
This statement details term deposits, treasury notes, debentures and similar instruments held
by the Government. Provincial and Local-level Governments did not maintain investment
registers to record details of investments. There were instances where records of revenue
arising from either interest or disposal of these investments, were not made available for audit
examination. Consequently, I could not verify the accuracy of this statement.4.2.6 Statement ‘F’- Statement of Direct Investments, Capital Contributions,
Equity, Options and RightsThe purpose of this statement is to show the Government’s investments and ownership in
companies and statutory authorities that are long-term investments. All assets including
investments acquired are charged to expenditure in the year the payment is made. However,
investments are required to be recorded in the accounting system.Not maintaining investment registers or other records (i.e. share certificates) was a wide-
spread problem. According to previous year’s financial statements or other relevant
information obtained during the audit, the majority of Provincial Governments held
investments in the form of shareholdings and/or made capital contributions in a number of
companies. The non-disclosure of the Provincial Governments’ investments in this Statement
as well as the income derived from such investments is misleading to stakeholders and users
of the statements.Part III 2016 Report Page 12
-
Page 19 of 226
-
Results of the Audits of Financial Statements
This issue is of a particular concern. Firstly, millions of Kina could be lost due to the lack of
proper feasibility studies into the financial background and viability of companies in which
the Government invests. The Provincial Government should ensure that the viability and the
financial and statutory requirements relating to establishment of companies are properly
reviewed and analysed prior to investing large sums of public monies in such companies.In addition, some of these companies are being audited through private arrangements and not
by the Government auditors. In my reports, I have advised the Provincial Governments to
liaise with my Office on assessing whether an audit of those financial statements should be
undertaken by this Office. This assessment would be based on whether the Provincial
Government is a major shareholder and has a controlling interest in the company.My other concern is that due to inadequate maintenance of records, these investments could
be lost or misappropriated resulting in significant loss of public funds.4.2.7 Statement ‘G’- Statement of Lending
This is a schedule of all funds lent by the Government, including on-lent loans funds. In
absence of proper records or registers maintained by the Provincial Governments in relation
to these matters, I was unable to confirm the accuracy of this statement.4.2.8 Statement ‘H’- Statement of Borrowings
This is a schedule of all funds borrowed or loaned. Liabilities or financial obligations to
outside organizations outstanding at the end of the financial year are not brought into account;
however, they are required to be recorded in this statement. In the absence of proper records
or registers maintained by the Provincial Governments in relation to these matters, I was
unable to confirm the accuracy of this statement.4.2.9 Statement ‘I’- Statement of Loans Guaranteed by Government
This statement shows the value of commitment of the Government to lenders of monies for
loan recovery in the event of re-payment defaulted by borrowers. In the absence of proper
records or registers maintained by the Provincial Governments in relation to these matters, I
was unable to confirm the accuracy of this statement.4.2.10 Statement ‘J’- Receipts Classified under Heads of Revenue Estimates
In accordance with the budget appropriation classification, this schedule discloses revenue
received. The total from this statement has to reconcile with Statement ‘B’ as revenue and
receipts. Revenue consists of all receipts being external (appropriations) or internally
generated such as collection of fees and fines. In the majority of audits there were significant
and unexplained discrepancies between the total of this statement and Statement ‘B’.The common error was an omission of the actual receipts pertaining to estimated Public
Servants and Teaching Services Commission Salaries and Allowances, which are retainedPart III 2016 Report Page 13
-
Page 20 of 226
-
Results of the Audits of Financial Statements
and administered by the Department of Finance on behalf of the Provincial Government,
which were (usually) not obtained and posted to the revenue ledgers.4.2.11 Statement ‘K’- Expenditure Classified under Heads of Appropriation
In accordance with the budget appropriation classification, this schedule discloses
expenditure actually paid. The total from this statement has to reconcile with Statement ‘B’.
Expenditure consists of all charges for goods and services received and paid for before the
end of the calendar year and refunds of revenue collected in previous years.A common error was an omission of the actual expenditure relating to the Teaching Services
Commission Salaries and Allowances. Furthermore, reconciling items, such as bank charges,
fees and other items relating to expenditure which were not adjusted in the cashbook and
posted to the respective expenditure ledgers were also not shown in this statement.4.2.12 Appendix 1
Appendix 1 reports outstanding commitments as at year end. Provincial and Local-level
Government’s generally failed to report on the amount of committed fund.4.2.13 Appendix 2
Appendix 2 reports on the outstanding debtors at year end. The majority of Governments did
not report any debtors. In addition, there were no proper debtors’ ledger or other records such
as invoices or debit notes maintained which could provide details of debtors at year end. In
cases where the Government reported outstanding debtors, this balance included outstanding
debtors from the previous years where no action appeared to have been taken to recover the
debts.4.2.14 Appendix 3
Appendix 3 shows the value of inventories at year end. In absence of various registers and
related records, I was unable to verify the accuracy of this appendix.4.2.15 Appendix 4
Appendix 4 is intended to give details of assets of the Provincial and Local-level
Government. The majority of Provincial Governments did not report any assets, despite
assets being purchased during the year. Those entities that reported some assets lacked
necessary details in order for me to verify the existence, condition, location, custodianship
and value of those assets.4.2.16 Appendix 5
Losses and deficiencies of public monies and property are reported to the Inspection Branch
of the Department of Treasury and are listed in this appendix. In absence of losses and
deficiencies register and related records, I was unable to verify the accuracy of this appendix.Part III 2016 Report Page 14
-
Page 21 of 226
-
Results of the Audits of Financial Statements
4.2.17 Appendix 6
Appendix 6 reports on unacquitted advances at year end. The widespread mismanagement
and abuse of this entitlement continues to be of concern to me. Provincial and Local-level
Government failed to completely and accurately account for these advances. Many were
outstanding for several years with no action taken to recover the advances. My Officers
observed that in some Provincial Government, revenue collections were illegally loaned to
officers. There was also no evidence of management taking action to improve on monitoring
the management of advances.4.2.18 Other Issues
Submission of Financial Statements
It is mandatory for the Provincial Governments and the Local-level Governments to prepare
annual financial statements and submit them to the Auditor-General for audit by 30 April in
the year following. The Auditor-General then, after the completion of the audit, is required to
report to the Minister for Finance, the Minister responsible for Provincial and Local-level
Government matters, the National Economic and Fiscal Commission and the Provincial
Governor.At the time of this Report there were 25 financial statements relating to 2014, 2015 and 2016
financial years yet to be submitted by the Provincial Governments for audit as summarized in
Table 1 of Section 8.1, Pages 207 – 208.Presentation of Financial Statements
In addition to the annual financial statements, comprising Statements ‘A’ to ‘K’ and
Appendices 1 to 6, the accounts are accompanied by the Chief Accountable Officer’s
Statement and the Council Executive Officer’s Statement on the financial operation of the
Provincial Government or the Local-level Government for the fiscal year ended.The financial statements of a number of Provincial Governments did not contain the
Provincial Administrator’s Statement for the year ended and consequently were not presented
in the format required by the Finance Instructions. This statement is a written representation
by the management in which management acknowledges its’ responsibility for the fair
presentation of the financial statements, and it also represents a means of approving the
financial statements. Since management had not provided the necessary representations, this
constituted a scope limitation and affected every statement presented by management.Another common error was a presentation error that resulted in material misstatement. In a
number of financial statements presented by the Provincial Governments, incorrect amounts
in Statements from ‘A’ to ‘K’ were presented.4.3 Financial Statements of Hospital Boards and Provincial Health Authorities
During the last audit cycle I have issued 16 audit reports to Hospital Boards and Health
Authorities and 33 financial statements outstanding for submission for audit including onesPart III 2016 Report Page 15
-
Page 22 of 226
-
Results of the Audits of Financial Statements
the audit reports are under preparations, Table 4 of Section 8.3 details the status of the audit
reports as at 30 September, 2017.Some Hospital Boards although financial statements were not submitted for audit, my Office
undertook controls testing. Results of the controls testing are reported under Chapter 6 of this
report under the respective Provincial Governments headings.I am pleased to report that a number of Hospital Boards and Health Authorities received
qualified audit opinions compared to past years due to notable improvements in the areas of
corporate governance, budgetary controls and payments of wages and salaries. Hospital
management is significantly improving each year because of implementation of audit
recommendations.Nevertheless the majority of the audit reports that I have issued in this audit cycle contained
Disclaimer Audit Opinions as a result of significant control breakdowns, absence of financial
records and financial statements qualifications.In general, all public hospitals are experiencing problems in preparing and submitting the
financial statements for audit within the legislative requirement. Namely, Section 63 of the
PFMA requires a public body (hospital) to submit and the Auditor-General to finalize the
audit of prior year financial statements by 30 June each year. The same Act states that where
a public body does not meet this deadline, the Minister may withhold half of the grants
appropriated to that body for the following fiscal year. Although the public hospitals
continuously fail to meet the requirement for timely reporting, the sanctions of the Act have
never been imposed.Hospitals are required to prepare their financial statements in accordance with the Finance
Instructions 2/2004 – Financial Statement Format for Non-Trading Public Bodies. The
accounts are prepared under the cash basis of accounting with the financial statements
consisting of: Statement of Revenue and Expenditure, Statement of Changes in Net Cash
Asset, Schedule of Capital Assets and Liabilities and Accounting Policies.Common problems with the hospitals’ financial statements were:
The records of medical supplies, accounts receivables and payables, capital
commitments and contingent liabilities, were either non-existent or inadequate;
Accounting records or asset registers were not maintained to record the details of the
assets. Consequently, I was not able to verify the completeness, existence, accuracy and
valuation of the fixed assets at year-end;
Opening balances of cash at bank could not be confirmed as correct as these balances
did not agree to the corresponding closing balances from the previous year;
No advance registers were maintained. Travel advances and subsistence were
frequently not acquitted. Therefore, this constituted a limitation of scope as I could not
ascertain the value of the advances and also whether advances were actually utilized for
the intended purposes;
In several cases, there was no appointment of financial delegates to approve
expenditure;Part III 2016 Report Page 16
-
Page 23 of 226
-
Results of the Audits of Financial Statements
In several Hospitals the Board members were not duly appointed and sworn in, in
accordance with Section 6 of the Public Hospital Act 1994;
Payment of gratuities in the absence of employment contracts; and
Overtime payments to employees without approval from the Chief Executive Officer or
appropriate authorities.4.4 Financial Statements of Business Arms and Subsidiary Corporations
All Provincial Governments had established business arms and have direct or indirect
investments in subsidiary corporations and companies. At the time of preparing this Report
in September 2017 there were approximately 5 known entities to be audited as detailed in
Table 5 of Section 8.4. However, as reported in my previous reports, the full extent of the
Provincial Governments’ investments therein, or the exact details of these business arms and
their subsidiary corporations and companies, could not be fully established due to the lack of
adequate information forthcoming from the Provincial Governments or the failure to maintain
proper investment records and registers. My Office was unable to determine whether some
entities were still in operation, defunct, or liquidated. For many years I have been
unsuccessfully pursuing this information with the respective Provincial Governments, their
business arms and relevant authorities.As reported in my previous reports, the entities have failed to submit their financial
statements on a timely basis. Financial statements and audit fees have remained outstanding
for many years in some cases. Consequently, audit of such financial statements could not be
conducted despite my repeated requests.4.5 Financial Statements of Provincial Authorities
Provincial Authorities are created by an Act of Parliament. The purpose of establishing these
authorities is to develop infrastructure and to stimulate business activity in the respective
provinces. Some of these authorities are directly involved in commercial activities as well.The audits of the Provincial Authorities are undertaken when the financial statements are
received and when audit fees are remitted to my Office.As at the time of preparing this Report in September, 2017 the status of audits relating to the
Provincial Authorities were as summarized in Section 8.5, Table 7 doable audits.4.6 Other Audits
Trusts and Funds
My audit responsibilities also include the audits of Special Purpose Funds and Trusts
established by Provincial Governments. The audit of these Funds and Trusts is organized in a
similar manner as the audit of business arms.Part III 2016 Report Page 17
-
Page 24 of 226
-
Results of the Audits of Financial Statements
The audits of the Trust Funds (Trustee Limited) are undertaken when the financial statements
are received and when audit fees are remitted to my Office.As at the time of preparing this Report in September, 2017 the status of audits relating to the
Provincial Authorities were as summarized in Section 8.6, Table 9 doable audits.4.7 The Role of the Treasury Offices
Provincial and Local–level Governments are independent legal entities with authority for
managing their financial affairs. In recognizing these fiscal responsibilities, Sections 102 and
103 of the Organic Law require Provincial and Local-level Governments (P&LLGs) to keep
their accounting records proper and have sound internal control systems. The P&LLGs are
required to manage their financial affairs in accordance with provisions of the PFMA.The Department responsible for financial management (i.e. the Department of Finance) has
been tasked to establish, develop and commission Provincial/District Treasury Offices to
provide accounting, financial management and support services to assist P&LLGs in
providing community services. The administrative and accounting procedures have been
specifically designed through the Finance Management Manual to provide these financial
support services.A Provincial/District Treasury is an accounting organization established under Section 112 of
the Organic Law located at the province area. The Provincial/District Treasurers’ functions
are to ensure that all financial transactions undertaken by the P&LLGs out of public moneys
are managed properly. These moneys are to be released strictly in accordance with law and
contribute to the effective delivery of services to the community. Treasurers from time to time
may also oversight functions such as banking, postal, and other services. The Secretary of
Finance is tasked to oversee the affairs of these Treasury Offices.I have the responsibility to examine the financial statements and the accounts and records of
the P&LLGs. For the last several years I have reported and concluded that material errors,
uncertainties and lack of adequate records existed in Provincial/District Treasuries that
resulted in the overall financial position and results of operations that were not reliable. As a
result, I continued to report an inability to form an opinion on the P&LLG’s financial
statements. The situation has not improved much in 2016 as well.The Provincial/District Treasury Offices did not adequately address their responsibilities
through:
Providing or ensuring experienced and competent Treasury Office personnel are
employed;
Providing adequate risk assessment, planning, manpower or funding to undertake
internal audits by the Internal Audit Units within the Provincial Government; and
A lack of coordination and communication between the Treasury Office personnel and
P&LLGs on financial matters.Part III 2016 Report Page 18
-
Page 25 of 226
-
Results of the Audits of Financial Statements
It is crucial that the Provincial/District Treasury Offices provide necessary support and ensure
proper accountability and prudent financial management practices are followed when
maintaining the accounts and records of the P&LLGs.The AGO recommends that the Department of Finance and the Department of Treasury have
immediately to commence proper monitoring and support of their Offices so that P&LLG
finances and records are properly maintained.4.8 Audit Fees
The Government of PNG does not provide funding for audits of business arms of Provincial
and Local-level Governments, authorities and trusts. In order to undertake audits on these
entities I have to recover these costs through raising audit fees. These fees are based on the
estimated minimal audit work required to enable me to form an opinion on their financial
statements. Consequently, non-payment of audit fees by these entities results in audit work
not being undertaken either by my Office or the contractor engaged by me. Based on my
experience, a significant number of business entities take advantage of the situation and
remain unaudited for considerable lengths of time. During that time, funds invested by the
Provincial or Local-level Governments are depleted either due to the inability to effectively
manage the business or due to misappropriation. As an end result, there is almost no return on
the Government’s investments and the misappropriation is never identified and reported to
the Parliament and the public.Part III 2016 Report Page 19
-
Page 26 of 226
-
Control Environment
5. CONTROL ENVIRONMENT
5.1 Introduction
The control environment includes the governance and management functions and sets out the
foundation for effective control activities and monitoring. Control activities are policies and
procedures that help ensure management directives are carried out and organizational
objectives are achieved. Control activities, whether within computerized or manual systems,
have various objectives and are applied at various organizational and functional levels.Monitoring of controls is a process to assess the quality of internal control’s performance
over time. Monitoring is done to ensure that controls are designed appropriately and continue
to operate effectively. Management monitoring of controls includes considering whether they
are operating as intended and whether they are modified as appropriate for changes in
conditions.This interim phase of my audit program was designed to assess the reliance that can be placed
on control structures to produce complete, accurate and valid information for financial
reporting purposes by the Provincial and Local-level Governments, Hospital Boards and other
entities that come under my audit mandate.In performing the statutory audit responsibilities, I focused primarily on evaluation of internal
controls, together with such other examinations considered necessary to assess the
performance of financial operations of the entities, with a view to assessing the reliability and
integrity of financial data and determining the extent of compliance with applicable laws,
regulations and directives.The audits are not required to search specifically for fraud and therefore, cannot be entirely
relied upon to disclose all such matters. However, the audits were planned and executed so
that I can have a reasonable expectation of detecting material misstatements resulting from
irregularities, including fraud.5.2 Responsibilities of Management
The primary responsibility for the prevention and detection of fraud rests with those charged
with governance. For example, the Provincial Administrator is the Chief Executive Officer
and the Administrative Head at the Provincial Government level; the District Administrator at
the Local-level Government and the Chief Executive Officer at the Hospital or Business Arm
of Government. The Administrator/Chief Executive Officer is responsible for the preparation
and presentation of the financial statements and the information contained therein in
accordance with the Finance Instructions issued under Section 117 of the PFMA and the
Organic Law.The Administrator/Chief Executive Officer is responsible for the efficient management of
administrative services and is also responsible for keeping proper accounting records, for
safeguarding the assets of the Provincial Government/Hospital or Business Arms of
Government and for taking reasonable steps for the prevention and detection of fraud and
other irregularities.Part III 2016 Report Page 20
-
Page 27 of 226
-
Control Environment
5.3 Responsibility of the Auditor-General
My audits are performed in accordance with the International Standards of Supreme Audit
Institutions (ISSAI) as promulgated by the International Organization of Supreme Audit
Institutions (INTOSAI)and are designed to provide reasonable assurance that a financial
report taken as a whole is free from material misstatement. Reasonable assurance is a concept
relating to the accumulation of the audit evidence necessary for the auditor to conclude that
there are no material misstatements in the financial report taken as a whole. Reasonable
assurance relates to the whole audit process.5.4 Details of Control Issues
A broad range of internal control issues were raised as part of the interim audit phase. In
general, the results of the testing of controls at different entities indicated that overall, there
continue to be significant weaknesses in the control environment. Control activities, such as
delegations, authorizations, reconciliations, and data processing were not sufficiently robust
to prevent, detect or correct error or fraud.As part of the interim audits, my reviewed processes and their related control activities in the
following areas:
Corporate governance;
The work of the internal audit;
Appropriation and budget management;
Revenue and receivables;
Purchases and payments;
Human resource management processes;
Cash management;
Asset management; and
Trust account management.5.4.1 Corporate Governance
During the interim audits I assessed whether an agency’s control environment included
measures that contribute positively to sound corporate governance. These measures should
support key elements of a control environment designed to provide a sound basis for effective
financial management.The results of the audits identified:
Lack of Corporate Plans and operational plans. This was particularly evident in the audit
of the Hospital Boards. This could lead to inability to set targets and performance
indicators to monitor achievements and to take corrective action. It could also lead to
inefficient and ineffective service delivery in that stakeholders and communities needs
are not met;
The requirement for a minimum of four meetings of a Provincial Assembly during the
year was not met. In addition, minutes were either not taken or on occasions not certifiedPart III 2016 Report Page 21
-
Page 28 of 226
-
Control Environment
by the Chairman. These instances increase the risk that important decisions made may be
nullified and may not hold legal basis in the event if challenged in court; and
Audit Committees were now established in some Provincial Governments. Audit
Committees have an important role to play in reviewing and advising on important
components of corporate governance.5.4.2 Internal Audit
Internal audit is a key source of independent and objective assurance advice on an agency’s
internal control and risk framework. Depending on the role and mandate of an agency’s
internal audit function, it can play an important role in assessing the adequacy of processes
that underpin an agency’s financial statements.From my perspective, internal audit is an important component of the system of internal
controls. Because of similarities in the nature and scope of activities performed by internal
and external auditors, especially in the public sector, there are significant efficiencies to be
achieved if external auditors are able to rely on the work of internal auditors. An effective
internal audit program should facilitate external audit to place greater reliance on the work of
internal audit, thereby making better use of overall audit resources.In that respect, it was disappointing to find that the majority of Provincial Government’s
Internal Audit Units did not have Audit Charter and Audit Plan to set out the mandate and
scope of audit coverage. In the majority of cases the Provincial Governments did not provide
sufficient funds for Internal Audit Units to perform their duties during the year.5.4.3 Appropriation and Budget Management
Appropriations represent the primary source of revenue for most Provincial and Local-level
Governments and Hospital Boards and Health Authorities. One of the key audit tests was to
ensure that the expenditures were within the appropriation limit so that expenditure for each
agency accurately reflects anticipated final budget outcomes in the National budget system.The audit of the agencies revealed that controls relating to the management of appropriations
were generally inadequate. Weaknesses noted related to:
Incorrectly charged expenditures to Vote items for which funds were not appropriated;
Erroneously increasing the appropriation without revised budget being approved;
The Appropriation Acts were sometimes not signed and certified. The non-certification
of the Appropriation Acts indicates gross negligence of duties by the Chairman and the
Clerk of the Provincial Assembly; and
The Provincial Governments on several occasions did not exercise compliance to
financial instructions with regard to management and utilization of unspent funds at year
end. Unspent funds were on occasions transferred to Trust Accounts. The unspent funds
from the operating account are required to be paid out and receipted into the
Government’s operating account for budget re-allocation in the following year.The above mentioned practices expose the Provincial Governments to the risk that the
unspent funds may be utilized on expenditure not provided for in the Appropriation Act. InPart III 2016 Report Page 22
-
Page 29 of 226
-
Control Environment
addition, money could be spent in excess of the appropriation limit, which will result in
breaches of the Appropriation Act, the PFMA and the Constitution.5.4.4 Revenue and Receivables
In addition to the appropriation revenue, the Provincial Government collects internal revenue
from other sources, i.e. motor vehicle registration and renewal, issue and renewal of driver’s
licenses, and liquor licensing. Hospitals collect revenue through patient fees. I found that the
relevant Registers were either non-existent or were not updated on a regular basis. As a result,
total fees collected by either the Provincial Governments or the Hospitals could not be
ascertained.In all Provincial Governments and according to the revenue ledgers, the Government has
recorded significant shortfall in revenues in respect of the majority of internal revenue
sources. This indicates the inability of the Provincial Governments to carry out sound and
prudent revenue forecasting and also the lack of co-ordination and co-operation being
exercised by the Revenue Unit and other line economic divisions of the Provincial
Government to effectively plan and direct their efforts to ensure that all internal revenues
estimated for the year are collected and accounted for.In a similar manner, General Hospitals collect income from patient fees and gifts and
donations. Over the last several years, management of hospitals has not ensured that revenues
were collected promptly and that the rates of fees, charges, and imposts were reviewed
annually. In addition, there was no compliance to procedures pertaining to compiling of
collector statements, thereby undermining the integrity of the revenue collections.Other common problems across all entities were:
Daily collections were frequently not banked nor receiver statements raised and posted to
the revenue ledger;
Delays in banking of collections were frequent and on occasions in excess of 30 days;
There was no segregation of duties maintained between receipting and payment
processing; and
There was no register of debtors maintained.5.4.5 Purchases and Payments
Strong controls over purchases and payments will help ensure that the quality of goods or
services is acceptable and that goods are actually received in good order. Controls including
reconciliation processes, segregation of duties, appropriate delegations and access controls
provide an effective means of ensuring that payments are valid and accurately recorded, and
that funds are not mismanaged or subject to material fraud.It was noted that in most cases there was an extremely high rate of non-compliance with
procurement and payment procedures. The instrument of appointment of Provincial Supply
and Tenders Board, minutes of Board’s meetings and the Register of Tenders and Quotations
were generally not made available for audit review. It was also noted that there was aPart III 2016 Report Page 23
-
Page 30 of 226
-
Control Environment
significant use of legal firms and consultants that was not supported by proper
documentation.
Other significant issues were:
Payment vouchers were not examined for completeness and accuracy of claims prior to
processing the payments;
Payment vouchers were not certified to confirm the legitimacy of claims prior to
processing the payments;
In some cases delegates had approved expenditures in excess of their delegated financial
limits;
Written quotations were not obtained to ensure value for money; and
Reimbursements were made to individuals and organizations for payments made on
behalf of the Provincial Government using personal money.The significant lack of controls over procurement and payments expose the State to the risk
of:
Unauthorized purchases;
Over-commitment of funds without recourse to cash flows;
Uneconomical purchasing;
Fraud (kickbacks/secret commissions);
Staff use purchase orders to purchase personal items;
Purchasing of inferior or expensive goods and services; and
Consultancies being engaged at no benefit to the Government.5.4.6 Human Resource Management
Human resource management processes encompass the day to day management and
administration of employee entitlements and payroll functions. The salaries and wages costs
within the Provincial and Local-level Governments and Public Hospitals represent one of the
single largest items of expenditure in their accounts. This represents a significant area of risk
and management should ensure that these costs are carefully controlled and monitored and
that those responsible for payroll functions have the necessary skills and knowledge to
effectively execute their functions.Given the significance of employee expenses, and the fact that by their nature some employee
entitlement calculations can be inherently prone to human error, entities need to have
adequate control mechanisms in place to capture and process employee data and related
payments. In addition, key controls should include appropriate approval and review
processes.I observed a number of instances where salaries files of Provincial Government members and
staff requested for audit were not made available. Consequently, I was unable to verify any
deficiencies in the salaries and allowances paid to Provincial Government members and staff.Common problem identified with Public Hospitals was that acting appointees on contract
positions were incorrectly claiming gratuity payments. Also, recreational leave fare payments
to officers and their families had no birth and student concession certificates attached for theirPart III 2016 Report Page 24
-
Page 31 of 226
-
Control Environment
legal dependents for legitimacy and validity. Instances were also noted of leave tickets being
refunded through a travel agent after withholding commission plus processing fee.5.4.7 Cash Management
The cash management process covers the management of bank accounts. Each entity is
required to ensure it has the necessary liquidity to meet its commitments as they fall due and
to maintain proper controls over its official bank accounts. In this environment, it is essential
that adequate management processes are in place to track fund transfers and to safeguard
assets.Bank reconciliation represents an independent verification by management to ensure that
cashbook transactions reconcile to the bank statements. Performing bank reconciliations
periodically (monthly) ensures that receipts and payments are accurately processed, cashbook
or bank errors are identified, and misappropriation or fraud is detected timely. Bank account
reconciliations are a key control in assisting management to identify anomalies or errors in
the payment and receipting processes and assist the management to discharge its
accountability requirements. They need to be prepared within a reasonable period to ensure
anomalies or errors have been identified and appropriate action undertaken.Weaknesses identified related to timely completion of bank reconciliations, including the
clearance of reconciling items. In almost all audits of the Provincial Governments, the bank
reconciliations were either not done or were not done in a timely manner.5.4.8 Assets Management
Provincial Governments, Local-level Governments and Hospitals pay significant amounts of
money on asset purchases, especially on computers and accessories. It is the responsibility of
the Departmental Head to account for and safeguard the State’s assets.The maintenance of a reliable asset register that includes adequate information about assets
acquired and disposed of, depreciation and asset reconciliations with periodical stock takes is
a prerequisite to effective asset management. Regular reconciliations of the asset register with
the entity’s financial systems will help ensure the timely and accurate recognition of asset
items and facilitate their physical control.From the audits of the Provincial Government, Local-level Governments and Hospitals it was
evident that asset registers were either non-existent or they were not maintained properly.
This exposes the entity to the risk that assets may not be utilized effectively, may not be
protected from physical deterioration or maintained properly. Further, periodic stock takes
were not being conducted to determine the accuracy of assets on hand. This increases the risk
of loss, theft or fraud.5.4.9 Trust Accounts Management
Provincial Governments are responsible for maintenance of a number of trust accounts. To
ensure proper accountability of trust money, Part 3 of the PFMA requires maintenance of
adequate records, that collection of receipts and payments from trust accounts is in
accordance with the Trust Instruments and for submission of periodic reports to Department
of Finance including a requirement to submit monthly bank reconciliations.Part III 2016 Report Page 25
-
Page 32 of 226
-
Control Environment
Consistent with the findings from previous years, the Provincial Government could not
provide formal Trust Instruments, and I was unable to ensure that the collection of receipts
and the payments of trust money were valid. On a number of occasions the cashbook revealed
an overdrawn balance.5.5 Conclusion
Properly functioning internal controls are fundamental for entities in meeting their respective
strategic, operational and financial responsibilities. The results of the current testing of
controls continue to reveal weaknesses of such magnitude that material error could have been
processed or misappropriation and fraud could have occurred.It is disappointing to report that there has been no change to the situation reported in previous
years. Almost all the Provincial Governments, Urban Local-level Governments and Hospitals
have been issued with Disclaimer Audit Opinions and some hospitals with qualified opinions
signifying that there is still a long way to go in terms of improving their internal control
issues and financial management issues. With a lot of Government interventions such as
Government Advisors in state agencies and the establishment of Audit Committees, audit
issues reported should have been captured and appropriate remedial action taken to address
them. In this connection, I urge the Provincial Governments, Urban Local-level Governments
and Hospitals to strictly follow my recommendations and implement them in subsequent
years.The Disclaimer Audit Opinion means there is a lack of reliable audit evidence (non-existent
or inadequate books and records) and/or reluctance by entity management to provide
representation that financial accounts and records have been kept in accordance with
acceptable financial management and accounting policies and procedures. A Disclaimer
Audit Opinion is the worst audit report that an entity can receive.A commitment to strong financial management and accountability continues to be particularly
challenging but it is also essential to drive improvement in governance within public sector
entities and thus help ensure delivery of essential services to the citizens of this country.
Having sound financial management and reporting in the public sector is an important
contributor in achieving greater transparency, accountability, fiscal responsibility and, hence,
improved governance.However, without robust, transparent, and accountable arrangements for financial reporting
and financial management, it is not possible to reliably assess whether decision making by
entities has been in the best public interest. Fundamentally, good governance arrangements
are essential for an agency to be able to demonstrate to stakeholders that it can be trusted to
do what it is established to do. Such arrangements assist stakeholders to have confidence that
agencies not only have the competence and expertise required, but that they have also
established robust administrative arrangements that enable them to do so efficiently,
effectively and ethically. These critically important arrangements currently do not exist.Weakness in financial management and corrupt practices legitimize bad governance and
diverts funding and energy away from development plans and achievement of national goals.Part III 2016 Report Page 26
-
Page 33 of 226
-
Control Environment
Poor financial management, coupled with misuse of public money, has contributed to decline
in service delivery to the public.Part III 2016 Report Page 27
-
Page 34 of 226
-
Bougainville Autonomous Government Results of Audits per Province
6.0 RESULTS OF AUDITS PER PROVINCE
6.1 AUTONOMOUS REGION OF BOUGAINVILLE
6.1.1 IntroductionThe Autonomous Bougainville Government, Buka Urban Local-Level Government and
Buka General Hospital are audited annually with or without the financial statements. The
annual audits of other Local-Level Governments and the Business Arms of the
Bougainville Government could not be audited due to manpower and financial constraints
faced by my Office and the lack of records and logistical support from the respective
Local-level Governments and Business Arms.6.1.2 Autonomous Bougainville Government
The Autonomous Bougainville Government had not submitted its financial statements for
the financial years ending 31 December, 2014, 2015 and 2016. Fieldwork associated with
audit of the internal control environment for 2014 financial year had been completed. The
audit working papers together with the draft Management Letter however, could not be
located nor the Management Letter reviewed and issued due to the critical health
condition of the officer responsible for the audit and consequently, the audit working
papers and draft Management Letter were lost or misplaced in the process. I had
considered redoing the audit along with the 2015 and 2016 accounts and records to be
reported in my 2017 Part 3 Report to the Parliament.6.1.2.1 Status of Financial Statements
At the time of preparing this Report in September 2017, the Autonomous Bougainville
Government had not submitted its financial statements for the years ended 31 December,
2014, 2015 and 2016 for my inspection and audit.6.1.3 Buka Urban Local-level Government
6.1.3.1 Status of Financial Statements
At the time of preparing this Report in September 2017, the Buka Urban Local-Level
Government (BULLG) had not submitted its financial statements for the financial years
ending 31 December 2012, 2013, 2014, 2015 and 2016 for my inspection and audit.
However, field work associated with audits of the internal control environment for these
years could not be conducted due to manpower and financial constraints faced by my
Office.6.1.4. Buka General Hospital Board
The Buka General Hospital Board submitted its financial statements for the years ended
31 December, 2013, 2014 and 2015 in February, 2017 after the completion of the audit of
the internal control environment and the issuance of the Management Letters for the two
former years in July 2016. Issues identified with the control environment were reported inPart III 2016 Report Page 28
-
Page 35 of 226
-
Bougainville Autonomous Government Results of Audits per Province
my 2015 Part 3 Report to the Parliament. The review of the financial statements for 2013
and 2014 and the audit of the accounts and records for 2015 however, could not be
conducted due to financial constraints as well as the uncertainties associated with the
2017 National General Elections.6.1.4.1 Status of Financial Statements
The Buka General Hospital Board had submitted its financial statements for the years
ended 31 December, 2013, 2014 and 2015, though late, in February 2017 for my
inspection and audit. At the time of preparing this Report in September 2017, the
financial statements for the year ended 31 December, 2016 however, was awaited.6.1.5 Business Arms
The Autonomous Bougainville Government had a number of business arms as reported in
my previous year reports. The status of these business arms however, remained
unchanged as at the time of preparation of this Report in September 2017 as re-stated
below:6.1.5.1 South Bougainville Engineering
At the time of preparing this Report in September 2017, the entity had not submitted its
annual financial statements for the twelve years ended 31 December, 2016 for my review.
Consequently, audit of the financial statements and the accounts and records for these
years could not be conducted and therefore, I am unable to report on the affairs, including
financial position of the entity.6.1.5.2 North Solomon Marine Corporation
At the time of preparing this Report in September 2017, the entity had not submitted its
annual financial statements for the last twenty four years since 1993 including financial
year ended 31 December, 2016 for my review. Consequently, audit of the financial
statements and the accounts and records for these years could not be conducted and
therefore, I am unable to report on the affairs, including financial position of the entity.6.1.5.3 Bougainville Restoration and Development Authority
The entity had never submitted any financial statements since its inception.
Consequently, audit of the financial statements and the accounts and records could
not be conducted and therefore, I am unable to report on the affairs, including
financial position of the entity.Part III 2016 Report Page 29
-
Page 36 of 226
-
Central Province Results of Audits per Province
6.2 CENTRAL PROVINCE
6.2.1 Introduction
The Central Provincial Government, the Motu Koita Assembly, the Port Moresby
General Hospital Board, and Central Province Transport Authority (CPTA) are audited
every year, with or without financial statements. Other LLGs and the Business Arms of
the Provincial Government could not be fully audited due to manpower and financial
constraints faced by my Office and the lack of records and logistical support from the
respective LLGs and Business Arms.6.2.2 Central Provincial Government
The Central Provincial Government had submitted its financial statements for the years
ended 31 December 2013, 2014 and 2015. Field work associated with audit of the
accounts and records and the examination of the financial statements for 2013, 2014 and
2015 financial years were completed and the Management Letters issued were not
responded by the Central Provincial Administration. The audit reports of 2013 and 2014
were issued and the 2015 was in progress when this report was prepared in September
2017.6.2.2.1 Comments on Financial Statements – 2013 and 2014
My reports to the Ministers concerned and other relevant bodies under the Organic Law
and Audit Act on the Central Provincial Government’s financial statements for the years
ended 31 December, 2013 and 2014 were issued on the 8 August 2016 and 19 April 2017
respectively. The reports contained similar Disclaimer Audit Opinions hence, only the
2014 report is reproduced as follows:Basis for Disclaimer Audit Opinion
Financial Statements
Presentation Errors
Finance Instruction 4/2000 issued under Section 117 of the Public Finances
(Management) Act, 1995 prescribes the format for the preparation and presentation of
the financial statements for Provincial Governments. The financial statements of
Central Provincial Government for the year ended 31 December, 2014 did not fully
comply with the above Finance Instruction.The required disclosures by the Governor and the Administrator on the Provincial
Budget Performance and the financial performance were not included in the Financial
Statements. Further, the financial statements were not duly signed and certified by the
Provincial Administrator and the Provincial Treasurer as required to authenticate its
presentation and disclosures. Consequently, I am unable to ascertain the completenessPart III 2016 Report Page 30
-
Page 37 of 226
-
Central Province Results of Audits per Province
and the accuracy of the disclosures in the financial statements of Central Provincial
Government for the year ended 31 December, 2014.Opening Balances
Because of the disclaimer of opinion issued in respect of the year ended 31 December,
2013 and because of other limitations on the scope of my audit as noted below, I was
not able to satisfy myself as to the completeness and accuracy of the opening bank
balances. Since these opening balances would affect the determination of the financial
position and the cash flows of the Central Provincial Government in the current year, I
was unable to determine whether adjustments to the respective Cashbooks, financial
position and the cash flows, might have been necessary for the year ended 31
December, 2014.Statement A – Cash Balances
The Fund balance of was disclosed as negative K714,592 in the financial statements.
However, the closing balances of the bank accounts for the Operating and the Grant
accounts including other accounts maintained totaling K14,179,386 had a significant
discrepancy of K13,464,794. The Bank Reconciliations of the respective Bank
accounts were not properly and correctly done during the year as reconciling items
carried forward since 2002 in the Operating account were not cleared. Further,
Schedule 6 had significant un-reconciled items of K9,358,373 which were not properly
verified, traced and cleared. I was not provided sufficient and appropriate
documentation including the required explanations for the discrepancy and the
reconciling items. Consequently, I was unable to verify and confirm the validity and
the correctness of the Fund balance as at 31 December, 2014.Assets
In Appendix 4 to the financial statements, Assets in the custody of the Central
Provincial Government were stated as K5,581,600. However, assets acquired
amounting to K2,315,786 were not recorded as additions during the year. The Fixed
Assets Register was not properly maintained and kept. As a result, I am unable to
verify and confirm the accuracy and validity of the Assets in custody of the Central
Provincial Government for the year ended 31 December, 2014.Advances
Un-acquitted advances at year end were stated as K3,641,401 in Appendix 6 to the
financial statements. However, Cash advances totaling K346,038 were not recorded
during the year. I was unable to confirm and verify the validity and the correctness of
the Advances register as it was inaccurate and not properly maintained and kept.
Consequently, I am unable to confirm the veracity of Appendix 6 of the financial
statements for the year ended 31 December, 2014.”Part III 2016 Report Page 31
-
Page 38 of 226
-
Central Province Results of Audits per Province
Report On Other Legal and Regulatory Requirements
In addition to the scope limitation and deficiencies in the accounts and records noted
above, I also wish to report on the breaches of the Organic Law on Provincial
Governments and Local-level Governments, the Appropriation Act, 2013, the Public
Finances (Management) Act, 1995 (as amended) and the Public Service (Management)
Act, 1995 and other enabling legislations.Budgetary Control
The Provincial Government passed an Appropriation Bill of K160,108,870 for the
2014 financial year. However, I was not provided the relevant budget papers, the
authorization and the approvals by the Provincial Executive Council (PEC) and the
documentation for the respective budget reviews held during the year. Further, I was
not provided an explanation or the necessary documentation for the significant
variances culminating to noncompliance with Budgetary Protocols and legislations.Corporate Governance
I was not provided the Corporate Plan (2011 – 2015) and the Meeting minutes of the
PEC Meetings for the year ended. Consequently, I was unable to ascertain the
governance culture and the veracity of the implementation of those resolutions if there
were any during the year ended 31 December, 2014. Further, I observed that the
Internal Audit Unit was under staffed, underfunded and inadequately supported with
logistics to effectively carry out its responsibilities.Procurement and Payments
There were significant control weaknesses in the Central Provincial Government’s
maintenance of the accounting records and processes resulting among others these
anomalies: 39 payments totaling K6,654,253 were not verified for their validity and
correctness as supporting documents were not made available for my
examination; Three (3) payments totaling K397,806 were made without the required three (3)
written quotations; Five (5) payments made to various suppliers for procurement of various goods
and services and Law firms totaling K401,300 and K174,594 respectively did
not have proper and adequate supporting documentation; A total of K11, 699, 644 was incurred for Major and Minor Capital works and
maintenance programs during the year. However, relevant documentation and
records including Contract, Completion reports, Certification reports, Tender
documents and Status reports for the respective projects were not made available
for audit examination; andPart III 2016 Report Page 32
-
Page 39 of 226
-
Central Province Results of Audits per Province
In Vote 143, expenditures totaling K2.5 million were incurred for a 2013 roll
over. However, I was not provided the necessary explanations or the required
supporting documentation for these expenditures.Disclaimer Opinion
Because of the significance of the matters described above, I am not able to obtain
sufficient appropriate audit evidence and accordingly I am unable to express an
opinion on the financial statements of Central Provincial Government for the year
ended 31 December, 2014.”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.
The following are matters of significance: Central Provincial Government did not maintain proper accounts and records and
had consequently breached Section 68(1) of the Public Finances (Management)
Act, 1995; and The receipts and payments and investment of moneys and the acquisition and
disposal of assets during the period covered by the financial statements have not
been in accordance with the Public Finances (Management) Act, 1995 and
Organic Law on Provincial Governments and Local-level Governments.”6.2.2.2 Management Response
The management had been given an extended time to respond to my management letters
queries, however, had not done so at the time of preparation of this Report in September
2017.6.2.2.3 Status of Financial Statements
The Central Provincial Government had not submitted its financial statements for the year
ended 31 December, 2016. However, the audit of the internal control environment was in
progress at the time of preparation of this Report in September 2017.6.2.3 Motu Koita Assembly
The Motu Koita Assembly Act 2007 provided for the establishment of a Local-level
Government for the Motu Koita people. The purpose of the Act was to enable the Motu
Koita people to participate actively and meaningfully in the development of the National
Capital District. Section 113 subsection 4 (c) of the Organic Law require the Assembly to
submit its financial statements and its accounts and records to be audited by the Auditor-
General of Papua New Guinea.Part III 2016 Report Page 33
-
Page 40 of 226
-
Central Province Results of Audits per Province
6.2.3.1 Status of Financial Statements
The Motu Koita Assembly (MKA) had not prepared its financial statements for the years
2007 to 2017. I reported in my 2014 Report that audit of the accounts and records and the
related control environment could not be conducted due to lack of cooperation from the
officers and non-availability of the necessary records. I had dispensed 2007 to 2012
financial statements audits under Part V Section 16 (6) of the Audit Act, 1989.6.2.4 Port Moresby General Hospital Board
The Port Moresby General Hospital had submitted its financial statements for the
financial years ended 31 December 2014, 2015 and 2016. Field work associated with the
audit of the accounts and records and review of the financial statements for 2014, 2015
and 2016 had been completed with the Management Letters issued.6.2.4.1 Comments on Financial Statements – 2014 to 2016
My reports for the years ended 31 December, 2014, 2015 and 2016 to the Ministers
concerned and other relevant bodies under the Public Hospital Act, 1994, Public Finance
(Management) Act, 1995 and Audit Act, 1989 were all issued in 2017. The reports for the
three years contained Disclaimer Audit Opinions with similar issues hence; only 2016
report is reproduced below:Basis for Disclaimer Audit Opinion
Financial Statements
Presentation Errors
The financial statements of Port Moresby General Hospital for the year ended 31
December, 2016 did not comply with the format as prescribed by Finance Instruction
2/2004 issued under Section 117 of the Public Finances (Management) Act, 1995 (as
amended). The Hospital did not disclose sufficient explanatory notes to the respective
items and the non-disclosure of the Schedules for Capital Assets and Outstanding
Liabilities. As a result, I was unable to express an opinion on the accuracy and
completeness of the financial statements as the financial statements were not
submitted as prescribed for its authentication.Limitations of Scope of Audit and Disclosure Errors
I noted the following limitations of scope of audit and disclosure errors which have
material effect on the accuracy and completeness of the account balances, the financial
position of Port Moresby General Hospital as at 31 December, 2016 and consequently,
the reliability of the financial statements.Part III 2016 Report Page 34
-
Page 41 of 226
-
Central Province Results of Audits per Province
Opening Balances
Because of the Disclaimer of Audit Opinion issued in respect of the year ended 31
December, 2015 and because of other limitations on the scope of my audit as noted
below, I was not able to satisfy myself as to the completeness and accuracy of the
opening bank balances. Since these opening balances would affect the determination of
the financial position and the cash flows of the Port Moresby General Hospital in the
current year. I was unable to determine whether adjustments to the respective Cashbooks,
financial position and the cash flows, might have been necessary for the year ended 31
December, 2016.Accumulated Fund Balances
The Accumulated Fund Balance was stated as K11,416,549 in the financial statements.
Included in the account balances was the Special Projects Account and Operations
Account balance of K76, 884 and K11,024,370 respectively. The Trust and Special
Projects Accounts balances of K261,542 and K53 643 respectively included in the fund
balance did not agree to the respective account summary attached. The MYOB
Accounting System used was not reconciled to the Excel Spread Sheets records used for
the population of the financial statements disclosures. As such, I am unable to verify and
confirm the correctness of the Accumulate Fund Balance for the year ended 31
December, 2016.Receipts and Payments
The Consolidated Receipts and payments of the Port Moresby General Hospital were
stated as K54, 283,134 and K46,367,573 respectively in the financial statements. The
appropriation for personal emoluments from the National Government was stated as K31,
621,800. The personal emolument balances per the operating account statement stated as
K12, 638, 868 did not agree to consolidated account summary of K12, 671, 023. With the
lack of underlying records, periodic salary reconciliations and audit trail, I was unable to
verify and confirm the account balance as correct for the year ended 31 December, 2016.Capital Assets
Capital assets purchased during the year and the prior year was stated as K1, 786,735 and
K8, 138,669 respectively in the Consolidated Summary of Receipts and Payments for the
year ended 31 December, 2016. However, contrary to Note 10 to the financial statements,
a list of assets and its values were not disclosed in the financial statements. An asset
register maintained did not include details like date of purchase, purchase price, serial
numbers and location for ease of reference. As a result, I was unable to confirm and
verify the total assets valuing more than K9, 925,404 for the year ended.Lack of supporting documents in Payments
Total payments were stated as K46, 367,573 in the consolidated summary of the financial
statements for the year. However, during my review the supporting documents that could
not be provided for audit examination was nearly 26% of the total expenditure for thePart III 2016 Report Page 35
-
Page 42 of 226
-
Central Province Results of Audits per Province
year. Consequently, I am unable to confirm and verify the validity and the correctness of
the expenditures for the year ended 31 December, 2016.Significant Control Weaknesses
Budgetary Control
The total expenditure for salaries and wages was K43,373,582 which exceeded the
appropriated amount of K31,621 800 resulted in an unauthorized over expenditure of
K11,751,782. Further, the Administrative Consultancy Fees of K2,189,418, Golf day
Expenses of K89,873, Constructions, Renovation and Improvement expenditure of K4,
549,430 were not budgeted for and the authority for such expenditures could not be
sighted. Consequently, I am unable to verify and confirm the validity of these additional
appropriations as no explanation and documentation were provided for my oversight.Payroll/Rental Reimbursements
The financial statement disclosed K1, 458,814 as monies received from a revenue head
described as “Payroll/Rental Reimbursements” No underlying records such as sundry
debtors listing and the related books of accounts were maintained to record the monies
owed to the Hospital, I was unable to verify and confirm the validity and the correctness
of the disclosure for the year ended 31 December, 2016.A total of K4, 086,895 paid for Short term Contract Officers was not reimbursed and
remained outstanding as Finance Department had not reimbursed the Hospital.Internal Revenue
Collection and accounting of internal revenues were inadequate as there were no
collector’s statements, receipts books and deposit books for the internal receipts reported
in the financial statements. The recording and banking of receipts were not prudent during
the year.Sir Theo’s Foundation had donated K1, 195,276 to the Port Moresby General Hospital
during the year ended 31 December, 2016. However, this donation was not taken into
account and reported as such. Consequently, I was unable to confirm the disclosure in
Receipts as complete and fair.Advances
Advances were made to staff of the Hospital for travel and subsistence and as Salary
Advances during the year. However, as there were no Advances Register and supporting
documentation maintained and provided for my review, I was unable to verify and
confirm the completeness and the validity of the total advances paid and recovered during
the year.Part III 2016 Report Page 36
-
Page 43 of 226
-
Central Province Results of Audits per Province
No Service Agreements
Major Service providers were paid a total of K11, 966,119 during the year. However,
there was no service Agreements or Contracts entered into by the Hospital for the
procurement of these services.Consultancy Services
Consultancy and payments to law firms totaling K424, 911 and K746, 847 respectively
were not proper and lacked disciplined compliant procurement practices.Human Resource Records
Personal files, Employment records and the Staff Establishment Register for employees
were not properly kept and maintained by the Port Moresby General Hospital during the
year. Further, there were no salary reconciliations for the salaries paid during the year.Inappropriate Employment Contract Allowances
Contractual allowances paid totaling K164, 500 for nine (9) contract Officers were not
appropriately approved under the National Doctors Awards 2014 – 2016.Corporate Governance
The governance culture at the Hospital was weak and lacked cohesive direction to
achieve its corporate goals and mission. Further, the 2011 – 2020 Clinical Services
Development Plan’s monitoring and evaluation was not conclusively feasible at the board
level during the year ended 31 December, 2016.Internal Audit
Internal Audits were not conducted by the Hospital or the National Department of Health
(NDoH) to ensure probity and integrity of the Hospitals systems and processes to safe
guard against loss, misuse and abuse.Disclaimer Audit Opinion
Because of the significance of the matters described above, I was not able to obtain
sufficient appropriate audit evidence and accordingly, I am unable to express an opinion
on the financial statements of the Port Moresby General Hospital for the year ended 31
December, 2016.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. The following
are matters of significance:Part III 2016 Report Page 37
-
Page 44 of 226
-
Central Province Results of Audits per Province
Section 19(6) of the Public Hospital Act, 1994 requires minutes of the Board’s
meetings to be recorded and kept. The Port Moresby General Hospital did not
adequately and fully maintain minutes of Board meetings during the year ended 31
December, 2016. Section 62(1) of the Public Finances (Management) Act, 1995 requires all public
bodies to keep proper accounts and records of its transactions and affairs, and to
develop adequate controls over their assets and liabilities. As discussed in the Basis
for Disclaimer Audit Opinion paragraphs above, the Port Moresby General
Hospital had not complied with this requirement. Port Moresby General Hospital did not maintain proper books of accounts and
records and consequently breached Section 68(1) of the Public Finances
(Management) Act, 1995.”6.2.5 Business Arms
Section 16(2)(f) of the Audit Act 1989 provides for and extends my functions to audit the
accounts and records of the Provincial Governments and Local Level Governments
Business Arms and other establishments.I am aware of eight business arms of the Central Provincial Government namely, Central
Province Transport Authority (CPTA); Central Provincial Investments (formerly Central
Provincial Development Corporation); Central Provincial Travel Agent; Vitis Spices;
Gokas Construction; Central Air Transport; Baina Agro-Forestry; and Ilimo Farm. CPTA
had been the only one which had been consistently audited for the years up 2010. None of
the other entities had submitted their recent financial statements for audit at the time
preparation of this Report in September 2017.6.2.5A Central Province Transport Authority (CPTA)
The Authority had submitted its financial statements for the year ended 31 December
2011. The fieldwork associated with audit of the accounts and records and the
examination of the financial statements had been completed and the Management Letter
issued to the Managing Director in 2017. The audit report to the Minister and other
authorities concerned was in progress at the time of the preparation of this Report in
September 2017.6.2.5A.1 Management Response
The Management had been given an extended time to respond to my Management Letter
queries however, had not done so at the time of preparation of this Report in September
2017.Part III 2016 Report Page 38
-
Page 45 of 226
-
Central Province Results of Audits per Province
6.2.5A.2 Status of Financial Statements
The Authority had not submitted its financial statements for the years ended 31 December
2012, 2013, 2014, 2015 and 2016 for my inspection and audit.Part III 2016 Report Page 39
-
Page 46 of 226
-
East New Britain Province Results of Audits per Province
6.3 EAST NEW BRITAIN PROVINCE
6.3.1 Introduction
The East New Britain Provincial Government, Rabaul Urban Local-Level Government,
Kokopo/Vunamami Urban Local-Level Government, Nonga General Hospital and
Gazelle Restoration Authority are audited every year, with or without the financial
statements. Other Rural Local-Level Governments and the Business Arms of the
Provincial Government could not be fully audited due to manpower and financial
constraints faced by my Office.6.3.2 East New Britain Provincial Government
The East New Britain Provincial Government had submitted its financial statements for
the financial year ending 31 December, 2015. Field work associated with examination of
the financial statements and the audit of the accounts and records were completed with
the Management Letter issued. Issues highlighted in the Management Letter were
reported in my 2015 Part 3 Report to the Parliament in July, 2016. The audit opinion
report was subsequently issued in November, 2016. Issues highlighted in the opinion
report are as stated below.6.3.2.1 Comments on Financial Statements – 2015
My Report for the year ended 31 December, 2015 to the Ministers concerned and other
relevant bodies under the Organic Law on Provincial Governments and Local-Level
Governments and the Audit Act was issued on 30th November, 2016. The report
contained a Qualified Audit Opinion as reproduced below:“Basis for Qualified Audit Opinion
Presentation
Finance Instructions 4/2000 issued under Section 117 of the Public Finances
(Management) Act, 1995 prescribes the format for the preparation and presentation of the
financial statements for Provincial Governments. The financial statements of East New
Britain Provincial Government for the year ended 31 December, 2015 fully complied
with the formats prescribed by Finance Instructions.Disclosure Errors
I noted the following disclosure errors which could have material effect on the accuracy
and completeness of the East New Britain Provincial Government Account balances and
consequently, the financial position of the Provincial Government as at 31 December,
2015:Cash Balances
The East New Britain Provincial Government cash and bank balance of K14,
548,981 included an old operating account balance of K4, 422,292. The oldPart III 2016 Report Page 40
-
Page 47 of 226
-
East New Britain Province Results of Audits per Province
operating account balance merely represented an un-reconciled cashbook balance at
the time when the account was closed and was not supported by actual cash balance
held in bank account as this account was dormant since 2009. I have reported the
same in the previous reports to which the Provincial Government had commented
in response to my Management Letter queries for financial year ended 31
December, 2014 stating that the old Cash Book amount of K4,422,292 was
rendered on write off on and was approved by the Finance Secretary on the 3rd of
December 2014 however, The First Assistant Secretary Finance Reporting and
Compliance Division was yet to make a decision on correct accounting treatment to
confirm the removal of the old cash Book; and The balance of the Provincial Revenue Fund of K15,820,940 could not be
confirmed as correct due to errors and material misstatements of operating deficit as
discussed under the paragraphs on Receipts and Payments for the year ended 31
December, 2015;Receipts and Payments
The East New Britain Provincial Government reported its total revenue and expenditure
as K39,935,063 and K47,405,168 respectively with an operating deficit of K7,470,105
(Statement ‘B’). The accuracy of the revenue and expenditure and therefore, the
correctness of the operating deficit as at 31 December, 2015 could not be confirmed due
to the following issues: The total actual revenue of K39,935,063 included Staffing Grant totaling K272,300
only while the IFMS 2233 report (from Department of Finance) disclosed total
warrant authority amounts as K16,967,000 for public servants salaries and
K42,861,000 for Teachers’ Salaries. These amounts were also not taken up in the
respective revenue ledgers although provided for in the Annual Appropriation Act;
and The receipts and expenditure relating to Provincial Special Intervention Program
(PSIP) funds totaling K9,450,000 and K19,430,893 respectively had not been
disclosed in this Statement as PSIP funds were budgeted for and taken up in the
National Government Agencies Database and administered through the Provincial
Treasury Operating Account.Investments
I noted the following observations in relation to the investments held as well as the
investment transactions of the Provincial Government during the year: Statement ‘E’ showed the Provincial Government held short term financial
investments in Interest Bearing Deposit (IBD) account as K62,531 with interest at
year end. The balance of the financial investment however, had not been disclosed
in Statement ‘A’. Further, the Provincial Government had received and accounted
for dividends totaling K182, 081 from its short term investments in Gazelle
International Hotel. Though the proceeds were adequately reported in Statement ‘J’Part III 2016 Report Page 41
-
Page 48 of 226
-
East New Britain Province Results of Audits per Province
the details including principle investment were not disclosed in Statements ‘E’ and
‘A’;
As reported in my previous reports, the East New Britain Provincial Government
held investments totaling K2, 689,252 represented by 100% shares in East New
Britain Development Corporation Ltd valued at K2, 159,139 and K530, 113 in
Barakopo Plantation Development Corporation Ltd. In the absence of audited
financial statements of the investment companies as well the investment register
and other related records required to be held by the Provincial Government, I was
unable to verify the accuracy, completeness, existence and ownership of the above
reported investments balance at year end; and As stated in my previous years audit reports, the Provincial Government paid K5.5
Million to a Fishery Project Developer, New Britain Resources Development
Company as initial part payment to acquire its fifty-one percent (51%) shareholding
with the Company. The National Fisheries Authority was to have issued twenty
(20) fishing licenses under the project agreement. I observed however, the fishing
licenses and share certificates have not been obtained due to legal proceedings by
the National Fisheries Authority against the project developer, the Provincial
Government and the State. Further, I was not able to ascertain whether the
Provincial Government’s investment was still viable in view of the legal issues
surrounding the fishery project.Fixed Assets
The East New Britain Provincial Government had reported its fixed assets as K69, 564,
553 as at 31 December, 2015 with an opening balance of K46, 579,775, additions of K23,
680,784 and disposals of K696, 006. Purchases during year under review totaling K451,
191 however, had not been recorded in the updated fixed asset register. Consequently, I
am unable to verify the completeness and accuracy of the value of assets owned and
under the custody of the East New Britain Provincial Government for the year ended 31
December 2015.Un-acquitted Advances
Appendix 6 to the financial statements disclosed un-acquitted advances relating to the
payments of travelling allowances and cash advances totaling K413, 605. The reported
un-acquitted advances did not include the carried forward balance of K393, 571 thereby
understating the un-acquitted balance at year end to that extent. Further, errors and
omissions reported in our 2014 report were not taken into account and amended
accordingly. Consequently, I am unable to rely on the completeness and accuracy of total
un-acquitted advances disclosed in the Appendix to the financial statements;Trust Accounts
The East New Britain Provincial Government had operated twelve (12) non-bank trust
accounts with a total overdrawn closing balance of K1, 271,960 as at 31 December 2015.
I was not provided evidence of Trust Instruments and other related documents to ascertain
legality, validity and the appropriateness of the transactions effected through trust
accounts during the year.Part III 2016 Report Page 42
-
Page 49 of 226
-
East New Britain Province Results of Audits per Province
Significant Control Weaknesses
The paragraphs below give a summary of significant control weaknesses identified in the
East New Britain Provincial Government’s records and processes: I was unable to ascertain whether the approval for expenditure totaling K99, 500
was within the designated financial limit of the respective financial delegate. In this
connection, several Section 32 Officers who approved Requisitions for Expenditure
(FF3) continued failing to disclose their designations and financial approval limits; In thirty-one (31) instances, payment vouchers with relevant supporting documents
relating to expenditures incurred totaling K3,386,065 could not be easily located
due to poor maintenance of payment vouchers. Consequently, the validity as well as
proper authorization of the claims presented for payment could not be ascertained; Payments of grants/subsidies and financial assistances in lump sum from various
expenditure votes/divisions totaling K14,779,163 to non-profit organizations,
public authorities, churches, health centers/aid posts, schools, business arms,
small/medium enterprises and individuals seriously lacked evidences of
accountability reports by the recipients nor were there records to indicate that the
Provincial Government had sought such reports; The Provincial Government had expended over K7.8m on tenderable capital works
& maintenance contracts during the year. Meeting Minutes of Provincial Supply &
Tenders Board (PSTB) convened during the year however, were not properly
maintained hence, couple of Meeting Minutes could not be provided for my review.
Consequently, I was unable to verify the validity and genuineness as well as proper
approval of all other minor capital works and maintenances expenditures incurred
during the year; My review of the Provincial Assembly Members Payrolls revealed the Provincial
Assembly members were taxed on their normal salary only while all their
allowances were paid on a fortnightly basis – tax free. The Senior Officers of the
Provincial Administration were also paid monthly vehicle allowances of K4, 000 –
tax free. Total payments on vehicle and mileage allowances for the year amounted
to K1, 178,800.Similar issues were raised in the 2014 audit Management Letter which the
Provincial Administration did acknowledge the fact that all allowances are taxable
under the Income tax Act. Consequently, the ENB Provincial Administration may
be liable for non-payment of taxes on the salaries & allowances of the Assembly
Members and vehicle allowances for its Senior Officers; and I sighted no evidence to indicate that fortnightly payroll reconciliations were done
to verify the correctness of the payroll which have resulted in unbudgeted direct
payments in overtime allowances totaling K57,000, Retrenchment Benefits,
Pensions and Gratuities totaling K223,000 and unidentified Alesco Payroll
expenditure of K41,000Part III 2016 Report Page 43
-
Page 50 of 226
-
East New Britain Province Results of Audits per Province
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 East New Britain Provincial
Government for the year ended 31 December, 2015:i. Give a true fair view of the financial position and the results of its operations for the
year then ended;ii. The financial statements have been presented in accordance with the Public
Finances (Management) Act, 1995, International Public Sector According
Standards (IPSAS) and other legislations; andiii. The controls exercised by the Provincial Government are sufficiently adequate to
provide reasonable assurance that the receipt, expenditure and investment of
moneys and acquisition and disposal of public property and incurring of liabilities
have been in accordance with the Public Finances (Management) Act and other
legislations.”6.3.2.2 Status of Financial Statements
At the time of preparation of this Report in September, 2017, the East New Britain
Provincial Government had submitted its financial statements for the year ended 31
December, 2016. Field work associated with the review of the financial statements and
the audit of the accounts and records had been completed and the results were being
evaluated.6.3.3 Kokopo/Vunamami Urban Local Level Government
The Kokopo/Vunamami Urban Local Level Government submitted its financial
statements for the year ending 31 December, 2015. Field work associated with
examination of the financial statements and audit of the accounts and records was
completed with the Management Letter issued and the audit opinion report also issued to
the Ministers concerned. The paragraphs below detail issues identified with the financial
statements and the internal control environment.6.3.3.1 Comments on Financial Statements – 2015
My report to the Ministers concerned and other relevant bodies under the Organic Law
and the Audit Act was issued on 3rd of July, 2017. The report contained a Disclaimer
Audit Opinion as reproduced below.Basis for Disclaimer Audit Opinion
Presentation
Finance Instructions 5/2000 issued under Section 117 of the Public Finances
(Management) Act, 1995 prescribes the format for the preparation and fair presentation of
the financial statements for Local level Governments. The financial statements ofPart III 2016 Report Page 44
-
Page 51 of 226
-
East New Britain Province Results of Audits per Province
Kokopo/Vunamami Local level Government for the year ended 31 December, 2015 fully
complied with the formats prescribed by Finance Instructions.Disclosure Errors
I noted the following disclosure errors which could have material effect on the accuracy,
completeness and reliability of the Kokopo/Vunamami Urban Local Level Government
Account balances and consequently, the financial position of the Local Level Government
as at 31 December, 2015:Cash Balances
The Kokopo/Vunamami Urban Local Level Government Account balance of K322, 190
is inaccurate in view of the reconciling items identified in the bank reconciliation
statement for December, 2015 relating to receipts and expenditure that had not been
adjusted in the cashbook and respective revenue and expenditure ledgers and disclosed in
Statements ‘J’ and ‘K’ which also affected the accuracy of the bank and cashbook
balances at year end. Further, the reported account balance as per Note 3 to the accounts
is incorrect in view of the comments made in relation to the unreliability of the operating
deficit of K270,430 used to calculate the account balance at year end.Receipts and Payments
Total revenue and expenditure of K3, 368,967 and K3, 639,397 per Statement “B” with
an operating deficit of K270, 430 are not in agreement with the Trial Balance total
receipts and expenditure of K3, 371,042 and K3, 658,725 respectively.Debtors and receivables
The ‘Nil’ balance of debtors and receivables reported in Appendix 2 to the financial
statements is not in agreement with the Aged Receivables Summaries balance of
K4,374,785 hence, is inaccurate and misleading.Fixed Assets
The fixed assets at historical cost of K701, 312 disclosed in Appendix 4 to the financial
statements is acutely inaccurate and misleading in view of the following discrepancies: The costs of assets disclosed are basically the brought forward balances from 2011
and as such, did not reflect complete and accurate information on additions and/or
disposals during the year and those of the prior years; The Urban Local level Government did not maintain a proper Assets Register with
updated details of additions and/or disposals during the year. Consequently,
additions during the year totaling K322,921 had not been recorded and properly
accounted for; Appendix 3 to the financial statements did not disclose any information or values in
relation to stocks of inventories held by the Urban Local Level Government as at 31
December, 2015. Further, I sighted no evidence to indicate that stock takes werePart III 2016 Report Page 45
-
Page 52 of 226
-
East New Britain Province Results of Audits per Province
done to confirm the completeness and existence all assets and inventories owned
and under the custody of the Urban Local Level Government at year end.Advances
Appendix 6 to the financial statements showed un-acquitted cash and travel advances as
K109,134. The accumulative balance of K109,134 contains inherited errors from prior
years which have not been adjusted. As such, the reported balance of un-acquitted
advances is inaccurate and misleading.Other Records and Registers
Several other documentations corroborating the financial statements, such as the registers
of investment, inventory, debtor and borrowings, commitments & arrears, and losses &
deficiencies were not available for my review. Consequently, I could not ascertain the
existence, completeness and accuracy of these items in the financial statements.Significant Control Weaknesses
The Management Letter relating to the audit of the accounts and records for the year
ended 31 December 2015 was issued in June, 2017. The paragraphs below give a
summary of significant control weaknesses identified in the Kokopo/Vunamami Urban
Local Level Government’s internal control environment: The Urban Local Level Government reported its annual budget estimates for
revenue and expenditure as K7,024,000. I was not provided evidence including the
Appropriation Act of 2015 or a certified revised budget and other relevant quarterly
budget review documents to suggest that the original as well as the revised budgets
were duly sanctioned and certified prior to implementation; The Section 32 Officers failed to disclose their designations, financial limits and
date of approval on the Requisitions for Expenditure (FF3) when approving
requisitions to incur expenditure. Consequently, I was unable to verify whether the
approval for expenditure are within their delegated financial limits; Payments totaling K562,091 were not signed by the Certifying Officer to confirm
the validity, accuracy and genuineness of the claims submitted for payment; I observed several instances of ‘splitting of orders’ whereby payments to one
supplier and/or payee are processed and paid by way of raising several Requisitions
for Expenditure (FF3) and Finance Form (FF4) in order to circumvent proper
expenditure authorization procedures such as the Section 32 Officers approving
expenditures in excess of their designated financial limits; The required three (3) verbal and/ or written quotations were not obtained from
Suppliers in most instances to determine the most economical prices for the
required goods and services. Further, I observed the payment vouchers for purchase
of office stationaries and other operational materials and supplies were not
supported with goods delivery dockets to confirm the accuracy of the items orderedPart III 2016 Report Page 46
-
Page 53 of 226
-
East New Britain Province Results of Audits per Province
and also to ensure that the correct quantity were delivered and actually received in
good order by the Urban LLG; Advance payments for supply of fuel for the year amounted to K96,497. I sighted
no evidence to suggest proper controls including proper vehicle log sheets were
maintained on the usage of the Urban LLG vehicles particularly after business
hours and on the weekends; The Urban Local Level Government had paid a total of K309,496 in 2015 for
rubbish removal services which included outstanding payments dating back to
2010. I could not confirm if the payments were legal and genuine in the absence of
any proper ledgers and/or registers to record details of outstanding invoices; Grants and financial assistances to various recipients including the fifteen (15)
Local Level Government Wards and various individuals and groups totaling
K127,966 had not been acquitted by way of furnishing accountability reports to the
Urban Local Level Government. Further, I sighted no evidence to indicate that the
Urban Local Level Government had sought these reports from the recipients; A total of K119,333 was paid out in vehicle allowances to three Senior Officers of
the Urban Local-level Government using internal revenue funds on vote items 125
and 135 which are intended for transport and fuel and other operational expenses
respectively. I noted these payments as improper and an indication of non-
adherence to proper budgetary control practices; The Kokopo/Vunamami Urban LLG had inappropriately charged expenditures
totaling K18,072 to expenditure vote items 221 and 126 where funds were not
allocated for the purposes intended; Payments of reimbursement claims by the Town Manager totalling K9,024 not
supported with any valid supporting documents and legitimate evidence of prior
approval by the District Administrator; Two (2) payment vouchers in respect of payments of K15,000 and K9,100 paid to a
Joe Paraide and Alanda Trading Limited for truck and vehicle hires were missing
from files and as such, I could not ascertain the validity as well as proper
authorization of the claims presented for payment; and I observed serious lack of proper monitoring and recovery exercises on travel and
cash advances resulting in substantial amounts dating several years back, remained
un-acquitted as at 31 December, 2015.Disclaimer Audit Opinion
Because of the significance of the matters described above, I am not able to obtain
sufficient appropriate audit evidence and consequently, I am unable to express an opinion
on the financial statements of Kokopo/Vunamami Urban Local-level Government for the
year ended 31 December, 2015.Part III 2016 Report Page 47
-
Page 54 of 226
-
East New Britain Province Results of Audits per Province
Other Matters
In accordance with the Audit Act, I have duty to report on significant matters arising out
of the financial statements to which the report relates. The following are matters of
significance: The Kokopo/Vunamami Urban Local Level Government did not maintain proper
accounts and records and has consequently breached Section 68(1) of the Public
Finances (Management) Act 1995; and The receipts and payments and investment of moneys and the acquisition and
disposal of assets during the period covered by the financial statements have not
been in accordance with the Public Finances (Management) Act, 1995 and Organic
Law on Provincial Governments and Local-level Governments”.6.3.3.2 Management Response
Management had not responded to matters raised in my Management Letter queries.
Consequently, I was not advised of any improvement at the time of preparation of this
Report in September, 2017.6.3.3.3 Status of Financial Statements
At the time of preparation of this Report in September, 2017, the Kokopo/Vunamami
Urban Local-Level Government had not submitted its financial statements for the year
ended 31 December, 2016 for my inspection and audit.6.3.4 Rabaul Urban Local Level Government
The Rabaul Urban Local-Level Government submitted its financial statements for the
year ended 31 December, 2015. Field work associated with examination of the financial
statements and audit of the accounts and records was completed with the Management
Letter issued and the audit opinion report also issued to the Ministers concerned. The
paragraphs below detail issues identified with the financial statements and internal control
environment.6.3.4.1 Comments on Financial Statement – 2015
My report to the Ministers concerned and other relevant bodies under the Organic Law
and Audit Act on the Rabaul Urban Local-Level Government’s financial statements for
the year ended 31 December, 2015 was issued on 20th April 2017. The report contained a
Qualified Audit Opinion as reproduced below.Basis for Qualified Audit Opinion
Presentation Errors
Finance Instructions 5/2000 issued under Section 117 of the Public Finances
(Management) Act, 1995 prescribes the format for the preparation and pre