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• Part 3
  Report of the Auditor-General
  2016

  on 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 Audits

  Auditor-General’s Office of Papua New Guinea

• Page 2 of 226

• Part 3
  Report of the Auditor-General
  2016

  on 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 Audits

  Auditor-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 District

  Dear 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

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• 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

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• 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

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• 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 373

  Provisions 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

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• 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

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• 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

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• 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

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• 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 of

  Part 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 and

  Part 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 Rights

  The 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.

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  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 retained

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  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.

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  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 ones

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  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;

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   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.

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  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.

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  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.

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  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.

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  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 certified

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  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. In

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  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 a

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  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 their

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  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.

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  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.

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  Poor financial management, coupled with misuse of public money, has contributed to decline
  in service delivery to the public.

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  6.0 RESULTS OF AUDITS PER PROVINCE
  6.1 AUTONOMOUS REGION OF BOUGAINVILLE
  6.1.1 Introduction

  The 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 in

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  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.

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  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 completeness

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  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.”

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  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; and

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   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.

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  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.

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  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 the

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  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.

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  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:

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   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.

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  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.

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  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 old

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  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’

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  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.

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  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 K41,000

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  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; and

  iii. 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 of

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  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 were

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  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 ordered

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  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.

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  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 presentation of the

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  financial statements for Local level Governments. The financial statements of Rabaul
  Urban Local-level Government for the year ended 31 December, 2015 had the following
  non-compliance and presentation issues:

   Except for the Mayor’s, the District Administrator’s statements on the Urban Local
  Level Government’s budget and financial performance were not included;

   The Mayor’s statement on the Urban Local-level Government’s budget
  performance incorrectly stated the 2015 approved budget appropriation as
  K1,849,400 when he had certified the approved budget ceiling of K2,280,000 for
  the fiscal year ending 31 December, 2015;

   The set of financial statements provided to audit were noted as draft hence, were
  not signed and certified by both the District Administrator and District Treasurer to
  authenticate the financial statement as legal documents presenting true and fair
  view of financial activities of the Rabaul Urban Local-level Government during the
  fiscal year ended 31 December, 2015;

   Statement ‘C’ had misleading column headings with the both opening and closing
  balance dates shown as 31 December, 2014 instead of 01 January 2015 and 31
  December, 2015; and

   The Rabaul District Treasurer did not exercise due care in the preparation and
  presentation of the financial statements. Consequently, the set of financial
  statements contained inconsistencies and errors in respect of the financial year of
  reporting. The errors were noted throughout Notes 3 & 4, 7 to 17, Statements ‘C’,
  ‘E’ to ‘I’ and Appendices 2 to 6.

  Disclosure Errors

  I noted the following disclosure errors which could have material effect on the accuracy,
  completeness and reliability of the financial statements of the Rabaul Urban Local-level
  Government Account balances and consequently, the financial position as at 31
  December, 2015:

  Cash Balances

  The Rabaul Urban Local Level Government cash and bank balance of K541,927 could
  not be confirmed as correct due to errors and material misstatement of operating deficit as
  disclosed under the paragraph on Receipts and Payments for the year ended 31 December,
  2015.

  Receipts and Payments

  Statement ‘B’ presented total revenue and expenditure as K1,205,551 and K1,350,041
  respectively with an operating deficit of K144,490. I observed there were reconcilable
  items relating to receipts and expenditure that were not adjusted in the cashbook and
  relevant revenue and expenditure ledgers and disclosed in Statements ‘J’ and ‘K’ which
  also affected the bank and cashbook balances at year end.

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  Fixed Assets

  The total cost of fixed assets of K1,899,556 disclosed in Appendix 4 to the financial
  statements is inaccurate and misleading in view of the following discrepancies:

   The Appendix showed opening balance totaling K2,362,914 however, did not
  reflect complete and accurate information on additions and/or disposals during the
  year to arrive at the reported closing value;

   Fixed Asset Register maintained as supporting schedule to Appendix 4 recorded
  fixed assets at a total cost of K2,677,914 at 31 December, 2015 hence, not in
  agreement with Appendix 4;

   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; and

   The Fixed Asset Register maintained by the Urban Local-level Government was
  not updated on a current basis with complete and accurate information on all assets
  purchased and/or disposed of during the year.

  Advances

  The summary schedule of Appendix 6 to the financial statements stated un-acquitted
  travel and cash advances as K22,523 while the detailed scheduled reported a balance of
  K28,312 respectively resulting in a variance of K5,789 as at 31 December, 2015. Further,
  Note 17 to the financial statements disclosed a balance of K15,769 as at 31st December,
  2015 which were all not agreeing to the PGAS Advances Register outstanding total of
  K24,132 at year end. As such, the reported balances of un-acquitted advances are
  inaccurate, misleading and unreliable.

  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 maintained hence, 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 paragraphs below give a summary of significant control weaknesses identified in the
  Rabaul Urban Local Level Government’s internal control environment:

   The annual budget appropriation of K2,280,000 was approved by the Urban LLG
  Finance Administration/Planning/LLG and Lands Committee on 13 November,
  2014. My review of the expenditure ledgers however, revealed funds totaling
  K1,733,653 were released to the Urban Local-level Government. 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

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  original as well as the revised budgets were duly sanctioned and certified prior to
  implementation;

  ● The Rabaul Urban LLG did not adhere to financial procedures in relation to
  maintenance of quotation registers and obtaining the required three (3) verbal and/
  or written quotations from suppliers; and

   There was a lack of proper monitoring and recovery exercises relating to travel and
  cash advances resulting in substantial amounts remaining un-acquitted, from 31
  December, 2015.

  Qualified Audit Opinion

  In my opinion, except for the effects of the matters referred to in the qualification
  paragraphs above, the financial statements of Rabaul Urban Local – level Government for
  the year ended 31 December, 2015:

  a) have been prepared in accordance with the Finance Instructions issued under the
  Public Finances (Management) Act 1995; and

  b) Give a true and fair view of the financial position and the results of its operations
  for the year then ended in accordance with the Finance Instruction.

  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 Rabaul 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”.

  6.3.4.2 Management Response

  Management had not responded to my audit Management Letter queries. Consequently, I
  was not advised of any improvements at the time of preparation of this Report in
  September, 2017.

  6.3.4.3 Status of Financial Statements

  At the time of preparing this Report in September 2017, the Rabaul Urban Local-Level
  Government had not submitted its financial statements for the year ended 31 December,
  2016 for my inspection and audit.

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  6.3.5 Nonga General Hospital

  The Nonga General Hospital Board had submitted its financial statements for the years
  ended 31 December, 2014 and 2015. Field work associated with examination of the
  financial statements and audit of the accounts and records was completed with the
  Management Letters issued and the audit opinion reports also issued to the Ministers
  concerned. The paragraphs below detail issues identified with the financial statements and
  the internal control environment.

  6.3.5.2 Comments on Financial Statement – 2015

  My reports to the Ministers concerned and other relevant bodies under the Organic Law
  and Audit Act on the Nonga General Hospital Board’s financial statements for the years
  ended 31 December, 2014 and 2015 were issued on 1st May and 10th May, 2017
  respectively. The reports for the two years contained Disclaimer Audit Opinions with
  similar issues hence; only 2015 report is reproduced below:

  Basis for Disclaimer Audit Opinion

  Disclosure Errors

  I noted the following disclosure errors which render the financial statements of Nonga
  General Hospital for the year ended 31 December, 2015 inaccurate, misleading and
  unreliable:

   I was unable to confirm the accuracy and completeness of the Hospital Operating
  and Hospital Fees Trust Accounts closing fund balances of K22,622 and K554,680
  disclosed in the respective financial statements due to inherited errors and
  omissions of receipts and payments from prior years which were not corrected in
  the current year accounts.

   The total income of K17,613,239 disclosed in the statement of cash receipts and
  payments of the Hospital Operating Account had been materially misstated as it
  includes the Hospital’s annual appropriation of K16,750,943 and prior year carry
  over funds totaling K819,187 in note 4. The prior year carry over funds had been
  accounted for as income in the year of receipt while the annual appropriations are
  merely budget estimates that had been erroneously taken up as actual receipts;

   The total expenditure on personal emoluments of K12,800,373 disclosed in the
  Statement of Receipts and Payments of the Hospital Operating Account is grossly
  inaccurate and misleading as it includes the Hospital’s annual salaries and
  allowances budget estimates of K11,648,500 as against the actual expenditure on
  salaries and allowances of K14,944,760 as per the Hospital’s 2015
  Manpower/Payroll Audit Report. Consequently, the total expenditure on personal
  emoluments is both an understatement to the tune of K3,296,260 in view of the
  actual expenditure as well as misleading to the extent that it includes budget
  estimates that had been erroneously taken up as actual expenditure on salaries and
  allowances;

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   The Schedule of Assets accompanying the Statements of Receipts and Payments of
  the Hospital Operating Account and Hospital Fees Trust Account showed a
  combined closing assets at historical cost of K7,513,398 as at 31 December, 2015. I
  observed however, that the closing assets at cost of K984,120 disclosed in note 4 –
  Schedule of Assets and the report on assets accompanying the statement of receipts
  and payments for Hospital Fees Trust Account was the same closing balance
  disclosed in the Statement of Cash Receipts and Payments for 2014. Further, the
  combined Hospital Operating and Fees Trust Accounts closing assets at historical
  cost of K7,513,398 and the Hospital Operating Account closing assets at cost of
  K6,529,278 are also misleading as the closing assets at historical cost per note 4 –
  schedule of assets for Hospital Operating Account had K8,766,770 in 2014 and
  therefore, the opening for 2015 which, if accurate, would have resulted in a greater
  yearend assets balance and an increased combined closing assets at historical cost
  as at 31st December, 2015 given the purchases and disposals per assets report for
  2015 of K994,116 and K136,774 respectively; and

   The Assets Registers maintained by the Nonga General Hospital was incomplete
  and had not been updated to account for all assets transactions during the year.

  Significant Control Weaknesses

  My review of the accounts and records revealed significant control weaknesses including
  the following:

   The Statements of Receipts and Payments for the Hospital Operating Account and
  Fees Trust Account showed combined revenue receipt for the year ended 31
  December, 2015 as K18,263,567. However, the Hospital did not maintain proper
  revenue heads and/or codes nor operated a computerized accounting system to
  ensure that all revenue received are accurately accounted for and recorded into the
  revenue ledgers. As such, I am unable to confirm the accuracy of the actual
  revenues received;

   Nonga General Hospital had expended funds totaling K395,219 from the Hospital
  Operating Account on Wages (vote item 112) which had no funding allocation
  provided in the 2015 Annual Appropriation;

   Nonga General Hospital had paid expenditures in respect of Overtime and
  Gratuities and other employee benefits under vote item 141 from the Hospital
  Operating Account as well as through the HRM ALESCO Payroll System resulting
  in a total over-expenditure of K375,611;

   Funds totaling K400,000 were transferred from the Hospital Operating Account
  into the Hospital Fees Trust Account based on the Hospital Board approval.
  However, I was not provided evidence to suggest that the transfer of a balance of
  K100,000 from the K400,000 was sanctioned and approved by the Board;

   The Hospital continued to violate the requirements for obtaining the three (3)
  required verbal and/or written quotations from suppliers to determine the most
  economical prices for goods and services procured;

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   I observed most payments made in respect of purchases of medical supplies and
  equipment from outside of the province lacked valid supporting documents such as
  formal suppliers’ invoices, goods delivery reports and airways bills/consignment
  notes from couriers as evidences to show that the quantity of goods ordered have
  been delivered and received intact;

   Nonga General Hospital did not have a duly appointed Certifying Officer and as
  such, all payment vouchers were not certified to determine the legitimacy and
  validity of the expenditures incurred prior to processing payment of the claims;

   The Chief Executive Officer and Director Corporate Services approve expenditure
  on Requisitions for Expenditure (FF3) as Section 32 Officer and Financial Delegate
  respectively and at the same time are signatories to the bank account. Consequently,
  there had been no segregation of duties in the expenditure authorization and
  approval processes;

   Examination of sampled expenditures on various minor contract works between
  K50,000 and K500,000 revealed the payment vouchers lacked the supporting
  appropriate documents including the required three (3) verbal and/or written
  quotations from suppliers, minor contract works agreements, job completion
  certificates or work in progress reports and the Hospital Board’s approval of
  selected pre-qualified contractors;

   The Nonga General Hospital lacked proper monitoring and recovery exercises on
  travelling allowances and cash advances totaling K37,833 that had remained un-
  acquitted as at 31 December, 2015. Further, I observed payment of cash advances
  to pay-mistress from the Hospital Operating Account and Hospital Fees Trust
  Account totaling K94,171 that were not recorded as cash advances and
  consequently, had not been acquitted at year end;

   The Hospital did not maintain appropriate records of its creditors. In the absence of
  these records, I was unable to ascertain the total amount of outstanding
  commitments and liabilities as at 31 December, 2015;

   Proper accounting was not adhered to by way of journal entries using the double
  entry accounting principle to account for adjusting transactions of revenue and
  expenditure items in updating the cash book and corresponding ledger accounts in
  2015; and

   The Hospital did not maintain adequate inventory records nor had an effective
  system and procedures in place to ensure important inventories are safeguarded and
  properly accounted for.

  Disclaimer Audit Opinion

  Because of the significance of the matters described above, I was not able to obtain
  sufficient appropriate audit evidence and consequently I am unable to express an opinion

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  on the financial statements of Nonga Base Hospital for the year ended 31 December,
  2015.

  Other Matters

  In accordance with the Audit Act 1989, 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:

  Section 63(3) of the Public Finances (Management) Act 1995 requires the Chief
  Executive to present the financial statements in a form and design approved by the
  Minister. I am, however, unable to confirm that the Minister has approved or has
  prescribed the format of the financial statements in terms of the Public Finances
  (Management) Act 1995”.

  6.3.5.3 Management Response

  The Hospital Board had fully responded to each of my audit queries with indication that it
  had taken steps or in the process to remedy issues highlighted as deemed appropriate.

  6.3.5.4 Status of Financial Statements

  At the time of preparing this Report in September 2017, the Nonga General Hospital
  Board had not submitted its financial statements for the year ended 31 December, 2016
  for my inspection and audit.

  6.3.6 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 business arms of the East New Britain Provincial Government namely, East
  New Britain Development Corporation Ltd (ENBDCL) and Barakopo Plantation
  Development Corporation Ltd.

  6.3.6A East New Britain Development Corporation Ltd

  The East New Britain Development Corporation Limited (ENBDC) is a business arm of
  the East New Britain Provincial Government. It operates subsidiaries in varous industries
  such as food retails, port services and construction. The main subsidiaries are as listed:

   Andersons Foodland Limited
   East New Briain Supermarkets Limited
   ENB Port Services Limited
   Dawapia Construction Limited

  There is also a related entity – New Briain Copra and Cocoa Co-operative Limited.

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  6.3.6A.1 Status of Financial Statements

  As in the past, the ENBDCL had engaged services of the private accounting firms to
  conduct audits of its accounts and records.
  At the time of preparation of this Report in September 2017, the entity had submitted its
  financial statements for the financial years ending 31 December, 2013, and 2014. The
  examination of the financial statements and the audit of the accounts and records
  however, could not be conducted due to manpower and financial constraints faced by my
  Office.

  The financial statements for the financial years ending 31 December, 2015 and
  2016 had not submitted for my inspection and audit.

  6.3.6B Barakopo Plantation Development Corporation Ltd

  As at the time of preparing this Report in September, 2017, the Barakopo Plantation
  Development Corporation Ltd had failed to submit any recent financial statements for my
  inspection and audit.

  6.3.6C Gazelle Restoration Authority

  The Gazelle Restoration Authority was established by the Gazelle Restoration Authority
  Act, 1995 following the volcanic destruction of Rabaul and the surrounding areas. The
  Authority is responsible for the cleaning up tasks, restoration of essential services in the
  affected areas and replacement of infrastructures. Program activities have been financed
  through funding arrangements with the International Bank for Reconstruction and
  Development (IBRD), European Union (EU) and partially through AusAID.

  6.3.6C.1 Status of Financial Statements

  At the time of preparation of this Report in September, 2017 the Gazelle Restoration
  Authority had not submitted its financial statements for the years ended 31 December,
  2015 and 2016 for my inspection and audit

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  6.4 EAST SEPIK PROVINCE

  6.4.1 Introduction

  The East Sepik Provincial Government (ESPG), Wewak Urban Local-level Government
  (WULLG) and Wewak General Hospital (WGH) are audited every year, with or without
  financial statements. The Maprik Urban Local-Level Government was for the first time
  audited by my Office during this audit cycle. Other LLGs and Business Arms of the
  ESPG & LLGs within the Province 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 Governments.

  6.4.2 East Sepik Provincial Government

  The East Sepik Provincial Government (ESPG) had submitted its financial statements for
  the financial year ending 31 December 2015 for my inspection and audit. Fieldwork
  associated with the audit of the financial statements had been completed with a
  Management Letter issued and a Disclaimer Audit Opinion issued to the Minister
  concerned and other relevant bodies. The paragraphs below details the issues identified
  with the financial statements and the control environments:

  6.4.2.1 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 in September, 2017. The report was a Disclaimer Opinion as
  reproduced below:

  Basis for Disclaimer Opinion

  Presentation of Financial Statements

  Finance Instruction 4/2000 issued under Section 117 of the Public Finances
  (Management) Act 1995 state the prescribed format for the preparation and presentation
  of the Financial Statements for Provincial and Local Level Governments. The Financial
  Statements of East Sepik Provincial Government for the year ended 31December, 2015
  did not contain the Governor’s Declaration on the East Sepik Provincial Government’s
  budget performance and the Provincial Government and Treasury Accounting
  Organization Chart as required. Subsequently, the financial statements were not presented
  in the format required by the Finance Instructions.

  Opening Balances

  Because of the disclaimer opinion issued in respect of the year ended 31 December, 2014
  and 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 balances. Since these opening
  balances would affect the determination of the financial position and the cash flows of the
  East Sepik Provincial Government in the current year, I was unable to determine whether

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  adjustments to the respective cashbooks and the financial positions, might have been
  necessary for the year ended 31 December 2015.

  Cash balances

  I am unable to express an opinion on the accuracy of the total fund balance of
  K16,755,533 for East Sepik Provincial Government as at 31 December 2015 due to:

   Significant reconciling items identified in the bank reconciliation statements of the
  operating, grant and provincial works trust accounts that had not been adjusted in
  the respective cashbooks and hence affected the balances and the subsequent total
  fund balance at year end. I was not provided explanations and documentary
  evidence of adjustments made if any. Consequently, I was unable to confirm the
  completeness and accuracy of the year-end cash at bank balances disclosed in the
  Statement ‘A’;

   Unpresented cheques dating back to 2010 in the ESPG grant account and the
  Provincial Works Trust Account were not written back to their respective cash
  books hence, these cash books were unreliable;

   The 2015 opening cash book balances for the Provincial Works and the Stormwater
  Trust Accounts did not agree to their 2014 audited closing balances. Consequently,
  I was unable to confirm the accuracy of the closing balances for these trust
  accounts;

   In the absence of the bank reconciliations for the Storm Water Drainage Project
  accounts and the Marienberg trust account I was unable to confirm the accuracy
  and completeness of their total cash book balances of K5,832,439 as at year then
  ended.

  Receipts and Payments

  I am unable to verify the completeness and accuracy of the receipts of K54,011,598
  payments of K54,750,404 and the subsequent deficit of K738,805 in Statement ‘B’ and
  the related Statements ‘J’ and ‘K’ due to:

   The TMS 55 report on Staffing and Teacher’s salaries grants component not
  recorded in the books of accounts and reported subsequently. Consequently, the
  Statements ‘B’, ‘J’ and ‘K’ did not appropriately show the financial performance of
  the provincial government during the year under review; and

   Reconciling items of revenue totaling K1,001,874 and expenditure totaling
  K899,147 were not posted to the revenue ledgers and the cash book and hence, not
  reported in statements ‘B’, ‘J’ and ‘K’. I was not provided explanations and
  documentary evidence of adjustments made if any. Consequently, I was unable to
  confirm the completeness and accuracy of the receipts and payments;

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  Investments

  The East Sepik Provincial Government had a business arm such as Sepik Coffee and
  shares held with South Sea Tuna. Records pertaining to these investments were not made
  available for my examination and as such I was unable to confirm the nil balances
  disclosed in statements ‘E’ and ‘F’.

  Assets

  Good asset management was not practiced and in the absence of a complete assets
  register, annual stock-takes and proper assets policy, I was unable to confirm the
  existence, custody, condition and value of assets owned by the East Sepik Provincial
  Government as at 31 December, 2015. Furthermore, assets totaling K635,288 purchased
  during the year could not be confirmed in absence of the asset register.

  Advances

  Appendix 6 revealed total un-acquitted advances of K14,692,806 as at 31st December
  2015. In the absence of proper records such as advance register, acquittal files, reminder
  notices and evidence of recovery actions taken against defaulters, I was unable to confirm
  the accuracy and completeness of the total un-acquitted advances as at year end.

  The Management had since responded to my audit observations relating to the disclosures
  in the financial statements and had assured me of its commitment to make improvements
  in areas concerned in future.

  Significant Control Weaknesses

  There was significant control weaknesses identified in the Provincial Government’s
  records and processes, as follows:

  a) Budget estimates for all the trust accounts were not prepared and submitted to the
  Minister for Treasury for approval as required under the trust instrument in
  accordance to the Public Finance Management, Act;

  b) The Provincial Government did not maintain a proper customer data base with an
  effective billing system in the revenue section for the collection of revenue from the
  major internal revenue sources such as Goods and Services Tax (GST), Liquor
  Licensing Fees and Motor Traffic Registration Fees resulting in under collection of
  internal revenue totalling K3,074,620. Further, evidence of check and balances
  were non-existent and segregation of duties being the key element of control was
  lacking. Staff were performing overlapping tasks in cash collection, receipting,
  recording and banking;

  c) I was unable to establish if the East Sepik Provincial Supply and Tenders Board
  (PSTB) was functioning effectively in ensuring that proper procurement procedures
  were adhered to in incurring major procurements of goods and services in the
  province due to PSTB meeting minutes, prequalification listing of contractors,
  Technical and Evaluation Committee (TEC) evaluation and analytical reports,

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  tenders and quotations registers and tender documents were not made available for
  my examination. Consequently, I was unable to establish if requirements for
  procurement of goods and services were adhered to.

  d) Appointment Instruments of all Financial Delegates and Authorized Requisitioning
  Officers (ARO) and their specimen signatures were not maintained and produced
  for my examination when requested. Consequently, I was not able to verify the
  names and signatures on the requisitions raised and processed for payment; and

  e) My examination of Paid Accounts on sample basis revealed unsatisfactory matters
  where economical purchasing practices were not seriously observed to maximize
  acquisition of goods and services with limited resources:

   Three (3) quotations were not obtained in almost all payment vouchers sighted.
  This practice departure from the requirements proper procurement procedures as
  per the Financial Manual and payments totaling K2,531,136 were charged to
  incorrect expenditure votes;

   Financial Assistance totalling K1,185,486 and grants/subsidies totalling
  K3,495,026 were paid to individuals and other organisations. In the absence of
  proper policies and guidelines for accountability over these payments, I was unable
  to ensure the validity of these payments;

   Expenditures totaling K837,075 were paid to Bank South Pacific (BSP) for airfares
  for officers. There was no evidence of actual airfares being issued. In the absence
  of proper controls, there was high possibility of officers en-cashing the cheques;

   Expenditures totaling K643,896 were paid to Travel and Logistics Agent, a travel
  agent based in Wewak, for travel expenses including airfares and accommodation
  for officers of the Provincial Government. These payments were seen to be non-
  compliance to requirements of proper procurement procedures and the requirement
  for acquittal stipulated in the Public Finances (Management) Act;

   Payments totaling K2,803,690 were made to private car companies for hire of
  vehicles. In the absence of proper procurement procedures, these vehicle hire
  companies appeared to be handpicked thus resulting in the excessive and
  unjustifiable hire costs;

   A total amount of K2,048,649 was paid to various fuel suppliers during the year. In
  the absence of an effective control mechanism to monitor the supply and usage of
  fuel for the vehicle fleets, I was unable to ensure if the fuel account was used with
  due care for wastage and extravagant;

   Payments totaling K1,632,633 for minor capital works and maintenance were paid
  to various contractors. Tender documents, Progress inspection reports, selection
  criteria and completion certificates were not sighted to confirm that projects were
  properly awarded and satisfactorily completed. In the absence of duly signed
  contracts, I was unable to ensure the validity of these payments; and

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   Tender documents and formal contracts managed and paid through the Provincial
  Works Trust Account were not provided for my review. These included projects
  for the Back filling of the sports stadium playing field-by Wanem Ya Ltd, Police
  Housing Project at Yawasoro by BC Civi Works, a consultancy services provided
  by Arhitechural Aalliance and construction of 40 police houses by Dieter Serice
  Engineering. Reports pertaining to inspection and completion of these projects
  were not provided for my review. Consequently, I was unable to ensure if these
  projects were executed with due care for waste and extravagant.

  Disclaimer Audit Opinion

  In my 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 East Sepik Provincial Government for the year
  ended 31 December, 2015.

  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:

   the East Sepik Provincial Government did not maintain proper accounts and records
  and has consequently breached Section 68(1) of the Public Finances
  (Management)Act, 1995;

   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; and

   The East Sepik Provincial Government has not prepared and submitted its financial
  statements for the year ended 31 December, 2015 to the Minister and the Auditor-
  General within the required timeframe in contravention to Sections 114 and 119 of
  the Organic Law on Provincial and Local Level Governments.”

  6.4.2.2 Management Response

  The above observations on the internal control weaknesses had been communicated by
  way of Management Letters to the Provincial Administrator and Management together
  with implications and recommendations for improvements. The Management had since
  responded to my audit observations and recommendation for improvement relating to the
  internal control issues and had assured me of its commitment to making improvements in
  areas concerned in future.

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  6.4.2.3 Status of Financial Statements

  The East Sepik Provincial Government had not submitted its financial statements for the
  year ended 31 December, 2016 for my inspection and audit. However, the interim audit
  on the control environment had been completed in the absence of the financial statements
  and the results were being evaluated at the time of preparing this Report in September
  2017.

  6.4.3 Wewak Urban Local-level Government

  The Wewak Urban Local-level Government (ULLG) submitted its financial statements
  for the years ended 31 December 2012, 2013, 2014 and 2015. Field work associated with
  the examination of these financial statements and audit of the accounts and records had
  been completed with all the Management Letters and Audit Opinion Reports issued. The
  paragraphs below detail issues identified with the financial statements and the internal
  control environment.

  6.4.3.1 Comments on Financial Statements – 2015

  My reports to the Ministers concerned and other relevant bodies under the Organic Law
  and the Audit Act on the Wewak Urban Local Level Government’s financial statements
  for the years ended 31 December 2012, 2013, 2014 and 2015 were issued in July 2017.
  The reports contained similar Disclaimer Audit Opinions hence, only the 2015 report is
  reproduced as follows:

  Basis for Disclaimer Opinion

  Presentation of Financial Statements

  Finance Instructions 5/2000 issued under Section 117 of the Public Finances
  (Management) Act 1995 state the prescribed format for the preparation and presentation
  of the financial statements for Local Level Governments. The financial statements of
  Wewak Urban Local Level Government for the year ended 31 December, 2015:

   did not contain the statement on the budget performance of the Wewak Urban local
  Level Government by the Town Mayor;

   did not contain the Statement of the District Administrator’s Declaration of the
  Financial Statements in accepting responsibility on the disclosure of data and
  information provided on the financial affairs of Wewak Local-Level Government;
  and

   The statements were not signed by the senior management as required.

  These statements are written representations 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 the management has
  not provided the necessary representations this constitutes a scope of limitation and
  affects every statement of the financial statements. Subsequently, the financial statements

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  were not presented in the format required by the Finance Instructions.

  Incorrect amounts presented in thousands

  The financial statements of Wewak ULLG for the year ended 31 December, 2015 are
  misleading as a result of error in the presentation of the statements. Namely, amounts in
  Statements ‘A’ to ‘I’, Appendices 1 and 2 and Notes 3 to 14 and 16 to 17 of the notes to
  and forming part of the financial statements were incorrectly presented in amounts of
  ‘thousands’(‘000) instead of the original amounts.

  Prior Year Balances

  The prior year comparative balances disclosed in financial statements for the year ended
  31 December, 2015 were incorrect and inconsistent to the balances per the 2014 audited
  financial statements. I have carried out appropriate audit procedures regarding the
  opening balances of the current period and the comparative balances. However, I was not
  able to obtain sufficient audit evidence to ensure completeness and accuracy of the
  opening fund balances and the prior year comparative balances as reported

  Opening Balances

  Because of the disclaimer of opinions issued in respect of the years ended 31 December,
  2014 and prior years and 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
  balances. Since these opening balances would affect the determination of the financial
  position and the cash flows of the Wewak Urban Local-Level Government in the current
  year, I was unable to determine whether adjustments to the respective cashbooks and the
  financial positions, might have been necessary for the year ended 31 December 2015.

  Cash balances

  I am unable to express an opinion on the accuracy of the cash at bank and trust account
  balances respectively and consequently, on the financial position of Wewak Urban Local
  Level Government accumulated fund balance of K28,302 as at 31 December, 2015 due
  to:

  a) the accumulated total fund balance of K28,303 in Statement ‘A’ is not adequately
  represented by the cash balance of K5,306 resulting in a variance of K22,996. The
  representation of the bank balances does not reflect the fund balance rendering the
  statement as incorrect, incomplete and unreliable;

  b) the LLG Fund balance of (K640,085) in statement ‘A’ does not reflect the details
  shown in note 3 totaling (K611,782.62) resulting in a variance of K28,303. Further,
  the cash balances in both Statement ‘A’ and note 6 do not reflect the reconciled
  cashbook balance of K459,358;

  c) The details of the Trust Fund of K668,388 are not shown in note 4 and note 4 are
  not reflective of Statement ‘C’. Also, the opening balances for the funds in note 4

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  are different from the prior year ending balances;

  d) The Bank Reconciliations of the Wewak Urban Local-Level Government‘s bank
  account were not properly and correctly done during the year as significant
  reconciling items carried forward since 2004 were not cleared. These items had not
  been adjusted in the cashbook thus affected the balance at year end. In addition,
  independent confirmation of bank balances was not provided by the bank; and

  e) Wewak Urban LLG had opened and operated a separate bank account (Account
  number: 1002 843 025) to cater for the Town Market Fees collection. This account
  was opened without the prior approval from the Secretary for Finance. Further, the
  receipts and payments out of this account and the subsequent bank balance were not
  captured and reported in Statements ‘A’, ‘B’, ‘J’ and ‘K’. The records maintained
  for this account were not provided for my verification.

  I was not provided sufficient and appropriate documentation including the required
  explanations for the errors and discrepancies noted above. Consequently, I was unable to
  verify and confirm the validity, completeness and the accuracy of the total accumulated
  balance as at 31 December, 2015;

  Receipts and Payments

  I am unable to verify the accuracy of the receipts of K1,129,096 and payments of
  K1,769,181 and subsequently the accuracy of the deficit of K640,085 for the year ended
  31 December, 2015 due to:

  a) Reconciling items of revenue totaling K178,963 and expenditure totaling K9,347
  were not posted to the respective revenue and expenditure ledgers and the cash
  book and hence, not reported in statements ‘B’, ‘J’ and ‘K’. I was not provided
  explanations and documentary evidence of adjustments made if any. Consequently,
  I was unable to confirm the completeness and accuracy of the receipts and
  payments; and

  b) Takings from the market were not banked and accounted for in the books of the
  urban local-level government and the rentals from properties inside the market
  rented out were also not receipted and accounted and hence not reported in
  statements ‘B’ and ‘J’ of the financial statements. I was not provided sufficient and
  appropriate documentation including the required explanations for the
  discrepancies. Consequently, I was unable to confirm the completeness and
  accuracy of the total receipts for the year ended 31 December 2015.

  Debtors

  Appendix 2 reported nil debtors as at the year ended 31 December, 2015. Debtor ledgers
  maintained for uncollected debts in respect of all revenue heads were not adequately
  updated during the year and long outstanding debts were not followed up and action taken
  for recovery of debts resulting in significant shortfall in revenue collection. I was not
  provided with satisfactory explanation and supporting documentation of the inadequate

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  maintenance of the debtors ledgers. Consequently, I was unable to ascertain the validity
  and accuracy of the nil balance for debtors.

  Assets

  The appendix 4 of the financial statements showed Assets as Nil for the year ended 31
  December 2014. An Assets Register was not maintained and stock takes of assets and
  inventories were not carried out during the year. In the absence of a complete Assets
  Register and annual stock takes, I was unable to confirm the value, completeness and
  existence of assets owned by and in the custody of Wewak Urban Local-level
  Government as at 31 December, 2014.

  Advances

  Appendix 6 of the financial statements reported un-acquitted advances as nil as at the year
  ended 31 December, 2015. The Wewak Urban Local-Level Government did not maintain
  a comprehensive advances register and I was not provided a proper and accurate
  reconciliation of the outstanding advances for the year then ended. Consequently, I am
  able to ascertain the accuracy of the total advances paid during the year and establish the
  total amount of un-acquitted advances at year end.

  Significant Control Weaknesses

  There were significant control weaknesses identified in the Provincial Government’s
  records and processes, as follows:

   The Wewak Urban Local-Level Government did not maintain a proper customer
  database with names, addresses, details of locations with an effective billing system
  in the revenue section resulting in collections of revenues from internal revenue
  heads especially the land rates, sanitation & garbage and the Trading licenses were
  done on an ad hoc basis and billing of client/debtors were not done on a timely
  basis resulting in significant arrears outstanding. Further, I could not establish the
  total debts outstanding as at year end due to poor record maintenance;

   Segregation of duties in the collection, receipting and banking of cash daily and
  preparation of collector statements was lacking. The cashier performed all
  responsibilities including being the custodian of unbanked cash and safe cabinet
  which posed a high risk of abuse and misuse of cash collection;

   The Wewak Urban Local-Level Government appointed a market management to
  manage the operations of the market including collection and banking of market
  and other fees on its behalf. In the absence of a memorandum of understanding or
  an agreement in place between the market management and the Wewak Urban
  Local-Level Government and cashbooks and related records. I was unable to
  establish the legitimacy of the arrangement and confirm if all moneys collected
  were banked intact and brought to account in the books of Wewak Urban Local-
  Level Government;

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   A number of businesses was conducted within the Market premises without paying
  any rentals to Wewak Urban since they started operating. Hence a loss of revenue
  to the Wewak Urban Local-Level Government;

   A contract to justify the payment of security services fees in 2014 and 2015 and the
  rent free space in the market premises was not made available for my examination.
  Hence, I was not able to establish the validity of the rentals paid and the free use of
  the space within the market premises;

   Collections banked totaling K86,368 could not be traced to the collectors
  statements and the bank statements and also could not establish to which bank
  account these takings were deposited. Further, official receipts were noted to be not
  issued by the cash office for the market collections;

   There is no systematic procedure in place for procurement of goods and services.
  Quotations were not obtained from three (3) suppliers as required and no quotation
  register sighted to verify the existence of quotations obtained for purchases of
  goods and services;

   The specimen signatures of the duly appointed Financial Delegates and
  Requisitioning Officers were not maintained properly. Also the signatures for
  Financial Delegates could not be verified;

   Inspection reports and completion certificates/ reports were not found in the files
  for contract works. As a result, I was not able to ensure if value for money were
  derived from these expenditures;

   Proper and efficient filing system was lacking as personnel files were not in their
  current state and lacked up to date records and important information necessary for
  calculation of wages and entitlements; and

   Wages were under taxed while Councilor’s Allowances were paid without
  deducting tax. Tax declaration forms were not lodged with the Internal Revenue
  Commission (IRC) to enable correct deduction of tax from the wages and
  allowances.

  Disclaimer of 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 Wewak Urban Local-Level Government for the year
  ended 31 December, 2015.

  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:

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   the Wewak Urban Local Level Government does not maintain proper accounts and
  records and has consequently breached Section 68(1) of the Public Finances
  (Management)Act, 1995;

   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.

   Wewak Urban Local-Level Government had opened and operated a separate bank
  account (Account number: 1002 843 025) to cater for the Town Market Fees
  collection. This account was opened without the approval of the Secretary for
  Finance and has consequently breached section 11(2) of the Public Finances
  (Management) Act, 1995;

   the Wewak Urban Local Level Government did not have a five (5) year corporate
  plan and has consequently breached the Public Service General Order No. 8.11;
  and

   The Wewak Urban Local Level Government has not prepared and submitted its
  financial statements to the Minister and the Auditor-General prior to the year
  ending 31 December 2015, resulting in breach of section 114 and 119 of the
  Organic Law on Provincial and Local Level Governments.”

  6.4.3.2 Management Response

  The above observations on the internal control weaknesses had been communicated by
  way of Management Letters to the District Administrator and Management together with
  implications and recommendations for improvements. I have however, not received the
  responses to the Management Letters as at the time of preparing this Report in September
  2017.

  6.4.3.3 Status of Financial Statements

  The Wewak ULLG had not submitted its financial statements for the financial year ended
  31 December 2016 for my inspection and audit at the time of writing this Report in
  September 2017.

  6.4.4 Maprik Urban Local-level Government

  The Maprik Urban Local-level Government (ULLG) submitted its financial statements
  for the years ended 31 December 2013, 2014 and 2015. Field work associated with the
  examination of these financial statements and audit of the accounts and records had been
  completed with all the Management Letters and Audit Opinion Reports issued. The
  paragraphs below detail issues identified with the financial statements and the internal
  control environment.

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  6.4.3.1 Comments on Financial Statements – 2015

  My reports to the Ministers concerned and other relevant bodies under the Organic Law
  and the Audit Act on the Maprik Urban Local Level Government’s financial statements
  for the years ended 31 December 2013, 2014 and 2015 were issued in July 2017. The
  reports contained similar Disclaimer Audit Opinions hence, only the 2015 report is
  reproduced as follows:

  Basis for Disclaimer Opinion

  Presentation of Financial Statements

  Finance Instructions 5/2000 issued under Section 117 of the Public Finances
  (Management) Act 1995 state the prescribed format for the preparation and presentation
  of the financial statements for Local Level Governments. The financial statements of
  Maprik Urban Local Level Government for the year ended 31 December, 2015:

   Did not contain the statement on the budget performance of the Maprik Urban local
  Level Government by the Town Mayor;

   District Administrator’s Declaration of the Financial Statements in accepting
  responsibility on the disclosure of data and information provided on the financial
  affairs of Maprik Local-Level Government was unsigned; and

   The statements were not signed by the senior management as required.

  Subsequently, the financial statements were not presented in the format required by the
  Finance Instructions. These statements are written representations 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 the management has not provided the necessary representations this constitutes a
  scope of limitation and affects every statement of the financial statements.

  Incorrect amounts presented in thousands

  The financial statements of Maprik ULLG for the year ended 31 December, 2015 are
  misleading as a result of error in the presentation of the statements. Namely, amounts in
  Statements ‘A’ to ‘I’, Appendices 1 and 2 and Notes 3-17 of the notes to and forming
  part of the financial statements were incorrectly presented in amounts of
  ‘thousands’(‘000) instead of the original amounts.

  Opening Balances

  Because of the limitation of scope from disclaimed audit opinion in the prior year and 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 balances. Since these opening
  balances would affect the determination of the financial position and the cash flows of the
  Maprik Urban Local-Level Government in the current year, I was unable to determine

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  whether adjustments to the respective cashbooks and the financial positions, might have
  been necessary for the year ended 31 December 2015.

  Cash balances

  I am unable to express an opinion on the accuracy of the cash at bank and consequently,
  on the financial position of Maprik Urban Local Level Government accumulated fund
  balance of K47,210 as at 31 December, 2015 due to:

   Complete and enabling records such as Cashbooks, bank reconciliation statements
  and bank statements were not made available for my examination; this constituted a
  limitation of scope. Consequently, I was not able to verify the accuracy and
  completeness of the cash balances and the subsequent Fund balance of K47,210 as
  at the year end. In addition, the operating deficit for the current year was materially
  misstated as discussed under the paragraph of Receipts and Payments.

   The comparative Surplus/(Deficit) for the year as per Statement ‘B’ for the 2014
  financial year reported in note 3 of the financial statements was different from the
  comparative balance presented in Statement ‘B’ and the prior year’s financial
  statements. I was not provided explanations and documentary evidence of
  adjustments made if any. Consequently, I was unable to confirm the accuracy and
  consistency in the disclosure of the prior year comparative balances in the financial
  statements

  Receipts and Payments

  Statement ‘B’ disclosed the summary of Receipts and Payments with an operating deficit
  of K138,840. I am unable to verify the accuracy and completeness of the receipts and
  payments and subsequently the accuracy of Statement ‘B’ and the related Statements ‘J’
  and ‘K’ and Statement ‘D’ due to the mandated records such as the trial balance,
  summary reports of revenue and expenditure and their respective ledgers were not made
  available for my examination. This constituted a limitation of scope. In addition, the 2014
  comparative balances reported in Statements ‘B’ and ‘D’ were noted incorrect and
  inconsistent to the balances reported in the 2014 financial statements.

  Assets

  The appendix 4 of the financial statements showed Assets as Nil for the year ended 31
  December 2015. An Assets Register was not maintained and stock takes of assets and
  inventories were not carried out during the year. In the absence of a complete Assets
  Register and annual stock takes, I was unable to confirm the value, completeness and
  existence of assets owned by and in the custody of Maprik Urban Local-level
  Government as at 31 December, 2015.

  Advances

  Appendix 6 of the financial statements reported un-acquitted advances of K35,580 as at
  the year ended 31 December, 2015 whilst the note forming the statement (note 17)

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  reported outstanding advances of K49,390 as at year ended 31st December 2015 resulted
  with a variance of K13,810. The Maprik Urban Local-Level Government did not maintain
  a comprehensive advances register and I was not provided an explanation on the variance
  between the appendix 6 and note 17. Consequently, I am able to ascertain the accuracy of
  the total advances paid during the year and establish the total amount of un-acquitted
  advances at year end.

  Significant Control Weaknesses

  There was significant control weaknesses identified in the Maprik Urban Local Level
  Government’s records and processes, as follows:

   The collector’s statements, bank deposit butts and bank statements for the year
  were not made available for audit examination. Consequently, I was not able to
  comment on the completeness and accuracy of the collections, banking, and
  reporting of the revenue receipts. In addition, due to absence of the above records, I
  was not able to apply audit procedures to determine on the extent of existence of
  debtors if any;

   Proper and relevant accounting records pertaining to procurement and payment of
  goods and services were not available for audit examination. Hence, there was
  limitation of scope on the application of audit procedures to gain reasonable
  assurance on the financial transactions as to whether compliance to statutory
  regulations and the financial records were maintained fairly;

   There was no evidence to confirm that three (3) quotations is obtained for all
  payment nor was a quotations register maintained during the year in compliance to
  the proper procurement procedures stipulated under the Financial Management
  Manual;

   Appointment Instruments for Section 32 Officers and Financial Delegates and their
  specimen signatures were not maintained. Hence I was not able to ensure if
  requisitions for payments were approved by duly approved section 32 officers and
  the financial delegate within their financial limit;

   There was no evidence of employee records being maintained such as employee
  personal files and approved staff ceiling, and pay listing. As a result, I was not able
  to ensure the total number of staff employed and their respective salary grade;

   There was lack of relevant records such as the payroll printout, tax declarations and
  the approved pay listing. As such I was not able to ensure that wages totaling K
  K86,350 was process and paid accordingly; and

   Non-compliance with Advances Management was observed as Cash and travel
  advances were not acquitted within seven (7) days of return from duty travel, new
  advances were given to Officers while their previous advances were still un-
  acquitted, and follow-up actions were not taken to have the advances acquitted
  promptly.

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  Disclaimer of 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 Maprik Urban Local Level Government for the year
  ended 31 December, 2015.

  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:

   The Maprik Urban Local Level Government does not maintain proper accounts and
  records and has consequently breached Section 68(1) of the Public Finances
  (Management)Act, 1995;

   The receipts and payments 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.

   the Maprik Urban Local Level Government did not have a five (5) year corporate
  plan and has consequently breached the Public Service General Order No. 8.11;
  and

   The Maprik Urban Local Level Government has not prepared and submitted its
  financial statements to the Minister and the Auditor-General prior to the year
  ending 31 December 2015, resulting in breach of section 114 and 119 of the
  Organic Law on Provincial and Local Level Governments.”

  6.4.3.2.1 Management Response

  The above observations on the internal control weaknesses had been communicated by
  way of Management Letters to the District Administrator and Management together with
  implications and recommendations for improvements. I have however, not received the
  responses to the Management Letters as at the time of preparing this Report in September
  2017.

  6.4.4 Wewak General Hospital

  6.4.4.1 Status of Financial Statements

  The Wewak General Hospital had submitted its financial statements for the year ended 31
  December 2015. Fieldwork associated with the audit of the accounts and records had been
  completed and the results are being evaluated at the time of preparing this Report in
  September 2017.

  The financial statements for Wewak General Hospital for the year ended 31 December
  2016 had not been submitted for my inspection and audit at the time of writing this
  Report in September 2017.

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  6.4.5 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 Government and Local-Level Government
  Business Arms and other establishments.

  I am aware that East Sepik Provincial Government had a number of business arms
  including Sepik Coffee and shares held with South Sea Tuna. Records pertaining to these
  investments were not made available for my examination and as such I was unable to
  comment on the operations and financial results of these entities.

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  6.5 EASTERN HIGHLANDS PROVINCE

  6.5.1 Introduction

  Eastern Highlands Provincial Government, Goroka Urban Local-level Government,
  Eastern Highlands Provincial Health Authority and Provincial Government Business
  Arms are audited every year, with or without financial statements. Other Local-level
  Governments and the Business Arms of the Governments could not be audited due to
  manpower and financial constraints faced by my Office and the lack of records and
  support from the respective entities in the Eastern Highlands Provincial Governments
  domain.

  6.5.2 Eastern Highlands Provincial Government

  The Eastern Highlands Provincial Government submitted its Financial Statements for the
  year ending 31 December, 2015 and the audit of the accounts and records was completed
  and in March, 2017. The final Management Letter and the audit opinion report for 2015
  was issued to the Ministers concerned and other relevant bodies in April, 2017. The audit
  report issued was a Disclaimer Audit Opinion. Issues identified with the financial
  statements and the control environments are reproduced in the paragraphs below.

  6.5.2.1 Financial Statements – 201 5

  My Report to the Ministers concerned and other relevant bodies under the Organic Law
  on Provincial Governments and Local Level Governments and the Audit Act, 1989 (as
  amended) was issued in April, 2017. The report was a Disclaimer of Opinion as
  reproduced below:

  Basis for Disclaimer Opinion

  Report on the Financial Statements

  Disclosure Errors

  The financial statements of Eastern Highlands Provincial Government for the year ended
  31 December, 2015 comply with the format prescribed by Finance Instruction 4/2000.
  However, I am unable to express an opinion on the accuracy and completeness of the
  financial statements as the financial statements were not authenticated as prescribed.

  Opening Balances

  Because of the disclaimer of opinion issued in respect of the year ended 31 December,
  2014 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 Eastern Highlands 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, 2015.

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  Statement A – Cash Balances

  I am unable to express an opinion on the accuracy of the negative Fund balance of
  K61,846,997 of the Eastern Highlands Provincial Government for the year ended 31
  December, 2015 due to the following reasons:

  a) The Fund Balance of negative K61,846,997 is represented by bank and investment
  balance of K20,834,579 resulting in a negative difference of K82,681,576 as at 31
  December, 2015. However, the Provincial Administration did not provide the
  necessary documentation, the required explanation or the reconciliation for the
  significant discrepancy.

  b) The Provincial Revenue Fund was disclosed as negative K62,069,233. However, it
  was stated in Note 3 to the accounts as K20,612,344 resulting in a difference of
  K41,456,889. Further, in Note 3 the beginning balance of K8,494,789 is incorrect
  as it does not correspond to the 2014 comparative figure of K8,382,494 stated in
  Statement A.

  c) The Trust Fund balance disclosed as K222,236 is a dormant book value carried
  over from previous years. I was not provided reconciliation, explanations and
  documentary evidence for the balance. Consequently, I was unable to verify the
  Trust Fund balance of K222,236 for the year ended 31 December, 2015.

  d) Included in the Bank balance of K20,834,579 is a negative balance of K398,355.
  As stated in Note 6.3 this amount is disclosed as “Other Accounts”. However, I am
  unable to verify and confirm the validity and the accuracy of the account balance as
  it had been used as a carry forward reconciling item without proper and adequate
  supporting documentation from prior years including the year ended 31 December,
  2015.

  e) Further, the Fund balance in Statement “A” is represented by the un-reconciled
  cash balances of Revenue and Trust Accounts. My examination of the bank
  reconciliation of the Grant and the Provincial Government Operating accounts
  revealed significant outstanding reconciling balances inherited from prior years and
  continue to recur as reconciling items for the year ended 31 December, 2015.

  I was not able to verify the validity and the correctness of the disclosures in the Statement
  “A” as I was not provided the necessary documentation, the required explanation or the
  reconciliation for the significant discrepancies. Consequently, I am unable to satisfy
  myself even for results or consequences of the inaccuracies and errors cumulating in the
  overall Fund balance.

  Receipts and Payments

  Statement “B” disclosed the Summary of the Receipts and Payments with an operating
  deficit of K12,117,555. I am unable to verify the accuracy of the receipts and payments
  and subsequently the accuracy of the Statement “B” and the related Statements “J” and
  “K” as there were significant un-reconciled items identified in the bank reconciliation
  statements of the Eastern Highlands Provincial Government Operating and Grant

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  Accounts relating to receipts and expenditure that were not adjusted in the cashbooks and
  the revenue and expenditure ledgers and disclosed in Statements “J” and “K” with
  consequential effects on Statements “B” and the cash balances reported in Statement “A”.

  Assets

  The Appendix 4 of the financial statements stated Assets as Nil for the year ended 31
  December, 2015. However, I was provided a Register of Fixed Assets for the prior year’s
  up to 2010. This register was not updated in the respective years after 2010 and did not
  include additions during the year 2015, totaling K1,194,761. The list provided did not
  include necessary details including, date of purchases, costs, useful life, locations and
  obsolesce of the Assets under the Administration’s care and possession. In the absence of
  an updated and complete Assets Register, I was unable to confirm the value,
  completeness and the validity of the Assets in the custody of the Eastern Highlands
  Provincial Government and the disclosure made in Appendix 4 for the year ended 31
  December, 2015.

  Advances

  Appendix 6 of the Financial Statements disclose K1,655,240 as outstanding advances for
  the year ended 31 December, 2015. However, in Note 17 outstanding advances brought
  forward from 2014 were stated as K1, 572,689. I was not provided a proper and accurate
  reconciliation of the outstanding advances and the un-acquitted advances for the year end.
  As a result, I am unable to ascertain the correctness, validity and the recovery of the
  outstanding public monies for the year ended 31 December, 2015.

  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, and the Appropriation Act, 2014 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 the Original Amended Appropriation Act, No. 1 of
  2015 authorizing a total of K307,680,600 on 29 January, 2015 to be expended for the
  year, 2015. The Original budget revealed no top up and withdrawals. However, there was
  a shortfall of revenue and an under expenditure of K245,611,367 and K257,728,922
  respectively. I was not provided an explanation or the necessary documentation for the
  significant variances culminating to noncompliance with Budgetary Protocols and
  legislations.

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  Procurement and Payment

  There were significant control weaknesses in the Eastern Highlands Provincial
  Government’s maintenance of the accounting records and processes resulting among
  others these anomalies:

  • Grants totaling K3,262,120 were paid to various recipients during the year. Except
  for the Local Level Governments, the Provincial Government’s Policy Guideline
  for Grants and Financial Assistance to Organizations, Groups and Individuals and
  the Accountability Reports from the grant recipients were not provided for my
  review and audit,

  • 17 payment vouchers totaling K577,616 were not provided for audit verification
  and 12 payments totaling K287,228 were made without obtaining the required three
  (3) written quotations. As a result, I was unable to validate the veracity and the
  propriety of these payments.

  • Consultancy and legal payments total K691,571 were made during the year, 2015.
  However, I was not provided any form of documentation or explanations for the
  engagement of those lawyers and consultants. As a result, I am unable to verify the
  veracity of the payments made respectively during the year ended 31 December,
  2015.

  • I continue to highlight the probity of the payments made for the purpose of a
  “Goroka Market Development”. A total of K17 million was paid in 2013 and 2014
  and these payments may have by passed the PSTB procurement procedures and
  guidelines.

  Further, I was not provided necessary explanations or documentation regarding these
  payments and the status of the market development since I initially enquired in 2013.
  Consequently, I am unable to confirm and verify the validity and the correctness of these
  payments totaling K17 million.

  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 Eastern Highlands Provincial Government for the year
  ended 31 December, 2015.

  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:

  • the Eastern Highlands Provincial Government does not maintain proper accounts
  and records in terms of its receipts, payments, investment of moneys, the

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  acquisition and disposal of assets and had consequently breached Section 68(1) of
  the Public Finances (Management) Act, 1995;

  • 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, and

  • Eastern Highlands Provincial Government has not prepared and submitted its
  financial statements to the Minister and the Auditor-General prior to 30 June for the
  year ending 31 December, 2015, resulting in breach of Section 114 and 119 of the
  Organic Law on Provincial and Local Level Governments.”

  6.5.2.2 Management Response

  Management had not responded to the matters raised in my Management Letters.
  Consequently, I was not advised of any improvement at the time of preparing this Report.

  6.5.2.3 Status of Financial Statements

  The financial statements for the year ended 31 December, 2016 had not been submitted
  for my inspection and audit at the time of preparing this Report in August, 2017.

  6.5.3 Goroka Urban Local-level Government

  6.5.3.1 Status of Financial Statements

  The Goroka Urban Local-level Government (GULLG) had not submitted its Financial
  Statements for 2014, 2015 and 2016 at the time of writing this Report in August, 2017 for
  my inspection and audit. The field work associated with the interim audit of the control
  environment for 2015 and 2016 were not completed and the results of the audit will be
  reported in my 2017 Part 3 Report.

  6.5.4 Eastern Highlands Provincial Health Authority

  6.5.4.1 Status of Financial Statements

  Financial Statements for the years ended 31 December, 2014 and 2015 were submitted for
  my inspection and audit. At the time of preparing this report, the results of the respective
  audits were being evaluated. The delay was due to management problems within the
  Eastern Highlands Provincial Health Authority.

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  6.5.5 Business Arms

  The four business arms of the Eastern Highlands Provincial Government, namely;
  Akogere Estate Limited, Nokondi Investments Limited, Al’s Auto Repairs and Eastern
  Highlands Property Developers Limited were established by the Provincial Government
  to engage in different business activities and generate income and with the realized
  returns to be paid back into the provincial government.

  6.5.5A Akogere Estate Limited

  According to the 2015 accounts of Eastern Highlands Provincial Government, the
  Government has invested initial capital of K1, 130, 567 in this company back in 1998.
  The Akogere Estate Limited is an unlisted Company registered under the Papua New
  Guinea Companies Act, 1997.

  6.5.5A.1 The Activities of the Company

  The principle activity of the Company during the year was property investment.

  6.5.5A.2 Status of Financial Statements

  At the time of preparing this Report, the Akogere Estate Limited had not submitted its
  financial statements for the years ended 31 December, 2010 to 2016 for my inspection
  and audit.

  6.5.5B Nokondi Investments Limited

  According to the 2015 financial statements of Eastern Highlands Provincial Government,
  the Government has invested initial capital of K501,148 in this company back in 1998.
  The Nokondi Limited is an unlisted Company registered under the Papua New Guinea
  Companies Act 1997, operating in property investment business.

  6.5.5B.1 The Activities of the Company

  The main activity of the Company was among others to invest in property investments in
  Goroka, Eastern Highlands, PNG and elsewhere with realized returns that will benefit the
  people of Eastern Highlands.

  6.5.5B.2 Status of Financial Statements

  At the time of preparing this Report, the Nokondi Investments Limited had not submitted
  its financial statements for the years ended 31 December, 2010 to 2016 for my inspection
  and audit.

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  6.5.5C Al’s Auto Repairs Limited

  According to the 2015 financial statements of Eastern Highlands Provincial Government,
  the Government has invested initial capital of K94,581 in this company back in 1998. The
  Al’s Auto Repairs Limited is an unlisted Company registered under the Papua New
  Guinea Companies Act 1997, operating in property investment business.

  6.5.5C.1 Status of Financial Statements

  At the time of preparing this Report, the Al’s Auto Repairs Limited had not submitted its
  financial statements for the years ended 31 December, 2010 to 2016 for my inspection
  and audit.

  6.5.5D Eastern Highlands Property Developers Limited

  6.5.5D.1 Status of Financial Statements

  At the time of preparing this Report, the Eastern Highlands Property Developer Limited
  had not submitted its financial statements for the years ended 31 December, 2010 to 2016
  for my inspection and audit.

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  6.6 ENGA PROVINCE

  6.6.1 Introduction

  The Enga Provincial Government, Wabag Urban Local-level Government, Wabag
  General Hospital, Enga Children’s Fund and Pogera District Development Authority 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 Governments.

  6.6.2 Enga Provincial Government

  The Enga Provincial Government submitted its financial statements for the year ended 31
  December 2015 and the fieldwork associated with the audit of accounts and records were
  completed with the Management Letters issued and a Disclaimer Audit Opinion was
  issued to the Ministers concern. The issues identified with the financial statements and
  the control environments are reproduced as follows:

  6.6.2.1 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 in September 2017. The report was a Disclaimer of Opinion
  as reproduced below:

  “Basis for Disclaimer Opinion

  Cash Balances

  I am unable to express an opinion on the accuracy of the Cash balances totaling K19,
  145,587 and consequently, on the financial position of Enga Provincial Government as at
  31 December, 2015 due to the following issues:

   The opening Cash Balances brought forward from previous years contained
  significant errors and omissions. Since these opening balances would affect the
  determination of the financial position and the cash flows of the Enga Provincial
  Government in the current year, I was unable to determine whether adjustments to
  the respective cashbooks and the financial positions, might have been necessary for
  the year ended 31 December 2015;

   The underlying records such as cashbook, ledgers and the bank statements
  pertaining to the operations of Other Account reported with a balance of K500,662
  were not provided for my examination;

   Reconciling items of revenue and expenditure identified through the monthly bank
  reconciliation for the provincial operating and grants accounts are not promptly
  cleared resulting to the accumulation of long outstanding items reported in the
  monthly bank reconciliation statements.
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  Receipts and Payments

  The Enga Provincial Government reported its total revenue and expenditure as K107,
  593,994 and K118, 033,099 respectively with an operating deficit of K10, 439,104. I am
  unable to verify the accuracy of the receipts and payments in statements ‘B’, ‘J’ and ‘K’
  due to;

   The revenue and expenditure component of the Staffing and Teaching Services
  grants of K24,153,000 reported in Statements ‘J’ and ‘K’ respectively differ from
  the amount of K89,238,000 reported in the revenue and expenditure ledgers. I was
  not provided with the documents and necessary explanations for the discrepancies
  consequently, I was not able to verify the accuracy of the total Staffing and
  Teaching Services Grants reported; and

   Substantial reconciling items pertaining to revenue and expenditure were not
  adjusted in the cash books, respective ledgers and the subsequent Statements ‘B’,
  ‘J’ and ‘K’.

  Investments

  Financial Statements ‘E’ and ‘F’ did not disclose any investments held by the Provincial
  Government as at 31 December, 2015. However, the Enga Provincial Government had
  majority share holdings with Wapenamanda Coffee Factory (51%), Enga Pyrethrum
  Company (100%), Kandep wheat factory (100%), Enga Children’s Trust Fund Limited
  (100%) and Miok Air (100%). Records relating to investments of the Provincial
  Government were not provided for my examination and as such I was unable to confirm
  and verify the total value of investments of the Provincial Government as at 31
  December, 2015.

  Assets

  Appendix 4 did not show a complete report on the assets of the Provincial Government at
  31 December 2015. Documents sighted during audit confirm that the Provincial
  Government over the last five years since 2012 had been working on an action plan to
  consolidate a standard fixed assets and inventory register as well as design policies and
  procedures for proper management of these assets.

  Losses and Deficiencies

  Appendix 5 reported losses and deficiencies of K366, 665 as at year ended 31 December,
  2015. However, note 16 of the notes to and forming part of the financial statements
  showed a balance of K64, 521 resulting in a variance of K302,144. I was not provided
  with necessary documentations and explanations of the discrepancy. Consequently, I was
  unable to confirm the accuracy of the balances reported as at year end.

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  Advances

  Appendix 6 disclosed un-acquitted advances of K25, 662,890 as at 31 December, 2015.
  There was weakness in the internal controls over the management of advances, arising
  from inadequacy on the maintenance of the advance register which were not updated on a
  regular bases, incompleteness in recording of details in reference to advances paid, failure
  to adhere to acquittal procedures and imposing of penalties on advance defaulters.
  Consequently, I was not able to ensure the accuracy and completeness of the total un-
  acquitted advances as at year end.

  Significant Control Weaknesses

  There was control weaknesses identified in the Provincial Government’s accounting
  records and processes as follows:

   Segregation of duties was not implemented in regard to the collection and banking
  of public moneys. I noted that only one (1) Cashier was performing overlapping
  tasks without any supervision. The independent duties performed concurrently
  include collection and receipting, compiling collector statements, recording and
  banking;

   The required accounting records such as FF3 Register, Claims Register, Quotation
  Register, Consolidated Assets & Inventories Register and Investment Register were
  not maintained.

   There was lack of adequate controls over 2015 expenditure appropriation which
  resulted to large amount of expenses on motor vehicle purchases and private hires
  and increasing associated costs on fuel and maintenance, excessive expenditure on
  cash advances without proper acquittals, unnecessary expenditure on financial
  assistances to other government agencies who receive full funding from the
  National Government, and lump-sum payments lacking supporting documents.

   Control over advance management was inadequate where officers being paid
  advances while previous advances remained un-acquitted and cash advances being
  solely handled by the paying officer posing high risk for abuse and misuse of these
  funds; and

   Employee personal files were not properly maintained and personal details not
  updated on a timely basis. Salary history cards were either missing or not updated
  and fortnightly payroll reconciliations were not done due to lack of payroll records.
  In addition leave register was not maintained including personal documents such as
  birth and marriage certificates to prove genuineness of legal dependents claimed
  for recreational leave entitlements.

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  Disclaimer Audit Opinion

  Because of the significance of the matters described under the basis of a disclaimer
  opinion above, I was not able to obtain sufficient appropriate audit evidence and
  consequently I am unable to express an opinion on the financial statements of the Enga
  Provincial Government for the year ended 31 December, 2015.

  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:

   The Enga Provincial Government did not maintain proper records and accounts and
  has consequently breached Section 68(1) of the Public Finances (Management)Act,
  1995; and

   The receipts and payments and investments 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.”

  6.6.2.3 Management Response

  Management had not responded to the matters raised in my Audit Management Letter for
  2015. Consequently, I am unable to determine if there were any improvements at the time
  of preparing this Report in September, 2017.

  6.6.2.4 Status of Financial Statements

  At the time of preparing this Report, the financial statements for Enga Provincial
  Government for the year ended 31 December 2016 has been submitted and field audits
  were scheduled to commence shortly when funding becomes available.

  6.6.3 Wabag Urban Local-level Government

  6.6.3.1 Status of Financial Statements

  At the time of preparing this Report, the Wabag Urban Local-Level Government had
  submitted its financial statements for the years ended 31 December 2013, 2014, and 2015
  for my inspection and audit. The fieldwork associated with the examination of the
  financial statements and the audit of the accounts and records for the three (3) years could
  not be conducted due to financial constraints faced by my Office.

  The financial statement for the year ended 31 December, 2016 was not submitted for my
  inspection and audit.

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  6.6.4 Wabag General Hospital

  6.6.4.1 Status of Financial Statements

  At the time of preparing this Report, the Wabag General Hospital had submitted its
  financial statements for the year ended 31 December, 2015 for my inspection and audit
  and field audits will commence shortly when funding become available.

  atement for the year ended 31 December, 2016 was not submitted for my inspection and
  audit.

  6.6.5 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. The Enga Provincial Government has a number
  of business arms as reported below.

  6.6.5A Enga Children’s Trust Fund

  The Enga Children’s Fund Trustee Limited was established by a Deed of Trust in 1997
  between ‘The Enga Provincial Government’ and ‘Pogera Mine Equity Holdings Pty Ltd’.

  6.6.5A.1 The Functions of the Fund Trustee

  The principle activities of the company were to manage the trust funds in accordance
  with the Trust Deed executed between the company and the Enga Provincial Government
  for the funds received from MRDC Ltd under the Deed of Redemption of Option. The
  main function of the Trustee was, among other things to invest in real estate in Port
  Moresby, PNG and elsewhere with realized returns that will benefit the people of Enga.

  6.6.5A.2 Financial Statements

  The Enga Children’s Fund Trustee had submitted its financial statements for the year
  ended 31 December 2015 for my inspection and audit. The fieldwork associated with the
  inspection of the accounts and records and the examination of the financial statements
  had been completed and Management Letters issued.

  My report to the Ministers and other relevant bodies under the Company’s Act and the
  Audit Act were issued on 29th March 2017. The report did not contain any qualification.

  6.6.5A.3 Status of Financial Statements

  The Enga Children Fund has submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit. Fieldwork associated with the audit of
  accounts and records and the examination of the financial statements was in progress at
  the time of preparing this Report in September 2017.
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  6.6.5B Enga Rural Investments (Holdings) Ltd and its Subsidiaries

  The Enga Provincial Government incorporated Enga Rural Investments (Holdings) Ltd
  (ERIHL) and its Subsidiaries (Wapenamanda Coffee Factory, Enga Pyrethrum Company
  and Kandep Wheat Factory) purposely to invest and develop major agricultural
  development projects aimed at economically empowering the lives of simple people in
  the province. The three (3) subsidiary companies are cash crop companies managed by
  ERIHL.

  6.6.5B.1 Status of Financial Statements

  At the time of preparing this Report, the financial statements for these companies for the
  years since their establishments have not been submitted for my inspection and audit.

  6.6.6A Pogera District Development Authority

  The Pogera LLG Special Purpose Authority (PLLGSPA) was established by
  proclamation under the Local Level Government Administration Act 1997. The
  PLLGSPA is the successor to the Pogera Development Authority established by the
  Pogera Development Authority Act 1989 of the Enga Provincial Government.

  6.6.6A.1 The Functions of the Authority

  The functions of the Authority generally are to provide special mining and government
  services including municipal services and other essentials in the Pogera mine area.

  6.6.6A.2 Status of Financial Statement

  The Pogera Development Authority had not submitted its financial statements for the
  years ended 31 December 2012, 2013, 2014, 2015 and 2016 for my inspection and audit
  despite numerous reminders from my Office.

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  6.7 FLY RIVER (WESTERN) PROVINCE

  6.7.1 Introduction

  The Fly River Provincial Government, Daru and Kiunga Urban Local-level Governments
  and Daru 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
  Provincial 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.

  6.7.2 Fly River Provincial Government

  The Fly River Provincial Government had not submitted its financial statements for the
  years ended 31 December, 2014, 2015 and 2016 for my inspection and audit. However,
  the field work associated with audit of the internal control environment for the two
  former years had been completed and the Management Letters were issued.

  6.7.2.1 Control Environment – 2015

  The Management Letters relating to the audit of the accounts and records for the years
  ended 31 December, 2014 and 2015 were issued in February, 2017. The Management
  Letters contained similar issues hence, only significant control weaknesses in the 2015
  Management Letter are reproduced as follows:

  Budgetary Control

  Examination of the Budgetary Controls exercised by the Fly River Provincial
  Government during the financial year 2015 revealed the following issues:

   Journal entry No; 64/2015 was passed to indicate a transfer of K3,000,000 PSIP
  Funds from the Provincial Treasury Operating Account to the Provincial
  Government Operating Account and expended. This transfer was in breach of the
  Appropriation Act 2015 where all PSIP funds are to be captured under National
  Government Grants:

  Documentary evidence was not provided nor sighted to indicate a formal approval
  by the Secretary-Department of Finance nor the Provincial Budgetary Committee
  as well as the Provincial Executive Committee or the Provincial Assembly for
  transfer of PSIP funds. The similar observations had been reported in the previous
  years;

   Total warrant authorities as at 17th August 2015 was stated as K4,097,500
  comprised of current authority of K591,500 and previous authority of K3,506,000.
  The total warrant authorities received from Department of Finance for national
  grants and the cash fund certificate issued by the Provincial Government could not
  be confirmed. An amount of K3,506,000 could not be verified against the warrants
  issued as not all warrants were provided as a result of a poor filing system; and

   Evidence of budget quarterly reviews had not been provided for audit examination.
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  Cash Book & Bank Balance

  The Fly River Provincial Government maintained two bank accounts namely, the Fly
  River Provincial Government Operating Account and Fly River Provincial Grant Account
  with two separate cash books to conduct its financial transactions for Internal Revenues
  and Grant Revenues respectively. Audit of the bank accounts together with related
  records revealed the following matters:

  Fly River Provincial Government Operation Account: 1000943315

  The year-end bank reconciliations showed favorable closing bank and cash book balances
  of K1,743,153 and K2,379,252 respectively. The review of the bank reconciliation
  statements, bank statements and the PGAS cash book however, revealed the following
  concerns:

   The bank reconciliation for the month ending December 2015 had shown that the
  closing bank and cash book balance of K1,743,153 and K2,379,252 respectively,
  remained un-reconciled; and

   Significant reconcilable items that were sighted in supporting schedules of the bank
  reconciliations had continued to significantly distort the actual cash book and fund
  balances. These items had not been identified and corrected in accordance with
  Financial Instruction 5/2006 issued dated 30th November 2006.

  Fly River Provincial Government Grant Account: 1001680784

  The year-end bank reconciliations had shown favorable closing bank and cash book
  balances of K7, 154,260 and K1, 357,862 respectively. The review of the bank
  reconciliation statements, bank statements and PGAS cash book however, revealed the
  following concerns:

   The bank reconciliation had shown that the year-end closing bank and cash book
  balance of K7, 154,260 and K1,357,862 respectively remained un-reconciled; and

   Significant reconcilable items that were sighted in supporting schedules of 6, 8 &
  11 of the bank reconciliation statement for December 2015 had been outstanding
  for years dating back to 2011 which could have significantly distorted the actual
  cash book and fund balances. These items had not been identified and corrected in
  accordance with Financial Instruction 5/2006 issued dated 30th November 2006.

  Revenue Management

  The audit review of the collection and banking procedures revealed the following
  weaknesses:

   Significant under collection of revenues in the areas of Mining Royalties,
  Dividends (MROT2) and 10% Equity. Total estimated for the year was
  K22,446,700 while actual collected was K5, 538,141 resulting in a variance of
  K16,908,558. The under-collection implies unrealistic budget estimates which
  could adversely impact expenditure plans;
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   Cash receipting/collection and banking procedures revealed no major irregularities.
  However, the appointment of cash officer, who is the spouse of the Provincial
  Treasurer may amount to a conflict of interest and a breach of the Public Service
  Management Act; and

   The Provincial Liquor Office had been poorly equipped with of financial resources
  and man-power to effectively perform their roles and responsibilities of monitoring
  and surveillance of existing liquor outlets. However, despite the handicap, the
  office managed to generate well over K200, 000 annually. There was a very poor
  filing system which proved access to the records difficult and time consuming.

  Payment of Accounts & Procurement Management

  Tests of sample payments for accuracy and completeness of payments and procurement
  processes revealed the following control weaknesses:

   Payment vouchers not adequately maintained resulting in audit un-able to locate or
  have the documents provided in account of twenty seven sampled payments
  totaling K537,526 except for the cheque usage report;

   A verbal quotation register was not maintained at the time of the audit
  to state the reason, for only one quotation or no quotations for goods and services
  purchased.

   Nine payments totaling K192,995 that were not committed, certified and lacked
  three valid quote attachments prior to processing of the payment; and

   Record of financial delegates, specimen signatures and authorized requisition
  officers were not updated annually.

  Provincial Supply & Tenders Board

  The review of the Fly River Provincial Government Procurement Procedures revealed the
  following weaknesses:

   The Instruments establishing the appointment of Provincial Supply and Tender
  Board (PSTB) Board members, Signed Meeting Minutes, Register for tenders
  invited and certificate of inexpedience issued were not available nor provided for
  audit review; and

   The tender box was unsuitable for the purpose, not placed in a secured location, not
  secured by dual lock operation and no separate custody of keys. Also, small project
  tenders or urgent tenders are not received sealed.

  Capital Works & Maintenance

  The review of the records and details of the sampled forty-four (44) payments totaling
  K5,334,149 during the year under review revealed the following weaknesses:

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   Finance Form 3 (FF3) for all payments tested, were not signed by the commitment
  clerk and authorized PSTB approval attached prior to payments;

   Reports, records or information on monitoring and reporting of project
  management by the Technical Services Division were not available nor provided
  for audit review at the time of the audit in June, 2016;

   Payment vouchers relating to payments totaling K532,611 were missing; and

   Eleven payments totaling K2,005,874 to construction companies who had no
  evidence of valid Certificate of Registration (COR) and Certificate of Compliance
  (COC) from Investment Promotion Authority (IPA) and Internal Revenue
  Commission (IRC) respectively.

  Grants & Subsidies

  Audit review of the Grants and Subsidy expenditure ledgers (National and Provincial
  accounts) revealed that the Fly River Provincial Government had expended over
  K2,517,317 during the year as grants and subsidies to various organizations including the
  Districts. Audit noted however those policy guidelines for proper and effective
  management of grants and lump-sum payments disbursed to various agencies for state
  funded projects were lacking. Consequently, acquittals and disbursement
  reports/statements from respective recipients were not provided to the Provincial
  Administration and no follow up actions taken for accountability purposes.

  Assets Management

  A review of the existing systems and procedures relating to the assets management
  revealed the following weaknesses:

   The Fly River Provincial Government did not maintain a proper Assets Register
  during the year under review and prior years. Further, no Central Asset Register
  maintained to record details of purchases and/or disposal of assets during the year
  and prior years. Divisional Managers were also responsible for maintaining
  individual Asset Registers for the Divisions. Interviews and enquiries conducted
  with management revealed that no such assets registers had been maintained over
  the years. Consequently, purchases during the year totaling well over K335,124
  could not be verified as correctly recorded in the Assets Register. The Provincial
  Government spends millions of kina purchasing assets every year and the absence
  of proper records indicates that, there is high risk of the assets being abused and
  misused;

   No periodic stock take and Board of Surveys of assets had been conducted during
  the year under review and prior years to ensure all assets of the Provincial
  Government are in existence and in usable conditions; and

   The title documents for the properties were not provided for audit review although
  requested. Consequently, audit was unable to verify the total number of properties
  under the custody of Fly River Provincial Administration.

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  Advances Management

  The Fly River Provincial Government had in place advance registers for both travelling
  and cash advances except for the following weaknesses:

   Payments for travel and cash advances (as per the ledgers from the Provincial
  Grant Account – K856,120 and Provincial Operating Account – K1,383,502) during
  the year totaling K2,239,622 had remained un-acquitted at the time when this audit
  was done in May/June, 2016. Audit sighted no evidence to indicate that there had
  been any acquittal or recovery efforts taken; and

   Payment of excessive cash advances ranging from K20,000 to K85,500 amounting
  to K736,720 were noted which had not been acquitted as stated above. This
  indicated the lack of stringent cash management practices exercised by the
  management.

  Salaries, Wages & Allowances

  Review of the sampled personnel files, payrolls and other related records revealed the
  following issues:

   An updated Establishment Register (2015) was not provided to audit to obtain the
  names of the employees for the year 2015. Audit was informed however, that all
  position holders currently under the new structure remained un-attached as the
  recruitment and appointment process was still pending;

   Fortnightly payroll reconciliation was not done for the twenty-six (26) fortnights
  for the year under review;

   Income Tax payable on casual employees’ wages was not deducted and remitted to
  Internal Revenue Commission (IRC) which was in breach of IRC Tax Regulations;

   Personal files on contract officers were generally not adequately maintained or
  were missing and hence, were not available for audit review;

   A total of 226 casual staff were on the PGAS Payroll and paid from Fly River
  Provincial Operating Account amounting to K4,067,323 through Kundu Pay with
  the Bank South Pacific Bank (BSP). As noted in the previous years, audit could not
  confirm validity and legitimacy of their employment in the absence of a complete
  and reliable Casual Employees Listing, and that only 78 of the total casuals had
  their files maintained in some form. As a result it is likely that there are ghost
  names on the PGAS Payroll; and

   Provincial Treasury casual staff was noted to have been paid from the 700 Series
  PGAS Payroll rather than from the Provincial Treasury Operating Account.
  Records or correspondences in relation to this salary payment arrangement for
  number of payees were not sighted.

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  Trust Accounts

  The Fly River Provincial Government operated a total of five Trust Accounts without
  bank accounts. The respective Trust Ledgers were operated through the PGAS system as
  Clearing Accounts through the Provincial Government Operating and Grant bank
  Account respectively with related system cash book.

  Two of the five Trust Accounts namely, the FRPG Trust Clearing Account & FRPG
  Operating Clearing account had opening and closing balances with transactions during
  the year while the other three namely, North Fly District, Cashbook 500 and Cashbook
  501 had same opening and closing balances which remained dormant during the year as
  these were closed in 2002.

  Corporate Governance

   The Provincial Assembly and PEC meeting minutes were not provided despite the
  request. Consequently, unable to confirm whether the Provincial Government had
  convened the required minimum number of sittings during the year nor could
  ascertain decisions and resolutions passed, if any;

   The Corporate Plan provides strategies, causes of actions to be taken, monitoring
  and evaluation processes required to measure outcomes with appropriate associated
  plans developed to amplify or articulate the action plan for clear understanding and
  implementation;

   The Fly River Provincial Government had in place a Five-Year Corporate Plan
  (2011 – 2015) and a Five – Year Development Plan (2013-2017). The Corporate
  Plan had eight (8) Key Result Areas (KRAs) namely, Internal Management,
  Coordination and Direction (KRA 1); Mobilization of Support Services in Decision
  Making Processes (KRA 2); Finance, Budget Management and Implementation
  (KRA 3); Effective Human Resources Management and Training (KRA 4);
  Physical Assets Management (KRA 5); Performance Management & Technical
  Information Management System (KRA 6 ); Local Level Government Support
  (KRA 7); and Cross Cutting Issues (Gender, HIV/Aids, Disaster and Emergency
  (KRA 8). Audit noted that most of these KRAs had not been implemented as
  highlighted below:

  KRA 1: No monitoring and evaluation team established to ensure the KRA were
  achieved;

  KRA 3: No realistic internal revenue estimate as well as lack of proper recoding and
  updating of the internal and national revenue heads in the system; no proper
  supporting or source documents of the revenue received;

  KRA5: No assets register for the FRPG or the records of assets;

   The Internal Audit Unit is handicapped by limitation of required resources
  including sufficient manpower and appropriate logistical and budget support.

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   The Internal Audit Unit had no Annual Audit Work Plans for the year under review
  nor did it undertake any internal audits during the year hence, no audit reports
  could be provided; and

   The Fly River Provincial Government is yet to establish an Audit Committee as
  required by Section 9 of the Public Finance Management Act, 1995 (as amended).

  Journal Entries

   Twenty-four Journal Entries totaling K502,588 were however, could not be
  verified as they were not properly filed or held in file; and

   A Journal Entry relating to a canceled cheque valued at K500,000 had no evidence
  of the cheque. The Accountant advised that the actual canceled cheque was
  withheld by the Bank for unknown reason was pending.

  6.7.2.2 Management Response

  The audit observations on the internal control weaknesses for the years 2014 and 2015
  had been communicated by way of a Management Letters to the Provincial Administrator
  and management together with recommendations for improvements. I have however, not
  received the responses to the Management Letters as at the time of preparing this Report
  in August 2017.

  6.7.2.3 Status of Financial Statements

  At the time of preparation of this Report in August, 2017, the Fly River Provincial
  Government had not submitted its financial statements for the financial year ended 31
  December, 2016 for my inspection and audit.

  6.7.3 Daru Urban Local-level Government

  The Daru Urban Local-level Government had submitted its financial statements for the
  years ended 31 December 2014 and 2015 for my inspection and audit. Field work
  associated with examination of the financial statements and audit of the accounts and
  records was completed with both the Management Letters and Audit Opinion Reports
  issued. The paragraphs below detail issues identified with the financial statements and the
  internal control environment.

  6.7.3.1 Comments on Financial Statements – 2015

  My reports to the Ministers concerned and other relevant bodies under the Organic Law
  and Audit Act on the Daru Urban Local-Level Government’s financial statements for the
  years ended 31 December, 2014 and 2015 were issued on 21st and 28th June, 2017
  respectively. The Reports contained similar Disclaimer Audit Opinions hence, only the
  2015 report is reproduced as follows:

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  Basis for Disclaimer Audit Opinion

  Disclosure Errors

  Cash Balances

  The Daru Urban Local Level Government Fund Balance of K814,354 is inaccurate due to
  omission of the 2014 Carried Forward Fund Balance of K122,475 and Net Operating
  Surplus for the year of K489,122 which were not included in the calculation of the total
  revenue fund balance in Note 3 to the accounts. Also my comments on significant
  discrepancies noted on the monthly bank reconciliation and inherited errors on the prior
  years carried forward fund balance not corrected in the current year’s books of account
  which are of material value which would have impacted the accuracy and completeness
  of the cash balances reported in the financial statements.

  Receipts and Payments

  Statement ‘B’ presented total revenue and expenditure as K910,370 and K421,158
  respectively with an operating surplus of K489,212. The operating surplus was unreliable
  due to understatement of the total expenditure by K295,515 as confirmed by the ledger
  accounts and that necessary and complete records were not maintained to confirm if all
  internal revenues had been accounted for.

  Other Disclosures

  Accuracy of Nil balance disclosures of other statements relating to, trust accounts,
  investments, lending and borrowings, as well as appendices relating to commitments &
  arrears, debtors & receivables, assets & inventories, losses & deficiencies and cash
  advances could not be confirmed as accurate and reliable in the absence of related records
  and registers.

  Significant Control Weaknesses

  There was significant control weaknesses identified in the Daru Urban Local Level
  Government’s records and processes as follows:

   The Daru Urban Local Level Government annual budget estimates for the year was
  K3,106,170, an increase of K422,370 from the previous year’s budget of
  K2,683,800. I was not provided with sufficient information and records to indicate
  that quarterly budget reviews and revisions were done and that the budget was
  implemented according to the approved appropriations. I also noted numerous
  instances of payments charged to inappropriate expenditure vote items defeating
  the purpose of budgetary control practices;

   No proper revenue registers were maintained to keep track of all revenue
  collections. As a result market fees collected were often used without proper
  accounting documentation;

   I could not verify the genuineness and legality of payment totaling K93,497 in the
  absence of payment vouchers. I also noted significant lapses in the procurement
  procedures which included payments totaling K34,747 processed and paid without
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  being certified by the Certifying Officer and casual laborers payments totaling
  K26,500 could not be confirm as received due to unavailability of Finance Form10;

   As previously mentioned in my 2013 and 2014 Audit Reports, Daru Urban Local
  Level Government had not maintained a comprehensive fixed asset register nor
  conducted any physical stock-take of its assets. Consequently, I am unable to
  establish the total value of assets owned and in the custody of the ULLG as at 31
  December, 2015;

   The Urban Local Level Government had advances totalling K28,870 remained un-
  acquitted as at time of the audit in October, 2016 ;

   Journalized entries valuing K1,419, 895 were never documented nor filed after
  being systematically recorded on the PGAS;

   During my audit of the 2013 accounts in September 2014 I was advised that the
  Planning Division of the Provincial Administration had undertaken the task of
  compiling a Corporate Plan or a Five (5) year Development Plan for LLGs in South
  Fly District. However, at the time of the completion of the 2015 audit in October
  2016, no such documents had been provided for my review; and

   The Fly River Provincial Government is responsible for the internal audit of the
  Daru ULLG. However, no internal audits were done on the accounts of the Urban
  LLG.

  Disclaimer Audit Opinion

  Because of the significance of the matters described above, I was not able to obtain
  sufficient appropriate audit evidence and consequently, I am unable to express an opinion
  on the Financial Statements of Daru Urban Local-level Government for the year ended 31
  December, 2015.

  Other Matters

  In accordance with the Audit Act, I have a duty to report on significant matters arising
  out of the Financial Statements, to which the report relates. The following are matters of
  significance:

   Daru 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”.

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  6.7.3.2 Status of Financial Statements

  The Daru Urban Local-level Government had not submitted its financial statements for
  the financial year ended 31 December 2016 for my inspection and audit at the time of
  preparation of this report in August, 2017. The field work associated with audit of the
  internal control environment however, could not be conducted due to financial and
  manpower constraints faced by my Office.

  6.7.4 Kiunga Urban Local-level Government

  6.7.4.1 Status of Financial Statements

  The Kiunga Urban Local-level Government had not submitted its financial statements for
  the financial years ended 31 December 2014, 2015 and 2016 for my inspection and audit
  at the time of preparation of this report in August, 2017. The field work associated with
  audit of the internal control environment for the three years however, could not be
  conducted due to financial and manpower constraints faced by my Office.

  6.7.5 Daru General Hospital Board

  The Daru General Hospital Board had submitted its financial statements for the years
  ended 31 December, 2014, 2015 and 2016 for my review and audit. Field work
  associated with examination of the financial statements and audit of the accounts and
  records was completed with both the Management Letters and Audit Opinion Reports
  issued. The report for the financial year 2014 was disclaimed whilst 2015 and 2016
  reports were qualified due to various improvements in disclosures in the financial
  statements as well as other internal control procedures. The paragraphs below detail
  issues identified with the financial statements and the internal control environment for the
  respective years.

  6.7.5.1 Comments on Financial Statements – 2014

  My report for the year ended 31 December, 2014 to the Minister concerned and other
  relevant bodies under the Audit Act and the Organic Law was issued on 1st of May, 2017.
  The report contained a Disclaimer Audit Opinion as reproduced below:

  “Basis for Disclaimer Audit Opinion

  Disclosure Errors

  I noted the following disclosure errors have material effect on the accuracy and
  completeness of the account balances, the financial position and consequently, the
  reliability of the financial statements of Daru General Hospital as at 31 December, 2014:

   The accuracy and completeness of the reported value of fixed assets as per the
  Schedule of Assets totaling K1,258,848 could not be confirmed to the register as
  proper and adequate records for all assets were not maintained nor available for
  audit inspection.

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   The accuracy of the Accumulated Fund balance of K4, 796,948 comprised of the
  Operating Account of K312, 531 and Fees Trust Account of K4,484,417 could
  not be confirmed in the absence of related bank reconciliations.

  Significant Control Weaknesses

  The paragraphs below give a summary of significant control weaknesses identified in the
  Daru General Hospital internal control environment:

  Revenue

  Except for instances of minor delays in banking of patient fees, controls relating to
  revenue management were noted to be sound and effective as evidenced by correct
  receipting of National Government Grants through CFCs and direct bank transfers from
  the National Department of Health and posting of the same in the cash books.

  Budgetary Control

   Proper accounting for government grants and hospital fees and the formulation of
  annual budget estimates of revenues and expenditures were lacking. Management
  failed in its responsibility to formulate estimates of revenues and expenditures of
  the Hospital for the year under review as required by the Public Finance
  (Management) Act, 1995;

   Annual budget submission with the Appropriations and the quarterly budget
  reviews for 2014, if any, were not provided for my review at the time of the audit;
  and

   The Salary & Allowances were budgeted at K5,639,300 and paid through the
  Department of Finance against the actual expenditure of K744,754. I was not
  provided nor sighted copy of the payroll reconciliations confirming actual
  expenditure on salaries and allowances for the year.

  Paid Accounts

   Ten instances of payments for routine maintenance totalling K729,966 lacked
  supporting documents including maintenance request forms and delivery dockets
  and proper receipts to confirm that all materials bought had been received intact;

   Payments incurred under “other operating expenditure” totalling K150,489 were
  not approved by a Section 32 Officer. Further, segregation of duties in respect of
  payments amounting to K528,070 was not exercised;

   The Hospital had reported its expenditure on trainings as K42,886. The accuracy
  and appropriateness of these expenditures however, could not be ascertained in the
  absence of any documented and duly approved appropriate Training Plans;

   I noted a very poor and ineffective filing system at the Hospital during the year
  resulting in over 50% of the sampled paid vouchers either missing or not filed at
  the time of the audit; and

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   Payments of recreation leave fares totalling K118,750 were not supported with
  birth certificates and/or concessions for legal dependents and students under 18
  years.

  Salaries & Wages

   Variations in salaries & wages for some permanent employees could not be verified
  in the absence of valid documents including permanent and temporary variations
  forms and advices, performance appraisals reports, over time forms etc.,… for
  confirmation;

   Employee records including salary history cards, recreational and other leave
  records, HDA, compassionate leave and sick leave records were not properly
  maintained and updated;

   Fortnightly payroll reconciliations were not done to verify the accuracy of the
  payrolls;

   Payment vouchers and Kundu Pay reports on casual wages totalling K76,613 were
  not available for audit review; and

   Overtime payments totalling K86,357 were made without prior approval by the
  Divisional Heads.

  Asset Management

  The Daru General Hospital owned extensive portfolios of fixed assets including land and
  residential buildings, vehicles and various biomedical and static equipment, furniture,
  office equipment and white goods. The Hospital did maintain an asset register however,
  lacked proper and timely update of asset details including models/serial numbers,
  additions and disposals, and physical locations of assets. Further, I sighted no evidence to
  indicate that periodic stock takes of the assets were conducted to ensure existence and
  condition of assets.

  Advance Management

  Noted general breakdown in management of travel and cash advances during the year
  resulting in an un-acquitted balance of K233,518 at year end.

  Cash & Bank Balances

  The Hospital Board had ceased the fees trust account and operated only one (operating)
  account for both the fees and the operational account transactions with a single cash book
  since 2007 following the Ministerial Directive due to maladministration and abuses of the
  account in the prior years and reopened only in August, 2014 as reported in the past.
  However, proper reconciliations of cash book and bank account for the year under review
  were not done to reflect accurate account balances at year end.

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  Corporate Governance

   As reported in the past, the Daru General Hospital did not have a Corporate Plan at
  the time of the audit in October 2016 with related long term objectives, set
  priorities and targets as well as associated plans incorporating patient care through
  financial, asset management, human resource, information technology, risk
  management and divisional operating plans,

   The Hospital had no formal Board in place in 2014 due to the expiry of the terms of
  its members. I was advised that as a result, no formal meetings were convened
  during the year. The absence of a formal appointment of Hospital Board had been
  reported since 2009 audit however, nothing seems to have been done since. I am of
  the view therefore, that in the absence of any formal Board in place, and therefore,
  its Meetings, any major financial decisions that may have been undertaken during
  the year could be deemed inappropriate and illegal. Further, the expenditure
  records had however, revealed that stipends and allowances totalling K45,159 were
  paid to certain individuals. Validity of these payments could not be confirmed in
  the absence of any formal meeting minutes or other evidence to indicate attendance
  of members; and

   The National Department of Health is responsible for the internal audit of the
  Hospital. However, I did not sight nor was provided evidence to suggest that such
  audit was conducted during the year 2014 to ensure that the control mechanisms
  instituted were operational and effective.

  The Management had responded in detail and noted fully my audit queries advising that
  certain remedial actions have been taken or are being taken to improve on the issues
  highlighted and will continue to put in place measures for further improvements.

  Disclaimer Audit 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 Daru General Hospital for the year ended 31 December,
  2014.

  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:

   Section 62 (1) of the Public Finance (Management) Act, 1995 requires all public
  bodies to keep proper accounts and records of their transactions and affairs, and to
  develop adequate controls over their assets and liabilities. As discussed in the Basis
  for Disclaimer Opinion paragraphs above, the Daru General Hospital had not
  complied with this requirement during the 2014 financial year.

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   The financial statements for Daru General Hospital was not prepared and submitted
  to the Minister and the Auditor General prior to 30 June for the year ending 31
  December preceding, resulting in breaches of Section 63(2) and (4) of the Public
  Finance (Management) Act, 1995. The signed financial statements for the year
  ended 31 December, 2014 were submitted for my review in October, 2015.”

  6.7.5.2 Comments on Financial Statements – 2016

  My reports for the years ended 31 December, 2015 and 2016 to the Ministers concerned
  and other relevant bodies under the Audit Act and the Organic Law were issued on 26th
  June and 14th July, 2017 respectively. The reports contained similar Qualified Audit
  Opinions hence, only the 2016 report is reproduced as follows:

  Basis for Qualified Audit Opinion

  Presentation

  Finance Instruction 2/2004 issued under Section 117 of the Public Finances
  (Management) Act 1995 states the prescribed format for the preparation and presentation
  of the financial statements for Public Bodies. The 2016 financial statements for Daru
  General Hospital had fully complied with the Finance Instruction.

  Disclosure Errors

  I noted the following disclosure errors which could have material effect on the accuracy
  and completeness of the account balances, the financial position and consequently, the
  reliability of the financial statements of Daru General Hospital as at 31 December, 2016:

   The source records relating to adjustments of K109,815 and K2,439,466 used in the
  calculation of the Operating and Trust accounts year-end cash balances of
  K812,032 and K3,271,962 respectively were not provided for my verification and
  confirmation.

  I also noted that the bank reconciliation statement compiled for the Operating
  account for the month of December, 2016 revealed significant amounts of revenue
  and expenditure items totalling K2,153,802 and K2,193,108 respectively that
  remained uncleared at year end. The outstanding reconciling items are of material
  value that will affect the accuracy and completeness of the cash balances reported
  in the financial statements;

   The accuracy and completeness of the reported value of fixed assets as per the
  Schedule of Assets in Note 4 of the Financial Statement totaling K1,224,334 could
  not be confirmed to the register as proper and adequate records for all assets were
  not maintained nor available for audit inspection; and

   Transactions of the hospital accounts are maintained through manual spread sheet
  and as such are prone to high risk of data manipulation and inaccurate disclosures.

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  Significant Control Weaknesses

  The paragraphs below give a summary of significant control weaknesses identified in the
  Daru General Hospital internal control environment:

  Budgetary Control

   Proper accounting for government grants and hospital fees collections was lacking.
  Management failed in its responsibility to formulate estimates of revenues and
  expenditures of the Hospital Fees Trust Account for the year under review;

   Appropriation of K6,799,000 comprised of salary & allowances were budgeted and
  paid through Department of Finance, however no reconciliation or payroll audits
  were done to confirm actual revenue and expenditure component of salary and
  allowances for the year; and

   Quarterly budget reviews and revision relating to appropriations for both the
  operating and trust accounts were not made available for my review at the time of
  audit.

  Paid Accounts

   Nine instances of payments for routine maintenance totalling K66,828 lacked
  supporting documents including maintenance request forms and delivery dockets
  and proper receipts to confirm that all materials bought had been received intact;

   Recreation leave fares payments totaling K151,837 lacked appropriate supporting
  documents such as birth certificates and/or concessions for dependents under 18
  years to validate the number and age of dependents claimed; and

   Audit noted that payments totalling K571, 614 made for supplies and consumables
  were made without obtaining three quotations.

  Advance Management

  Noted general breakdown in the management of travel and cash advances during the year
  resulting in an un-acquitted balance of K396,233 at year end.

  Assets Management

  The assets register was not properly maintained and as such failed to provide detailed
  information such as model/serial number, condition and locations of assets. The Hospital
  owned extensive portfolios of fixed assets including land and residential buildings,
  vehicles and various biomedical and static equipment; furniture, office equipment and
  white goods. However, there were no evidences to indicate that Hospital had conducted
  periodic stock take of its assets to ensure existence of its fixed assets, are in usable
  condition, and to provide management with reliable information so that decisions
  regarding replacements and disposals can be made and catered for in the annual budgets.

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  Cash Book & Bank Accounts

   The Hospital Board had ceased operation of the fees trust account since 2007
  following the Ministerial Directive due to then maladministration and abuses of the
  account and operated only one (operating) account for both the fees and the
  operational account transactions with a single cash book up to August 2014 when
  the fees trust account was reopened. However, I did not sight a copy of the trust
  instrument at the time of the audit; and

   Bank Reconciliations were done on a monthly basis for both operating and trust
  accounts. However, the same were not reviewed, checked and singed by the
  responsible person(s).

  The Management had responded in detail and noted fully my audit queries advising that
  certain remedial actions have been taken or are being taken to improve on the issues
  highlighted and will continue to put in place measures for further improvements.

  Qualified Audit Opinion

  In my opinion, except for the effects of the matters referred to in the qualification
  paragraphs above, the financial statements of Daru General Hospital (DGH) for the year
  ended 31 December, 2016:

   give a true and fair view of the financial operations during the year and its financial
  position for the year then ended; and

   the financial statements have been prepared and presented generally in accordance
  with Finance Instruction 2/2004 issued under Section 117 of the Public Finances
  (Management) Act 1995.”

  6.7.6 Business Arms

  Section 16 (2) (f) of the Audit Act1989 provides for and extends my functions to audit the
  accounts and records of the Provincial Government and Local-Level Government
  Business Arms and other establishments.

  I am not nor made aware of the existence of any business arms of the Fly River
  Provincial Government at the time of preparing this Report in August, 2017.
  Consequently, I am unable to comment on the operations and financial results of the
  business arms of the Provincial Government, if any.

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  6.8 GULF PROVINCE

  6.8.1 Introduction

  The Gulf Provincial Government, Kerema Urban Local-level Government and Kerema
  General Hospital are audited every year, with or without financial statements. Other
  Local-level Governments (LLGs) and the Business Arms of the Provincial Government
  were not audited due to manpower and financial constraints faced by my Office and the
  lack of records and logistical support from the respective Governments and Business
  Arms.

  6.8.2 Gulf Provincial Government

  The financial statements for the year ended 31 December, 2015 were submitted for my
  inspection in June 2017. However, I was unable to conduct the field audit due to the
  constraints mentioned above. I will report the results of this audit in my 2017 Part 3
  Report.

  6.8.2.1 Status of Financial Statements

  At the time of preparing this Report in September, 2017, the Gulf Provincial Government
  had not submitted its financial statements for the year ended 31 December, 2016 for my
  inspection and audit.

  6.8.3 Kerema Urban Local-level Government

  6.8.3.1 Status of Financial Statements

  As reported in my 2015 Part 3 Report, the Kerema Urban Local-level Government had
  not submitted its financial statements for the years ended 31 December, 2012, 2013, 2014
  and 2015 for my inspection and audit. However, in June 2017, draft financial statements
  were submitted to my Office after enquired by the Gulf Provincial Governments Audit
  Committee in May, 2017 to furnish the respective financial statements for their inspection
  and audit. I will commence the respective audits soon after these statements are endorsed
  by management.

  6.8.4 Kerema General Hospital

  The Kerema General Hospital had submitted its financial statements for the years ended
  31 December, 2012 and 2013 for my inspection and audit. Field work associated with the
  audit of accounts and records and examination of the 2012 and 2013 financial statements
  had been completed and Disclaimer Audit Opinions were issued to the Ministers concern.
  The issues identified with the financial statements and the control environments are
  reeproduced as follows:

  6.8.4.1 Comments on the Financial Statements 2012 – 2013

  My reports on the Kerema General Hospital for the years ended 31 December, 2012 and
  2013 to the Ministers concerned and other relevant bodies under the Audit Act were

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  issued in September and March, 2017 respectively. The reports contained Disclaimer
  Opinions hence; only 2013 is reproduced below:

  “Basis for Disclaimer Opinion

  Limitation of Scope

  Opening Balances

  Because of the disclaimer of opinion issued in respect of the year ended 31 December,
  2012 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 balance of
  K9,497,538. Since these opening balances would affect the determination of the financial
  position and the cash flows of the Kerema 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, 2013.

  Cash at Bank

  The Operating Bank Account was stated as K256,659 in the financial statements for the
  year ended 31 December, 2013. However, this disclosure was not properly reconciled
  with the underlying documents and records as a variance of K32,601 remained
  reconciled. Consequently, I was unable to verify and confirm the account balance for the
  year ended 31 December, 2013.

  Fixed Assets

  In Note 4.2 to the financial statements, Fixed Assets acquired during the year total
  K383,344. However, in the absence of a proper and accurate Fixed Assets Register, the
  details of these assets, the location and condition and the total Assets kept under the
  custody and control of the Kerema General Hospital Board was not verified and
  confirmed. As a result, I am unable to ascertain the correctness and the validity of the
  status and the disclosure made at year end.

  Government Grant

  The National Government Grants were disclosed as K7,407,400 in the financial
  statements for the year ended 31 December, 2013. However, I was unable to verify and
  confirm the account balances as supporting documents including copies of Warrant
  authorities were not provided for my examination.

  Receipts

  Hospital Service Fees were disclosed as K32,456 under Trust Account in the Funds
  consolidated statement. However, the relevant records and registers for the collection of
  the respective hospital fees were not adequately maintained and kept by the Hospital. I
  observed that the Cash Office and the Accounts Section kept separate un-reconciled
  records resulting in an un-reconciled variance of K8,702. Further, there were un-
  reconciled deposits in the Bank Statements totaling K4,554 and K23, 456 from Direct
  Deposits and Rental Fees respectively.

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  Consequently, I am unable to verify and confirm whether the receipts under Trust
  Account, Hospital Fees Account are valid and accurate for the year ended 31 December,
  2013.

  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 Constitution of the Independent State
  of Papua New Guinea, Organic Law on Provincial Governments and Local-level
  Governments, and the Appropriation Act, 2014 the Public Finances (Management) Act,
  1995 (as amended) and the Public Service (Management) Act, 1995 and other enabling
  legislations.

  Financial Statement 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 General Hospital. The financial statements of Kerema General
  Hospital for the year ended 31 December, 2013 did not comply with the above Finance
  Instruction.

  The Financial statements were unsigned by those charged with governance and further,
  the Kerema General Hospital financial statements submitted for audit did not contain the
  updated schedule of Capital Assets and Liabilities, and Statement of Accumulated Funds
  for the year ended 31 December, 2013.

  Budgetary Control

  Budget management records including budget book, warrant authorities and cash fund
  certificates and other related books of accounts and records were not provided for my
  examination. Consequently, I was not able to satisfy myself whether there were sufficient
  controls on the Budget and the reporting guidelines.

  Procurement and Payment

  There were significant control weaknesses in the Kerema General Hospital’s maintenance
  of the accounting records and processes resulting among others these anomalies:

   Debtors and Creditors Ledgers were not properly recorded and kept during the year
  ended 31 December, 2013.

   There were no formal appointments for officers performing the roles and
  responsibilities of a Requisition and a Section 32 officer rendering duties performed
  in these capacities invalid.

   Procurements and payments made totaling K352,018 were made without following
  procedures laid in the Public Finance (Management) Act, 1995.

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   Two (2) payments totaling K88,330 were made out of the Kerema General Hospital
  Fees Trust Account did not have supporting documentation.

   Advances totaling K108,434 were paid during the year ended 31 December, 2013.
  However, Advance management records including Advance register, Acquittals
  files and other related documents and records were not provided for my
  examination.

  Disclaimer Audit 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 Kerema General Hospital for the year ended 31 December,
  2013.

  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:

  Kerema General Hospital did not maintain proper books of accounts and records to
  support the financial statements and the disclosures contained therein. Further, the
  Hospital Board through the hospital management need to improve future financial
  reporting and its respective accountability statements as required under the Public
  Finance (Management) Act, 1995.”

  6.8.4.1 Status of Financial Statements

  The Kerema General Hospital had not submitted its financial statements for the years
  ended 31 December, 2014, 2015 and 2016 for my inspection and audit at the time of
  preparation of this Report in September, 2017. However, a report on the audit of the
  internal control environment for 2014 is under preparation and will be reported in my
  2017 Part 3 Report.

  6.8.5 Business Arms

  Section 16 (2) (f) of the Audit Act, 1989 (as amended), provides for and extends my
  functions to audit the accounts and records of the Provincial Government and Local-level
  Government Business Arms and other establishments.

  I am aware of the following Business Arms and/or the Trust Funds of the Gulf Provincial
  Government namely, Gulf Economic Development Ltd; Paia Inlet Infrastructure
  Development Co Ltd (86% shareholding); Gulf Investment Trust Fund and its two
  Subsidiaries – Gulf Papua Fisheries Ltd and Southern Star Ltd; Vailala Timber Block 1
  Trust Fund; and Vailala Timber Block 2 Trust Fund. At the time of preparing this Report
  in September, 2017, none of these entities had submitted their respective financial
  statements for my inspection and audit. Consequently, I am unable to comment on the
  operations and financial results of these entities.

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  6.9 HELA PROVINCE

  6.9.1 Introduction

  The Hela Province was created through an Act of Parliament on 14 July, 2009. The Hela
  Provincial Government, Tari Urban Local-level Government and the Hela Provincial
  Health Authority will be audited every year, with or without financial statements.
  However, the province had not established a functioning Urban Local-level Government
  during the year ended 31 December, 2015. The Hela Provincial Health Authority was
  established in 2014 by the NEC after the Tari District was declared a Provincial Hospital
  in October, 2014.

  6.9.2 Hela Provincial Government

  The Hela Provincial Government’s Audit Opinions of the financial statements for the
  years ended ending 31 December, 2013 and 2014 were reported in my 2015 Part 3
  Report.

  6.9.2.1 Status of Financial Statements

  At the time of preparing this Report in September, 2017 the Hela Provincial Government
  had not submitted its Annual Financial Statements for the years ended 31 December,
  2015 and 2016 for my inspection and audit.

  6.9.3 Tari Urban Local-level Government

  6.9.3.1 Status of Financial Statements

  At the time of preparing this report in September, 2017, the Tari Urban Local-Level
  Government had not submitted its financial statements for the years ended 31 December
  2013, 2014, 2015 and 2016. These audits will be done as soon as the respective financial
  statements are submitted to my Office.

  6.9.4 Hela Provincial Health Authority

  6.9.4.1 Status of Financial Statements

  At the time of preparing this report in September, 2017, the Hela Provincial Health
  Authority for its first year of operation had submitted its 2016 financial statement for my
  inspection and audit. The fieldwork associated with the examination of the accounts and
  records have been completed and the results are being evaluated. That being the case, my
  report on the Authority will be in my 2017 Report.

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  6.10 JIWAKA PROVINCE

  6.10.1 Introduction

  The Jiwaka Province was created through an Act of Parliament on 14 July, 2009.
  However, it gained its provincial status on 17 May, 2012. The Jiwaka Provincial
  Government will be audited every year, with or without financial statements. At the time
  of audit in September, 2017, the Jiwaka Province had not properly established an Urban
  Local-level Government and a Provincial Health Authority.

  6.10.2 Jiwaka Provincial Government

  The Jiwaka Provincial Government’s audit opinion for the year ended 31 December,
  2013 was reported in my 2015 Part 3 Report. I also included the results of my review on
  its Control Environment for the years ended 31 December, 2014 and 2015.

  6.10.2.1 Status of Financial Statements

  At the time of preparation of this Report in August, 2017, the Jiwaka Provincial
  Government had not submitted its Annual Financial Statements for the years ended 31
  December, 2014, 2015 and 2016 for my inspection and audit.

  I have written to the Administrator in June, 2017 concerning his statutory obligations to
  produce the respective financial statements and he has not responded to date.

  6.10.3 Jiwaka Urban Local-level Government

  6.10.3.1 Status of Financial Statements

  The Jiwaka Province had not established a functioning Urban Local-level Government.
  When a Jiwaka Urban Local-level Government is established, it is required to prepare
  annual financial statements for my inspection and audit.

  6.10.4 Jiwaka General Hospital Board

  6.10.4.1 Status of Financial Statements

  The Jiwaka Province had not established a Provincial Hospital Board. When the
  Provincial Hospital Board is properly established and financially operational, it is
  required to prepare annual financial statements for my inspection and audit.

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  6.11 MADANG PROVINCE

  6.11.1 Introduction

  The Madang Provincial Government, Madang Urban Local-level Government and
  Modilon General Hospital Board are audited every year, with or without financial
  statements. Other Local-level Governments (LLGs) and the Business Arms of the
  Provincial Government could not be audited due to financial constraints faced by my
  Office and the lack of records and logistical support from the respective Governments
  and Business Arms.

  6.11.2 Madang Provincial Government

  Madang Provincial Government had submitted its financial statements for the year ended
  31 December 2015. Fieldwork associated with the audit of the financial statements and
  the accounts and records had been completed with the Management Letter and audit
  report issued.

  6.11.2.1 Comments on Financial Statements – 2015

  My report to the Ministers concerned and other relevant bodies under the Organic Law
  and the Audit Act on the financial statements of the Madang Provincial Government for
  the year ended 31 December 2015 was issued in 2017. The report contained Disclaimer
  Audit Opinion and is reproduced as follows:

  “Basis for Disclaimer Opinion

  Cash balances

  I am unable to express an opinion on the accuracy of the cash at bank balances and
  consequently, on the financial position of the Madang Provincial Government as at 31
  December 2015 due to the following reasons:

   There was limitation of scope arising from disclaimed audit opinion in the prior
  year. Remedial adjustments taken to correct the account balances had not been
  provided for my examination. In addition, the operating surplus for the current year
  was materially misstated as discussed under the paragraph of Receipts and
  Payments. Consequently, I was unable to verify and confirm the accuracy of the
  accumulated fund balance of K20,998,040;

   The Trust Fund Balance of K105,212 included the Sub National Strategy Trust
  Fund balance of K9,856 which is a dormant book value carried over from previous
  years. In the absence of accounting books and records pertaining to this trust
  account I was unable to confirm its existence and the subsequent Trust Fund
  Balance as at year then ended; and

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   Significant reconciling items identified in the bank reconciliation statement had not
  been adjusted in the cashbook and this affected the cash balances at year end.
  Further, stale cheques totaling K336,132 have not been identified, cancelled and
  written off with prior approval from authorities and I was not provided
  explanations and documentary evidence of any adjustments made. Consequently, I
  was unable to confirm the completeness and accuracy of the year-end cash at bank
  balances.

  I was not provided the necessary documentation, the required explanation or the
  reconciliation for the significant discrepancies. Consequently, I am not able to verify the
  validity and the correctness of the accumulated fund balance as at year ended 31
  December, 2015.

  Receipts and Payments

  I am unable to verify the accuracy of the receipts and payments and subsequently the
  accuracy of the net surplus/deficit of K1,149,917 as at 31 December, 2015 due to:

   Staffing Grants and Teachers’ Salaries of K71,095,000 which is retained and spent
  from Public Accounts of Department of Finance was reported in this financial
  statement. However, this expenditure was not captured and recorded in the
  provincial government’s books of accounts and I was not provided the required
  explanation and evidence of adjustment made if any. Consequently, I am not able
  to verify the accuracy and completeness of this disclosure in the financial
  statements.

   Substantial reconciling items pertaining to revenue of K546,870 and expenditure of
  K482,764 identified in the bank reconciliation statements were not adjusted in the
  respective cashbooks and posted to the appropriate ledgers and the subsequent
  revenues and expenditures in Statements ‘B’, ‘J’ and ‘K’.

  Investments

  The Province has an investment in the Madang Development Corporation of K500,000 as
  at 31 December 2015. In absence of investment register, share certificates and related
  records I was unable to confirm the existence, accuracy and completeness of the
  investments as at year end.

  Debtors

  Appendix 2 reported Debtor and Receivables as nil as at 31 December 2015. The Madang
  Provincial Government did not maintain debtors’ ledgers for uncollected debts in respect
  of all revenue heads during the year. Further, an amount of K76,955 was reported in the
  2014 financial statements however, this figure was not reflected in the comparative
  balances for the 2015 financial statements and the reconciliation for the clearing off of
  this balance in 2015 was not made available for my examination. I was not provided with
  explanations and reconciliations for discrepancies highlighted. Consequently, I was

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  unable to verify the accuracy and completeness of the nil balance reported as at the year
  ended.

  Inventories

  Appendix 3 reported Inventories of K11,664,888 as at 31 December 2015. The details of
  the inventories in note 14 are not reflective of appendix 3 as note 14 reflected the 2014
  balances with the 2013 comparatives. As a result, the balances reflected in note 14 are
  incorrect and misleading.

  Further, this appendix showed only additions of inventories to the opening balances and
  not the inventories disposed and/or consumed during the year. I noted that inventories
  such as consumables and fuel purchased during the year have been consumed however
  not reconciled and adequately reported in the appendix. The respective registers
  maintained at respective cost centers as stated in note 14 were not adequately updated to
  reflect the movement of inventories during 2015.
  I was not provided with explanations and reconciliations for discrepancies highlighted.
  Consequently, I was unable to verify the accuracy and completeness of the inventory
  balance reported as at the year ended.

  Assets

  Appendix 4 of the financial statements showed Assets as K20,106,658 as at the year
  ended 31 December 2015. A centralized Assets Register was not maintained to
  consolidate all registers maintained at cost centers and stock takes of assets and
  inventories were not carried out during the year. In the absence of a centralized Assets
  Register and annual stock takes, I was unable to confirm the value, existence and
  completeness of assets owned by and in the custody of Madang Provincial Government
  as at 31 December, 2015.

  Advances

  The appendix 6 reported un-acquitted advances of K1,607,046 as at the year ended 31
  December,2015. I was not provided a proper and accurate reconciliation of the
  outstanding advances for the year then ended. Consequently, I am able to ascertain the
  accuracy of the total advances paid during the year and establish the total amount of un-
  acquitted advances at year end.

  Significant Control Weaknesses

  There were significant control weaknesses identified in the Provincial Government’s
  records and processes, as follows:

   The Provincial Government did not maintain a proper customer data base with an
  effective billing system in the revenue section for the collection of revenue from
  the major internal revenue sources such as Goods and Services Tax (GST), Liquor
  Licensing Fees and Motor Traffic Registration Fees. Evidence of check and
  balances were non-existent. Segregation of duties being the key element of control

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  was not being exercised. Staff were performing overlapping tasks in cash
  collection, receipting, recording and paying;

   The process applied in disposing of assets could not be established for fairness and
  equity. There was conflict of interest involved by PSTB members who successfully
  bid for motor vehicles. There was no independent declaration enclosed with the
  PSTB decisions made to the successful bidders. Also, some of those disposable
  vehicles were underpaid which shows that most of these bidders did not have the
  capacity to pay the full disposal amount and have denied potential bidders who
  would generate substantial amount of revenue to the provincial government.

   Non-maintenance of accounting records such as FF3 register, claims register,
  verbal & written quotation registers, centralized assets and advances registers;

   Significant volume of expenditure transactions charged to inappropriate vote items
  and also there were numerous instances of unbudgeted commitment paid from the
  2015 appropriation;

   instances of claims not thoroughly examined and certified and a lake of proper and
  appropriate supporting documentations in payment of claims;

   With the exception of Grants paid to the LLGs, there was no accountability report
  provided for funds paid to public authorities neither were there any evidence
  sighted to suggest that a systematic monitoring process existed and functioning
  effectively to ensuring that funds paid in this manner were appropriately used for
  purposes intended.

   There was no proper and standard guideline governing funds being allocated or
  paid for financial assistance.

   Excessive expenses were incurred on vehicle hire as there was no control over the
  hiring of vehicles and the genuiness and economical purpose of hire could not be
  determined due to lack of supporting documentations or if paid were for services
  already rendered and as such there were no deliberation on the purpose of hire,
  number of days hired, rate charge and approval obtained from the appropriate
  authority.

   Personal monies reimbursements by individuals lack proper receipts or relevant
  documents in support of claims made. A number of faulty claims docking a total of
  K435,600 for various types of payments which do not have the necessary
  documentations and approvals and the valid evidences for reimbursements.

   A significant expenditure of K7, 394, 968 was incurred on the Capital works and
  maintenance programs during the year. I noted that the Provincial Government’s
  Provincial Supply & Tenders Board and its Works Division did not ensure proper
  tendering processes in engaging contractors for major projects. In addition, the
  PSTB Technical and Evaluation Committee evaluation and analytical reports were
  not sighted to ascertain proper evaluation and recommendations made to the Board.
  Also pre-qualification list of local contractor was lacking.
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  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 Madang Provincial Government for the year ended 31
  December, 2015.

  Other Matters

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

   the Madang Provincial Government did not maintain proper accounts and records
  and consequently in breached Section 68(1) of the Public Finances
  (Management)Act, 1995;

   the receipts and payments and investments of moneys and the acquisition and
  disposal of assets during the period covered have not been in accordance with the
  Public Finances (Management) Act, 1995 and Organic Law on Provincial
  Governments and Local-Level Governments; and

   The Madang Provincial Government has not prepared and submitted its financial
  statements for the year ended 31 December 2015 to the Minister and the Auditor-
  General within the required timeframe in contravention of Sections 114 and 119 of
  the Organic Law on Provincial and Local Level Governments.”

  6.11.2.3 Management Response

  The above observations had been communicated by way of a Management Letter to the
  management together with implications and recommendations for improvements. I had
  however, not received the responses to the Management Letter as at the time of
  preparing this Report in September 2017.

  6.11.2.4 Status of Financial Statements

  At the time of preparing this Report, Madang Provincial Government had submitted its
  financial statements for the year ended 31 December 2016 for my inspection and audit
  and field audit will commence shortly when funding becomes available.

  6.11.3 Madang Urban Local-Level Government

  6.11.3.1 Status of Financial Statements

  At the time of preparing this Report in September 2017, the Madang Urban Local-Level
  Government had not submitted its financial statements for the years ended 31 December
  2011 to 2016 (6 years) for my inspection and audit.

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  The audit of the 2011 and 2012 financial statements had been dispensed due to delays in
  the submission of the financial statements.

  6.11.4 Modilon General Hospital Board

  6.11.4.1 Status of Financial Statements

  At the time of preparing this Report in September 2017, the Modlion General Hospital
  Board had submitted its financial statements for the years ended 31 December 2012,
  2013, 2014 and 2015 for my inspection and audit. The field audit will commence shortly
  when funding becomes available.

  The financial statement for the year ended 31 December, 2016 has not been submitted
  for my inspection and audit.

  6.11.5 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 Government and Local-Level Government
  Business Arms and other establishments.

  I am aware that Madang Provincial Government had a number of business arms including
  Madang Development Corporation. Records pertaining to these investments were not
  made available for my examination and as such I was unable to comment on the
  operations and financial results of these entities.

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  6.12 MANUS PROVINCE

  6.12.1 Introduction

  The Manus Provincial Government, Lorengau Urban Local-level Government and
  Lorengau General Hospital are audited annually with or without the financial statements.
  The annual audits of the Rural Local-level Governments and the Business Arms of the
  Provincial 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.

  6.12.2 Manus Provincial Government

  6.12.2.1 Status of Financial Statements

  At the time of preparation of this Report in September, 2017, the AGO was advised that
  the financial statements for the year ended 31 December, 2015 were in the process of
  being finalized while the draft financial statements for the year ended 31 December, 2016
  were submitted for my inspection and audit. The field work associated with audit of the
  internal control environment for 2015 and the examination of the financial statements and
  the audit of the accounts and records for 2016 however, could not be conducted due to
  financial constraints faced by my Office as well as the uncertainties associated with the
  2017 National General Elections.

  6.12.3 Lorengau Urban Local-level Government

  6.12.3.1 Status of Financial Statements

  At the time of preparation of this Report in September, 2017, the Lorengau Urban Local-
  Level Government (LULLG) had submitted its financial statements for the year ended 31
  December, 2015 while the financial statements for 2016 were being prepared. Field work
  associated with the examination of the financial statements and audit of the accounts and
  records for 2015 and the audit of control environment for 2016 however, could not be
  conducted due to manpower and financial constraints faced by my Office as well as the
  uncertainties associated with the 2017 National General Elections.

  6.12.4 Lorengau Hospital Board

  6.12.4.1 Status of Financial Statements

  The Lorengau Hospital Board had not submitted its annual financial statements for the
  years ended 31 December, 2013, 2014, 2015 and 2016 at the time of preparation of this
  Report in September, 2017 for my inspection and audit.

  6.12.5 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 Government and Local-level Government

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  Business Arms and other establishments. The Manus Provincial Government has
  investments in number of business arms as reported below.

  6.12.5.1 Manus Fishing Corporation Ltd

  The Corporation was established by the Manus Fishing Corporation Act 2003 with the
  objective and functions as stipulated under the relevant Sections of the Act. As reported
  in my previous reports, the Corporation is 100% owned by the Provincial Government.
  The Corporation was said to have a fleet of two vessels, however, without any return to
  the Provincial Government. Documents such as share certificate or certificate of
  incorporation were not available for my review. At the time of preparation of this Report
  in September, 2017 the company had not submitted any recent financial statements for
  my review and audit.

  6.12.5.2 Manus Shipping Authority

  The Authority was established by the Manus Provincial Shipping Authority Act 1994. As
  reported in my previous reports, the Authority was reported to have operated a fleet of
  three vessels. Out of these, only one vessel is said to be in operation since 2003. Profits
  from the operation are shared between the Provincial Government and the operator net of
  running costs. At the time of preparation of this Report in September, 2017 the Authority
  had not submitted any recent financial statements for my review and audit.

  6.12.5.3 Kei Beseu Kampani Ltd

  As reported in my previous reports, the Manus Provincial Government holds 522 shares
  as a single majority shareholder at 34% while the various landowner groups share the
  balance of the shares in the entity. At the time of preparation of this Report in September,
  2017 the company had not submitted its financial statements for the five (5) years ended
  31 December, 2016 for my review and audit.

  6.12.5.4 Lorengau Hotel Ltd

  As reported in my previous reports, the Lorengau Hotel Ltd was incorporated in October
  1974 with the Manus Provincial Government share having a share of 50% to 80% and the
  remaining balance shared between the Kei Beseu Kampani Ltd and the Local-level
  Governments. At the time of preparation of this Report in September, 2017 the company
  had not submitted its financial statements for the five (5) years ended 31 December, 2016
  for my review and audit.

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  6.13 MILNE BAY PROVINCE

  6.13.1 Introduction

  The Milne Bay Provincial Government, Alotau Urban Local-level Government and
  Milne Bay Provincial Health Authority 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.

  6.13.2 Milne Bay Provincial Government

  The Milne Bay Provincial Government had submitted its financial statements for the
  financial years ended 31 December, 2014 and 2015. The fieldwork associated with audit
  of the financial statements and the accounts and records for 2014 and 2015 had been
  completed with the respective management letters and audit opinions issued accordingly.
  The issues identified with the financial statements and the control environments are
  summarized in the paragraphs below.

  6.13.2.1 Comments on Financial Statements – 2014 and 2015

  My reports to the Ministers concerned and other relevant bodies under the Organic Law
  and Audit Act on the Milne Bay Provincial Government’s financial statements for the
  years ended 31 December, 2014 and 2015 were issued on the February and March 2017
  respectively. The reports contained similar Disclaimer Audit Opinions hence, only the
  2015 report is reproduced as follows:

  Basis for Disclaimer Opinion

  Presentation Errors

  Finance Instructions 5/2000 issued under Section 117 of the Public Finances
  (Management) Act, 1995 state the prescribed format for the preparation and presentation
  of the financial statements for Provincial Government.

  The financial statements of Milne Bay Provincial Government for the year ended 31
  December, 2015 fully complied with the formats prescribed by Finance Instruction
  5/2000. I am however, unable to express an opinion on the accuracy and completeness of
  the financial statements due to the following issues as stated under the paragraphs below
  that render the financial statements inaccurate and misleading:

  The declaration of the Financial Statements being true was not signed off accordingly by
  the Provincial Administrator and the Provincial Treasurer.

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  Cash Balances

  Statement ‘A’ showed the Fund Balance of K13,009,174 represented by closing cash
  balances of the Provincial Government Operating Account of K5,502,763 and Provincial
  Government Grant Account of K7,506,411 as at 31 December, 2015. I however, noted
  the following errors and inconsistencies which render the statement inaccurate and
  unreliable:

  The Opening Revenue Fund Balance of K1,657,897 overdrawn used in Note 3
  computations contains errors brought forward from previous years.

  Under 6.1 of the notes to and forming part of the financial statements revealed bank
  balances of K5,502,763 (Westpac) and K7,506,411 (BSP). However, inconsistencies
  were noted in reporting of these balances in my review of the Bank Reconciliation
  Statements for the two accounts for the month ending 31December, 2015.

  Investments

  This statement is intended to show all short term investments by the Provincial
  Government during the year. This statement showed no short term investments although
  MBPG had an IBD investment of K3,000,000 which should have been reported in this
  statement. Furthermore, the interest revenue earned of K32,818 was not shown in this
  statement, although were taken up in the revenue ledgers under statement ‘J’.

  Assets

  Appendix 4 to the financial statements reported total value of assets as at 31 December
  2015 to be K22,643,661. My review of the of the controls surrounding asset management
  revealed the following matters of concern; land and building were recorded without their
  values, no evidence to indicate that a periodic stock take was undertaken and details of
  assets disposed of were not reflected on the asset register.

  Significant Control Weaknesses

  There were significant control weaknesses with the Milne Bay Provincial Government’s
  records and internal control processes as stated below:

   Payment vouchers, contracts, completion reports, certification reports, tender
  documents and status reports for minor and major capital works totaling
  K3,469,883 were not made available for audit, hence could not be verified.

   The Provincial Government had expended a total of K10,292,107 on grants and
  subsidies during the year. I have however, not sighted evidence to indicate proper
  controls were in place to ensure funds paid were properly accounted for by the
  recipients.

   In one instance, a collector statement for an amount of K210,030 could not be
  substantiated with relevant copies of official receipts and deposit slips.

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   Travelling Allowances and General Advances totaling K 99,340 and K78,712
  respectively for the year under review remained un-acquitted as at 31 December
  2015 require a thorough investigation for prompt clearance and recovery where
  necessary.

  Disclaimer Opinion

  Because of the significance of the matters described above, I was not able to obtain
  sufficient appropriate audit evidence and consequently I am unable to express an opinion
  on the financial statements of Milne Bay Provincial Government for the year ended 31
  December, 2015.

  Other Matters

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

   Milne Bay Provincial 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 were not
  been in accordance with the Public Finances (Management) Act, 1995 and Organic
  Law on Provincial Governments and Local-level Governments.”

  6.13.2.2 Management Response

  The observations on the audit of the financial statements and the accounts and records for
  the year ended 31 December, 2015 had been communicated by way of a Management
  Letter to the Provincial Administrator together with recommendations for improvements.
  However, the responses to the Management Letter had not been received at the time of
  preparation of this Report.

  6.2.2.3 Status of Financial Statements

  The Milne Bay Provincial Government had submitted its financial statements for the year
  ended 31 December, 2016. However, due to the AGO’s funding issues the audit has been
  delayed up to the time of preparation of this Report in September 2017.

  6.13.3 Alotau Urban Local-level Government

  The audit of the financial statements for the year ended 31 December, 2014 was
  completed with Management Letter issued to the Ministers and agencies concerned. The
  Issues raised are reported hereafter.

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  6.13.3.1 Comments on the Financial Statements – 2014

  My report on the Alotau Urban Local Level Government 2014 to the Ministers concerned
  and other relevant agencies under the Audit Act, 1989 (as amended) was issued in July,
  2017. The report contained Qualified Audit Opinion and it is reproduced below:

  Basis for Qualified Audit Opinion

  Financial Statements

  The Funds

  Statement A disclosed total funds available as K283,015 for the year ended 31 December,
  2014. However, the bank balances were not properly reconciled to the General Ledger
  due to an incorrect accounting procedure where the Cash at bank of K1,017,998 was
  reconciled to itself, instead to the cashbook. As the account balance disclosed for the year
  was understated and incorrect, I am unable to confirm the true and fairness of the
  disclosure for the year ended 31 December, 2014.

  Debtors – Appendix 2

  The debtors for the year ended 31 December, 2014 were reported as NIL in Appendix 2 to
  the financial statements. However, the debtors of the prior year totaling K1,447,359 were
  not disclosed. Consequently, I was unable to confirm the validity and the correctness of
  the account balances for the year ended.

  Assets – Appendix 4

  Assets were stated as K1,711,552 in the Appendix 4 to the financial statements. However,
  Assets purchased during the year totaling K287,685 were not disclosed in the Appendix
  accordingly. As a result, I was unable to satisfactorily confirm the validity and the
  correctness of the disclosures made in the Appendix 4 to the financial statements for the
  year ended 31 December, 2014.

  Advances – Appendix 6

  In Appendix 6 to the financial statements of un-acquitted advances remain outstanding at
  year end as (K27,925). However, 80% (K22,215) of these advances were for prior years
  and were not vigorously pursued and recouped by the Alotau Urban Local level
  Government. As there were outstanding advances even for the year ended 31 December,
  2014, the Local Level Government breached the requirements of the Public Finance
  (Management) Act, 1995 in terms of advance management.

  Significant Control Weaknesses

  There was significant control weaknesses identified in Alotau Urban Local-level
  Government’s records and processes, as follows:

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   The Alotau Urban Local Level Government revised budget for its revenue and
  expenditures were estimated at K2,297,000 and K2,297,000 respectively.
  However, the actual receipts and payments were under collected by K630,008 and
  overspent by K274,101 respectively during the year. I was not provided the
  necessary documentation or explanations for the budget deviations which resulted
  in unauthorized appropriations. As a result, I am unable to satisfy myself on the
  validity and the authenticity of the deviations that occurred during the year ended
  31 December, 2014.

   The bank reconciliations of the Local Level Government were not checked and
  verified as correct by senior accountable officers during the year. In the bank
  reconciliations, un-presented cheques for May, July, September, October and
  November 2013 totaling K3,969 with cheques were not written back to the cash
  book as soon as the cheques became stale. Further, reconciling items including
  errors or omissions in the bank reconciliations for the year end totaling K736,112
  were not satisfactory rectified with the bank during the year ended 31 December,
  2014.

   Proper and disciplined procurement procedures and practices were not adopted by
  the Local Level Government during the year. Payments for Fuel and for
  Assistances and Pledges totalling K66,616 and K24,623 respectively were
  improper. Further, payments totaling K95,720 for town cleaning and related
  activities were not supported with the casual listing, hourly rates and subsequent
  endorsement of receipts.

   The governance procedures at the Alotau Urban Local Level Government were
  weak and lacked cohesive direction to achieve corporate goals. Further, it did not
  have a Corporate Plan and it was not possible to assess the activities earmarked.

   Internal Audits were not conducted on the Alotau Urban Local Level Government
  by the Milne bay Provincial Government internal auditors to ensure probity and
  integrity of the local level government’s systems and processes to safe guard
  against loss and misuse.

  Qualified Audit Opinion

  In my opinion, except for the effects of the matters described in the Basis for
  Qualified Audit Opinion paragraphs, the financial statements of the Alotau
  Urban Local-level Government for the year ended 31 December, 2014,

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

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

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  6.13.3.2 Management Response

  The observations on the audit of the financial statements and the accounts and records for
  the year ended 31 December, 2014 had been communicated by way of a Management
  Letter together with recommendations for improvements. However, the responses to the
  Management Letter had not been received at the time of preparation of this Report.

  6.13.3.3 Status of Financial Statements

  At the time of preparing this Report in September 2017, the Alotau Urban Local Level
  Government had not submitted its financial statements for the years ended 31 December,
  2015 and 2016 for my inspection and audit.

  6.13.4 Milne Bay Provincial Health Authority

  The Milne Bay Provincial Health Authority (PHA) had submitted its financial statements
  for the year ended 31 December, 2015. The fieldwork associated with the audit of the
  financial statements and accounts and records had been completed. The Management
  Letter was issued and the audit report results were being evaluated at the time of
  preparation of this Report in September 2017.

  6.13.4.1 Management Response

  The observations on the audit of the financial statements and the accounts and records for
  the year ended 31 December, 2015 had been communicated by way of a Management
  Letter to the Chief Executive Officer of Milne Bay Provincial Health Authority together
  with recommendations for improvements. However, the responses to the Management
  Letter had not been received at the time of preparation of this Report.

  6.13.4.2 Status of Financial Statements

  The Milne Bay Provincial Health Authority had not submitted its financial statements for
  the year ended 31 December, 2016 at the time of preparation of this Report in September
  2017.

  6.13.5 Business Arms

  Relevant Section 16(2) (f) of the Audit Act provides for and extends my functions to audit
  the accounts and records of the Provincial and the Local Level Government Business
  Arms and other establishments.

  I am aware of two business arms of the Milne Bay Provincial Government namely, Milne
  Bay Properties Ltd and Miba Microfinance Ltd. At the time of preparing this Report in
  September, 2017, the business arms had not submitted any financial statements for my
  inspection and audit. Consequently, I am unable to comment on the operations and
  financial results of the entities.

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  6.14 MOROBE PROVINCE

  6.14.1 Introduction

  The Morobe Provincial Government (MPG), Lae Urban Local-level Government
  (LULLG) and Angau Memorial General Hospital (AMGH) are audited every year, with
  or without financial statements. Other Local-Level Governments and the Business Arms
  of the Provincial Government could not be fully audited due to financial constraints faced
  by my Office and the lack of records and logistical support from the respective entities.

  6.14.2 Morobe Provincial Government

  The Morobe Provincial Government had submitted its financial statements for the
  financial year ending 31 December 2015 for my inspection and audit. Field work
  associated with examination of the financial statements and audit of the accounts and
  records was completed with both the Management Letters and Audit Opinion Reports
  issued. The issues identified with internal control environment for 2015 were reported in
  the 2015 Part 3 Report and hence only the issues identified with the financial statements
  are detailed in paragraphs below:

  6.14.2.1 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 in July 2017. The report was a Disclaimer of Opinion as
  reproduced below:

  Basis for Disclaimer Audit Opinion

  Incorrect amounts presented in thousands

  The financial statements of Morobe Provincial Government for the year ended 31
  December, 2015 are misleading as a result of error in the presentation of the statements.
  Namely, amounts in Statements ‘A’ and ‘C’ to ‘I’, Appendices 1 and 2 and Notes 3 to 4
  and 6 to 17 of the notes to and forming part of the financial statements were incorrectly
  presented in amounts of ‘thousands’(‘000) instead of the original amounts.

  Opening Balances

  Because of the disclaimer opinion issued in respect of the year ended 31 December, 2014
  and 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 balances. Since these opening
  balances would affect the determination of the financial position and the cash flows of the
  Morobe Provincial Government in the current year, I was unable to determine whether
  adjustments to the respective cashbooks and the financial positions, might have been
  necessary for the year ended 31 December 2015.

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  Cash balances

  I am unable to express an opinion on the accuracy of the total fund balance of K8,
  142,023 for Morobe Provincial Government as at 31 December 2015 due to:

   Significant reconciling items identified in the bank reconciliation statements of the
  operating, grant and provincial works trust accounts that had not been adjusted in
  the respective cashbooks and hence affected the balances and the subsequent total
  fund balance at year end. I was not provided explanations and documentary
  evidence of adjustments made if any. Consequently, I was unable to confirm the
  completeness and accuracy of the year-end cash at bank balances disclosed in the
  Statement ‘A’; and

   Trust Accounts with bank accounts which had their accounts and records operated
  through the Provincial Government Accounting Systems (PGAS) were disclosed in
  statement ‘C’ whilst those operated outside the PGAS were not. The two (2) trust
  accounts namely, Morobe Provincial Sports Council and Morobe Provincial
  Disaster and Emergency Trust with bank accounts received additional funding in
  total of K963, 226 in 2015 from the Provincial Government however, were not
  reported. I was not provided sufficient documentation and necessary explanation
  for the non-disclosure. Consequently, I was unable to ascertain whether all trust
  accounts operated by the Provincial Government have been properly accounted for
  and disclosed in the financial statements.

  Receipts and Payments

  Significant reconciling items relating to revenue and expenditure appearing in the
  December bank reconciliation were not adjusted to the cashbooks and respective ledgers
  and as a result were not incorporated in the financial statements. Consequently, I am
  unable to verify the completeness and accuracy of the receipts of K287,308,140 and
  payments of K282,334,200 and subsequently, the operating surplus of K 4,973,247 in
  Statements ‘B’, ‘J’ and ‘K’.

  Investments

  The Morobe Provincial Government did not report any Investments in statements ‘E’ and
  ‘F’ of the financial statements. However, the Provincial Government has Business Arms,
  namely Kumgie Holdings and Morobe Sustainable Investment. As reported in 2014,
  K1,000,000 was paid to Kumgie Holdings in 2013 being for establishment of MPG
  Umbrella Company and a K900,000 was paid to Morobe Sustainable Investment. These
  investment Companies were not disclosed in statement ‘F’. Further, there were no
  investment related documents such as Share Certificates, Trust Deeds, Investment
  Registers, Company Certificates and profiles maintained to record details of investments
  held by the Provincial Government. Consequently, I am unable to ascertain the value of
  investments held by the Provincial Government.

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  Outstanding Commitments and Arrears

  The outstanding commitments and arrears reported in appendix 1 with its details shown
  in note 12 were inconsistent and varied. I noted that these balances were the same
  reported in the 2014 financial statements. I was not provided an explanation for these
  discprancies and in the absence of commitment registers and related records I was unable
  to verify the completeness and accuracy of the outstanding commitments and arrears
  reported as at the year ended 31 December, 2015.

  Debtors

  The appendix 2 showed nil debtors and receivables as at 31 December 2015. However,
  note 13 forming part of the financial statement for 2015 showed a closing debtors balance
  of K97,160 being balance brought forward from 2014. I was not provided an explanation
  for this discrepancy and in the absence of debtor’s ledgers I was unable to confirm the
  completeness and accuracy of the debtors and receivables as at the year ended 31
  December, 2015.

  Assets

  Appendix 4 showed nil summary of assets whilst note 15 of the notes to and forming part
  of the financial statements showed a total of K6,440,147 which was a carry forward
  figure from the 2014 resulting in significant variances and inconsistencies. Further, good
  asset management was not practiced and in the absence of a complete assets register and
  annual stock-takes, I am unable to confirm the existence, completeness, condition and
  value of all assets owned by the Morobe Provincial Government as at 31 December, 2015
  which included motor vehicles as there was also lack of control over the Provincial
  Government Fleet of Vehicles.

  Advances

  Appendix 6 showed total un-acquitted advances of K3,403,109 as at 31st December 2015
  whilst note 17 of the notes to and forming part of the accounts showed a total amount of
  K4,794,642 resulting in significant variances. Both disclosures were mere carry forward
  balances from prior years without any movement during the year. Further, in the absence
  of proper records such as advance register, acquittal files, reminder notices and evidence
  of recovery actions taken against defaulters, I was unable to confirm the accuracy and
  completeness of the total un-acquitted advances as at year end.

  Significant Control Weaknesses

  There was significant control weaknesses identified in the Provincial Government’s
  records and processes as follows:

   The Provincial Government did not maintain a proper customer data base with an
  effective billing system in the revenue section for the collection of revenue from
  the major internal revenue sources such as Goods and Services Tax (GST),
  Bookmakers Tax, Liquor Licensing Fees and Motor Traffic Registration Fees etc.
  resulting in under collection of internal revenue totalling K8,104,131. Further,

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  evidence of check and balances were non-existent and segregation of duties being
  the key element of control was lacking. Staff were performing overlapping tasks in
  cash collection, receipting, recording and banking;

   The financial power of a Section 32 officer were improperly delegated to the Chief
  of Staff for the Governor’s Office through the consultancy company that was
  engaged to provide consultancy services to the Governor and hence was in breach
  of Section 32. The consultancy company was paid at K20,000 per month;

   Three quotations were not obtained in most instances prior to the purchase of goods
  and services nor was there a quotations register maintained;

   An advance payment of K40,000 was made to Prime Travel Services for travel
  expenses including airfares, vehicle hire and accommodation for officers of the
  Provincial Government. These payments were seen to be non-compliance to
  requirements of proper procurement procedures and the requirement for acquittal
  stipulated in the Public Finances (Management) Act;

   Project Files for the construction and maintenance of roads, bridges, buildings,
  installation of water supply, and fencing of residence were not made available for
  my verification although requested. Consequently, I was unable not verify if
  selected projects undertaken during the year totalling K3,826,578 were completed;

   Public Finances (Management) Manual pertaining to maintenance of proper Assets
  Register during the year was not complied with by the Morobe Provincial
  Government. A Central Asset Register was not maintained to record details of
  purchases and disposal of assets during the year and prior years. So as a proper
  policy and guidelines on the management and control of state assets was not in
  place; and

   Proper control and strict compliance was lacking in Advances Management
  procedures as stipulated under the Financial Instruction Manual. Advances register
  was not maintained and up-dated yearly while acquittal processes lacked miserably
  while management allow holder of outstanding advance to acquire second and third
  advances.

  Disclaimer of Audit Opinion

  In my 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 Morobe Provincial Government for the year
  ended 31 December, 2015.

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  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:

   the Morobe Provincial Government did not maintain proper accounts and records
  and has consequently breached Section 68(1) of the Public Finances
  (Management)Act, 1995;

   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; and

   The Morobe Provincial Government has not prepared and submitted its financial
  statements for the year ended 31 December, 2015 to the Minister and the Auditor-
  General within the required timeframe in contravention to Sections 114 and 119 of
  the Organic Law on Provincial and Local Level Governments.”

  6.14.2.3 Management Response

  Management had not responded to the matters raised in my Audit Management Letter for
  2015. Consequently, I am unable to determine if there were any improvements at the time
  of preparing this Report in September, 2017.

  6.14.2.4 Status of Financial Statements

  The Morobe Provincial Government had not submitted its Financial Statement for the
  financial year ended 31 December, 2016 for my inspection and audit. However, the field
  work associated with audit of the internal control environment was completed and the
  results are being evaluated at the time of preparing this Report in September, 2017.

  6.14.3 Lae Urban Local-level Government

  The Lae Urban Local-level Government did not submit its financial statements for the
  years ended 31 December 2012, 2013, and 2014. Consequently, I was unable to comment
  on the financial status and the management of the funds for Lae ULLG. Interim audits on
  the internal control environments for these years were conducted with Management
  Letters issued respectively. The internal control issues for 2012 and 2013 were reported
  in the 2014 Part 3 Report and the 2014 audit findings were reported in the 2015 Part 3
  Report.

  6.14.3.1 Status of Financial Statements

  Status of the three years financial statements were unavailable, however problems
  associated with operating system and back logs of outstanding entries in both years

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  accounts may not allow for an early preparation and presentation of the financial
  statements. The financial statements are still not prepared.

  At the time of preparing this Report in September, 2017, the financial statements of Lae
  ULLG for the years ended 31 December 2012, 2013, 2014, 2015and 2016 had not been
  submitted for my inspection and audit.

  6.14.4 Angau Memorial General Hospital

  The Angau Memorial General Hospital had submitted its financial statements for the
  years ended 31 December 2015. Fieldwork associated with audit of the accounts and
  records and the examination of the financial statements were completed with the
  Management Letter issued and audit opinion report was issued to the Minister concerned.
  The paragraph below details the issues identified with the financial statements and the
  control environment.

  6.14.4.1 Financial Statements – 2015

  My report to the Minister concerned and other relevant bodies under the Public Hospitals
  Act and the Audit Act on the financial statements of the Angau Memorial General
  Hospital for the year ended 31 December 2015 was issued in April 2017. The report was
  an unqualified as reproduced as follows:

  Audit Opinion

  In my opinion the financial statements of Angau Memorial General Hospital for the year
  ended 31 December, 2015:

  a) give a true and fair view of the financial position and the results of its operations
  for the year then ended in accordance with the Finance Instructions; and

  b) With the exception of instances of non-compliance described under Other Matters,
  the financial statements have been prepared in accordance with the Finance
  Instructions issued under the Public Finances (Management) Act, 1995.

  Other Matters

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

  a) Angau Memorial General Hospital did not maintain proper accounts and records as
  detailed below and has consequently breached Section 68(1) of the Public Finances
  (Management)Act, 1995;

   the Chief Executive Officer is required under Part 32, Division 1 of the Public
  Financial Management Manual to maintain proper Assets Registers under the
  classifications of Land and Buildings; Furniture and Fitting; Office Equipment;
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  Motor Vehicles; Marine Vessels; Plant and Machinery and Tools and
  Equipment and to submit a comprehensive report on details of assets on hand
  with details extracted from Stock Cards at the end of each quarter, within 30
  days of the subsequent month. This requirement has not been complied with by
  the Angau Memorial General Hospital;

   Part 20, Paragraph 5 and 14 of the Financial Management Manual stipulates
  the procedures and guidelines for the effective management of Advances by
  State entities. The hospital management has not complied with this
  requirement; and

  b) Angau Memorial General Hospital has not prepared and submitted its financial
  statements to the Minister and the Auditor-General prior to 30 June for the year
  ending 31 December 2015, resulting in breaches of Section 63(2) and Section 63(4)
  of the Public Finances (Management) Act 1995.”

  6.14.4.2 Management Response

  Hospital Management has responded to my Audit Management Letter queries and
  corrections, improvements, and adjustments noted from the management responses has
  been rectified with the management prior to issuing the audit report.

  6.14.4.3 Status of Financial Statement

  The Angau Memorial General Hospital had submitted its financial statements for the year
  ended 31 December 2016 for my inspection and audit. Fieldwork associated with audit of
  the accounts and records and the examination of the financial statements were completed
  and the results are being evaluated at the time of preparing this Report in September
  2017.

  6.14.5 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 Government and Local-Level Government
  Business Arms and other establishments.

  I am aware of two business arms of the Morobe Provincial Government namely,
  Kumghie Holdings Limited and Morobe Sustainable Investment. At the time of preparing
  this Report in September 2017, the business arms have not submitted any financial
  statements for my inspection and audit. Consequently, I was unable to comment on the
  operations and financial results of these entities.

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  6.15 NEW IRELAND PROVINCE
  6.15.1 Introduction

  The New Ireland Provincial Government, Kavieng General Hospital and Kavieng Urban
  Local-Level Government are audited every year, with or without financial statements.
  Other Rural Local-Level Governments and 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 entities.

  6.15.2 New Ireland Provincial Government

  Field work associated with the audit of the control environment for the year ended 31
  December, 2015 was completed and Management Letter issued. Issues identified in the
  Management Letter were reported in my 2015 Part 3 Report in 2016. The New Ireland
  Provincial Government had subsequently submitted its financial statements for my
  review and audit. Field work associated with the examination of financial statements and
  audit of related accounts and records was completed with both the Management Letter
  and the Audit Opinion Report issued. Field work associated with the audit of the control
  environment for the year ended 31 December, 2016 was also completed in the absence of
  the financial statements with the Management Letter issued.

  6.15.2.1 Comments on Financial Statements – 2015

  My Report for the year ended 31 December, 2015 to the Minister concerned and other
  relevant bodies under the Organic Law on Provincial Governments and Local-Level
  Governments and the Audit Act was issued in June, 2017. The report contained a
  Disclaimer Audit Opinion as reproduced below:

  Basis for Disclaimer Opinion

  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 New Ireland
  Provincial Government for the year ended 31 December, 2015 had the following non-
  compliance and presentation issues:

   The Provincial Governor and Acting Provincial Administrator did not present
  statements specifically outlining the Provincial Governments budget and financial
  performance for the year ended 31 December, 2015;

   The set of financial statements provided for my review contained an incomplete
  Table of Contents and Statements ‘A’, ‘H’ to ‘K’ and Appendices 1 to 6 had no
  page numbers inserted;

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   The financial statements are misleading as the amounts in Statements ‘C’ and ‘D’
  as well as the closing balances reflected in the respective Notes 3, 4, 6 and 17 to
  the Statement ‘A’ were incorrectly presented in amounts of ‘thousands’ of Kina
  (K’000) instead of the original amounts. Further, Statement ‘C’ had the opening
  balance date incorrectly stated as 01st of January, 2014 instead of 01st of January,
  2015.

  Disclosure Errors

  I noted the following disclosure errors which could have material effect on the accuracy
  and completeness of the New Ireland Provincial Government account balances, the
  financial position and consequently, the reliability of the financial statements as at 31
  December, 2015:

  Cash Balances

   The closing Provincial Account Balance of K1,937,894 included an old operating
  account closing balance of K765,007 which was not supported by evidence of any
  actual cash held in bank account as this Account was inactive dating back to prior
  years and that the amount merely represents the closing cashbook balance at the
  closure of the Operating Account;

   The balance of the Provincial Revenue Fund of K19,956,395 could not be
  confirmed as correct due to errors and material misstatements of the operating
  deficit as discussed under the paragraphs on Receipts and Payments; and

   There were material reconciling items identified in the bank reconciliation
  statements of both the New Ireland Provincial Government Operating and Grant
  Accounts relating to receipts and expenditure that were not adjusted in the
  cashbooks and respective revenue and expenditure ledgers and disclosed in
  Statements ‘J’ and ‘K’ which also affected the bank and cashbook balances at year
  end.

  Receipts and Payments

  The New Ireland Provincial Government reported its total revenue and expenditure as
  K34,582,250 and K51,715,831 respectively with an operating deficit of K17,133,581. I
  am unable to confirm the accuracy of the revenue and expenditure and therefore, the
  correctness of the operating deficit as at 31 December, 2015 due to the following reasons:

   The total actual revenue and expenditure of K34,582,250 and K51,715,831
  disclosed in Statement ‘B’ were materially misstated as they did not agree with the
  trial balance total of K34,531,436 and K51,665,017 respectively. As a result, the
  operating deficit of K17,133,581 is also materially misstated, inaccurate and
  unreliable;

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   The Public Servants’ and Teachers’ Salaries actual expenditures per TMS report of
  K50,814 had not been disclosed in Statement ‘K’ nor taken up in the expenditure
  ledgers as these were provided for in the Annual Appropriation Act; and

   Material reconciling items relating to receipts and payments identified in the
  Provincial Government Operating and Grants Accounts’ bank reconciliation
  statements not adjusted in the cashbooks, the revenue and expenditure ledgers and
  disclosed in Statements ‘J’ and ‘K’ had affected accuracy of statement ‘B’ and the
  cash balances reported in statement ‘A’.

  Investments

  The Provincial Government had not disclosed any information or balances relating to
  long term investments in the financial statements. However, as stated in my previous year
  audit report, the New Ireland Provincial Government held two (2) shares at the cost of K2
  in its business arm, namely New Ireland Development Corporation as well as 3,000
  shares at the cost of K3,000 in Lottery Management Services which is understood to be
  defunct. In the absence of adequate confirmation including the investment register and
  related share certificates, I am unable to confirm the accuracy, existence, ownership and
  value of investments owned by the Provincial Government as at 31 December, 2015.

  Assets

  The New Ireland Provincial Government did not disclose details of fixed assets
  purchased and owned at the closure of the year under review in Appendix 4 to the
  financial statements. The closing value of fixed assets was also not disclosed in Note 15
  to Statement ‘A’. The Fixed Assets Register as well as the Motor Vehicle Fleet Register
  were not maintained on a current basis and lacked complete and accurate information on
  all fixed assets purchased and/or disposed during the year. Consequently, I am unable to
  confirm the completeness, accuracy and existence of the fixed assets owned and under
  the custody of the New Ireland Provincial Government.

  Trust Accounts

  The New Ireland Provincial Government administered independently the NIPG Royalty
  Associated Benefits Trust Account that was operated through a separate bank account. I
  was not provided evidence of Trust Instruments and other related documents to ascertain
  legality and validity of the transactions through this trust account.

  Significant Control Weaknesses

  The paragraphs below give a summary of significant control weaknesses identified in the
  New Ireland Provincial Government’s internal control environment:

   Prudent cash management practices continued to be seriously flawed at the
  Provincial Treasury Office. The duties performed by the Receiver of Public
  Moneys involving revenue collection, banking and compiling of receiver/collector
  statements were not checked and certified by a competent authority including
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  independent and surprise cash counts to ensure all revenues are brought to account
  and banked intact. Consequently, material amounts of under-banking of revenue
  collections totaling K22,633 were noted dated back to 2011. Further, amounts
  recorded in the cash book as collected and stated in the bank reconciliation
  statements totalling K296,334 dated back to 2010 had not been deposited into the
  Provincial Government Operating Account;

   In thirty-one (31) instances, payments totalling K10,667,020 were not signed by
  the duly appointed Certifying Officer to determine the legitimacy of the
  expenditures incurred prior to processing payment of the claims;

   The New Ireland Provincial Government paid a total of K1,984,932 to a private
  firm, BSP & Company Inc. for consultancy services rendered on the proposed
  Namatanai Township Development at Bopire Plantation. The payment of
  K1,086,522 lacked appropriate supporting documents such as the Contract of
  Engagement and the required three written quotations while the payment vouchers
  for the second payment of K898,410 were missing from the file;

   The New Ireland Provincial Government paid K1,476,919 to Nivani Limited and
  K547,288 to Dekenai Construction Limited. I observed the two payments were not
  authorized by the appropriate Financial Delegate whilst the Requisition for
  Expenditure (FF3) for the expenditure of K547,288 was not approved by the
  appropriate Section 32 Officer;

   In five instances, payment vouchers relating to expenditures incurred totaling
  K1,731,859 were missing from files and as such, I am unable to ascertain the
  validity as well as proper authorization of the claims presented for payment;

   The Provincial Governor’s Housing Allowance entitlement was paid at the rate of
  K1,598 per week and therefore, should amount to K83,096 in total for the full year.
  I observed the Provincial Governor was paid a total of K140,624 in housing
  allowance for the year for two separate claims, one for K57,528 and the second
  claim for K83,096;

   The entities, Barlow Industries and Central Lotto Limited were paid K1,155,000
  and K957,000 respectively for supply and delivery of corrugated roofing irons to
  be distributed under the “Roof Over Head” Policy of the Provincial Government. I
  observed the payment vouchers were not supported with appropriate delivery
  docket or goods received notes duly certified by the Housing and Assets Manager
  to confirm the accuracy of the quantity of roofing irons received and that the
  materials were delivered in good order;

   The Public Works New Ireland Limited by virtue of its name is a registered private
  company. The entity receives funds from the New Ireland Provincial Government
  and participates in the management and implementation of capital works and
  maintenance projects on behalf of Provincial Government. The Joint Provincial
  Planning and Budget Priorities Committee (JPP&BPC) Decision No. 02/2015

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  approved a grant of K3,000,000 from roll-over funds to the entity as project
  manager for specific projects endorsed by the New Ireland Provincial Government.
  A total of K2,630,800 was paid to the company .I could not determine the
  relationship between the New Ireland Provincial Government and Public Works
  New Ireland Limited under such arrangement. Further, I was not provided evidence
  to suggest the Public Works New Ireland Limited had acquitted the funds by way
  of furnishing an accountability report on the receipt and expenditure of these grant
  funds to the Provincial Government;

   In addition, the Provincial Government paid a total of K2,906,386 to several
  private contractors who were engaged on minor capital and maintenance works. I
  observed the claims presented for payment were not supported by work in progress
  reports and/or certificates of completion duly certified a competent technical officer
  of the Provincial Government to indicate the capital and maintenance works
  undertaken had been satisfactorily executed and that the payments were proper;

   The New Ireland Provincial Supply and Tenders Board had issued a Certificate of
  Inexpediency authorizing the expenditure of K337,500 to Omnivoltiac PNG
  Limited for the supply of 5,000 Solar MHZ-200 Lanterns in respect of the Solar
  Lights Program of the Provincial Government. I observed the issue of Certificate of
  Inexpediency as improper and inappropriate as the issue of certificate of
  inexpediency is applied only in times of natural disasters and emergency situations.
  Further, I observed the New Ireland Provincial Supply and Tenders Board did not
  have in place a competent Tender Evaluation Committee to screen, evaluate and
  recommend to the Board for their deliberations and considerations with such
  specific information on suitable bidders for the jobs/contracts tendered based on
  their company profiles, expertise and financial background, etc.;

   Two retrenched employees of the Provincial Government were paid their final net
  entitlements totaling K138,827 as at 10th of December, 2014. The employees were
  again paid a combined total of K154,087 as at 04th of March, 2015. I observed that
  the additional payments should have been less if it related to the period from 11th
  December, 2014 and 04th March, 2015.

   Effective management practices on monitoring and acquittal of travelling
  allowances and cash advances was lacking. As stated in my previous year audit
  reports, several senior officers of the Provincial Administration who were paid
  lump sum cash advances ranging from K11,375 to K200,000 had failed to acquit
  their advances as at 31 December, 2015. My review of the PGAS Advances
  Registers revealed payments of travelling allowances and cash advances dated back
  to 2005 totaling K3,221,889 were also not acquitted as at 31 December, 2015. In
  addition, my further review of the expenditure ledgers revealed numerous
  payments of cash advances totaling K1,119,197 to officers during the year under
  review that had not been recorded and/or captured in the PGAS Advances
  Registers. Consequently, these payments of cash advances had not been followed
  up with the officers concerned for acquittal purposes.

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   Lump sum payments as grants and subsidies and financial assistances to Non-Profit
  and Community Organizations, Churches and Individuals, except for Local-level
  Governments totaling K1,552,680 were made during the year under review. I noted
  no evidence to suggest the Provincial Government had put in place proper
  monitoring guidelines or mechanisms to ensure that funds had been utilized on
  intended purposes and/or properly accounted for by way of accountability reports
  from recipients.

  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 New Ireland Provincial Government for the year ended 31
  December, 2015.

  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 New Ireland Provincial 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”.

  6.15.2.2 Control Environment – 2016

  The Management Letter relating to the audit of the internal control environment and
  accounts and records for the year ended 31 December 2016 was issued in May, 2017. The
  Management Letter contained control weaknesses as stated below:

  Budgetary Control

   The Provincial Appropriation Act 2016, No.01 of 2015 was passed by the New
  Ireland Provincial Assembly and certified on 16th of December, 2015 authorizing
  the estimates of revenue and expenditure totaling K257,897,800 for the year ended
  31 December, 2016. The approved estimates of revenue and expenditure comprised
  of Internal Revenues of K112,517,000 and National Government Grants of
  K145,380,800. The Minister for Treasury however, had rejected the 2016 New
  Ireland Provincial Budget on the 07th of January, 2016 on the basis that the
  Provincial Government removes the outstanding MOA payments of K15,963,100
  from the budget estimates as it was not part of the National Government allocation
  for 2016 Budget and had instructed that the budget be revised and resubmitted for
  approval. Again, in a letter dated 16th February, 2016, the Prime Minister and

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  Acting Treasurer had granted conditional approval on the 2016 New Ireland
  Provincial Budget albeit at the appropriated amount as approved by Parliament in
  November, 2015 and further instructed that the adjusted 2016 budget be
  resubmitted for approval;

   The audit was not provided a Revised Budget to suggest the Provincial
  Government had adhered to the above directives. However, the Provincial
  Government, in two separate letters dated 12 September, and 23 December, 2016 to
  the Minister for Treasury, maintained the formula used to derive the outstanding
  MOA payments were set by the NEC in a Decision No. 61/2002 and therefore,
  reaffirmed its position that the Minister needs to reconsider and make amends to
  grant full approval of the 2016 Budget for New Ireland Provincial Government.
  Audit however, did not sight evidence to suggest the Minister for Treasury had
  responded to the letters nor had granted full approval on the 2016 budget for New
  Ireland Provincial Government in accordance with Section 141(4)(b) of the
  Organic Law on Provincial Governments and Local Level Governments; and

   Furthermore, the audit review of postings of the appropriations presented as
  Current Appropriations in the expenditure ledgers report revealed the annual
  appropriation for Division 715 (Internal Revenues) as K112,501,000, a reduction
  of K16,000 from K112,517,000 while Division 287 (Grants) showed an
  appropriation of K145,452,165, an increase of K71,365 from K145,380,800 at year
  end. However, although the current appropriation from Grants was reported as
  K145,452,165, the expenditure ledgers also showed that only K16,260,500 of the
  Grants budget were released through Warrant Authorities and taken up in the
  ledgers. The late release of funds by the National Government has been one of the
  factors attributed in the shortfalls in grant receipts.

  Cashbook and Bank Reconciliations

  Prudent cash management practices are essential to reflect the Provincial Government’s
  cash position or alternatively the fund balance at any point in time and to enable
  management to make prudent cash management decisions. The audit review of the bank
  reconciliation statements for New Ireland Provincial Government Operating Account and
  Provincial Government Grant Operating Account revealed that prudent cash management
  practices were lacking. The following observations were noted in respect of the Bank
  Accounts.

  New Ireland Provincial Government Operating Account No. 1000687407

  The bank reconciliation statement for December, 2016 showed a credit bank balance of
  K13,109,591, un-presented cheques totalling K11,641,301 and several reconciling items
  that had not been adjusted in the cashbook and respective revenue and expenditure
  ledgers and as a result, an unadjusted reconciled closing cashbook balance of K3,693,795
  was shown as at 31 December, 2016. The unadjusted reconciling items identified in the
  bank reconciliation statement include:

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   Un-deposited Revenue collections of K624,196 for the period 18th March, 2010 to
  16th December, 2016. Audit was not provided evidence to indicate that the
  outstanding receipts had been investigated and appropriate recovery actions taken
  against the accounting officer(s) concerned;

   Dishonored cheques of K50,212 and bank debits relating to bank fees and service
  charges totalling K179,137 not taken up in the cashbook dated back to April, 2010
  and December, 2011. There was no evidence to suggest that appropriate action had
  been taken to recoup the value and fees incurred in respect of the dishonored
  cheques from the drawers concerned and also to identify and clear the relevant
  bank fees and charges accordingly;

   Under banking of revenue collections totalling K22,921 dating back to 2011
  remained outstanding. Audit sighted no evidence to indicate the outstanding
  receipts should also have been investigated and appropriate recovery actions taken
  against the accounting officer(s) concerned. Further, over banking of moneys
  dating back to 15 December, 2011 totalling K28,819 continued to be shown in the
  bank reconciliation statements;

   Schedule 5 of the bank reconciliation statement showed cheques on bank
  statements not in cashbook totalling K257,306. The cheques were referred to as
  invalid cheques or cheques incorrectly debited to the Provincial Government
  Operating Account. Audit sighted no evidence to suggest the circumstances
  surrounding the presentation of these cheques at the bank had been investigated to
  ascertain their genuineness and validity as these cheques may have been
  fraudulently negotiated;

   Other debit and/or credit Items dating back to 2010 and 2012 shown in Schedules 6
  and 11 of the bank reconciliation statement totaling K30,006,584 and K1,756,429
  respectively which may have been related to other bank accounts had not been
  identified and communicated to the bank for necessary and prompt adjustments;

   The Provincial Treasury Office did not take appropriate action to identify and
  record the direct bank deposits dating back to 2015 totaling K27,129,602 in the
  cashbook resulting in the material understatement of cash book balance to that
  extent; and

   The un-presented cheques as per the Cheque Reconciliation Listing as at 31
  December, 2016 totalling K11,641,301 included one thousand three hundred and
  ninety stale cheques totalling K5,553,741 dating back to 2008 but continued to be
  shown as un-presented.

  New Ireland Provincial Government Grant Account No. 1001689878

  The audit review of December, 2016 bank reconciliation statement showed the Grant
  Account held a credit closing bank balance of K16,594,842, un-presented cheques
  totaling K7,191,963 with several reconciling items that had not been adjusted in the

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  cashbook and respective revenue and expenditure ledgers and as a result, an unadjusted
  reconciled cashbook balance of K582,145 was shown as at 31 December, 2016. The
  unadjusted reconciling items appearing in the bank reconciliation statement included:

   Receipts that had been taken up in the cashbook but not in bank statements (not
  banked) dated back to 2010 totalled K2,585;

   Dishonoured cheques dating back to 2012 totalled K2,618;

   Debits in the bank statement and not in the cashbook dated back to 2011 totalled
  K19,291;

   Under-banking of revenue dated back to 2014 totalled K2,441;

   Other incorrect debit items in the bank statements and incorrect journal entries
  debited to the cash book shown in schedule 6 amounted to K6,397,164 and dates
  back to 2011;

   Other credit Items of K93,871 per Schedule 11 dating back to 2012;

   The Provincial Treasury Office did not take appropriate action to identify and
  record in the cashbook direct bank deposits totalling K15,150,961 thereby resulting
  in revenue being materially misstated at year end; and

   The un-presented cheques totalling K7,191,963 as at 31 December, 2016 included
  four hundred and seventy-three stale cheques totalling K3,920,191 dated back to
  2010 that had gone stale but continued to be shown as un-presented. Furthermore,
  the bank reconciliation statement showed un-presented cheques as K7,191,963
  while the Cheque Reconciliation Listing showed the un-presented cheques as
  K7,192,962 resulting in a difference of K999.

  Revenue Management

  Revenue Analysis

   The review of revenue ledgers maintained at the Provincial Treasury Office
  revealed that NIPG had received and recorded revenue totaling K1,874,200 in
  National Government Grants against the anticipated annual total of K145,380,800,
  a significant under receipt of K143,506,600 (98.7% under receipt) whilst internal
  revenue collections showed a total of K38,577,370 against the anticipated
  estimated total of K112,517,000, a significant under collection of K73,939,630
  (65.7% under receipt);

   Audit noted however, the total reported actual receipts from Grants and Internal
  Revenues are misleading as a result of the revenue ledgers not being promptly
  updated. Schedule 7 of the December bank reconciliation statement showed
  revenue collection totaling K20,532,221 in 2016 that had not been recorded in the
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  cashbook and respective revenue ledgers for the Provincial Government Operating
  Account and K8,250,960 for the Grant Account. The delay in taking up the revenue
  receipts in the respective revenue ledgers will have the potential to impact the
  completeness, accuracy and reliability of Statement ‘J’ and related Statement ‘B’.

   Further, the significant short fall in estimated internal revenue collections indicates
  the inability of the Provincial Government to prepare sound and prudent revenue
  forecast. It also indicates a lack of co-ordination and co-operation between the
  Provincial Revenue Unit and other line economic Divisions of the Provincial
  Government to effectively plan and direct their efforts and course of action to
  maximize the collection of internal revenues while late release of funds by the
  National Government has been one of the factors attributed in the shortfalls in grant
  revenues.

  Collections and Banking (Internal Revenue)

  The audit review of controls, records and documents relating to revenue collection,
  banking and safe custody of public monies had identified the following issues:

   Prudent cash management practices was acutely lacking at the Provincial Treasury
  Office. The duties performed by the Receiver of Public Moneys involving revenue
  collection, banking and compiling of collector/receiver statements were not
  checked and certified by a competent authority (Accountant) including independent
  and surprise cash counts to ensure all revenues are brought to account and banked
  intact. As a result, the audit review of selected random sample of Collectors
  Statements, official receipts, deposit slips and bank statements for the Provincial
  Government Operating Account revealed inordinate delays in banking of revenue
  collections ranging from one (1) day to fifteen (15) days. Such delays may result in
  cash collections being tampered with or stolen if not banked promptly on a daily
  basis.

   Further, Schedule 1 of the December bank reconciliation statement of the
  Provincial Government Operating Account showed receipts dated back to 2010
  totalling K624,196 and recorded in the cash book had not been deposited into the
  bank account whilst Schedule 3 showed under banking of daily collections totalling
  K22,921 dating back to 2011. This indicates serious weaknesses and breakdown in
  internal controls over revenue management.

  Paid Accounts

  The audit review of controls surrounding the payment of accounts had revealed lack of
  compliance with procurement and payment procedures due to the following
  discrepancies:

  ● The Instrument of Appointment kept by the Senior Examiner at the Provincial
  Treasury Office only had the specimen signatures of the appointed financial

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  delegates and Section 32 Officers without specifying their financial limits for
  purposes of approval of expenditures;

  ● The appointed Section 32 Officers failed to disclose their designations and
  financial limits on the Requisitions for Expenditure (FF3) in many instances when
  approving requisitions to incur expenditure which made audit unable to verify
  whether the approval for expenditure are within their delegated financial limits;

  ● Payments were effected in most instances without proper examination and
  certification of claims by the Examiner and Certifying Officer for legitimacy,
  accuracy and completeness of the requisitions for expenditure;

  ● in numerous instances, payments for office stationeries and operational materials
  and supplies were not supported with valid receipts and goods delivery dockets
  from Suppliers to confirm actual receipt of the goods by an independent officer.
  This exposes serious risks that goods may have not been purchased and delivered
  but money may have either been reimbursed to officers involved with the purchases
  by the suppliers or used for other purposes for personal interest. Some shops are
  known for en-cashing cheques and therefore, may create avenues for fraudulent
  activities by dishonest staff;

   Excessive payments for flex cards intended for office use totalling K53,559 were
  noted whilst the Provincial Government also has access to landline telephones;

   Payments for reimbursement claims from various individuals for use of personal
  monies to conduct official business on behalf of the Provincial Government
  totalling K298,095 were not supported with prior written approval from appropriate
  authorities;

   Reimbursement of funds for unbudgeted expenditure were also made to Public
  Works New Ireland Limited for supply of diesel to Konos and Namatanai power
  houses (K775,039), New Ireland Development Corporation for facilitating the PEC
  Meeting in Port Moresby, Alotau, Lae, Wewak and Mount Hagen (K185,547) and
  Old Aged & Disable Account for the Punam ground breaking ceremony
  (K177,500);

   Funds intended for 2016 program activities totalling K1,314,942 were paid out as
  advances to New Ireland Development Corporation in order to facilitate the
  payments in respect of Realignment of Top Management positions salaries and
  allowances (K304,942), NGI Autonomy Forum (K100,000) and NIPG
  Representatives Projects (K910,000) in early 2017. Such practices of transferring
  funds to a third party to facilitate payments on behalf of the Provincial Government
  are improper and amounts to misapplication of funds;

   Advance payments totalling K863,791 were also made to various service providers
  whilst internal controls over maintenance of creditors ledgers and proper acquittal
  and reconciliation of accounts was lacking;

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   Further, a total of K195,572 was paid to Air Niugini prepaid account as advance
  payments for airfares for official travels. The acquittal and reconciliation report for
  this account was not provided to audit although requested;

   The Provincial Treasury Staff were each paid K2,000 adding up to K20,000, in
  total for their work done during the close of accounts period. The payments are
  excessive and wastage of public monies as these Officers are public servants who
  receive fortnightly salary for the duties performed. If they work overtime during
  that period, then they should claim for overtime;

   Payments for fuel usage and/or consumption by the Provincial Government for the
  year amounted to K1,951,717. The risk of misuse and abuse of public funds is very
  high in this area;

   Expenditures totalling K5,934,556 were not paid under the correct vote item and
  activity that was budgeted and approved for. For instance, a total of K300,000 was
  budgeted for payment of outstanding HDA for officers, however, the funds were
  diverted and paid for other services totalling K291,741;

   A double payment of K13,545 was made to Aulson Construction The payment for
  the same invoice was already made on 19/10/16. This payment was confirmed by
  the Certifying Officer as a double payment; and

   Cash handling fees of K146,622 was charged by BSP for huge amount of encashed
  cheques made payable for old aged and disabled payments totalling K8,096,720
  which is noted to be extravagant and wastage of public monies.

  Capital Works and Maintenance

   PNG SJ Constructions Limited was engaged by New Ireland Provincial
  Government on upgrading and sealing of Lanzarotte Highway from Punam to
  Manmo (80Km). The Provincial Supply and Tenders Board had issued a
  Certificate of Inexpediency authorizing the expenditure of K4,983,313 for the
  project. Based on payment records and documents provided to audit, the contractor
  was paid K5,790,743 in total, after certificates of completion were issued for work
  done on each of the three stages of the project. The following discrepancies were
  noted in respect of this expenditure:

   Proper procurement and tender procedures and guidelines were not followed in
  awarding the contract to PNG SJ Constructions Limited. As a result, neither the
  expenditure of K4,983,313 was referred to the Provincial Authority to Pre-
  Commit Committee (PAPCC) to endorse the commitment of funds and make
  recommendations to the PS&TB for their approval to incur the expenditure;

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   The Certificate of Inexpediency authorizing the expenditure of K4,983,313 was
  signed only by the acting Provincial Administrator without the other Board
  members;

   The Secretary for Works in a letter dated 21 April, 2016 had stated, ‘the
  contractor PNG SJ Construction Limited was recommended by the Governor
  and its Provincial Executive Council (PEC) as a reputable company with vast
  experience and resources capable of delivering the road project to standard and
  value as estimated’ hence, culminating in the selection of the preferred
  contractor; and

   Payments to the contractor totalling K5,790,743 exceeds the authorized
  expenditure of K4,983,313 as the contract value. The over expenditure of
  K807,430 was not approved by the Provincial Supply and Tenders Board;

   Public Works New Ireland Ltd was sanctioned to receive funds from the Provincial
  Government and to participate in the management and implementation of capital
  works and maintenance projects on behalf of the Provincial Government and
  charges a management fee of 5% on the total project costs. Public Works New
  Ireland limited, as the project manager, had engaged a contractor namely; PNG SJ
  Construction Limited on upgrading and sealing of Burukalai Junction to Tubuana
  Junction Road in the Namatanai District. This project was not funded in the 2016
  Development Budget as it was marked as a Newcrest Mining Limited Tax Credit
  Scheme Program. However, due to a dispute, the PWNIL engaged the contractor to
  commence work. A payment of K3,405,969 which includes 5% for Retention/GST
  (K162,189) and Management Fees (K162,189) was paid to PWNIL on. There was
  no evidence to suggest proper tender procedures and guidelines were followed
  leading to the award of the contract to PNG SJ Construction Limited. Further, since
  this project was not funded in the 2016 budget, the project expenditure of
  K3,405,969 was paid from funds intended for Bopire Town Development,
  (K3,000,000) and Ward Level Projects, (K405,969) respectively. Also, audit could
  not ascertain whether or not the Provincial Government had been reimbursed the
  project funds of K3,405,969 under the Newcrest Mining Limited Tax Credit
  Scheme Program;

   Hardware Haus was selected as the preferred supplier to supply 50,000 sheets of
  corrugated roofing iron intended for the Provincial Government’s “Roof Over the
  Head Policy” at a contract value of K2,447,500. The previous supplier in 2015 was
  Rabaul Metal Industries. Hardware Haus was paid K1,223,750 from former years
  rollover funds which was intended for Island Ring Roads. There was no evidence
  to suggest the Provincial Government had sought the required three written
  quotations from two other suppliers as Hardware Haus had been selected as the
  new supplier and neither the contract value of K2,447,500 was sanctioned by the
  Provincial Authority to Pre-Commit Committee (PAPCC) nor the award of
  contract was approved by the Provincial Supply and Tenders Board. Furthermore,
  the payment voucher with the supporting tax invoice was not certified by the co-

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  ordinator of the program to confirm the correct quantity of roofing irons had been
  received and were delivered in good order; and

   Payments totalling K265,056 were made to three private contractors namely;
  Havton Builders (K55,477), Northsea Engineering Services (K63,959) and Aulson
  Construction (K145,620) who were engaged on minor capital and maintenance
  works. Audit noted however, the claims presented for payment were not supported
  by work in progress reports and/or certificates of completion duly certified by a
  competent technical officer of the Provincial Government to indicate the capital
  and maintenance works undertaken had been satisfactorily executed and that the
  payments were proper.

  Provincial Supply and Tenders Board

   The Instrument of appointment of the Chairman and Members of the New Ireland
  Provincial Supply and Tenders Board was not made available for audit review.
  Perusal of the Meeting Minutes shows there were inconsistencies involving
  representation of board members at the PS&TB meetings. The Provincial Supply
  and Tenders Board is a statutory unit of the Provincial Government and it is
  recommended that the appointment of the Board members be formalized and
  instrumented in line with provisions of the Public Finances (Management) Act;

   Based on records and documents provided to audit, the New Ireland Provincial
  Supply and Tenders Board had convened seven meetings during the year under
  review. Audit noted however, the PS&TB Secretariat did not maintain proper
  records of meeting minutes and as a result, the minutes relating to Board Meetings
  No. 02 of 2016 to 05 of 2016 and 07 of 2016 were not signed by the Chairperson of
  the Provincial Supply and Tenders Board. The unsigned meeting minutes may
  render important resolutions involving financial considerations sanctioned and
  approved by the Board null and void;

   Perusal of Provincial Supply and Tenders Board Meeting Minutes of Meeting No.
  07/2016 revealed the meeting was presided by the Advisor to the Government (ex-
  officio member) other than the Acting Provincial Administrator as the Chairperson
  with only three members of the Board in attendance while the Chairman and four
  other members were unavailable for the meeting. This meeting with only four
  members in attendance had however, approved the award of contracts as follows:

   Project No. NIPG-47PH-16BC03 – Supply and Construction of Tinkoris
  Health Centre to China Harbour Engineering Company (CHEC) for a contract
  sum of K1,675,867;

   The Utu High School Classroom Project was awarded to a contractor namely,
  Kodro with no contract value disclosed; and

   The Board endorsed the payment of supervision fee of 5% from the
  Lanzorette Highway Project to Department of Works.

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  In view of the above audit observations, the decisions passed by the PS&TB at this
  meeting may be null and void due to lack of quorum and improper appointment of the
  Chairperson;

   The New Ireland Provincial Supply and Tenders Board did not maintain a Tenders
  Register to record information on tender invitations, quotations received and tender
  evaluations leading to the selection and approval for the award of contracts to
  successful bidders. In the absence of a Tender register and proper records of project
  descriptions, documentation and tender evaluations, audit was unable to assess the
  efficiency and effectiveness of the Provincial Supply and Tenders Board in
  awarding contracts for and on behalf of the Provincial Government. Furthermore,
  the New Ireland Provincial Supply and Tenders Board did not have in place a
  competent Tender Evaluation Committee to screen, evaluate and recommend to the
  Board for their deliberations and considerations with such specific information on
  suitable bidders for the jobs/contracts tendered based on their company profiles,
  expertise and financial background, etc;

  Advances Management

  Proper monitoring and recovery exercises on traveling allowances and cash advances
  were lacking. The following issues were identified by audit:

   A review of the expenditure ledgers revealed numerous large amounts of payments
  of cash advances totalling K595,363 and travel allowances totalling K327,557 to
  officers during the year under review that had not been recorded and/or captured in
  the PGAS Advances Registers. Consequently, these payments of material amounts
  were not followed up with the officers concerned to provide their acquittals which
  expose the risk that these cash advances may not be utilized on purposes intended;

   The PGAS Advances Registers for both NIPG Operating Account and NIPG Grant
  Account had not been updated on a current basis. The NIPG Grant Account
  Registers did not show any postings or records of payments of travelling
  allowances and cash advances to officers from prior years up to 2012 as well as
  2015 whilst the NIPG Operating Account Registers did not show any postings or
  records of payments of travelling allowances and cash advances to officers in 2015.
  Due to incompleteness of the PGAS Advances Registers, no reliance could be
  placed on the accuracy of the reported total un-acquitted advances as at 31
  December, 2016;

   Except for the payments made during the year under review totaling K250,000 ,
  prior years cash advances totaling K2,144,399 (2014 – K1,025,202) and (2015 –
  K1,119,197) remained un-acquitted as at 31 December, 2016. Audit sighted no
  evidence to suggest either the Provincial Treasury Office nor NIPA Management
  had taken appropriate recovery actions against officers concerned to acquit the
  outstanding cash advances; and

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   Perusal of the acquittal files revealed that the acquittals were supported with
  manual receipts however, it was observed in most instances, the manual receipts
  issued were in the order of sequential numbers which indicates the manual receipt
  books were maintained by the cash advance holders hence, are not valid receipts
  that were issued by suppliers or recipients. Further, the amount of expenses
  acquitted K106,269 while the cash advance paid was only K100,000 and the
  acquittals included two cheque payments of K5,120 and K4,900 as part of the
  acquittal for the cash advances paid while a total of K2,289 was not supported by
  valid official receipts.

  Assets Management

  Effective assets management would contribute to better service delivery while proper
  asset control and monitoring would prevent fraudulent use of assets for personal gains
  and theft. The New Ireland Provincial Government held extensive portfolios of fixed
  assets under its ownership. The audit review of fixed assets register, motor vehicle fleet
  register and other relevant records maintained by the Housing and Assets Unit revealed
  lack of proper assets management controls and practices as identified by the following
  issues:

   The procurement of fixed assets was not centralized and controlled by the Housing
  and Assets Unit as all Divisions were procuring their own asset requirements;

   The Fixed Assets Register lacked complete, accurate and descriptive information
  such as the purchase price, date of purchase of each asset item and were not
  properly classified under the different assets category such as Motor vehicles, Land
  and buildings, Marine Vessels, Plant and Equipment, Office Furniture and
  Equipment, etc. The assets register also did not disclose details and values of fixed
  assets such as land and buildings that were purchased, built, donated or whereby
  the ownership of such assets had been transferred to New Ireland Provincial
  Government. A review of cashbooks and expenditure ledgers revealed the
  Provincial Government purchased several fixed assets worth K2,054,971 including
  motor vehicles at a total cost of K1,494,675 during the year that could not easily be
  identified as having been recorded and accounted for in the fixed assets register.

  Other information relating to dates of disposal and values of assets disposed
  through tender processes were not disclosed in the Fixed Assets Register. Audit
  noted total receipts of K55,000 as revenue received from disposal of Provincial
  Government assets during the year;

   The Motor Vehicle Fleet Register was not made available for audit examination. In
  the absence of the Motor Vehicle Fleet Register, audit could not ascertain whether
  purchases of motor vehicles at a total cost of K1,494,675 during the year had been
  recorded and accounted for in the register; and

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   There was no stock-take reports provided to audit to show the Housing and Assets
  Unit had conducted periodic stock-takes to physically verify the existence,
  conditions and ascertain the value of fixed assets held under ownership of the
  Provincial Government at the end of each stock-take period or year end.

  Grants and Subsidies

  The Provincial Government had paid as grants, subsidies and financial assistances to
  Local Level Governments, Non-profit Organizations, Churches, Old Aged and Disabled
  Persons and Education Subsidy during the year under review totalling K19, 031,922 as
  stated below:

  K
   Old Aged and Disabled Persons 8,096,720
   Churches 3,608,375
   Other Organizations 3,960,757
   Education Subsidy – Schools Rations 1,697,480
   Education Subsidy – School Fees 1,668,590
  Total 19,031,922

  Except for Local Level Governments who could disclose their receipts and expenditure of
  grant funds in the annual financial statements, accountability reports from other recipients
  were poorly monitored by the Provincial Government to ensure that grants/financial
  assistances provided were used for the purpose intended. The absence of guidelines and
  procedures governing the usage of grant funds also contribute to lack of and/or
  monitoring of funds paid.

  Trust Funds

   The audit review of PGAS trust ledgers revealed existence of two non-bank Trust
  Suspense Accounts namely, the Provincial Government Operating Account Trust
  Suspense ledger and Provincial Government Grant Account Trust Suspense ledger.
  The former showed the opening balance of K2,457,617(overdrawn), receipts and
  payments of K14,095,614 and K13,946,717 respectively with a net closing balance
  of K2,308,720 (overdrawn) while the latter showed the opening balance as
  K15,089,289 (overdrawn), and receipts and payments of K797,057 and K811,538
  respectively with a net closing balance of K15,103,770 (overdrawn) as at 31
  December, 2016.

  Audit understands the Suspense Accounts are maintained to record transactions
  which need to be adjusted to their correct accounts after having been identified and
  therefore, the trust suspense accounts should have shown a nil balance at the end of
  the year. The respective overdrawn closing balances at year end of K2,308,720 and
  K15,103,770 are an indication of unbudgeted expenditures that had been
  inappropriately charged to these accounts without proper authorization and
  therefore, prone to the risk of misappropriation or misapplication of public funds if
  undetected;

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   The New Ireland Provincial Government had also administered independently four
  Trust Accounts with bank accounts operated with Provincial Government funds
  apart from the Provincial Government Operating Account and Provincial
  Government Grant Account. These four Trust Accounts were identified as; MRDC
  Project Trust, Old Aged and Disability Account, Roof Over Head Account and
  Provincial Fuel Service Station Account. The AGO was not provided evidence of
  formal trust instruments or approval granted by appropriate authorities to ascertain
  the legality, validity and appropriateness of the transactions effected through these
  bank accounts and therefore, may be illegally in operation;

   Furthermore, audit was not provided the cashbooks, bank reconciliation statements
  and other related records maintained to record and account for receipts and
  expenditure of funds during the year in respect of the three bank accounts, except
  for the MRDC Project Trust account. The audit review of the bank reconciliation
  statement compiled in respect of MRDC Project Trust account revealed the
  K10,000,000 of PSIP funds for 2015 was transferred to this account on the 30
  August, 2016 and remained in the account at the time of audit in March, 2017. The
  transfer of PSIP funds into MRDC Project Trust bank account is in violation of the
  Administrative Guidelines on PSIP, DSIP and LLGSIP issued by the Department
  of Implementation and Rural Development and relevant Finance Instructions issued
  from time to time by the Department of Finance; and

   The ledger account maintained for the MRDC Project Trust Account showed a
  closing cash balance of K44,354,892 as at 31 December, 2016 and a closing bank
  balance of K25,575,023 as at 09 December, 2016. The bank statements as of 10
  December, 2016 to 31 December, 2016 were not made available for audit
  examination to ascertain the closing bank balance at year end.

  Audit was informally advised that the Provincial Administration was in the process of
  conducting a proper investigation into the operations of these non- bank trust accounts
  with a view to closing the accounts.

  Human Resources Management

  The audit review of New Ireland Provincial Administration manpower and related
  records pertaining to payments of salaries, wages and allowances identified the following
  issues:

   Relevant registers and records relating to the Man Power including Staff
  Establishment Register; Manpower Reconciliation Reports; Payroll Registers for
  number of pay periods; approved ceiling with detailed listing of casual employees;
  Payroll Reports for the casual employees and Assembly Members; and detailed list
  of consultants engaged by the Provincial Government and copies of their Contracts
  of Employment were not provided for my review to ascertain whether or not the
  manpower and payroll matters were effectively managed and that, the total number
  of Staff on Strength are within the manpower and approved and budgeted ceiling;

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   The Alesco Human Resources Management System Monthly Budget and Year – to
  – Date Report showed a total expenditure on salaries and allowances as
  K58,865,002 against the annual budget appropriation of K74,341,600 with an
  under expenditure of K15,376,598;

   The Alesco Human Resource Management System Monthly Costing and Year – to
  – Date Report on pay period 26 of 2016 showed total number of staff on strength as
  451 with a year to date salaries and allowances expenditure of K14,649,147 against
  the NIP Staffing Grant Appropriation of K25,179,147. The Report also showed
  year to date expenditure balances of K18,415 and K237,220 described as
  ‘Unknown’. The items relate to overtime and gratuity expenditures and therefore,
  these payments may have been processed through the payroll system without
  availability of funds to cater for such expenditures. There were no reports or related
  records provided to ascertain the total number of staff on strength on the NIP
  Teachers’ Salaries payroll at year end;

   The expenditure Summary Reports in respect of salaries and allowances as well as
  wages for casual employees engaged by the Provincial Government and Provincial
  Assembly Members that were processed through the Kundu Pay System showed a
  year to date total expenditure of K6,296,185 in excess of actual amounts released
  through Warrant Authorities and CFCs issued under totalling K5,033,500 by
  K1,262,685. Casual employees payroll not processed through the PGAS payroll
  and therefore, the payroll expenditures processed through the Kundu Pei System
  have not been posted and/or captured in the PGAS expenditure ledgers under the
  respective expenditure votes. Processing of payroll outside of the system is
  considered to be improper;

   Audit noted expenditures unrelated to salaries and wages processed through the
  Kundu Pei banking system totalling K6,296,185 of which amounts totaling
  K752,867 also did not have proper approval through Requisitions for Expenditure;

  ● The Provincial Government uses the Alesco Electronic Data Entry System to
  transmit the fortnightly payroll for processing through the Concept Payroll System
  administered by the Department of Finance. Audit was informed by HR staff that
  they have access to payroll data input only while access to printing of the Alesco
  reports is restricted by Department of Finance in Waigani. As such, fortnightly
  payroll and budget reconciliations reports and reviews could not be performed to
  ensure that only NIP Staff on the Establishment Register are paid through the
  Alesco Payroll and that the salaries expenditure is within the approved budget
  estimates; and

   There is no restriction or very limited control over the payroll data entry or input
  points into the Alesco HRM System. Currently, there are two data entry points
  which are; New Ireland Provincial Government and Department of Finance. As
  such, the Provincial Government is exposed to a high risk of payroll data
  manipulation such that unauthorised payments could be processed at different data

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  entry/input points if undetected resulting in significant over expenditures on
  salaries and allowances.

  Corporate Governance

  The New Ireland Provincial Government’s three year Corporate Plan (2013 – 2015) had
  lapsed at the end of 2015. There was no evidence nor any explanations provided to
  suggest the Provincial Administration had taken appropriate action(s) in developing a
  new Corporate Plan for 2016 and beyond.

  Provincial Assembly/PEC Meeting Minutes and Enacted Legislations

  The Provincial Administration did maintain adequate records of Assembly and Provincial
  Executive Council (PEC) Minutes as well as gazettal records of legislations passed and
  enacted by the Provincial Assembly. A review of the Provincial Assembly and PEC
  meeting minutes revealed:

   Four scheduled Provincial Assembly meetings convened during the year;

   Twenty-one PEC meetings with one hundred and sixty-six Decisions passed during
  the year; and

   Five Legislative Bills passed by the New Ireland Provincial Assembly during the
  year.

  Internal Audit

  The Internal Audit Unit (IAU) is a key administrative function that oversees the
  effectiveness of other functions and internal controls within the administration. An
  effective Internal Audit Unit provides assurance and instills integrity in the internal
  controls that management established to rely on. As reported in my previous Reports, the
  IAU had been without a Chief Internal Auditor following the retrenchment of the former
  towards the end of 2013 without any new appointment as at the time of audit in March,
  2017 hence, it did not have in place a functional Internal Audit Unit. This indicates a
  major control weakness – in essence the reliability of various management systems
  established to deliver basic services.

  6.15.2.3 Management Response

  The above observations had been communicated to the Provincial Administrator and the
  Management by way of a Management Letter together with recommendations for
  improvement. I had however, not received a response to the Management Letter at the
  time of preparing this Report in September, 2017.

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  6.15.2.4 Status of Financial Statements

  At the time of preparing this Report in September, 2017 the New Ireland Provincial
  Government had not submitted its financial statements for the year ended 31 December,
  2016 for my inspection and audit.

  6.15.3 Kavieng Urban Local-level Government

  The Kavieng Urban Local-level Government had submitted its financial statements for
  the years ended 31 December 2013 and 2014 for my inspection and audit. Field work
  associated with examination of the financial statements and audit of the accounts and
  records was completed with both the Management Letters and Audit Opinion Reports
  issued. The paragraphs below detail issues identified with the financial statements and the
  internal control environment.

  6.15.3.1 Comments on Financial Statements – 2014

  My reports to the Minister concerned and other relevant bodies under the Organic Law
  and Audit Act on the Kavieng Urban Local-Level Government’s financial statements for
  the years ended 31 December, 2013 and 2014 were issued on 21st June, 2017. The
  Reports contained similar Disclaimer Audit Opinions hence, only the 2014 report is
  reproduced as follows:

  Basis for Disclaimer Audit Opinion

  Disclosure Errors

  I noted the following disclosure errors which could have material effect on the accuracy,
  completeness and reliability of the financial statements of the Kavieng Urban Local Level
  Government Account balances and consequently, the financial position as at 31
  December, 2014:

  Cash Balances

  The Kavieng Urban Local Level Government Account balance of K463,381 disclosed in
  Statement “A” as represented by closing reconciled cash balance of the Operating
  Account of K463,381 as at 31 December, 2014 is confirmed as correct with the
  corresponding books of records.

  Receipts and Payments

  Statement “B” presented total revenue and expenditure as K928,181 and K865,581
  respectively with an operating surplus of K62,600. However, there were reconcilable
  items relating to receipts and expenditure that were not adjusted in the cashbook and
  relevant revenue and expenditure ledgers and disclosed in Statements “J” and “K” that
  may have affected the accuracy of the total receipts and payments and therefore, the
  stated operating surplus of K62, 600 at year end.

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  Fixed Assets

  Appendix 4 to the financial statements did not disclose any information on the value of
  fixed assets as owned by Kavieng Urban Local-level Government. The Kavieng Urban
  Local Level Government had not maintained a proper Assets Register neither the records
  of periodical stock-take of assets by management verifying the existence, conditions and
  value of fixed assets. Consequently, I was unable to determine whether all fixed assets
  purchased during the year and those of prior years had been recorded and properly
  accounted for nor could I ascertain the value of fixed assets held under the custody and
  ownership of the Urban Local-level Government at year end.

  Other Records and Registers

  Several other documents corroborating the financial statements, such as the registers of
  investment, inventory, debtor and borrowings, commitments & arrears, and losses &
  deficiencies were not maintained hence, 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

  Below is a summary of significant control weaknesses identified in the Kavieng Urban
  Local Level Government’s internal control environment:

   The revenue collections for Kavieng Urban Local-level Government were not
  banked promptly and intact on a daily basis. I observed that the revenue collections
  from February, 2014 to April, 2014 were retained and subsequently banked on
  April, 2014. The prolonged and inordinate delays in banking or revenue collections
  were due to unauthorized practices of advancing cash as loans to employees as well
  as meeting various operational expenses;

   Kavieng Urban Local level Government had made a part payment of K200,000 to
  Boroko Motors out of a quoted price of K265,000 for the purchase of an Isuzu
  NPR Garbage Compactor Truck. I did not sight evidence of at least two additional
  competitive quotations to that effect. Further, I observed the Project Formulation
  Document provided as the supporting document intended to seek endorsement for
  the purchase of asset was not sanctioned and signed by the Chairperson of Kavieng
  Joint District Planning and Budget Priorities Committee;

   As reported in my previous reports, Section 32 Officers failed to disclose their
  financial limits on the Requisition for Expenditure (FF3) when approving
  requisitions to incur expenditures in most instances. Consequently, I was unable to
  verify whether the approvals for expenditures were within their delegated financial
  limits;

   I sighted no evidence to suggest the claims presented for payment were registered
  and dated, verified, signed by the claims examiner and duly certified by the District
  Treasurer other than the duly appointed certifying officer;

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   Financial assistances totaling K8,500 were paid directly to recipients however,
  without proper accountability reports from recipients to ensure that grants/financial
  assistances given were strictly used on the intended purposes. Further, I sighted no
  evidence to indicate existence of guidelines and procedures governing the usage of
  grant funds during the year; and

   Proper monitoring and recovery exercises on travel and cash advances was lacking
  resulting in advances totaling K65,246 paid to officers dating several years back,
  remained un-acquitted as at 31 December, 2014.

  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 Kavieng Urban Local-level Government for the year ended
  31 December, 2014.

  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 Kavieng 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”.

  6.15.3.2 Status of Financial Statements

  The Kavieng Urban Local-level Government (ULLG) had not submitted its financial
  statements for the years ended 31 December, 2015 and 2016 for my inspection and audit
  at the time of preparation of this Report in September, 2017.

  6.15.4 Kavieng General Hospital

  The Kavieng General Hospital had not submitted its financial statements for the financial
  years ended 31 December, 2013 and 2014 respectively. Fieldwork associated with the
  internal control environment were however, completed without the financial statements
  and Management Letters for both years issued in August, 2016.

  6.15.4.1 Control Environment – 2014

  The Management Letters relating to the audit of the accounts and records for the years
  ended 31 December, 2013 and 2014 were issued in August, 2016. The Management
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  Letters contained similar issues hence, only the 2014 Management Letter is reproduced
  as follows:

  Audit review of the Accounting System and Internal control Procedures revealed the
  following issues:

  Accounting System

  The Attaché and/or MYOB Accounting Software introduced to most Hospitals was
  however, not used by Kavieng General Hospital to produce accurate and reliable
  financial reports. As such, Cash Receipts and Payments were not systematically
  processed through the General Ledgers in order to ensure that all Expenses, Income,
  Assets and Liabilities are properly brought to account for purposes of accuracy,
  classification, completeness and materiality in conformity with Accepted Accounting
  Standards and Practices.

  Financial Management Processes

   Apart from the Public Finances (Management) Act, 1995, a documented internal
  Finance and Administration policies and procedures that adequately encompass all
  of the Hospital’s financial management activities and appropriately specify internal
  control mechanisms was not formulated to assist as a tool in ensuring that the
  procurement of goods and services are within the set policies and guidelines of the
  Hospital. The absence of such internal finance and administrative policies and
  procedures may have attributed to the inability of the Hospital in complying with
  proper procurement and payment procedures; and

   Control over decision making within the Hospital Management for financial
  matters appears to be strictly withheld between the Chief Executive Officer (CEO)
  and the Director for Corporate Services (DCS). There was no formal appointment
  of Requisitioning Officers, Financial Delegates, Examiners, Certifying Officers and
  Receiving and Paying Officers. If there was (if any), these appointments were not
  properly documented and kept on file and made available to audit. Unauthorized
  Officers may be approving expenditures and if signatures are forged, it may not be
  easily detected.

  Books of Accounts and Records

  Basic Accounting Records and Registers such as Cash Books, Revenue and Expenditure
  Ledgers, Bank Reconciliations, supporting documents of Paid Vouchers, Official Receipt
  Books, Bank Statements, Assets Register, Debtors and Creditors Ledgers, Advances
  Register and Investment Register that are required to be kept or caused to be kept to meet
  statutory requirements for financial accountability and audit purposes were not
  adequately maintained by the Hospital.

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  Budgetary Control

  Management of financial resources allocated and generated by the Hospital should aim at
  economical means of achieving the goals and objectives within the limit of allocated
  funds. Audit review of the budgetary control procedures in place at the Hospital revealed
  the following issues:

  ● The National Department of Health approved the estimates of revenue and
  expenditure for Kavieng General Hospital for the fiscal year ended 31 December,
  2014 as K12,518,600 from the initial budget estimate of K20,166,867 that was
  submitted by the Kavieng General Hospital. The Appropriation of K12,518,600
  consisted of the allocation of K8,593,500 for Personnel Emoluments while
  K3,925,100 was allocated for operational expenses. The audit review of the
  commitment ledgers maintained however, showed the Hospital had received funds
  released through CFCs totaling K6,816,700 and incurred expenditure of
  K5,807,154 hence, resulting in an under expenditure of K1,009,546. The total
  receipt of funds and expenditure excludes the Public Servants’ salaries and
  allowances appropriation of K7,285,300 which had been retained and administered
  by Department of Health;

  ● Audit also noted the Hospital had received increased funding totaling K1,583,400
  in respect of seven expenditure vote items as shown below:

  Expenditure Vote Item Appropriation CFC Excess
  Allocation
  112-Wages 488,200 688,200 200,000
  113-Overtime 90,000 290,000 200,000
  121- Travel & Subsist 100,000 150,000 50,000
  123-Office Mat & Supplies 100,000 150,000 50,000
  124-Operational Mat & Supp 550,000 600,000 50,000
  135-Other Operational Exp 400,000 1,233,400 833,400
  141-Retire Benefits, Pens & Gratuity 280,000 480,000 200,000
  2,008,200 3,591,600 1,583,400

  Related documents such as the revised Appropriation Act which should take into
  account such increases to the original appropriations were not provided for audit
  examination. Consequently, audit was unable to ascertain whether or not the increases
  were within the limits of the Appropriation Act and that the increases were approved
  by the Secretary for Department of Health;

  ● Section 3(c) of the Revised Hospital Fees Trust Instrument requires the Hospital to
  prepare and present the budget on the receipts and application of the Hospitals Fees
  Trust Account Funds. No such budget was prepared to show for the estimates of
  anticipated internal revenue sources and corresponding expenditure; and

  ● Section 2(c) (i) to (vi) of the Revised Hospital Fees Trust Instrument clearly sets
  out the purpose and procedural guidelines pertaining to the receipts and
  expenditures to be incurred from the Trust Account. Audit noted instances of
  operational expenses totaling K158,720 related to wages (K2,337), salary advances
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  (K11,100), cash and travel allowances(K8,841), accommodation and vehicle hires
  (K39,330) and other unrelated operational expenses (K97,112) paid out of the
  Hospital Fees Trust Account contrary to Revised Hospital Fees Trust Instrument.
  These payments should have been paid out from funds of the Hospital Operational
  Account.

  Bank Accounts, Cash Book and Bank Reconciliation

  Prudent cash management practices are essential to reflect the Hospital’s cash position or
  alternately the fund balance at any point in time and to enable management to make
  prudent cash management decisions. A review of the cash books, bank reconciliations,
  bank statements and other related records pertaining to bank accounts administered by the
  hospital during the year under review revealed the following:

   The Hospital conducted its banking activities through Westpac Bank (Kavieng
  Branch).During the year, the hospital was noted to have operated the following
  bank accounts; the KGH Operating Account, Trust Account and Vehicle Saving
  Account.

   The books of accounts of the Hospital Operating Account and Hospital Fees Trust
  Account were maintained through manual commitment ledgers and computer cash
  books using the Microsoft Excel Program. As highlighted in previous
  Management Letters, the Microsoft Excel Computer Program used for maintaining
  the cash books has limitations in its capacity to generate other financial reports
  such as revenue and expenditure statements, trial balance, periodic reports and
  bank reconciliations as it was not linked to the corresponding ledger accounts.

  Adjustment of Transactions

  The Kavieng General Hospital did not follow proper accounting standards and practices
  by utilizing journal entries as the source document using the double entry accounting
  principle to account for adjusting transactions of revenue and expenditure items in
  updating the cash book and corresponding ledger accounts. Audit noted that the inability
  to raise journal entries was due to the following factors:

   Sub-ledgers were not maintained and as such there is no link between the cash
  book and ledger accounts;

   Official Receipts were not issued to document the receipt of National Grants
  remitted through the hospital’s main operating bank account;

   Unbudgeted expenditure items such as bank fees, charges, interest earn and
  transfers are not created in the chart of accounts;

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  Consequently adjusting items of revenue and expenditure totaling K6,663,941 and
  K3,431 respectively for the main account and K970,274 and K13,322 respectively for
  the trust account were recorded to the cash books without raising the appropriate journal
  entries or issuing official receipts.

  Bank Reconciliations

   The bank reconciliation prepared for the month of December for the Operating
  Account showed the bank balance of K2,074,817 as at 31 December, 2014 being
  reconciled to the cash book balance of K1,958,177 with reconciling items of
  outstanding deposits totaling K34,678 and un-presented cheques totaling K151,317
  mostly related to 2014 financial year. Further, There was limitation of scope on the
  accuracy of the opening cash book balance of K1,118,582 carried forward from
  the 2013 financial year due to significant discrepancies noted on the previous
  years’ cash book and bank reconciliation; and

   The bank reconciliation prepared for the month of December for the Hospital Fees
  Trust Account showed the bank balance of K602,416 as at 31 December, 2014
  being reconciled to the cash book balance of K595,618 with no other reconciling
  items except for four un-presented cheques totaling K6,798 at year end. There was
  limitation of audit scope on the accuracy of the opening cash book balance of
  K307,458 carried forward from the 2013 financial year due to significant
  discrepancies noted on the previous years’ cash book and bank reconciliation.

  Vehicle Savings Account

  The vehicle savings account was created to cater for vehicle maintenance expenses
  through monthly direct bank transfers of K1,000 from the hospital fees trust account.
  Funds totaling K12,000 were transferred for this purpose during the year. The following
  discrepancies were noted:

   Proper books of accounts including the cash book, ledger accounts, payment
  vouchers and bank statement of accounts were not maintained and also monthly
  bank reconciliation and periodic status reports were not compiled;

   The account appeared to have been closed and the remaining bank balance of K19,
  580 was transferred to the trust account on 3rd December, 2012. However, the
  standing order for direct bank transfer from the Trust Account was not ceased and
  the Vehicle Savings Account was not closed either. Audit was however, informed
  that no expenditure transactions were incurred from this account in 2014 except for
  the receipt of monthly direct bank transfer of K1,000 from the Hospital Fees Trust
  account; and

   Appropriate documents showing evidence of approval and authority to establish
  this account were not provided for audit review. As such, audit could not ascertain
  the validity and legitimacy of the existence of this account.

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  IBD Accounts

  The Kavieng General Hospital held two short term investments in Term Deposit
  Accounts (IBD) with Westpac Bank, Kavieng Branch. The term deposit account # 2 010
  894 was opened earlier in prior years while the term deposit account # 6 002 327 775 was
  opened in 2012. Audit was not provided with relevant records such as the Interest
  Bearing Deposit (IBD) certificates and updated statements of accounts for the current
  year as well as those for prior years to ascertain the principal amounts invested in the
  term deposits, interest income earned on each term deposit and whether the terms of the
  IBD investments had been extended further upon maturity dates.

  Revenue Management

  The National Government Grants, Hospital Fees and Charges and Lease Rentals
  remained the basic revenue sources for the Hospital during the year under review. A
  review of controls exercised over collection, recording, banking and safe custody of
  revenue had identified the following issues:

   Commitment Ledgers maintained by the Hospital showed national grants receipts
  totaled K6,816,700 while the Cashbook showed funds released through CFC’s as
  K6,650,000 and the available bank statements showed a total of K6,616,700. Audit
  was however, unable to verify and confirm the accuracy of the total grants received
  due to non-maintenance of revenue ledgers which could have shown complete and
  accurate records of all grants and other receipts deposited through the Operating
  Account;

   Proper controls exercised over collection, recording, banking and safe custody of
  hospital fee collections were lacking due to the following discrepancies:

  i. Records of daily collections were compiled and kept at the cash office without
  being verified by an authorized officer other than the cashier before the
  collections are banked. The Hospital recorded total receipts of K282,986 in
  hospital fees and charges for the year;

  ii. Examination of the collectors statements compiled for the year under review
  revealed constant delays in banking of collections for up to a maximum of
  eight days;

  iii. Official receipts as well as cash register receipts were issued to patients during
  the year. However, audit was not provided the book-fast copies of the official
  receipts issued to ascertain whether or not all collections receipted using
  official receipts were banked intact;

  iv. Audit noted seven instances of daily cash collections totaling K2,433 that had
  been tampered with by the former OIC-Revenue whereby cheque amounts
  were not entered in the cash receipts register and the cash equivalent to cheque
  totals were removed prior to depositing the revenue collections into the bank

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  account. The total deposits still agrees with the daily transfer sheet total and the
  cash register total; and

  v. Audit sighted no evidence to suggest that surprise cash counts were conducted
  by a competent personnel to ensure that all revenues collected were recorded
  and banked promptly and intact on a daily basis. As a result, a surprise cash
  count conducted by audit on the 11th of April, 2016 had revealed a cash
  deficiency of K984. The shortfall was due to cash being borrowed by the OIC-
  Revenue and three other revenue collectors.

   Lease/Rental Agreements as well as the Hospital Board approval relating to leasing
  of land to outside interest to conduct businesses within the Hospital premises was
  not provided for audit review. Enquiries with one lessee indicated rental fees of
  K300 were paid on a 6 month basis. However, proper records were not maintained
  and made available to audit to ascertain whether or not income from such lease
  agreements had been collected and properly accounted for; and

   Occupants of institutional houses paid rent through salary deductions. However,
  proper records such as the detail listing of all institutional houses, occupants of
  each institutional house and the amount of rent paid by each tenant and outstanding
  rental income, if any, as at 31 December 2014 were not maintained nor made
  available for audit examination.

  Procurement and Payment Procedures

  Prudent expenditure management is necessary for effective service delivery. A review of
  procurement and payment procedures adopted by the Kavieng General Hospital for the
  year ended 31 December, 2014 had identified the following discrepancies:

   Formal instruments relating to appointment of Section 32 Officers, Authorised
  Requisitioning Officers (ARO’s), Certifying and Examining Officers, Financial
  Delegates as well as their delegated financial limits were not maintained and held
  on file. As such, audit was unable to ascertain whether all expenditures incurred
  and paid were approved by duly appointed authorized officers;
   In most instances, claims presented for payment for procurement of goods and
  services lacked valid supporting documents such as the three required verbal and/or
  written quotations, formal suppliers’ invoices, goods delivery reports and bills of
  lading and/or consignment notes for purchases made outside of the Province;

  ● As stated in my previous year audit reports, the Hospital continued to process cash
  transactions resulting in substantial amount of cash payments totaling K734,731
  paid during the year from the Hospital Operating Account (K664,489) and Hospital
  Fess Trust Account (K70,241). Following discrepancies were note in this regard:

  i. Generally, the payments lacked appropriate supporting documents to justify
  the validity and genuineness of the expenditures incurred;

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  ii. The transactions were recorded in the cash book as payments made to the
  paymaster/paymistress when the cheques were actually drawn as cash
  payments. Since there is no duly appointed paymaster, anyone from the
  accounts section including the a/DCS were authorized to cash out these
  cheques; and

  iii. There were no evidences sighted to suggest that prior approval of the acting
  Chief Executive Officer was obtained on such arrangements. In most cases,
  the claims were bulked into one cash payment, the cash book failed to record
  the occurrence of each of the individual transactions and also there were no
  records provided to show for disbursement of funds to the intended recipients
  or evidence of actual delivery of goods and services paid for.

  ● The Executive Committee in its meeting no.2 of 2012 agreed to pay K100 credits
  to all executives for official use of their private mobile phones. The payments for
  flex cards for the Directors and CEO’s use during the year had amounted to
  K10,091 which is noted to be excessive as they also have access to the hospital
  landline phones. Further, the Directors and the CEO are all contract officers as well
  as others who are entitled for telephone allowances which are paid with fortnightly
  salary and being in receipt of such benefit may amount to double dipping and those
  not entitled to telephone allowance under the contract and in receipt may amount to
  misapplication or misuse of public funds;

  ● Utility charges/bills totaling K11,989 were paid for several doctors’ rented
  residences and other hospital staff by the Hospital which is also noted to be
  improper. Such expenses should be met by the Officers concerned. Doctors are
  entitled to utility allowances which are paid through their fortnightly salaries;

   General Orders 14.48 stipulates that, the most direct route of travel shall be the
  basis for calculating leave fares, unless otherwise authorized for reason of
  economy. “Travel shall be by public transport other than taxi “. Audit however,
  noted excessive payments of vehicle hires and boat hires for officers leave fares
  amounting to K96,625 which is contrary to the above provisions of the General
  Orders. Similar procedure was applied for payments of leave fares in 2013 as well;

   Inconsistencies were noted in respect of payments of leave entitlements to officers
  travelling outside of the province. Audit noted the payment for airfares were made
  either to airline companies or other Travel Agents however, in several instances,
  cheques were drawn to the respective officers. With regard to payment of airfares
  directly to officers concerned, some officers were paid at the correct 50% cash out
  rate while others were paid their leave fares entitlements in full; and

   There was no established policy in place to guide or deliberate on the eligibility of
  officers, manner of payments, and rates applicable in consideration to distance of
  travel and mode of transport applicable for officers within the province.
  Consequently, payments were either made to the transport providers (boat and
  vehicles) or the officers concerned and exposes the Hospital to the risk of

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  collaboration with the transport providers to overcharge the hospital for higher
  rates and percentage sharing among those involved with the facilitating of claim or
  unfairness in approval processes, whereby by officers may be denied their right to
  claim leaves airfares depending on the discretion of officers involved with the
  approval process, or bogus claims by officers within the accounts section.

  Salaries, Wages & Allowances

  A review and examination of records pertaining to human resources and payroll
  management had identified serious breakdown in controls exercised over payroll
  procedures and discrepancies in payments of salaries and allowances as follows:

   The Establishment and Positional Occupancy Register which was dated as August,
  2015 provided to audit showed the Kavieng General Hospital had an approved
  establishment of 276 positions of which 235 were occupied while 41 of the
  positions remained vacant. Twenty-seven employees were paid on vote item 112
  while seven of these employees were employed on short term contracts;

   The ALESCO Human Resource Management Monthly Costing and Year to Date
  Report (RFIN03) for Pay No.26 of 2014 disclosed the year to date salaries
  expenditure for Kavieng General Hospital under vote item 111 as K6,251,642
  compared against the appropriation of K7,285,300 hence, resulting in an under
  expenditure of K1,033,658 while the expenditure on wages under vote item 112
  paid locally by the Hospital totaled K688,229 compared against an appropriation of
  K488,200 and actual funds released through CFC’s totaling K688,200;

   There was no evidence to indicate that payroll reconciliations were done on a
  fortnightly and/or monthly basis to ensure accuracy of the total number of staff on
  strength as against the salaries expenditure for the pay period ending and
  manpower ceiling respectively;

   Gratuity, Vehicle, Housing, Overtime, DMA, SDMA & SPA and Higher Duties
  Allowances totalling K792,487 were inappropriately paid by the Hospital from the
  Hospital Operational Account. These allowances and entitlements which had been
  budgeted for under the salaries vote item 111 should have been processed through
  the ALESCO Payroll System. Further, vehicle and housing allowances were noted
  to have been paid directly to the Officers, tax free and as such, are deemed to be in
  violation of relevant Taxation Laws and Regulations.

   Audit noted two Medical Officers namely; received housing allowance entitlements
  of K18,000 and K43,200 for the year under review which were paid at monthly
  rates of K1,500 and K3,600 respectively. Audit could not ascertain whether the
  rates applied in calculating the payment of housing allowances are consistent with
  the rates determined for Housing Ownership Scheme Allowances as specified in
  Table 1A of the NDA Memorandum of Agreement, 2014 – 2016;

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   Perusal of the payroll registers for Pay Nos. 1, 13 and 26 of 2014 also revealed
  inconsistencies in the payment of domestic market allowances. It was observed that
  doctors were paid domestic market allowances as specified in the General Orders
  as well as the special domestic market allowances specified in the NDA
  Memorandum of Agreement and that the rates of SDMA applied to doctors at
  different salary grades were also not consistent with the SDMA levels shown in
  schedule 1 of the NDA Memorandum of Agreement. Audit is of the view that the
  NDA Memorandum of Agreement determines the salaries, allowances and benefits
  for Medical Officers and unless where it is silent, the terms and conditions as set
  out in the Public Service General Orders will prevail. As such, those Medical
  Officers in receipt of both domestic market allowance and special domestic market
  allowance are deemed to be double paid;

   Overtime allowances paid during the year amounted to K322,891 as compared
  against the initial annual appropriation of K90,000 and actual funds released
  through CFC’s totalling K290,000 hence, resulting in an over expenditure of
  K32,891. The payment records in respect of overtime allowances provided no
  evidences of proper examination, certification and approval granted by heads of the
  respective Directorates or the Chief Executive Officer. Staff within the Corporate
  Services Division occupying positions at salary grade 10 or above were also
  claiming excessive overtime in breach of the provisions of the Public Service
  General Orders under Section 13.68 which states, “Unless the Secretary,
  Department of Personnel Management determines otherwise, overtime pay shall
  not be paid to an officer who occupies a position at Salary Grade 10 (Clerk Class 8
  and equivalent designations) and above”; and

   Other inconsistent payment of allowances noted was a net payment of K2,968
  while at the same time he claiming overtime allowances for extra duties performed.
  The former acting Chief Executive Officer was paid K1000 for entertainment
  allowance while he was also in receipt of entertainment allowances as part of his
  salary entitlements.

  Advances Management

  The internal controls exercised over payment and acquittal of advances during the year
  ended 31 December, 2014 was seriously lacking in view of the following discrepancies:

   Cash, Travel and Salary Advances totaling K93,870 were paid during the year of
  which a total of K73,929 were paid from the Hospital Operating Account while
  K19,941 were paid from the Hospital Fees Trust Account. The Hospital however,
  had not maintained proper register and acquittal files, and as such audit was unable
  to confirm whether all advances paid during the year and those of prior years were
  properly recorded and subsequent acquittals compiled accordingly. The following
  were also noted:

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  i. Cash advances payments lacked appropriate supporting documents such as
  valid receipts, disbursement reports and evidence of certification by intended
  recipients;

  ii. Travel advances were not acquitted within seven days of return from duty
  travel and officers were given new advances while previous advance
  remained outstanding;

  iii. Salary advance payments were mostly on request for financial assistance and
  occasions where officers were temporarily off the payroll system. Such
  expenditure commitments are not provided for in the 2014 budget estimates
  and as such, are deemed to be unbudgeted expenditure which violates proper
  budgetary control practices; and

  iv. Proper records were not maintained by the personnel section to provide an
  updated report on the status of salary advances as at year end with regard to
  names of officers, details of fortnightly deduction and total outstanding
  amounts due from the officers concerned.

  Assets Management

  Part 32 of the Financial Management Manual requires all Departments, and Provincial
  and Local-level Governments to maintain proper Registers for all fixed assets owned and
  in their custody. A separate Asset Registers are further required to be maintained for each
  category of fixed assets with all necessary details. All purchases or disposals of assets are
  to be recorded in the Stock Card designed by the Department of Finance with information
  of opening balance, receipt, disposal and value by quantity and cost. The Kavieng
  General Hospital held extensive portfolio of fixed assets purchased over the years that
  have not been effectively managed nor appropriately safeguarded as evidenced by the
  following discrepancies:

   Proper Asset Registers as required under Part 32 of the Financial Management
  Manual and Section 62 of the Public Finances (Management) Act were not
  maintained. However, audit was provided a list of assets and inventories purchased
  in 2011 to 2015 totaling K579,518, while selected instances of Assets purchased
  from both the Operating and Trust Accounts during the year 2014 only by audit
  amounted to K681,136;

   There was no evidence sighted during audit to indicate that physical stock-takes
  were undertaken to physically verify the existence, conditions as well as to
  ascertain the value of fixed assets held under ownership of Kavieng General
  Hospital at the end of each stock-take period or at year end; and

   Disposal of assets during the year and those of prior years could not be ascertained
  due to lack of maintenance of proper registers or disposal records.

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  Debtors and Creditors

  As stated in my previous years audit reports, the Hospital continued to neglect
  maintaining appropriate records such as debtors’ ledgers and proper disclosure of revenue
  due from the hospital institutional houses and monthly land lease rentals. Neither the
  Hospital maintained appropriate records of its creditors. As such, audit could not
  establish details of its debtors and creditors nor could ascertain amounts of outstanding
  revenues and payments as at 31 December, 2014.

  Corporate Governance

   The Kavieng General Hospital Board did not have in place a Corporate Plan
  incorporating its long term objectives, priorities and targets taking into account the
  requirements of its stakeholders and the needs of the communities it serves. The
  associated plans that are needed to support the Corporate Plan such as financial
  management, assets management, human resources, information technology, risk
  management and divisional operation plans were also not in place.

  In the absence of any appropriate and comprehensive Corporate Plan the Hospital
  may not be able to provide an efficient and effective service delivery in a
  coordinated manner so as to meet the needs and requirements of its stakeholders
  and communities it serves; and

   The Hospital had no Internal Audit Unit in place at the time of the audit in March,
  2016 hence, no internal audit functions were performed on the operations of the
  Hospital or any audit reports provided for review for the years up to and including
  2014. Audit noted however, that the Hospital did establish an Internal Auditor
  position in its Organizational Structure and had recently employed an internal
  auditor which is a way forward for the Hospital.

  6.15.5 Management Response

  The above observations had been communicated to the Provincial Administrator and the
  Management by way of a Management Letter together with recommendations for
  improvement. I had however, not received a response to the Management Letter at the
  time of preparing this Report in August, 2017.

  6.15.6 Status of Financial Statements

  The Kavieng General Hospital had not submitted its financial statements for the financial
  years ended 31 December 2012, 2013, 2014, 2015 and 2016 at the time of preparation of
  this Report in September, 2017. I had dispensed 2012 financial statements audits in June
  2017 under Part V Section 16 (6) of the Audit Act, 1989. The audit of the internal control
  environment for 2015 and 2016 could not be conducted due man power and financial
  constraints faced by my Office.

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  6.15.7 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.

  As reported in my previous reports, the New Ireland Provincial Government had
  investments in the New Ireland Development Corporation Ltd. The entity however, had
  not been submitting its financial statements since 2007. As such, I was not able to
  confirm if the entity was still operationally active at the time preparation of this Report in
  September, 2017.

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  6.16 ORO PROVINCE
  6.16.1 Introduction

  The Oro Provincial Government, Popondetta Urban Local-level Government and
  Popondetta General Hospital are audited annually with or without the 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 entities.

  6.16.2 Oro Provincial Government

  The Oro Provincial Government had subsequently submitted its financial statements for
  the financial years ending 31 December, 2013 and 2014 in October, 2016 well after the
  audit of the control environment were completed and the results reported in my 2014 and
  2015 Part 3 Reports in 2015 and 2016 respectively. The examination of the financial
  statements and the audit of the related accounts and records however, could not be
  conducted due to man power and financial constraints faced by my Office.

  Field work associated with audit of internal control environment for the year ended 31
  December, 2015 had been completed in the absence of the financial statements and the
  Management Letter issued.

  6.16.2.1 Control Environment – 2015

  The Management Letter relating to the audit control environment for the year ended 31
  December, 2015 was issued in September, 2017. The issues highlighted in the
  Management Letter are reproduced as follows:

  Audit Results

  The results of the interim audit of the Oro Provincial Government accounts and records
  for the year ended 31 December, 2015 had been completed. The number and magnitude
  of the control weaknesses identified by the audit indicate that overall, there are significant
  weaknesses in the internal controls framework. At present, the control activities, such as
  management monitoring, segregation of duties, etc., are not sufficiently robust to prevent,
  detect or correct error or fraud. Major deficiencies noted together with relevant
  recommendations for rectification and improvement are listed under the respective
  paragraphs below:

  Budgetary Control

  The Oro Provincial Government had its 2015 Appropriation Act passed by the Provincial
  Assembly on the 6th of March 2015 thereby approving a total anticipated revenue and
  expenditure of K105,402,800. The total revenue comprised of Internal Revenue of
  K4,575,700, National Grants of K83,911,200 and 2014 Grant Rollover Funds of
  K16,915,900. The following observations were made in regards to the control and
  expenditure of budgeted funds:

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   The examination of the Expenditure Vote Summary for both the internal revenue
  and external grant funds expenditure has revealed a total expenditure of
  K18,839,959 as shown below:

  K
  Actual Expenditure under Grant Funds (276) 17,887,430
  Actual Expenditure under Internal Revenue (704) 952,529

   Although the Public Servants and Teaching Services Commission Salaries
  component is included in the appropriation Act under 276 expenditure head, the
  above grant funds expenditure did not include the salary components hence, it was
  not possible to determine if there had been any over-expenditures in the salaries
  component during the year under review. The TMS 55 report from Department of
  Finance was not available at the time of audit to ascertain any such over-
  expenditures;

   Perusal of the Expenditure Summary Ledgers for both the Internal Revenue (704)
  and Grant Account (276) revealed that no quarterly budget reviews were done for
  the year under review;

   Lack of providing PGAS print outs regularly and on a timely manner to Policy &
  Planning Division by Treasury for review and assessments continued to exist; and

   Warrants Authorities and CFC’s were not promptly inputted or updated into the
  PGAS cash book and expenditure ledgers upon receipt by the systems
  administrator.

  Cash and bank Balance

  The Oro Provincial Government funds were channeled through three separate operating
  bank accounts during the year with related cash books namely, Oro Provincial
  Government Operating Account , Oro Provincial Government Grant Account, and the
  Provincial Treasury Operating Account. Audit review of the cash books and bank
  balances relating to the Provincial Government Operating Account and Grant Account
  revealed the following matters of concern:

   Monthly bank reconciliations for both the Operating and Grant Accounts had not
  been done to reflect correct cash balances of the revenue and grant fund as and
  when required. Examination of the related cash books and bank statements for
  instance, revealed substantial variations in year-end account balances as shown
  below.

  Cash book Bank Statement
  K K
  Grant Account (276) 17,386,720 5,135,926
  Internal Revenue Account (704) 3,390,500 31,002

  Lack of competent officers noted as a factor contributing to the non-compilation of
  the bank reconciliations; and

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   As stated above, audit perusal of the PGAS cash book had revealed a significant
  cash balance on hand of K3,390,500 while the respective yearend bank statements
  revealed a much lower cash balances, an indication of deficiencies in the accurate
  and consistent update of ledgers and cash book during the year. Consequently,
  cashbook figures may have been inflated, warrants & CFC’s entered without cash
  in the bank or manual cheques may have been drawn without entering into the
  PGAS cashbook.

  Revenue Management

  The examination of revenue management, collection and banking procedures had
  revealed the following issues:

   A ‘cashless’ system of accounting for the revenues was noted as being in operation
  at the Provincial Treasury as instructed by the Secretary of Finance previously. All
  cash were therefore, directly banked by each client either into the Provincial
  Government Internal Revenue Account or the Receiver of Public Monies (RPM)
  Account with bank deposit slips/butts submitted to the Receiving and Paying
  Officer for entering into the revenue account ledger of the cash book. This
  effectively meant ceasing of cash collections at any other cash collection points
  including the traffic registry; and

   Examination of the book-fast copies of the internal revenue Official Receipt books
  revealed all cancelled receipts had been properly attached to the book-fast copy.

  Payment of Accounts and Procurement Management

  Audit examination of the cash book, expenditure ledgers, paid vouchers, other related
  records and documents relating to the sampled payments worth K10,000 and above had
  revealed the following discrepancies as stated below:

   Instances of payments for vehicle hires during the year totalling K2,505,041 made
  to a Gee Hire Cars and its associated business G27 Limited of which K1,142,947
  related to an outstanding debts incurred in the previous years. Following
  discrepancies were noted in respect of these payments:

  i. No evidence to suggest the Provincial Administration had maintained an
  outstanding debts register to record such debts at year end. Consequently,
  the purported outstanding debts could not be verified as genuine; and

  ii. The entity had a separate Memorandum of Understanding with individual
  sections or divisions of the Oro Provincial Administration such that the
  Divisional Heads were approving vehicle hires from the entity although
  many of the divisions had divisional vehicles that could have been utilised
  for their own needs and purposes. As such, and due to lack of a proper
  vehicle hire screening process in place, the Provincial Administration was
  very much at risk of incurring as it did, huge vehicle hire costs during the
  year.

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   An unsigned copy of a ‘Legal Services Retainer Agreement’ between and Oro
  Provincial Administration attached to the payment voucher had an agreed Retainer
  fee as K30,000 per month or K360,000 per year for a period of five (5) years which
  equates to K1,800,000. The retainer fee was actually charged and paid at a rate of
  K41, 415 per month and not K30, 000 as stated in the unsigned draft copy of the
  Retainer Agreement. This equates to K496, 980 per year or K5,963,760 over the
  five (5) year period stated in the unsigned copy of the Retainer Agreement.
  Following other discrepancies were noted in respect of the engagement of the legal
  services and the payments during the year:

   The Lawyers were paid a total of K187,075 as Retainer Legal Fees during the year
  under review. However, the audit was not provided nor sighted evidence to indicate
  the Provincial Executive Council (PEC) Decision or the approval for the Retainer
  Agreement; signed copy of the Legal Services Retainer Agreement; evidence of
  any open tender called by the Oro Provincial Administration to engage the cheapest
  supplier of similar legal services; or the evidence of an Authority to Pre-commit
  Expenditure (APC) from the Department of Finance as required under Section 47B
  of the Public Finance Management Act 1995.

   An amount of K17,431 was paid to an individual a as accrued return leave fares for
  a deceased officer. Although the deceased officer was noted to be from Kira
  District in Oro Province, the travel quote stated the departure as from Popondetta to
  Lae (via Port Moresby) by Air Niugini and Lae to Kira on North Coast Aviation
  was used to make the payment. The audit considers the payment to be abnormal as
  the officer was working in her own province and it was unwarranted to travel to
  two other provinces and then fly back into her own province. Further, North Coast
  Aviation was serving the Popondetta/Kira route hence, the route taken was
  unjustified. Alternatively, a sea transport could have been considered; and

   Instances of payments for recreational leave fares totalling K191, 830 made
  directly to officers rather than to service providers.

   Two payments totalling K168, 000 were noted to have been made to Repo
  Engineering & Consulting Ltd for provision of consulting services. The following
  discrepancies were noted in respect of these payments:

  i. The PEC and PSTB Approvals and signed formal Terms of Engagement
  (Contract) as well as bill of quantities for work done including any
  verification of work done by the firm as duly verified by the Provincial
  Administration Planning Division were not sighted; and

  ii. Information available has shown that one of the payments worth K111, 000
  was made without the approval of the Section 32 officers in this case,
  signed by the Provincial Administrator since the amount was above the
  K50, 000 thresholds that a deputy Provincial Administrator can sign.

   Two payments totalling K30,000 out of a total claim of K245,960 was paid to X-
  Limits for education consultancy services provided in 2011. Audit sighted no

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  evidence of signed Consultancy Agreement between the Oro Provincial
  Government and the entity concerned nor were there any supporting documents for
  audit verification at the time of the audit.

   An amount of K10, 000 was paid as reimbursement for materials purchased for
  maintenance work on a house at Section 46 Allotment 2. Audit was not provided
  nor sighted evidence to suggest the maintenance work was actually done or the
  purchase invoice receipt for materials purportedly purchased; and

   The Oro Provincial Administration had incurred over K294,000 in various
  reimbursement claims even by individuals during the year under review. Audit
  sighted no evidence to indicate prior approval by the Provincial Administrator or
  other competent authority for use of private funds on official purposes.

   Following other payments were noted with the related discrepancies as follow:

  i. An amount of K10,000 was paid to a former Provincial Administrator, as
  storage fee for four motor vehicles owned by the Provincial Administration
  that were kept at his premises.

  ii. Two payments to a Building and Maintenance Construction company as
  “duplicate” payments totalling K30,264 for the same job. The first
  payment was made dated 30/9/2015 while the second payment was made
  on 19/10/2015.

  Capital Works and Maintenance

  The review of Capital Works and Maintenance Programs for the year has resulted in the
  following observations:

   Oro Provincial Supply and Tenders Board Annual Report (2014 -2015) has
  revealed among others, contracts worth K4,950,000 to three companies for three
  (3) projects. Included in the three was a contract worth K3,600,000 awarded to
  Perpertual Niugini Ltd for the Design & Construction of PEC Office Complex.

  An Online Company search at the Investment Promotion Authority (IPA) had
  failed to establish the company as duly registered in the IPA Register of
  Companies. indicating that Perpertual Niugini Ltd is an unregistered company.
  Further, the only other prior contract work awarded to this company in Oro
  Province, was an incomplete maintenance work done on Saiho Health Centre in
  2013. Audit sighted no evidence to suggest that the awarding of the current
  contract of K3,600,000 had been done with due diligence checks on the company
  profile at IPA and its prior completed contract work experience, which could have
  qualified the company to be awarded such contracts;

   The perusal of the expenditure ledgers and cash book revealed no major payments
  made for Capital Works during the year ended 31st December 2015 under the grant
  component (276) and internal revenue component (704) expenditure heads.
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  However, the expenditures under the Provincial Services Improvement Program
  (PSIP) has not been reviewed as this will be covered under the PSIP audit;

   The examination of payments under 276 and 704 has revealed payments totalling
  K1,384,000 for maintenance of various assets including roads & bridges, schools,
  health centres and other office equipment and assets. Included in the payments
  were three payments totalling K441,453 to 4TY Limited for the road maintenance
  from Gona to Holy Cross Primary School. Audit however, did not sight evidence of
  PSTB Approval, the signed maintenance contract nor the completion certificates to
  validate the payments made to the company; and

   Payments under vote item 225 totalling K579,058 for capital works maintenance
  were noted to have been diverted to general administration expenses.

  Grants and Subsidies

  The examination of the expenditure ledgers and the cash book for the year under review
  revealed payments totalling K1,351,859 as grants and subsidies and various financial
  assistances as shown below:
  K
   Local level Government Grants : 418,300
   Educational Grants & Assistances : 797,857
   Personal Financial Assistances : 135,857
  1,351,859

  However, as reported in my previous audit reports, there was no proper policy guidelines
  put in place to effectively screen the applications for financial assistance requests and
  approve the requests which met the policy guidelines. Further, there was no policy in
  place to monitor and ensure various grant assistance given were used for the intended
  purposes or the acquittals requested as deemed necessary to account for the grants used.

  Assets Management

  Audit review of records relating to the management of fixed assets had the following
  concerns which were also reported in our previous audit reports as far back as 2011:

  The Oro Provincial Administration had consistently failed to maintain a comprehensive
  fixed assets register to record details of all fixed assets including additions and disposals
  during the year ended 31 December, 2015. Consequently, no such register was provided
  at the time of the audit in July 2016 and as such, assets worth over K99,000 (2014 –
  K689,395 ) purchased during the year have not been recorded and therefore, may not
  have been properly accounted for.

  Advances Management

  Audit review of advance management procedures revealed the following deficiencies:

  Payments of advances during the year under review totaling K343,920 (2014 – K893,476
  & 2013 – K442,884). As reported in our previous audit reports, the Oro Provincial
  Administration had consistently failed to maintain an advance register(s) nor was the
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  AGO provided evidence to indicate monitoring by way of reminder letters and notices to
  advance holders for acquittals, neither the acquittal files maintained to keep all acquittals
  that may have been submitted by the advance holders. Consequently, audit was unable to
  determine the extent of both the acquittals and un-acquittals at year end.

  Payroll

  The personal files and the payroll records of senior contract officers of the Oro Provincial
  Administration has been requested for audit verification however, the files were not made
  available at the time of audit. Consequently, audit could not comment on the
  effectiveness of the payroll management and therefore, discrepancies or anomalies, if
  any, in the payment of salaries and allowances to the contract officers.

  Corporate Governance

   The Oro Provincial Government had a three year Corporate Plan (2015-2017) with
  long term objectives, incorporating priorities, targets and requirements of its
  stakeholders. The Plan focused on eight Key Result Areas (KRA) fairly covering
  the administrative components of the province. Further, the Provincial Government
  also had a very comprehensive five-year Development Plan namely, the “Northern
  Province Five (5) Year Integrated Development Plan 2013 – 2017” with set goals
  for seven (7) priority areas namely, Basic goods and service delivery; Economic
  Development; Education; Health; Law & Justice; Community Development; and
  Infrastructure Development.

  Audit was however, not provided evidence to suggest any reviews of the Corporate
  Plan that may have been done during the year under review Consequently, any key
  result areas achieved over the plan could not be determined by audit;

   Audit has requested for the annual work plan, programs and any procedural or
  investigation reports compiled by the Internal Audit Unit during the year under
  review for verification. However, none was made available at the time of the audit;
  and

   The Provincial Assembly and Provincial Executive Council Meeting Minutes for
  the year ended 31st December 2015 were requested for audit review; however, none
  were made available for audit verification at the time of the audit. Consequently,
  audit was unable to ascertain whether or not there had been any Assembly and
  Executive Council Meetings conducted at all during the year and that relevant
  minutes had been maintained.

  Provincial Treasury Support Services

  The Provincial Treasuries around the Country play a significant supporting role of
  providing the accounting services for the administration of the provinces. By law they
  provide accounting functions for the provinces by maintaining accounts and records for
  the province as well as drawing cheques for the funds under their custody on behalf of the

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  provincial government and its administrative function. Following observations have been
  made in respect of the operations of the Oro Provincial Treasury:

   Officers working in the Provincial Treasury in Popondetta are mostly absconding
  from performing their normal weekly duties even for many weeks and no
  disciplinary action has been taken against them.

   This problem arose when officers allocated jobs or the positions they have
  occupied are not performing the jobs they are supposed to be performing. For
  instance, the Accountant is performing the systems administrators’ job and the
  incumbent system administrator is not given the systems access code to perform
  her duties fully. This has created a situation where the incumbent systems
  administrator is not happy and absconding from duties; and

   There were vacancies within the Provincial Treasury not been filled. This had
  hampered the operation of the Provincial Treasury. The vacancies need to be filled
  by competent experienced officers for the smooth operation of the Provincial
  Treasury.

  The Provincial Treasury office was aware of the problems in the operation of the
  Treasury but did not seem to effectively monitor and control the officers working under
  him. It requires Dept. of Finance Head Office to effectively rotate or retrench officers
  with replacements to perform and earn the pay they are paid.

  6.16.2.2 Status of Financial Statements

  At the time of preparation of this Report in September, 2017, the Oro Provincial
  Government had not submitted its financial statements for the years ended 31 December,
  2015 and 2016.

  6.16.3 Popondetta Urban Local-level Government

  6.16.3.1 Status of Financial Statements

  The Popondetta Urban Local-level Government (ULLG) had submitted its financial
  statements for the financial year ending 31 December 2013 while the financial statements
  for 2014, 2015 and 2016 were yet to be submitted at the time of preparing this report in
  September, 2017. Fieldwork associated with examination of the financial statements and
  the audit of the accounts and records for 2013 together with the audit of the internal
  control environment for 2014, 2015 and 2016 however, could not be conducted due to
  man power and financial constraints faced by my Office.

  6.16.4 Popondetta General Hospital Board

  6.16.4.1 Status of Financial Statements

  The Popondetta General Hospital Board had not submitted its financial statements for the
  financial years ending 31 December, 2013, 2014, 2015 and 2016 at the time of preparing
  this Report in September, 2017. Fieldwork associated with audit of the internal control
  environment for the four years however, could not be conducted due to man power and
  financial constraints faced by my Office.

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  6.16.5 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.

  As reported in my previous year reports, the Oro Provincial Government had investments
  in number of entities including Oro Fisheries Authority; Ambogo Saw Mill and Higaturu
  Motors. However, none of these entities had submitted their financial statements since
  their inceptions and I was not able to confirm if the entities were still operationally active
  at the time of preparing this Report in September, 2017.

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  6.17 SANDAUN PROVINCE

  6.17.1 Introduction

  The Sandaun Provincial Government, Vanimo Urban Local-level Government and
  Vanimo General Hospital (West Sepik Provincial Health Authority) are audited every
  year, with or without 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 and the lack of records and logistical support
  from the respective entities.

  6.17.2 Sandaun Provincial Government

  The Sandaun Provincial Government had submitted its financial statements for the
  financial year ending 31 December 2015 for my inspection and audit. Fieldwork
  associated with the audit of the financial statements had been completed with a
  Management Letter issued and a Disclaimer Audit Opinion issued to the Minister
  concerned and other relevant bodies. The paragraphs below detail the issues identified
  with the financial statements and the control environments.

  6.17.2.1 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 in September 2017. The report was a Disclaimer Opinion as
  reproduced below:

  “Basis for Disclaimer Opinion

  Cash balances

  I am unable to express an opinion on the accuracy of the cash at bank and trust account
  balances and consequently, on the financial position of Sandaun Provincial Government
  as at 31 December 2015 due to:

  a) The accumulated fund balance of (K4,330,113) could not be confirmed as correct
  due to inherited errors and material limitation of scope expressed in my previous
  audit reports which were not corrected in the current year’s accounts and therefore
  will affect the opening balances of revenue and trust funds with consequent effects
  on the closing fund balance reported for the 2015 financial year;

  b) The accumulated fund balance of negative K4,330,113 was misrepresented by bank
  balances of positive K4,545,316. I was not provided explanation and
  documentation for this discrepancy. Furthermore, a BSP-Other Account balance of
  K2,441,292 and PGGA-unspent funds balance of (K4,514,170) included in the
  cash at bank balance did not represent actual cash balances and they lacked
  supporting documentation thus distorting the total cash at bank balance.
  Consequently, I am unable to ensure the accuracy of the total cash at bank balance
  and the subsequent accumulated fund balance;

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  c) The operating surplus for the year as per Statement B of K6,792,325 shown in note
  3did not agree to the deficit of K18,997,251 of Statement ‘B’ as should be. Further,
  an amount of (K38,303) was reported in note 3 as prior year error. I was not
  provided necessary explanations and documentations for these discrepancies.
  Consequently, I was unable to verify and confirm the completeness and accuracy of
  the accumulated balance of Revenue Fund of K4,327,714 as at December, 2015;

  d) The fund balance in statement ‘A’ comprised of accumulated balances from
  Revenue Fund and Trust Fund and was represented by respective bank balances.
  However, the trust fund balance of K2,399 represented the Trust Funds without
  bank accounts as per Statement ‘C’ and hence was incorrectly disclosed as part of
  the Fund Balance in statement ‘A’;

  e) The fund balance in Statement ‘A’ is represented by the reconciled cash balances
  of the revenue account. My examination of the bank reconciliation of the
  Operating and Grant account revealed significant reconciling amounts not taken up
  in the cash book. Consequently, I was unable to ensure the accuracy of the cash
  balances of these cash books;

  f) Un-presented cheques from prior years (2011-2014) in the operating account
  totaling K70,034.79 and grant account totaling K112,865.50 were still unpresented
  and the status of the cheques not changed and cash books updated. Consequently, I
  was unable to ensure the accuracy and completeness of the total cash at bank
  balance; and

  g) Prior year comparative accumulative Revenue Fund of K11,122,439 disclosed did
  not agree to prior year audited financial statement figures of K6,608,269. Also the
  2014 comparative figures shown in Notes 3, 4 and 6.1 were inconsistent to that of
  the 2014 audited figures resulting in the financial information misleading.
  Furthermore, the comparative balances were not indicated as ‘restated’ as should
  be.

  Receipts and Payments

  I am unable to verify the accuracy of the receipts of K94,911,785 and payments of
  K113,909,035 and subsequently the accuracy of the deficit of K18,997,250 as disclosed
  in statement ‘B’ for the year ended 31 December, 2015 due to:

  a) Reconciling items of revenue and expenditure appearing in the bank reconciliation
  statement were not posted to the respective revenue and expenditure ledgers and
  the cash book updated hence, not reported in statements ‘B’, ‘J’ and ‘K’.
  Consequently, I am unable to confirm the completeness and accuracy of the
  receipts and payments;

  b) Personal emoluments for public servants & Teachers totaling K60,699 disclosed in
  Statement ‘J’ had been in excess of K12,247,000 and affected the receipts and
  payments;

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  c) A proper data base for revenue collection and a proper invoicing system was not
  established. Hence, under collection of revenue totaling K2,762,728 in fourteen
  revenue heads were not captured and reported. This non-disclosure has materially
  affected the total revenue reported;

  d) Annual income of K18,850 received from rental of 20 Sandaun Provincial
  Government properties were not disclosed in the financial statements; and

  e) Expenditures were charged to incorrect votes during the year and also an over
  payment of K20,566 where a K40,500 was paid when actual claim approved for
  payment was K19,934.

  Investments

  Statements ‘A’ and ‘F’ and note 8 of the financial statements reported ‘nil’ Investments.
  My review of the records noted that the Sandaun Provincial Government has 100%
  shares with West Sepik Investments however; this investment was not reported in the
  financial statements. Further, the provincial government continued to subsidize some of
  the company’s operational costs during the year amounting to K408,979. In the absence
  of an investment register and related records I am unable to ascertain the value of
  investments held by the Provincial Government.

  Debtors

  Appendix 2 and its corresponding Note 13 disclosed nil debtors balance. The Provincial
  Government did not maintain a proper debtors’ ledger and have in place a proper revenue
  management system including a proper invoicing system for debtors from predictable
  revenue heads to be determined at the end of the year. Consequently, I am unable to
  ensure the value of total debtors of the Sandaun Provincial Government.

  Assets

  Good asset management was not practiced and in the absence of a comprehensive assets
  register, annual stock-takes and proper assets policy, I was unable to confirm the
  existence, custody, condition and value of assets owned by the Sandaun Provincial
  Government as at 31 December, 2015. Further, assets totaling K1,915,203 purchased
  during the year were not recorded in the assets register nor were taken up in Appendix 4
  and Note 15.

  Advances

  Appendix 6 disclosed total outstanding advances of K9,492,096 which agreed to note 17
  whilst the advance register showed total un-acquitted advances as K17,091,504 resulting
  in a difference of K7,599,408. I was not provided the explanation for the discrepancy
  and the necessary documentation for the amendments if any done Consequently, I am
  unable to confirm the completeness and accuracy of the un-acquitted advances disclosed
  in the financial statements.

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  Significant Control Weaknesses

  There were significant control weaknesses identified in the Provincial Government’s
  systems and processes as follows:

  a) Although the Sandaun Provincial Government had in place a Corporate Plan for the
  period 2014 to 2018 and Associated Action plans, there was no review and
  evaluation mechanism in place to show whether provincial management team
  actually implemented the corporate plan through annual budgets, monitoring
  implementation and evaluation of outcomes against corporate plan’s key result
  areas;

  b) Revenue management by the provincial government was poor in that the
  reconciliation of collections were not checked prior to banking, there were delays
  in banking and no segregation of duties in collection, receipting, preparing
  collector statements, banking and recording in cash book and ledgers. These
  functions were done by only one person;

  c) My examination of Paid Accounts on sample basis revealed unsatisfactory matters
  where economical purchasing practices were not seriously observed to maximize
  acquisition of goods and services with limited resources:

   Instances of payments were noted where paid vouchers were not bona-fide
  with three written quotations, delivery and consignment dockets,
  accountability reports and contracts etc. This practice is a departure from
  the requirements proper procurement procedures as per the Financial
  Manual;

   Consultancy payments totaling K277,833 lacked supporting documentation
  such as progress report and completion reports to substantiate the payment.
  Actual work done could not be measured against the Terms of Reference or
  Memorandum Of Understanding to ensure there was value for money for
  these works;

   100% of leave fares totaling K1,757,667 including overdue leave fares
  were en-cashed to the concerned officers and their dependents where the
  dependents did not have proper birth certificates and/or legal documents as
  proof to claim leave fares and this was non-compliance to the Public
  Service General orders;

   Vehicle hire payments totaling K1,068,627 paid to vehicle hire companies
  and individuals were pre-engaged bypassing proper procurement procedure
  resulting in such excessive vehicle hire costs. There was no control over
  the hire and use of private vehicles and also use of Provincial Government
  owned vehicles where vehicles are used thereby incurring considerable
  transport costs;

   A total amount of K1,803,654 was paid to various fuel suppliers during
  the year. In the absence of an effective control mechanism to monitor the
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  supply and usage of fuel and reconciled fuel dockets issued for the vehicle
  fleets, I was unable to ensure if the fuel account was used with due care for
  wastage and extravagant;

   Financial assistance to organizations, schools and individuals totaling
  K149,425 were paid during the year. In the absence of proper policies or
  established criteria, I was unable to ensure if these funds were applied for
  the intended purposes; and

   Grants and Subsidies totaling K2,279,440 were made to various
  institutions. In the absence of proper guidelines, accountability reports or
  acquittals for these payments, I was unable to ensure these payments were
  applied for the intended purpose.

  d) My review of the control mechanism over major procurement process observed by
  the provincial government revealed unsatisfactory matters as follows:

   The Provincial Supply and Tenders Board (PSTB) did not follow proper
  procurement procedures in engaging the services of contractors for major
  contracts. There was no evidence of public tender being called for,
  registering of tenders, tender evaluation, selecting of tenderers, and
  awarding of contracts. It was obvious that that tenders were not evaluated
  based on set criteria and selection of tenderers were not fairly done to fully
  meet the requirement of the Public Finances (Management) Act; and

   PSTB was approving and awarding contracts without any appropriate or
  fixed value of contracts determined. Most of the projects undertaken above
  K500,000 have not gone through the Authority To Pre-Commit (APC)
  process for those funds earmarked for project developments;

  e) The Sandaun Provincial Government did not strictly comply with the advance
  management procedures as follows:

   Second advances were continuously paid to advance holders with
  outstanding advances;

   Reminder notices were NOT sent to holders of outstanding advances; and

   Cash advances were paid to officers’ accommodation and vehicle hire
  instead of paying directly to the suppliers and these were not acquitted

  f) My review of the human resource management and payroll noted that;

   All the casual Staff were transferred to Alesco payroll in 2013. It was
  realized that substantial amount of monies were paid to casuals totaling
  K739,258 who were mostly engaged as short term contract officers. There
  was no control on the appointment of these officers where endorsement from

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  Human Resource Management relating to the recruitment of these casuals
  through formal application;

   The fortnightly payrolls were not received from Department of Finance.
  Hence payroll checks were not done by the HR section to reconcile the
  records to ensure correct salaries and allowances are paid;

   Overtime payments totaling K110,046 were not supported with documents
  such as written approval for overtime work by superiors showing names of
  officer’s, details of work done and duration of the work;

   A Local Level Government (LLG) Manager was paid on the pay roll as a
  teacher while he was also paid on the public service payroll on his
  substantive position and is seen to be double dipping; and

   A total sum of K94,807 was paid in respect of Deputy Governor‘s
  accommodation where K36,920 was paid to his name and K57,887 paid to
  Vanimo Forest Products as accommodation/ rental. He was only entitled to
  K34, 080 per annum in the capacity as Deputy Governor and K61,344 as
  acting Governor in accordance to the SRC Determination and hence, he was
  overpaid in his accommodation costs.

  Disclaimer Audit Opinion

  In my 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 Sandaun Provincial Government for the year ended
  31 December, 2015.

  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:

   the Sandaun Provincial 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.”

  6.17.2.2 Management Response

  The above observations had been communicated by way of Management Letter to the
  Provincial Administrator and Management together with implications and

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  recommendations for improvements. I have however, not received the responses to the
  Management Letter as at the time of preparing this Report in September 2017.

  6.17.2.3 Status of Financial Statements

  At the time of preparing this report in September, 2017 the Sandaun Provincial
  Government had not submitted its financial statements for the financial year ending 31
  December, 2016 for my inspection and audit.

  6.17.3 Vanimo Urban Local-level Government

  The Vanimo Urban Local-level Government had submitted its financial statements for
  the years ended 31 December 2012, 2014 and 2015. Fieldworks associated with audits of
  the financial statements for the three years and their respective accounts and records were
  completed with all the Audit Management Letters and the Audit Opinion Reports issued.
  The paragraphs below detail issues identified with the financial statements and the
  internal control environment.

  6.17.3.1 Comments on Financial Statements -2015

  My reports to the Minister concerned and other relevant bodies under the Organic Law
  and Audit Act on the Vanimo Urban Local-Level Government’s financial statements for
  the years ended 31 December, 2012, 2014 and 2015 were issued in June, 2017. The
  reports contained similar Disclaimer Audit Opinions hence, only the 2015 report is
  reproduced as follows:

  Basis for Disclaimer Audit Opinion

  Presentation of the Financial Statements

  Finance Instructions 5/2000 issued under Section 117 of the Public Finances
  (Management) Act 1995 state the prescribed format for the preparation and presentation
  of the financial statements for Local Level Governments. The financial statements of
  Vanimo Urban Local Level Government for the year ended 31 December, 2015:

   Did not contain the District Administrator’s Declaration of the Financial
  Statements in accepting responsibility on the disclosure of data and information
  provided on the financial affairs of Vanimo Local-Level Government; and

   Did not contain the statement on the budget performance of the Vanimo Urban
  local Level Government by the Town Mayor; and

   The statements were not signed by the senior management as required.

  Subsequently, the financial statements were not presented in the format required by the
  Finance Instructions. These statements are written representations 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.

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  Since the management has not provided the necessary representations this constitutes a
  scope of limitation and affects every statement of the financial statements.

  Opening Balances

  Because of the disclaimer of opinions issued in respect of the years ended 31 December,
  2014 and prior years and 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
  balances. Since these opening balances would affect the determination of the financial
  position and the cash flows of the Vanimo Urban Local-Level Government in the current
  year, I was unable to determine whether adjustments to the respective cashbooks and the
  financial positions, might have been necessary for the year ended 31 December 2015.

  Cash Balances

  I am unable to express an opinion on the accuracy of the cash at bank balance and
  consequently, on the financial position of Vanimo Local-level Government as at 31
  December 2015 due to:

  (a) Significant reconciling items identified in the bank reconciliation statement of the
  operating account that had not been adjusted in the cashbook thus affected the
  balances at year end. I was not provided explanations and documentary evidence of
  adjustments made if any. Consequently, I was unable to confirm the completeness
  and accuracy of the year-end cash at bank balances disclosed in the financial
  statements.

  (b) The comparative Fund balances for the 2014 financial year reported in statement
  ‘A’ were incorrect and different from the balances presented in the prior year’s
  financial statements. In addition, the 2014 comparative balances reported in notes
  3, 4 and 17 were also noted incorrect and inconsistent to the balances reported in
  the 2014 financial statement.

  Receipts and Payments

  I am unable to verify the accuracy of the receipts and payments and subsequently the
  accuracy of the excess expenditure over receipts of K221,491 for the year ended 31
  December, 2015 due to:

  a) Reconciling items of revenue totaling K156,943 and expenditure totaling K328,650
  were not posted to the revenue ledgers and the cash book and hence, not reported in
  statements ‘B’, ‘J’ and ‘K’. I was not provided explanations and documentary
  evidence of adjustments made if any. Consequently, I was unable to confirm the
  completeness and accuracy of the receipts and payments;

  b) Market collections expended or borrowed without being accounted for in the cash
  book or the revenue ledgers which understates the cashbook and revenue ledger
  balances; and

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  c) The comparative balances for the summary of receipts and payments for 2014
  financial year were not disclosed in Statement ‘B’. Furthermore, the 2014
  comparative balances for sources and application of funds in statement ‘D’ were
  incorrect and the financial year was incorrectly stated as 2013. I was not provided
  the explanations and documentary evidence of adjustments made if any.
  Consequently I am unable to confirm the accuracy consistency of the comparative
  balances disclosed.

  Debtors

  Appendix 2 reported Debtor and Receivables as nil as at 31 December 2015. The Vanimo
  ULLG did not maintain debtors’ ledgers for uncollected debts in respect of all revenue
  heads during the year. Long outstanding debts were not followed up and action taken for
  recovery of debts resulting in significant shortfall in revenue collection. I was not
  provided with explanations and reconciliations for uncollected debts in respect of all the
  revenue heads. Consequently, I was unable to verify the accuracy and completeness of
  the nil balance reported as at the year ended.

  Assets

  The appendix 4 of the financial statements showed Assets as Nil for the year ended 31
  December 2015. An Assets Register was not maintained and stock takes of assets and
  inventories were not carried out during the year. In the absence of a complete Assets
  Register and annual stock takes, I was unable to confirm the existence and completeness
  of assets owned by and in the custody of Vanimo Urban Local-level Government as at 31
  December, 2015.

  Advance

  Appendix 6 of the financial statements reported un-acquitted advances of K407,037 as at
  the year ended 31 December, 2015. I was not provided a proper and accurate
  reconciliation of the outstanding advances for the year then ended. Consequently, I am
  able to ascertain the accuracy of the total advances paid during the year and establish the
  total amount of un-acquitted advances at year end.

  Significant Control Weaknesses

  There was significant control weaknesses identified in Vanimo Urban Local-level
  Government’s records and processes resulting among others these anomalies:

  a) Collection of monies was not done by a duly appointed collector of public monies
  and the functions of collecting, preparing collectors statements and banking were
  not segregated. In addition, collections receipted were not checked prior to banking
  and there was no safe to lock away unbanked receipts. Delays in banking were up
  to more than nine months.

  b) Cash collections both at the treasury office and market collections were borrowed
  by employees without keeping proper records.

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  c) The Procurement procedures stipulated in the Public Finances Management Act
  were not adhered to including the following:

   Quotations were not obtained from suppliers nor a quotation register
  maintained,
   Payment vouchers lack appropriate supporting documents, which included
  instances of overtime payments without compiling overtime sheets in
  justification of rate applied and hours claimed, lump-sum wages payments
  made to the collector or selected personnel lacked accountability reports of
  disbursement to the recipients and purchases of goods without proper invoice
  and delivery notes to verify whether goods received were in order with the
  original quotation, and
   Prior approval were not obtained to enable the officers to work after hours
  and overtime paid. Claims for overtime payments were excessive with a
  K500 (gross) paid by the District Treasury Employees without deduction tax.

  d) Advances were paid while previous advances were still outstanding and no follow
  ups done or reminder notices sent to advance holders.

  e) Payments were charged to incorrect expenditure votes thus defeating the purpose of
  a budget.

  Disclaimer Audit Opinion

  Because of the significance of the matters described above, I was not able to obtain
  sufficient appropriate audit evidence and consequently I am unable to express an opinion
  on the financial statements of the Vanimo Urban Local-level Government for the year
  ended 31 December, 2015.

  Other Matters

  In accordance with the Audit Act 1989, 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:

   Vanimo 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;

   the Vanimo Urban Local Level Government did not have a five year corporate plan
  and has consequently breached the Public Service General Order No. 8.11; and

   the Vanimo Urban Local Level Government has not prepared and submitted its
  financial statements to the Minister and the Auditor-General prior to the year
  ending 31 December 2015, resulting in breach of section 114 and 119 of the
  Organic Law on Provincial and Local Level Governments.”

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  6.17.3.2 Management Response

  The management has acknowledged the issues raised and informed me that necessary
  actions were taken to improve the systems and comply with the requirements.

  6.4.3.2 Status of Financial Statements

  The Vanimo ULLG had not submitted its financial statements for the financial year
  ended 31 December 2016 for my inspection and audit at the time of writing this Report in
  September 2017.

  6.17.4 West Sepik Provincial Health Authority

  The West Sepik Provincial Health Authority had submitted its financial statements for the
  year ended 31 December 2015 for my inspection and audit. The field work associated
  with examination of the financial statements for 2015 and audit of the accounts and
  records was completed with both the Management Letter and Audit Opinion issued. The
  paragraphs below detail issues identified with the financial statements and the internal
  control environment.

  6.17.4.1 Comments on Financial Statements – 2015

  My report to the Minister concerned and other relevant bodies under the Public Hospitals
  Act and the Audit Act on the financial statements of the West Sepik Provincial Health
  Authority for the year ended 31 December 2015 was issued in September 2017. The
  report contained a Disclaimer Audit Opinion as reproduced below:

  Basis for Disclaimer Audit Opinion

  Presentation

  Finance Instruction 2/2004 issued under Section 117 of the Public Finances
  (Management) Act 1995 prescribes the format for the preparation and presentation of the
  financial statements for Public Bodies. The financial statements for West Sepik
  Provincial Health Authority was presented in the prescribed format which is an
  improvement from the 2014 presentation, however the unsigned electronic copy of the
  statement submitted for my review;

   The Statement of Declaration by the Chief Executive Officer – In acceptance of
  Responsibility on the presentation of the financial statement as true and fair was
  unsigned as required. Subsequently, the financial statements were not presented in
  the format required by the Finance Instructions. This constitutes a scope limitation
  and affects every statement of the financial statements; and

   did not disclose the Notes to and Forming Part of the Financial Statements and the
  Schedule of Assets and Liabilities disclosed ‘nil’ balances.

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  Operating & Trust Fund Balances
  I was not able to express an opinion on the completeness of revenue and trust fund
  balances and consequently the accuracy of net surplus revenue balance of K3,105,804
  reported in the financial statements due to;

  a) Material limitation of scope expressed in my 2014 audit report were not corrected
  and cleared in the current year’s accounts and therefore will affects the opening
  balances of operating and fees trust accounts with consequent effects on the closing
  fund balance reported for the 2015 financial year;

  b) The inefficiency and inadequacy in maintaining cashbooks, ledger accounts and
  timely preparation of monthly bank reconciliations for both the operating and the
  trust accounts. Consequently, I am unable to verify and confirm the accuracy and
  completeness of the net revenue surplus balance of K3,105,804 as at 31 December,
  2015; and

  c) The cash book balance of the old hospital’s main operating was not properly
  closed-off and the remaining book balance transferred to the new cash book and the
  remaining bank balance of K1,738,586. transferred to the new account. The non-
  disclosure of the old operating account cash book and bank balance understates the
  revenue fund balance reported in the financial statements.

  Receipts and Payments – 2015

  I was not able to confirm the consolidated receipts totaling K15, 229,054 and expenditure
  incurred were not appropriately recorded to the cashbooks and respective ledgers
  resulting in significant variances. Disclosure errors noted in the statements presented
  include:

  a) Opening Trust Fund balance of K6,682,576. brought forward from the previous
  year did not agree to the audited financial statement closing fund balance of
  K6,744,321 revealing an unexplained variance of K61,744;

  b) The old operating bank account remaining balance K1,916,686 was not properly
  accounted for in the books of accounts for the new operating account, only an
  amount of K178,100 was transferred as initial deposit to open the bank account for
  the new operating account. The remaining balance of K1,738,586. was not
  unaccounted for and as such understates the fund balance reported in the financial
  statements;

  c) The consolidated expenditure total for the operating account of K5,234,441
  includes an amount of K10,729 relating to bank charges which were recorded
  directly to the financial statement without raising the appropriate journal entries to
  update the cash book and ledger accounts;

  d) Direct bank debits of K357,822. reported for the trust account differed from the
  total shown by the general ledger amount of K113,825. resulting in a difference of
  K243,997; and

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  e) Total Grant Receipts through Warrant Authorities from Waigani Public Accounts
  for the operating account was overstated by K600,900 due to incorrect recording of
  Warrant Authority # WA15527000 for which actual funds was not yet remitted
  through the bank account.

  Significant Control Weaknesses

  There was significant control weaknesses identified in the West Sepik Provincial Health
  Authority’s accounting records and processes as follows:

   Authority did not confirm actual spending on Salaries and Allowances;
   The Lease Agreement for twenty rented properties during the year under review
  at a total cost of K96,152 were not provided;
   Monthly Bank Reconciliation Statements were not independently checked and
  certified as correct by a senior person other than the one preparing;
   The Fixed Asset Register was not properly maintained and lacks detail
  information of assets recorded and there was no evidence to indicate that periodic
  stock takes was undertaken during the year;
   Advances register and acquittal files were not adequately updated and maintained
  resulting in instances of advances totalling K372,773 remained un-acquitted as at
  the year then ended.
   Accounting Records were kept manually on a MS Excel Spreadsheet and hence
  has a high degree of data manipulation to enable funds to be misused or stolen.

  Disclaimer of Audit Opinion

  Because of the significance of the matters described above, I was not able to obtain
  sufficient appropriate audit evidence and consequently I am unable to express an opinion
  on the financial statements of West Sepik Provincial Health Authority for the year ended
  31 December, 2015.

  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:

   West Sepik Provincial Health Authority did not maintain proper records and
  accounts and has consequently breached Section 68(1) of the Public Finances
  (Management)Act, 1995;

   The Chief Executive Officer is required by the Trust Instrument to furnish annual
  estimates of revenue and expenditure (Budget) to the First Assistant Secretary,
  Loans Revenue Division, Department of Treasury and Corporate Affairs every
  June for the following year. This requirement has not been complied with by the
  then Chief Executive Officer of the Authority; and
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   West Sepik Provincial Health Authority has not prepared and submitted their
  financial statements to the Minister and the Auditor-General prior to 30 June for
  the year ending 31 December preceding, resulting in breaches of Section 63(2) and
  Section 63(4) of the Public Finances (Management) Act, 1995.”

  6.17.4.2 Management Response

  Management had not responded to the matters raised in my Management Letter.
  Subsequently, I was not advised of any improvement at the time of preparing this Report
  in September, 2017.

  5.17.4.3 Status of Financial Statements

  At the time of preparing this Report in September, 2017 the West Sepik Provincial Health
  Authority had not submitted its financial statements for the year ended 31 December,
  2016.

  5.17.5 Business Arms

  Section 16(2)(f) of the Audit Act, 1989 (as amended) 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. The Sandaun Provincial
  Government has a business arm as reported below.

  5.17.5A West Sepik Investments Limited

  The West Sepik Investments Limited was established by the Sandaun Provincial
  Government under the Companies Act 1997 on 25th October 2012 and commenced
  operation on 7th January 2013.

  5.17.5A.1 Functions of West Sepik Investments Limited

  The principle activities of the company were at that time providing consultations
  management services in accordance with the Company’s Act for the purposes of raising
  funds to support the Sandaun Provincial Government’s internal revenue.

  5.17.5A.2 Status of Financial Statements

  The West Sepik Investments Limited had submitted its financial statements for the years
  ended 31 December 2013, 2014 and 2015 for my inspection and audit. Fieldwork
  associated with the audit of accounts and records and the examination of the financial
  statements have been completed and Management Letters were issued. The management
  provided responses to the management letters together with the adjusted financial
  statements for the three financial years. The responses and the adjusted financial
  statements are being evaluated at the time of preparing this Report in September, 2017.

  At the time of preparing this Report, the financial statements for the year ended 31
  December, 2016 had not been submitted for my inspection and audit.

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  6.18 SIMBU PROVINCE
  6.18.1 Introduction

  The Simbu Provincial Government, Kundiawa Urban Local-level Government and
  Kundiawa General Hospital 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 entities.

  6.18.2. Simbu Provincial Government

  The Simbu Provincial Government had submitted its financial statements for the financial
  year ending 31 December 2015 for my inspection and audit. Fieldwork associated with
  the audit of the financial statements had been completed with a Management Letter
  issued and a Disclaimer Audit Opinion issued to the Minister concerned and other
  relevant bodies. The paragraphs below detail the issues identified with the financial
  statements and the control environments.

  6.18.2.1 Comments on the Financial Statements – 2015

  My report on the Simbu Provincial Government for 2015 to the Ministers concerned and
  other relevant bodies under the Audit Act, 1989 (as amended) was issued in July, 2017.
  The report contained a Disclaimer Opinion as reproduced below:

  “Basis for Disclaimer Opinion

  Financial Statements – Presentation & Disclosure errors

  The presentation of the financial Statements of Simbu Provincial Government for the
  year ended 31 December, 2015 was done in accordance with the prescribed format of
  Finance Instruction 4/2000 issued under Section 117 of the Public Finances
  (Management) Act 1995, however I am unable to express an opinion because of the
  following disclosure errors as noted:

  i. The accumulated closing fund balance of K22,309,502 were from the year end
  reconciled accounts and does not give a true view of the Provincial Government’s
  cash position.

  ii. The accumulated over drawn opening fund balance of K12,444,507 reported in
  note 3 to the statements contained inherited errors from prior years and renders the
  statement unreliable.

  iii. An accumulated over drawn Trust Fund balance of K9,806,195 reported in
  statements A & C did not have bank accounts and is misleading. Further no
  established trust instruments were sighted to determine the purpose of their
  operation.

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  iv. Statements ‘E’ and ‘F’ had not disclosed any investments in any Financial
  Institutions, Business Arms or Corporate Entities. Due to lack of records, I am
  unable to comment on the Simbu Holdings Limited, Arabica & Simbu Yomba
  Coffee.

  v. Payroll reconciliations were not done to confirm the personal emoluments of K94,
  579,389, reported as revenue and expenditures in statements J & K respectively.

  Assets

  Appendix 4 reported nil value of fixed assets. As such I am unable to determine the total
  value, condition and custody of assets of the Provincial Government as at 31 December,
  2015.

  Advances

  The management of advance were lacking in the register which were not adequately
  maintained or updated. Consequently, advance totaling K5,721,100 reported in Appendix
  6 remained un-acquitted as at 31 December, 2015.

  Significant Control Weaknesses

  There was significant control weaknesses identified in the Provincial Government’s
  records and processes, as follows:

   Eight instances of payments totaling K89,506 did not have three necessary written
  quotations where applicable;

   There was no evidence of goods received noted in thirteen instances of payments
  totaling K95,344;

   In six instances of payments totaling K27,839 of which amounts recorded on the
  general ledger did not agree to invoices and supporting documents;

   Minor works contracted payments on thirteen instances totaling K1,584,800 were
  not supported with progress status reports to confirm the physical status of the
  projects before and after completion of projects;

   A total of K622,250 paid cash on seven instances to individuals to facilitate road &
  drainage clearing by engaging day laborers were not supported with evidence of
  signature and date of wage received by labors;

   Six instances of payments totaling K1,528,960 for road works and building
  constructions lacked bill of quantities including progress status reports for road
  construction works;

   Assets worth more than K1.5m purchased in 2015 could not be confirmed in the
  absence of a fixed assets register;

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   Fourteen instances of payments totaling K336,149 made for recreation leave fares
  lacked proper supporting documents;

   Casual wages of K1,032,089 processed and paid from the Provincial payroll was
  not supported with payroll reports and details of casuals being employed; and

  • The Provincial Government had provided grants and financial assistance to various
  entities during the year had no indication of accountability and financial reports
  furnished.

  Disclaimer Audit Opinion

  Because of the significance of the matters described above, I was not able to obtain
  sufficient appropriate audit evidence and consequently I am unable to express an opinion
  on the financial statements of Simbu Provincial Government for the year ended 31
  December, 2015.

  Other Matters

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

   The Simbu Provincial Government did not maintain proper accounts and records
  pertaining to Grants and subsidies consequently in breach of Section 68 (1) of the
  Public Finances (Management) Act, 1995;and

   The receipts 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.”

  6.18.2.2 Management Response

  The observations on the audit of the financial statements and the accounts and records for
  the year ended 31 December, 2015 had been communicated by way of a Management
  Letter to the Administrator of the Province with recommendations for improvements.
  However, the responses to the Management Letter had not been received at the time of
  preparation of this Report.

  6.18.2.3 Status of Financial Statements

  The Simbu Provincial Government had submitted its financial statements for the financial
  year ending 31 December, 2016 for my inspection and audit. However, due to staff and
  financial constraints, I am unable to conduct the field audits for it to be reported in this
  Report. I will report upon this audit in the 2017 report subject to the availability of
  resources.

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  6.18.3 Kundiawa Urban Local-level Government

  6.18.3.1 Status of Financial Statements

  The Kundiawa Urban Local-level Government (ULLG) had submitted its financial
  statements for the financial years ending 31 December, 2012, 2013, 2014 and 2015 for
  my inspection and audit. I had dispensed 2011 financial statements audit under Part V
  Section 16 (6) of the Audit Act, 1989 (as amended) in June 2016. However, due to staff
  and financial constraints, I am unable to conduct the field audits for it to be reported in
  this Report. I will report upon this audit in the 2017 report subject to the availability of
  resources.

  6.18.4 Sir Joseph Nombri Memorial Kundiawa General Hospital

  6.18.4.1 Comments on Financial Statements – 2015

  My report on the Sir Joseph Nombri Memorial Kundiawa General Hospital for the year
  ended 31 December, 2015 to the Ministers concerned and other relevant bodies under the
  Audit Act, 1989 (as amended) was issued in July, 2017. The report contained a Qualified
  Audit Opinion as reproduced below:

  “Basis for Qualified Opinion

  Financial Statements

  The Consolidated Financial Statement disclosed Salaries, Wages, Employee Benefits as
  K19,342,986 for the year ended 31 December, 2015. However, the ALESCO Payroll
  records stated K17,144,835 as Salary and Wages paid for the SJNM Kundiawa General
  Hospital during the year. I was unable to verify the reconciliation difference of
  K2,198,151 as necessary explanations and documentation were not provided for my
  verification. As a result, I am unable to confirm the validity and the correctness of the
  Salaries, Wages, and Employee Benefits paid for the year ended 31 December, 2015.

  Report on other Legal and Regulatory Requirements

  In addition to the basis for the qualification, I also wish to report on the breaches of the
  Public Finances (Management) Act, 1995 (as amended) and the Public Service
  (Management) Act, 1995 and other enabling legislations.

   The SJNM Kundiawa General Hospital had a budget estimate of K25,788,643 and
  was appropriated K18,149,900, however, the actual expenditure of K31,504,825
  exceeded the budgeted estimates and appropriation by an over expenditure of
  K5,716,182 and K13,354,925 respectively for the year ended 31 December, 2015;

   Further, an over expenditure of K6,648,135 was incurred for Salaries &
  Allowances during the year ended 31 December, 2015. These included un-
  appropriated payments made for National Doctors Agreement Awards (NDA) in
  relation to various allowances and increments for Salaries and Allowances and
  other staff costs. All these payments were not budgeted for;
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   Six payments made to suppliers totaling K104,069 were not checked and verified
  for their correctness as the paid vouchers were not provided for my review; and

   The National Doctors Agreements (NDA) Awards for 2014-2016 specifies
  Allowances for Doctors however, several Doctors of the SJNM Kundiawa General
  Hospital had received double Motor Vehicle Allowances totaling K248,000 during
  the year ended 31 December, 2015.

  Qualified Audit Opinion

  In my opinion, except for the effects of the matters referred to in the qualification
  paragraphs above, the Financial Statements of SJNM Kundiawa General Hospital for the
  year ended 31 December, 2015;

   gave a true and fair view of the financial position and the results of its operations
  for the year then ended in accordance with the Finance Instructions; and

   The financial statements have been prepared in accordance with the Finance
  Instructions issued under the Public Finances (Management) Act, 1995.”

  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
  is a matter of concern;

   The Chief Executive Officer is required by the Trust Instruments of the Trust
  Account to furnish annual estimates of revenue and expenditure to the First
  Assistant Secretary, Loans Revenue Division, and Department of Treasury in June
  of the subsequent year. This requirement was not complied with for the year ended
  31 December, 2015.”

  6.18.4.2 Management Response

  The observations on the audit of the financial statements and the accounts and records for
  the year ended 31 December, 2015 had been communicated by way of a Management
  Letter to the Chief Executive Officer of Sir Joseph Nombri Memorial Kundiawa General
  Hospital together with recommendations for improvements. However, the responses to
  the Management Letter had not been received at the time of preparation of this Report.

  6.18.4.3 Status of Financial Statements

  The Sir Joseph Nombri Memorial Kundiawa General Hospital had not submitted its
  financial statements for the financial year ending 31 December 2016 for my inspection
  and audit. The audit will be carried out once the financial statements are submitted to my
  Office.

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  6.19 SOUTHERN HIGHLANDS PROVINCE

  6.19.1 Introduction

  The Southern Highlands Provincial Government, Mendi Urban Local-level Government
  and Mendi General Hospital are audited every year, with or without financial statements.
  Other Local-Level Governments and the Business Arms of the Provincial 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 entities.

  6.19.2 Southern Highlands Provincial Government

  The Southern Highlands Provincial Government submitted its financial statements for the
  financial years ending 31 December 2014 and 2015. Fieldwork associated with audit of
  the accounts and records were completed with the Management Letters issued and the
  audit opinion reports were issued to the Ministers concern. The audit reports were issued
  with Disclaimer of Audit Opinions. The issues identified with the financial statements
  and the control environments were similar hence, only the 2015 issues are reproduced
  below:

  6.19.2.1 Comments on Financial Statements – 2015

  My reports to the Ministers concerned and other relevant bodies under the Organic Law
  and the Audit Act on the financial statements of the Southern Highlands Provincial
  Government for the years ended 31 December 2014 and 2015 were issued in April 2016
  and May 2017 respectively. The reports contained similar Disclaimer Opinions hence;
  only 2015 report is reproduced as follows:

  Basis for Disclaimer Opinion

  Presentation of Financial Statements

  The financial statements did not contain the signed statements of the Provincial
  Administrator acknowledging its responsibility for the fair presentation of the financial
  statements for the year ended 31 December, 2015 and the Provincial Governor’s
  Statement on the provincial budget performance was un-signed. Furthermore, the
  statements were not signed by the senior management as required. Subsequently, the
  financial statements were not presented in the format required by the Finance
  Instructions 4/2000 issued under Section 117 of the Public Finances (Management) Act,
  1995.

  Cash balances

  I was unable to express an opinion on the accuracy of the cash at bank and trust account
  balances and consequently, on the financial position of the Southern Provincial
  Government as at 31 December 2015 due to:

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   The overdrawn accumulated fund balance of K383,102,413 could not be confirmed
  as correct due to errors and material limitation of scope expressed in previous audit
  reports. In addition, the operating deficit for the current year was materially
  misstated as discussed under the paragraph of Receipts and Payments below;

   The Provincial Revenue fund of K383,095,023 was materially distorted due to
  erroneous accounting practice adopted in the treatment of unspent grants carried
  forwarded from prior years.;

   Note 3 to the accounts disclosed a prior year adjustments of K14,781, however,
  supporting documentation substantiating the correctness of the adjustment was not
  provided for my examination;

   The Fund Balance in Statement “A” was represented by the un-reconciled cash
  balances of Revenue and Trust Accounts. My examination of the bank
  reconciliation of the Grant and the Provincial Government Operating accounts
  revealed significant outstanding reconciling balances inherited from priors; and

   The trust balance of K7,390 in statement ‘C’ was a carried forward balance from
  prior years and related to court/police bails and child maintenance. This balance
  was a not the Provincial Government Trust Fund and hence incorrectly reported in
  Statement ‘C’. Furthermore, the deficit disclosures in statement ‘A’ was not
  consistent with positive disclosure in statements ‘C’ and note 4 to the accounts.

  Receipts and Payments

  I was not able to verify and confirm the accuracy of the receipts of K107,139,962 and
  payments of K119,701,930 and subsequently the accuracy of the operating deficit of
  K12,561,969 in statement ‘B’ and the related statements ‘J’ and ‘K’ due to:

   The Southern Highlands Provincial Government has not recorded in its cash books
  and revenue ledgers the grants from national government and internal revenues
  from natural resources benefit receipts and subsequently were not reported in
  statements ‘B’ and ‘J’ which also materially affected the balances disclosed in
  Statements ‘A’ and ‘D’. This has been a continuous problem which have been
  highlighted in my previous years’ reports;

   Staffing and Teacher’s salaries grants paid directly by the Department of Finance
  were not recorded in the provincial government’s ledgers nor were they reported in
  the respective statements ‘B’, ‘J’ and ‘K’. In addition, the TMS 55 Report from the
  salary section of the Department of Finance was not made available, consequently I
  was unable to confirm the actual figures expended from the Department of Finance
  and to establish the actual from budgeted figures reported;

   Significant reconciling items identified in the bank reconciliations statements of the
  SHPG Operating and Grant Accounts pertaining to receipts and expenditure that
  were not adjusted in the cashbook and posted to the respective ledgers and
  disclosed in Statements ‘J’ and ‘K’ with consequential effects on Statements ‘B’
  and ‘A’.
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  Investments

  Statement ‘F’ showed ‘Nil’ balance as at 31 December, 2015. The Southern Highlands
  Provincial Government although held significant long term investments had over the
  years not recorded and report any Investments in its books and the financial statements. I
  have repeatedly reported in my previous reports and this report that Southern Highlands
  Provincial Government had IBD of K2 million held with BSP and holds K60,000
  investments in shares with SHP and Gulf Energy accruing interest at 60%, K100,000
  investments in shares with Kaupena Coffee Exports accruing interest at 60% per annum
  and investments in Muruk Lodge, newly built Mendi Valley Plaza and Southern
  Highlands Holdings Ltd. In the absence of the investment register, share certificates and
  other related documents I was unable to establish the numbers and value of investments
  held and/or disposed by the Provincial Government and the interest received if any
  related to these investments.

  Assets

  The Appendix 4 of the financial statements stated Assets as Nil for the year ended 31
  December, 2015. The Provincial Government had maintained a Fixed Asset Register
  hence, in the absence of a complete and up-dated assets register and annual stock takes, I
  was unable to confirm the value, completeness and existence of the assets owned by the
  Southern Highlands Provincial Government. I noted that assets purchased during the year
  totaling K977,219 and those purchased in the prior years had not been recorded and
  maintained appropriately. Lack of proper maintenance of a fixed asset register has
  resulted in a significant understatement of Appendix 4 that is unreliable and misleading.

  Advances

  The Appendix 6 of the financial statements stated as Nil Un-aquitted Advances balances.
  My examination of the advance and acquittal register revealed that it had not been
  adequately maintained resulting in significant outstanding advances not recorded and
  reported in Appendix 6. Further, outstanding Advances totaling K1,858,346 per the
  register were not appropriately reported. In the absence of an updated advances register I
  am unable to ascertain the accuracy, completeness and recovery of un-acquitted
  advances.

  Significant Control Weaknesses

  There was significant control weaknesses identified in the Provincial Government’s
  records and processes, as follows:

   The Provincial Government did not effectively collect and maintain proper
  records of both the national grants and internal revenue for the year. Evidence of
  check and balances were apparently non-existent and Collectors statements were
  often not signed. Segregation of duties being the key element of control over
  revenue management was not being exercised. Delays of banking for months
  were also noted. There is a significant break down in the control of revenue
  management by the provincial government;
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   Procurement processes pertaining to the purchasing of goods and services were
  not properly adhered to. Most claims processed and paid lacked required
  quotations and supporting documents and there were no document evidence or
  proper records to justify the adequate management of fuel usage;
   Consultancy and legal fees of K5,369,172 had no documented evidence to prove
  that the required works were done by the consultants and reimbursements
  totalling K509,180 made for personal expenses were without proper supporting
  documentation;
   Payments of financial assistances totalling K3,663,130 were made to individuals
  and organizations. There was no proper policy, guideline or criteria in place to
  determine such payments;
   No guidelines were in place for payments of Grants and subsidies provided to
  various organizations and institutions. Furthermore, these recipients failed to
  provide accountability an annual financial reports;
   The instrument establishing the PSTB including the appointed members and
  their specified financial limits were not provided. The tender register lacked
  adequate and necessary information relating to all tenders invited, quotations
  received, contracts awarded and even certificate of inexpediency;
   The PSTB was not functioning effectively and as such records and
  documentation of PSTB Technical and Evaluation Committee reports were not
  made available for my examination. Consequently. I was not able to ascertain
  that proper evaluation and recommendations were made to the Board. Also pre-
  qualification list of local contractor was lacking; and
   I noted that lump sum and complete payments were made to contracts awarded
  although several projects have not commenced yet. Furthermore,
  implementation and monitoring of projects was lacking consequently, I was
  unable to confirm the projected status and verify it against the payments made.

  Disclaimer of Audit Opinion

  Because of the significance of the matters described above, I was not able to obtain
  sufficient appropriate audit evidence and consequently I am unable to express an opinion
  on the financial statements of the Southern Highlands Provincial Government for the year
  ended 31 December, 2015.

  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:

   the Southern Highlands Provincial Government did not maintain proper accounts
  and records in terms of its receipts, payments, investment of moneys, the
  acquisition and disposal of assets and had consequently breached Section 68(1) of
  the Public Finances (Management)Act, 1995;

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   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 Government; and

   Southern Highlands Provincial Government has not prepared and submitted its
  financial statements to the Minister and the Auditor-General prior to 30 June for
  the year ending 31 December 2015, resulting in breach of Section 114 and 119 of
  the Organic Law on Provincial and Local Level Governments.”

  6.19.2.2 Management Response

  Management had not responded to the matters raised in my Audit Management Letter for
  2015. Consequently, I am unable to determine if there were any improvements at the time
  of preparing this Report in September, 2017.

  6.19.2.3 Status of Financial Statements

  At the time of preparing this Report in August 2017, the Southern Highlands Provincial
  Government had not submitted its financial statements for the years ended 31 December
  2015 for my inspection and audit.

  When the financial statements are submitted, I will carry out a ‘One-Stop-Audit’ which
  will also include the Provincial Hospital and the Urban Local-Level Government and
  report in my 2017 Part 3 Report.

  6.19.3 Mendi Urban Local-level Government

  6.19.3.1 Status of Financial Statements

  At the time of preparing this Report in September 2017, the Mendi Urban Local-Level
  Government had not submitted its financial statements for the years ended 31 December
  2013, 2014, 2015 and 2016.

  6.19.4 Mendi General Hospital Board

  The Mendi Hospital Board submitted its financial statements for the year ended 31
  December 2015. Fieldwork associated with audit of the accounts and records and the
  examination of the financial statements were completed with the Management Letter
  issued and the audit opinion report issued to the Ministers concerned in July 2016. The
  internal control issues identified had been reported in my last 2015 part 3 report to
  parliament and the paragraphs below detail issues identified with the financial statements.

  6.19.4.1 Comments on Financial Statements – 2015

  My report to the Ministers concerned under the Public Hospitals Act and the Audit Act on
  the financial statements of the Mendi General Hospital for the year ended 31 December,
  2015 was issued in September 2016. The report contained a Qualified Opinion and is
  reproduced as follows.

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  Basis for Qualified Opinion

  Bank Balances

  Because of the inherited errors carried forward from previous years which were not
  corrected in the current year’s accounts, I was not able to satisfy myself as to the
  completeness and accuracy of the opening Accumulated Fund Balances of K17,277,208.
  Since these opening balances would affect the determination of the financial position and
  the cash flows of the Mendi 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, 2015.

  Salaries paid directly by National Department of Health

  I was unable to confirm the accuracy and completeness of salaries of K9,328,400 paid
  directly by National Department of Health reported in the financial statement due to non-
  availability of the TMS report from the department and payroll reconciliation. I was not
  provided reconciliation, explanations and documentary evidence for the balance.

  Audit Opinion

  In my opinion, except for the effects of the matters referred to in the qualification
  paragraphs above, the financial statements of Mendi General Hospital for the year ended
  31st December, 2015;

  a) give a true and fair view of the financial position and the financial results of its
  operations for the year then ended in accordance with the Finance Instructions; and

  b) With exception of instances of non-compliance described under Other Matters, the
  financial statements have been prepared in accordance with the Finance
  Instructions issued under the Public Finances Management Act, 1995.

  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 is a matter of
  significance:

   The Chief Executive Officer is required by the Trust Instrument to furnish annual
  estimates of revenue and expenditure (Budget) to the First Assistant Secretary,
  Loans Revenue Division, Department of Treasury and Corporate Affairs every
  June for the following year. This requirement has not been complied with by the
  then Chief Executive Officer of the Hospital.”

  6.19.4.2 Status of Financial Statements

  At the time of preparing this Report, the financial statements for Mendi General Hospital
  for the year ended 31 December, 2016 have been submitted and arrangements have been
  made to commence the audit and field audits were scheduled to commence shortly.

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  6.20 WEST NEW BRITAIN PROVINCE

  6.20.1 Introduction

  The West New Britain Provincial Government (WNBPG), Kimbe Urban Local-level
  Government, Kimbe General Hospital and New Britain Palm Oil Trust 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 Governments and Business Arms.

  6.20.2 West New Britain Provincial Government

  The West New Britain Provincial Government had submitted its financial statements for
  the year ended 31 December, 2015 for my inspection and audit. The examination of the
  financial statements and the fieldwork associated with the audit of the accounts and
  records had been completed and Management Letter issued in June, 2016 with the audit
  report also issued to the Ministers concerned. The paragraphs below detail issues
  identified with financial statements and internal control environment for 2015.

  6.20.2.1 Comments on Financial Statements – 2015

  My report to the Ministers concerned and other relevant bodies under the Organic Law
  and the Audit Act on the 2015 financial statements of the West New Britain Provincial
  Government was issued on 29th November, 2016. The report contained a Disclaimer
  Audit Opinion as reproduced below:

  Basis for Disclaimer Audit Opinion

  I noted the following disclosure errors which could have material effect on the accuracy
  and completeness of the West New Britain Provincial Government Account balances and
  consequently, the financial position of the Provincial Government as at 31 December,
  2015.

  Cash Balances

   The West New Britain Provincial Government Revenue Fund and Trust Fund
  balances used in Notes 3 and 4 computations contain inherited errors brought
  forward from prior years. As a result, the cash and bank balance of K30,984,861
  was not in agreement with the reconciled closing cash balances of K30,154,028
  disclosed in Note 6.1 to the accounts hence, resulting in an unexplained difference
  of K830,833 at year end; and

   The balance of the Provincial Revenue Fund of K27,722,048 disclosed in note 3
  could not be confirmed as correct due to errors and material misstatement of the
  operating surplus as discussed under the paragraphs on Receipts and Payments for
  the year ended 31 December, 2015.

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  Receipts and Payments

  The West New Britain Provincial Government reported its total revenue and expenditure
  as K75,169,425 and K71,841,650 with an operating surplus of K3,327,775. I am unable
  to confirm the accuracy of the revenue and expenditure and therefore, the correctness of
  the operating surplus as at 31 December, 2015 due to the following reasons:

   I noted the Statements ‘B’, ‘J’ and ‘K’ disclosed nil amounts on Public Servants’
  and Teachers’ Salaries actual receipts and expenditures while the IFMS 2233
  Report from Department of Finance stated Warrant Authority released funds for
  Public Servants Staffing Grants as K12,482,000. The total actual receipts for
  salaries were not taken up in the respective revenue ledgers and disclosed in the
  Statements even though these were provided for in the 2015 WNB Provincial
  Appropriation Act; and

   The IFMS 2233 Report from Department of Finance also disclosed Warrant
  Authority released funds and expenditure balances in respect of overtime,
  Retirement Benefits, Pensions, Gratuities and Retrenchment, Unidentified Alesco
  Payroll Expenditure, Staffing Grant, Public Servants and Teachers’ Leave Fares
  amounting to K4,739,000 which had not been taken up in Statements ‘J’ and ‘K’
  respectively.

  Investments

  Statement ‘F’ on Direct Investments, Capital Contributions, Equity, Options and Rights
  did not disclose any information nor balances relating to long term investments held by
  the Provincial Government. As stated in my previous year audit reports, the Provincial
  Government held investments in business arms namely; Cape Hollman Corporation,
  West New Britain Development Corporation, West Farm Resources Limited and
  Mokmok Development Corporation. In the absence of the audited financial statements of
  the investment companies as well as the Investment Register and other related records to
  be held by the Provincial Government, I am unable to ascertain the status and existence
  of the investment companies,

  Assets

  Appendix 4 to the financial statements is intended to disclose details or a summary of the
  value of fixed assets held and owned by the Provincial Government at year end. The
  appendix however did not disclose details or a summary of the value of fixed assets as at
  31 December, 2015. Further, I was not provided with the Fixed Asset Master Registers to
  ascertain the total value of assets owned and in the custody of the Provincial Government
  at year end. My review of the expenditure ledgers revealed the Provincial Government
  purchased fixed assets worth K4,957,768 during the year which could not be effectively
  verified or traced to the Fixed Asset Master Registers. Consequently, I am unable to
  verify the completeness and the accuracy of the value of assets owned and under the
  custody of the West New Britain Provincial Government as at 31 December, 2015.

  Significant Control Weaknesses

  The paragraphs below give a summary of significant control weaknesses identified in the
  West New Britain Provincial Government’s records and processes:
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   The WNB Provincial Assembly had approved the sale of 12 Million WNBPOL
  shares to Sime Darby Plantations through full acceptance of takeover offer and that
  all cash considerations received through the offer be the proceed of K345, 840,000
  to be re-invested and held in Treasury Bonds with Bank of Papua New Guinea on
  short or medium term basis and invested also in Premium Properties and Blue Chip
  Shares. I was not provided for my satisfaction evidence to suggest the Resolution
  passed by the Provincial Assembly had been implemented as directed;

   In thirteen instances, payments totaling K2,506,885 were not certified to determine
  the legitimacy of the expenditures incurred prior to processing payment of the
  claims presented for payment;

   In four instances, the payment vouchers with relevant supporting documents
  relating to payments to contractors and for outstanding vehicle hires totaling
  K929,547 were missing from files. Consequently, I am unable to ascertain the
  legitimacy and validity as well as proper authorization of the claims presented for
  payment;

   Payments totaling K193,033 in respect of reimbursement of personal monies used
  for expenses incurred on behalf of the Provincial Government. I observed the
  claims presented for payment lacked complete and appropriate supporting
  documents to verify the validity and genuineness of the claims as well as evidences
  to suggest the officers had obtained prior approval from their respective Divisional
  Heads and/or Provincial Administrator to enter into such arrangements;

   Payments for private vehicle hires during the year totaling K2,042,986 noted as
  being too excessive and lacked appropriate supporting documents including
  required three written quotations and proper supplier invoices. Validity and
  genuineness of payments totaling K4,323,403 for settlement of prior years’
  outstanding claims by various organizations, suppliers and individuals could not be
  ascertained in the absence of appropriate original copies of supporting documents
  including invoices;

   Payment of legal and consultancy services fees totaling K224,575 and K314,010
  respectively lacked supporting signed contract agreements to suggest that the
  engagement of private lawyers and consultants were sanctioned by appropriate
  authorities including Provincial Supply and Tenders Board;

   The WNB Provincial Government had expended over K5.602m on capital works &
  maintenance during the year. I observed payments to private contractors were made
  in full prior to commencement of work and/or not supported by appropriate
  progressive work reports or duly certified certificates of completion to indicate
  satisfactory execution of tasks/projects and propriety of the payments;

   A certain contractor was engaged to construct a 4 in 1 double classroom at WNB
  Technical College on a contract value of K482,185. The supporting PS&TB
  approval documents were incomplete and lacking necessary details. Another
  contractor was paid K600,000 in total for alteration work at Textile Shed and
  additional variations work at the Barefoot College. I sighted no evidence of
  PS&TB contract approval/agreement supporting the claims presented for payment;

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   I observed serious lack of proper monitoring and recovery exercises on travelling
  allowances and cash advances dating back to 2005 totaling K1,185,696 that had
  remained un-acquitted as at 31 December, 2015. Numerous instances of additional
  travelling and cash advances totaling K613,046 were also paid despite non-
  acquittals of the previous balances;

   As stated in my previous years audit report, the Provincial Government had paid
  salary advances totaling K193,030 to newly engaged officers over three
  consecutive paydays in 2010 whilst due appointment formalities with the
  Department of Personnel Management and input of personal data into the
  Department of Finance ALESCO payroll system were still in process. The
  Provincial Government had only recouped a sum of K40,330 since with a balance
  of K152,700 remained outstanding; and

   Lump sum payments as grants and subsidies and financial assistances to Public
  Authorities, Non Profit Organizations, Tertiary Institutions and Schools,
  Community Organizations and individuals except for Local Level Governments,
  totaling K4.699m were made during the year under review. I noted no evidence to
  suggest the provincial government had put in place proper monitoring guidelines or
  mechanisms to ensure that funds had been utilized on intended purposes and/or
  properly accounted for by way of accountability reports from recipients.

  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 West New Britain Provincial Government for the year
  ended 31 December, 2015.

  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:

   West New Britain Provincial 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”.

  6.20.2.2 Management Response

  Management had not responded to the matters raised in my Management Letter.
  Subsequently, I was not advised of any improvement at the time of preparing this Report
  in September 2017.

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  6.20.2.3 Status of Financial Statements

  At the time of preparing this Report in September, 2017 the West New Britain Provincial
  Government had submitted its financial statement for the year ended 31 December, 2016
  for my inspection and audit. However, due to staff and financial constraints, I am unable
  to conduct the field audits for it to be reported in this Report. I will report upon this audit
  in the 2017 report as I mitigate the constraints placed upon me.

  6.20.3 Kimbe Urban Local-Level Government

  6.20.3.1 Status of Financial Statements

  At the time of preparing this Report in September, 2017 the Kimbe Urban Local-Level
  Government had not submitted its financial statements for the years ended 31 December,
  2014, 2015 and 2016. Audit will be conducted upon receipt of the financial statements.

  6.20.4 Kimbe Hospital Board

  At the time of preparing this Report in September, 2017 the Provincial Hospital had not
  submitted its financial statements for the years ended 31 December 2013, 2014, 2015 and
  2016. The audit of the control environment for 2013 was completed and Management
  Letter issued and reported in my 2014 Part 3 Report in 2015. The audit of the control
  environment for the years 2014, 2015 and 2016 however, could not be conducted due to
  man power and financial constraints faced by my Office.

  6.20.4.1 Status of Financial Statements

  At the time of preparing this Report in September, 2017 the Kimbe Hospital Board had
  not submitted its financial statements for the years ended 31 December, 2013, 2014, 2015
  and 2016. Audit will be conducted upon receipt of the financial statements.

  6.20.5 New Britain Palm Oil Limited
  6.20.5.1 Status of Financial Statements

  At the time of preparing this Report in September, 2017 the New Britain Palm Oil
  Limited (NBPOL) had submitted its financial statements for the years ended 31
  December 2015 and 2016 for audit. The field work associated with the examination of
  the financial statements and the audit of the accounts and records for both years
  however, could not be conducted due to financial constraints faced by my Office as well
  as the uncertainties associated with the 2017 National General Elections.

  6.20.6 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.

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  As reported in my previous reports, I am aware of the following business arms of the
  West New Britain Provincial Government namely, Cape Hollman Corporation, West
  New Britain Development Corporation, West Farm Resources Limited and Mokmok
  Development Corporation Ltd. However, none of the entities had submitted their recent
  financial statements to-date for audit at the time preparation of this Report in September,
  2017.

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  6.21 WESTERN HIGHLANDS PROVINCE

  6.21.1 Introduction

  Western Highlands Provincial Government, Mount Hagen Urban Local-level
  Government and Western Highlands Provincial Health Authority are audited every year,
  with or without financial statements. Other LLGs and the Business Arms of the
  Governments could not be audited due to manpower and financial constraints faced by
  my office and lack of records and support from the respective Governments.

  5.21.2 Western Highlands Provincial Government

  5.21.2.1 Status of Financial Statements

  At the time of preparing this Report in September 2017, the audit inspection of the
  accounts and records and the examination of the financial statements for the provincial
  government for the year ended 31 December 2015 had been completed and the results
  were being evaluated.

  The financial statements of the provincial government for the year ended 31 December
  2016 had been submitted for my inspection. The field work associated with audit of the
  accounts and records and the examination of the financial statements however, could not
  be conducted due to financial constraints faced by my Office as well as the uncertainties
  associated with the 2017 National General Elections.

  6.21.3 Mt Hagen Urban Local-level Government

  The Mount Hagen ULLG had submitted its financial statements for the year ended 31
  December 2015 for my inspection and audit. The fieldwork associated with the audits of
  the financial statements had been completed with Management Letters issued and a
  Disclaimer Audit Opinion was issued to the Ministers concerned. The issues identified
  with the financial statements and the control environments are reproduced as follows:

  6.21.3.1 Financial Statements – 2015

  My report 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
  in September 2017. The report was a Disclaimer Audit Opinion as reproduced below:

  Basis for Disclaimer Audit Opinion

  Presentation of Financial Statements

  Finance Instruction 5/2000 issued under Section 117 of the Public Finances
  (Management) Act 1995 states the prescribed format for the preparation and presentation
  of the Financial Statements for Local Level Governments. The Financial Statements of
  Mt. Hagen Urban Local-Level Government:

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   did not contain the Lord Mayor’s Declaration on the Mt. Hagen Urban Local-Level
  Government’s budget performance for the year ended 31 December, 2015 as
  required; and

   the Statement of District Administrator’s Declaration of the Financial Statements in
  accepting responsibility on the disclosure of data and information provided on the
  financial affairs of Mt. Hagen Local-Level Government was unsigned.

  These statements are written representations 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 the management has
  not provided the necessary representations this constitutes a scope of limitation and
  affects every statement of the financial statements.

  Furthermore, the statement ‘A’ was not signed by the District Administrator to
  authenticate the validity of this statement and as per required; this constitutes a scope of
  limitation and affects every statement of the financial statements. In addition, prior year
  comparative figures for Notes 3, 4 and 6.1 and Statements ‘C’ were not consistent with
  that of the audited balances and hence, incorrect and misleading and not in compliance
  with the reporting requirements.

  Cash Balances

  I am unable to express an opinion on the accuracy of the total Fund and Cash balances of
  K584,889 respectively and consequently, on the financial position of Mt Hagen Urban
  LLG as at 31 December, 2015 due to the following issues:

  a) Because of the disclaimer of opinion issued in respect of the year ended 31
  December, 2014 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 Mt Hagen Urban LLG in the
  current year, I was unable to determine whether adjustments to the respective
  Cashbooks and ledger accounts, might have been necessary for the year ended 31
  December, 2015;

  b) PGAS Trust Accounts aggregate balance of K208,110 reflected by the ledger
  accounts was not reported in Statement ‘C’, Note 3 and subsequently the Trust
  Funds Balance of Statement ‘A’ and as such affects the total Fund balance reported
  in Statement ‘A’; and

  c) The accuracy of the Revenue Fund balances of K584,889 shown in Note 3 to the
  account could not be confirmed as substantial reconciling items of revenue and
  expenditure appearing in the reconciliation statement was not adjusted in the cash
  book and ledger accounts with consequential effects on the revenue and
  expenditure totals reported in statements ‘J’, and ‘K’ respectively.

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  Receipts and Payments for 2015

  The Mt. Hagen Urban Local-Level Government through Statements ‘J’ and ‘K’ reported
  total revenue of K2,326,239 and total expenditure of K2,594,803 respectively. I am
  unable to confirm the completeness of the receipts and payments due to un-reconciled
  items reported under Cash Balances above as well as discrepancies noted below in my
  observation on the related books and records maintained.

  Debtors and Receivables

  Appendix 2 showed nil balance as at 31 December, 2015. My examination of records
  pertaining to Land Rates and Trading Licenses revealed an outstanding of K2,449,084 as
  at 31 December, 2014. In the absence of proper reconciliations and records I was unable
  to confirm the total land rates collected and the outstanding as at the year then ended.
  Furthermore, I noted that the Urban Tax arrears have reduced from K9,260,260 in 2014
  down to K2,099,084 in 2015 however, there was no indication of debts collected and
  reported and I was not provided the explanation of the variance with supporting
  documentation consequently, I was unable to verify and confirm the completeness and
  accuracy of the debts collected and the outstanding balance.

  Assets

  Appendix 4 did not show a complete report of all the assets, information provided is
  incomplete, inadequate and therefore unreliable to confirm the total value of assets
  owned and in the custody of the Urban Local Level Government as at 31 December,
  2015. The Urban Local Level Government commits huge amount of expenditure on
  assets and inventory purchases every year and yet it has failed to provide good
  management nor provided any policies as guidance over the economical usage of these
  assets including inventories

  Advances

  Appendix 6 did not disclose any information and data of outstanding advances as at 31
  December, 2015. There was a complete breakdown on the internal controls over the
  management of advances, arising from inadequacy on the maintenance of the advance
  register which was not updated regularly, incompleteness in recording details information
  of advances paid, failure to comply with acquittal processes and imposing of penalties on
  advance defaulters. Consequently I was unable to verify and confirm the accuracy of the
  total outstanding advances reported in Appendix 6 of the financial statements

  Significant Control Weaknesses

  There was control weaknesses identified in the Urban Local-Level Government’s
  accounting records and processes as follows:

  a) There was no system in place to adequately record and account for all of its internal
  revenue and the outstanding debtors (accounts receivables) that was to be reported
  in appendix 2 of the financial statements. In addition, no register for debtors was
  maintained;
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  b) The duties of the officers responsible for revenue collection, monitoring, reviewing
  and reporting were not properly defined. No such formal document was furnished
  for my examination and as such I could not ascertain whether all revenues collected
  were brought to account and were appropriately verified by the designated officers;

  c) Segregation of duties was not applied as only a single officer was doing collection,
  receipting and banking. Also the safe was not utilized to keep cash and other
  valuables;

  d) My examination of Paid Accounts on sample basis revealed unsatisfactory matters
  as noted:

   Legal and Consultancy services related payments totaling K24,400 was noted
  during the year. The underlying records such as contract documents and
  suppliers invoices were not provided in support of the payments,

   Reimbursement of personal monies totaled to K62,613. There was no
  evidence to show prior approval was granted, the validity of such expenses
  could not be established in the absence of supporting documentations,

   A total expenditure of K238,712 was incurred on private vehicle hires. The
  payments were not supported with three written quotations, suppliers
  invoices, payments were made from wrong budget votes; no consideration
  was given to the daily rates charge, numbers of days hired and genuine
  purposes for the hires. Also there were numerous instances where 10% GST
  remittance to IRC were not compliant with, and

   Payment vouchers relating to payments incurred amounting to K22,500 were
  noted missing.

  e) Records relating to the minor works procurement documents such as management
  deliberations and endorsement, contract agreements, inspection and completion
  reports etc. were not made available for my examination; and

  f) The Financial Management meeting minutes and resolutions was not produced for
  my examination. Consequently, I was unable to determine the effect of financial
  implications of the major legal decisions of Financial Management Committee
  would have on the affairs of the Urban Local Government.

  Disclaimer Audit Opinion

  Because of the significance of the matters described under the basis of a disclaimer audit
  opinion above, I was not able to obtain sufficient appropriate audit evidence and
  consequently I am unable to express an opinion on the financial statements of the Mt
  Hagen Urban Local Level Government for the year ended 31 December, 2015.

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  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:

   the Mt Hagen 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.”

  6.21.3.2 Management Response

  Management had not responded to the matters raised in my Management Letter.
  Subsequently, I was not advised of any improvement at the time of preparing this Report
  in September 2017.

  6.21.3.4 Status Financial Statement

  At the time of preparing this Report in September 2017, the Financial Statement of the
  Urban Local-Level Government for the year ended 31 December 2016 had not been
  submitted for my inspection and audit.

  6.21.4 Western Highlands Provincial Health Authority

  The Western Highlands Provincial Health Authority had submitted its financial
  statements for the year ended 31 December 2014 and the fieldwork associated with the
  audit of accounts and records and the examination of the financial statements were
  completed with the Management Letters issued and a Qualified Audit Opinion was issued
  to the ministers concern. The issues identified with control environments were reported in
  2014 part 3 Report and hence only the financial statements issues are reproduced below:

  6.21.4.1 Financial Statements – 2014

  My report to the Ministers concerned and other relevant bodies under the Organic Law
  and Audit Act on the Western Highlands Provincial Health Authority’s financial
  statements for the year ended 31 December, 2014 was issued March, 2017. The report
  contained a Qualified Audit Opinion and hence is reproduced below:

  “Qualification

  Limitation of Scope

   The statements were not signed by the Chief Executive Officer and Board
  Chairman as required. Subsequently, the financial statements were not presented in
  the format required by the Finance Instructions. This constitutes a scope limitation
  and affects every statement of the financial statements.

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   I was unable to confirm the accuracy and completeness of the Consolidated
  Accumulated Fund of K44,240,560 disclosed in the financial statements due to
  inherited errors carried forward from previous years which were not corrected in
  the current year’s accounts;

   In the absence of the bank reconciliations and ledgers of the project account I am
  unable to confirm the accuracy and completeness of the cash at bank balance of
  K12,759,033.68 disclosed in the financial statement;

   Stale cheques amounting to K11,285. for the Western Highlands Provincial Health
  Authority Account was not written back resulting in the cash at bank being
  overstated rendering the year-end balance unreliable and incorrect; and

   I was not able to verify the completeness and accuracy of the fixed assets due to
  absence of sufficient supporting documents to serve as the basis for the audit tests.
  In the absence of appropriate detailed assets register, I am unable to verify the
  completeness, existence, accuracy and value of the fixed assets totaling K3,081,
  570 disclosed in notes 15 to the financial statements.

  Significant Control Weaknesses

  There was control weaknesses identified in the Authority’s accounting records and
  processes as follows:

   The WHPHA was using MYOB accounting software for accounting and reporting
  purposes. This system has not been utilized for maintenance of proper Ledgers for
  respective ledger accounts resulting in the limitations in the production of
  transactions for each ledger accounts.

   Capital Works and Maintenance Program of the WHPHA incurred total
  expenditure of K4,882,614. Valid Minor Works Contracts for payments totalling
  K401,019 were not made available for audit verification.

   I noted instances of leave fare entitlements totaling K 79,035 were processed and
  paid without appropriate supporting concession documentations such as the birth
  certificates for dependents claimed, concessions for school children and marriage
  certificates

   The Fixed Asset Register was not properly maintained and lacks detail information
  of assets recorded and there was no evidence to indicate that periodic stock takes
  was undertaken during the year.

   Advances register and acquittal files were not adequately updated and maintained
  resulting in instances of advances totalling K397,202 remained un-acquitted as at
  the year then ended.

  Qualified Audit Opinion

  In my opinion, except for the effects of the matters referred to in the qualification
  paragraphs above, the Financial Statements of Western Highlands Provincial Health
  Authority for the year ended 31 December, 2014:

   give a true and fair view of the financial position and the results of its operations
  for the year then ended in accordance with the Finance Instructions; and
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   With exception of instance of non-compliance described under Other Matters, the
  financial statements have been prepared in accordance with the Finance
  Instructions issued under the Public Finances (Management) Act, 1995.

  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
  is a matter of significance:

   The Western Highlands Provincial Health Authority has not prepared and
  submitted their financial statements to the Minister and the Auditor-General prior
  to 30 June for the year ending 31 December preceding, resulting in breaches of
  Section 63(2) and Section 63(4) of the Public Finances Management Act, 1995.”

  6.21.4.2 Management Response

  Hospital Management has responded to my Audit Management Letter queries and
  corrections, improvements, and adjustments noted from the management responses has
  been rectified with the management prior to issuing the audit report.

  6.21.4.3 Status of Financial Statements

  As at the time of preparing this Report, the Western Highlands Provincial Health
  Authority had submitted its financial statements for the year ended 31 December, 2015
  for my inspection and audit. The field work associated with audit of the accounts and
  records and the examination of the financial statements however, could not be conducted
  due to manpower and financial constraints faced by my Office as well as the uncertainties
  associated with the recent 2017 National General Elections.

  The Authority has not submitted its financial statements for the year ended 31 December
  2016 for my inspection and audit.

  6.21.5 Business Arms

  Section 16 (2) (f) of the Audit Act provides for and extends my functions to audit the
  accounts and records of the Provincial Government Business Arms and other
  establishments.

  I am aware of two business arms of the Western Highlands Provincial Government
  namely, Western Highlands Development Corporation and Western Highlands
  Engineering Management Limited. At the time of preparing this Report in September
  2017, the business arms had not submitted any financial statements to-date for my
  inspection and audit. Consequently, I was unable to comment on the operations and
  financial results of the entities.

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  7. LEGAL FRAMEWORKS

  7.1 Organic Law on Provincial Governments and Local-level Governments

  Sections 102 and 103 of the Organic Law require Provincial Governments and Local-
  level Governments to keep proper accounts and records of their transactions and affairs,
  and to set up an internal control system and internal audit unit to ensure adequate
  financial control.

  In addition, Section 114 of the Organic Law requires each Provincial Government and
  Local-level Government to submit to the Minister responsible for provincial government
  and local-level government matters, and the Minister responsible for finance matters,
  (Minister for Finance and the Minister for Provincial and Local-level Government
  Affairs), a full statement on the financial position and of the affairs of the Province and
  the Local-level Government area for each fiscal year in such a form and detail, and
  containing such other information as is regulated by an Act of Parliament, or as the
  Ministers require, before the final year sitting of the Parliament during the next fiscal
  year.

  Section 40 (d) of the Organic Law provides that the law making powers of the Provincial
  and Local-level Governments are subject to the National Law but only to the extent that
  the national interest so requires, otherwise they shall have relative autonomy to operate.

  The legislation clearly states that an Act of Parliament shall prevail over any law made by
  the Provincial or the Local-level Government Legislatures. In view of this, the PFMA
  prevails over the Provincial Legislations in respect of financial management.

  7.2 Provincial Governments and Local-level Governments

  Section 113 subsection 4(c) of the Organic Law extends the functions of the Auditor-
  General to inspect and audit the affairs and accounts of the Provincial and Local-level
  Governments.

  There are 22 Provincial Governments and 319 Local-level Governments under the
  Auditor-General’s mandate. I have continued to experience significant delays in reporting
  the result of these audits. Details of the causes of the delays are outlined under paragraph
  1.2 of this Report. Given the lack of resources, and other constraints, my Office will
  continue to concentrate its efforts on the core audits being that of Provincial
  Governments, Hospital Boards, Urban LLGs and a sizable number of business arms.

  The 22 Provincial Governments received development and recurrent funds
  (Appropriations) in 2016 of approximately K3,662,114, 800 billion. This represented
  25% of the total National Government budget appropriation for 2016 which was K14,
  208,800,000 billion. Considering the significance of the amount, these audits have
  remained my priority in addressing the audit arrears situation.

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  7.3 Hospital Boards and Provincial Health Authorities

  Hospital Boards and Health Authorities within the country are established under the
  Public Hospital Act and Provincial Health Authority Act respectively. The Acts provide
  that the PFMA is applicable to the Boards on matters regarding accounting, financial
  management and reporting. That Acts also require the audit provisions contained in the
  Audit Act to apply to the Hospital Boards.

  In accordance with Part 3, Section 8 of the Audit Act, I perform annual audits of the
  accounts and records and financial transactions of Hospital Boards and Health
  Authorities. I am also required to report to the Minister for Finance and the Minister for
  Health on the results of these audits.

  The audits are performed so that I can obtain reasonable assurance as to whether the
  financial statements are free of material misstatements and amongst other things, whether
  the statements are prepared in a form approved by the Minister for Finance. Hospital
  Boards, Health Authorities being public bodies, are required to prepare their statements in
  accordance with the Finance Instruction 02/2004: Financial Statement Format, Trading
  and Non-Trading Public Bodies. These Instructions issued under Section 117 of the
  PFMA had been signed and approved by the then Secretary for Finance.

  7.4 Business Arms and Subsidiary Corporations

  The Audit Act extends the functions of the Auditor-General to include the audit of
  business arms and subsidiary corporations of Provincial Governments. These reporting
  entities report under Finance Instruction 2/2004: Financial Statement Format for Trading
  Public Bodies. The PFMA Section 62 (2) requires trading public bodies in regards to their
  accounts and records to observe and comply with the accounting principles generally
  accepted and applied in commercial practice. This includes the adoption of an accrual
  based accounting and applying the International Accounting Standards.

  As detailed under paragraph 4.4, I continued to have significant difficulties in identifying
  the exact number of business arms and status of their operations. Details of these business
  arms and their subsidiary corporations and companies, could not be fully established due
  to lack of adequate information forthcoming from the Provincial Governments or due to
  their failure to maintain proper investment records and registers. My Office was unable to
  determine whether number of these business arms were still active and in operation,
  defunct, or liquidated.

  7.5 Provincial Authorities

  Provincial Authorities are established by an Act of Parliament purposely to develop
  infrastructure and to stimulate business activities in the respective provinces. Some of
  these authorities are directly involved in commercial activities as well. The majority of
  these authorities are required to report under the cash basis of accounting applying the
  standard Financial Reporting under the Cash Basis of Accounting issued by the
  International Organization of Supreme Audit Institutions (INTOSAI).The audits of the

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• Legal Frameworks

  Provincial Authorities are undertaken when the financial statements are received and
  when audit fees are remitted to the Office.

  7.6 Other Audits

  My audit responsibility also extends to include the audit 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. The Management of these
  funds, as in the past, had failed to furnish financial statements on a timely basis and, as
  such, I was unable to carry out the respective audits on a timely basis.

  7.7 Dispensation of Audits

  Part 5 Section 16 (6) of the Audit Act states:

  “The Auditor-General may, in his discretion, dispense with the whole or any part of the
  detailed inspection and audit of any accounts, moneys and property referred to in
  Subsection (2).”

  Subsection 2 relates to audits of Provincial Government, Local-level Government,
  subsidiary corporations of a Provincial Government, a body established by a provincial
  law, Provincial Government Association and Provincial Government-owned company or
  public project.

  Similarly, Part 1, Section 6 (1a) of the Audit Act allows the Auditor-General to dispense
  with all or any part of the detailed audit related to other entities.

  I am of the view that conducting these audits will not reveal any new information that
  will be of benefit to the Parliament, the Provincial and Local-level Government or the
  wider public. In the case of some of the more recent audits where no financial statements
  have been prepared and submitted I could only conduct audit of control environment and
  reported the results of the audits to the Auditee management. The results of these audits,
  grouped by Province, are reported in Chapter 6.

  It should be noted that Rural Local-level Governments could not be audited due to the
  following reasons:

   Expenditure mainly relates to payment of salaries; and

   Lack of resources to undertake these audits.

  The Urban Local-level Governments and a Hospital problem audits are detailed in the
  table below had been dispensed with in June 2017.

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• Legal Frameworks

  List of Audits of Financial Statements dispensed

  Year for
  which
  Entity Financial Explanatory Notes
  Statements
  were due
  1.Kerema Urban LLG 2012 FS not prepared. Control audits done
  2.Lae Urban LLG 2012 FS not prepared. Control audits done
  3.Mendi Urban LLG 2012 FS not prepared. Control audits done
  4.Wabag Urban LLG 2012 FS not prepared. Control audits done
  5.Buka Urban LLG 2012 FS not prepared. Control audits done
  6.Wewak Urban LLG 2012 FS not prepared. Control audits done
  7.Kundiawa Urban LLG 2012 FS not prepared. Control audits done
  8.Porgera Development 2012 FS not prepared. Control audits done
  Authority
  9.Kavieng General Hospital 2012 FS not prepared. Control audits done

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• Status of Financial Statements

  8. STATUS OF FINANCIAL STATEMENTS
  In conducting my audit, I cannot be 100 percent certain that it will reveal all errors in the
  financial statements that, individually or in total, may be material. The size and
  complexity of the entity’s operations, as well as cost considerations, make it impractical
  for me to examine all or even most of the individual revenue and expenditure transactions
  entered into during the year. It is also impractical for me to examine all or most of the
  individual transactions pertaining to the trust funds.

  What I can do is verify samples of transactions and account balances, determine whether
  significant financial controls within the entity are working and can be relied on to produce
  complete and accurate data, and carry out other procedures – such as confirming year-end
  balances with third parties and performing analysis – to identify anomalies in the reported
  data.

  What this comes down to is exercising professional judgment about how much auditing is
  required to provide reasonable assurance to users of the statements that they can rely on
  the reported results and not be misled.

  At the conclusion of audit of the financial statements, and depending on the nature and
  the results of the audit, I could issue either an unqualified or a qualified audit report to the
  Auditee management.

  An unqualified audit report is issued when the financial statements, in all material
  respects, give a true and fair view of the matters required by the PFMA and Finance
  Instructions issued under this Act.

  Qualified audit report is issued when the financial statements do not present a true and
  fair view of the entity’s financial position, nor of the results of its operations and its cash-
  flows, thereby reducing the readers’ ability to analyse, interpret and compare financial
  statements.

  8.1 Provincial Government

  Table 1 – Status of Audit (Opinion) Reports – Provincial Government

  Table 1 Status of Audit (Opinion) Reports – Provincial
  Government as at 30 September 2017
  Issued
  Provincial
  Pending Remarks
  Government Last Current
  Cycle Cycle
  1 Autonomous 2014-2016
  Bougainville
  Government
  2 Central 2014-2016
  3 East New Britain 2014 2015 2016
  4 East Sepik 2014 2015 2016
  5 Eastern Highlands 2014 2015 2016
  6 Enga 2014 2015 2016

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  7 Gulf 2015-2016
  8 Hela 2013-2014 2015-2016
  9 Jiwaka 2013 2014-2016
  10 Madang 2014 2015 2016
  11 Manus 2014 2015-2016
  12 Milne Bay 2014-2015 2016
  13 Morobe 2015 2016
  14 New Ireland 2014 2015 2016
  15 Oro 2014-2016
  16 Sandaun 2015 2016
  17 Simbu 2015 2016
  18 Southern Highlands 2014 2015 2016
  19 West New Britain 2014 2015 2016
  20 Western (Fly River) 2014-2015 2016
  21 Western Highlands 2014 2015-2016
  TOTAL 13 15 33

  8.2 Local-level Government

  Table 2 – Local-level Governments
  # LLGs TOTAL
  PROVINCE Urban Rural LLGs
  1 Bougainville 1 – 1
  2 Central 1 13 14
  3 East New Britain 2 16 18
  4 East Sepik 2 25 27
  5 Eastern Highlands 2 22 24
  6 Enga 2 15 17
  7 Gulf 1 9 10
  8 Hela 1 11 12
  9 Jiwaka – 6 7
  10 Madang 1 18 19
  11 Manus 1 11 12
  12 Milne Bay 1 15 16
  13 Morobe 3 30 33
  14 New Ireland 1 9 10
  15 Oro 1 8 9
  16 Sandaun 2 16 18
  17 Simbu 2 18 20
  18 Southern Highlands 2 18 20
  19 West New Britain 1 11 12
  20 Western 3 11 14
  21 Western Highlands 1 8 9
  TOTAL 31 290 321

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  Table 3- Status of Audit Reports – Local-level Governments
  Table 3 Status of Audit (Opinion) Reports – Urban Local-level
  Governments as at 30 September, 2017
  Issued
  Urban Local-level Last Current Remarks
  Governments Cycle Pending
  1 Alotau 2014-2016
  2 Daru 2014-2015 2016
  3 Kiunga 2014-2016
  4 AitapeLumi Audit pending
  5 Balimo Audit pending
  6 Buka 2013-2016 2012 dispensed
  7 Finschaffen Audit pending
  8 Goroka 2014-2016
  9 Hagen 2012-2014 2015 2016
  10 Ialibu Audit pending
  11 Kainantu Audit pending
  12 Kavieng 2013-2014 2015-2016
  13 Kerema 2013-2016 2012 dispensed
  14 Kerowagi Audit pending
  15 Kimbe 2014-2016
  16 Kundiawa 2013-2016 2012 dispensed
  17 Lae 2013-2016 2012 dispensed
  18 Lorengau 2014 2015-2016
  19 Madang 2014-2016
  20 Maprik 2014-2015 2016 Audit for the first
  time
  21 Mendi 2013-2016 2012 dispensed
  22 Motu Koitabu Nil
  23 Popondetta 2013-2016
  24 Porgera – under Dev. Authority
  25 Tari Audit pending
  26 Rabaul 2014 2015 2016
  27 Kokopo/Vunamami 2014 2015 2016
  28 Vanimo 2012,14,15 2016
  29 Wabag 2013-2016 2012 dispensed
  30 Wau/Bulolo Audit pending
  31 Wewak 2012-2015 2016
  TOTAL 6 18 53

  8.3 Hospital Boards/Health Authorities

  Table 4 – Status of Audit (Opinion) Reports– Hospital Boards and Provincial Health
  Authorities
  Table 4 Status of Audit (Opinion) Reports – Hospital as at 30
  September, 2017
  Health Authority/ Issued
  Hospital Board Last Cycle Current Cycle Pending Remarks
  1 Angau (Lae) 2010-2014 2015 2016
  2 Boram (Wewak) 2014 2015-2016
  3 Buka 2011-2012 2013-2016

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• Status of Financial Statements

  4 Daru 2011-2013 2014-2016
  5 Goroka 2014-2016
  6 Hagen 2014 2015-2016
  7 Tari 2016
  8 Kavieng 2013-2016 2012 dispensed
  9 Kerema 2012-2013 2014-2016
  10 Kimbe 2013-2016
  11 Kundiawa 2015 2016
  12 Lorengau 2013-2016
  13 Mendi 2015 2016
  14 Milne Bay 2014 2015-2016
  15 Modilon (Madang) 2013-2016
  16 Nonga (Rabaul) 2014-2015 2016
  17 Port Moresby 2012-2013 2014-2015 2016
  18 Popondetta 2013-2016
  19 Vanimo 2015 2016
  20 Wabag 2015-2016
  TOTAL 13- 16 33

  8.4 Business Arms & Subsidiary Companies

  Table 5 – Status of Audit Reports–Business Arms & Subsidiary Companies – Do-able
  Table 5 Status of Audit Reports – Business Arms and Subsidiaries
  Companies – Do-able as at 30 September, 2017
  Issued
  Business Arms & Current
  Subsidiary Companies Last Cycle Cycle Pending Remarks
  1 Akogere Estates Limited 2010-2016 No FSs
  2 Nokondi Investments 2010-2016 No FSs
  3 Al Auto Parts 2010-2016 No FSs
  4 Eastern Highlands Property 2010-2016 No FSs
  Developers Ltd
  5 WampNga Holdings Not Known 2008-2016 2007 audit in
  progress was not
  finalized
  6 Petrohaul Limited Not Known 2008-2016 2007 audit in
  progress was not
  finalized
  7 Vegmark Limited Not Known 2008-2016 2007 audit in
  progress was not
  finalized
  8 Peninnsula Shipping Limited Not Known 2008-2016 2007 audit in
  progress was not
  finalized
  9 Kumghie Holdings Not Yet 2013-2016 2013-15 FSs recvd
  10 West Sepik Investments Not Yet 2013-2016 2013-15 FSs recvd
  11 ENBDC Ltd Not Yet 2013-2016 2013-14 FSs recvd
  Total 78

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  8.5 Provincial Authorities

  Table 6 – Provincial Authorities
  # Province Provincial Authorities Status
  1 ABG Bougainville Restoration No F/S since 2008.
  and Development Authority
  2 Central Koiari Development No F/S since 1993.
  Authority
  3 Central Koiari Rural LLG Special No F/S since 2004.
  Purpose Authority
  4 Central Central Province Transport Audited by me. Refer to Table 7.
  Authority
  5 East New Gazelle Restoration Audited by me up. Refer to Table 7.
  Britain Authority
  6 Enga Porgera LLG Special Audited by me. Refer to Table 7.
  Purpose Authority (Porgera
  Development Authority)
  7 Enga Enga Construction No F/S since 1999.
  Authority
  8 Manus Manus Shipping Authority No F/S since 1994.
  9 New Ireland Nimamar Development No FS since 2005
  Authority
  10 New Ireland Nimamar Rural LLG 2004-2006 F/S submitted. No F/S
  Special Purpose Authority since 2006.
  11 Oro Oro Fisheries Authority No F/S since 1990.
  12 Southern Kutubu Development No F/S since 1996.
  Highlands Authority

  Table 7 – Status of Audits – Provincial Authorities – Do-able
  Table 7 Status of Audit (Opinion) Reports – Provincial Authorities
  as at 30 September, 2017
  Issued
  Business Arms Provincial
  Current Remarks
  Authorities Last Cycle Pending
  Cycle
  1 2007-2010 2011-2016
  Central Province Transport
  Authority
  2 2014 2015-2016
  Gazelle Restoration Authority
  3 Pogera Development 2009-2011 2013-2015 2012 Dispensed
  Authority
  TOTAL 8 11

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• Status of Financial Statements

  8.6 Trusts and Funds

  Table 8 – Provincial Government -Trusts and Funds
  # Province Trusts/Funds Status
  1 Enga Enga Mineral Revenue Stabilisation fund No F/S since 1993.
  2 Enga Enga Children’s Fund Refer Table 9.
  3 Gulf Gulf Investment Trust Fund (GITF) No F/S since 2004.

  4 Western Western Highlands Sports Stadium Trust No F/S since 1995.
  Highlands
  5 West NBPOL Trusts 1&2 Refer Table 9.
  New Britain

  Table 9 – Status of Audits – Trusts and Funds – Do-able
  Table 9 Status of Audit (Opinion) Reports – Trust Accounts as at
  30 September, 2017
  Issued
  Business Arms Trusts
  Last Current Pending Remarks
  and Funds
  Cycle Cycle
  1 Enga Children’s Fund 2012-2014 2015 2016 FSs received audit
  Trustee Ltd in progress
  2 NBPOL Trusts 1&2 2013-2014 2015-2016 FSs received
  TOTAL 5 1 3

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