Report of the Auditor General Part IV – 2012 – on Accounts of Public Authorities and Statutory Bodies and Government Owned Companies

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    Report on Public Bodies and their subsidiaries, National Government owned Companies and National Government Shareholdings in Other Companies and Projects

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  • Report of the Auditor-General – 2012 on the Accounts of Public Authorities and Statutory Bodies established under the Act of Parliament and Government Owned Companies established under the Companies Act

    Part IV

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

    Phone: (+675) 3012200 Fax: (+675) 325 2872 Email: agopng@ago.gov.pg Website: www.ago.gov.pg

    21 October, 2013

    The Honourable Theodore Zurenuoc, MP The Speaker of National Parliament Parliament House WAIGANI National Capital District

    Dear Sir,

    In accordance with the provisions of Section 214 of the Constitution of the Independent State of Papua New Guinea, I forward herewith a copy of my report signed on 21 October, 2013 upon the inspection and audit of the financial statements of the Public Bodies and their subsidiaries and National Government owned companies for tabling in the National Parliament. This Report (Part IV) also contains information on companies in which the Government does not hold majority interest. Section E of this Part of the Report contains information on the status of certain entities which have ceased operations and those entities audits of which have been in arrears.

    Yours sincerely,

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  • PHILIP NAUGA Auditor-General

    Level 6 PO Box 423 TISA Investment Haus WAIGANI, NCD Kumul Avenue, NCD Papua New Guinea

    REPORT OF THE AUDITOR-GENERAL – 2012 PART IV TABLE OF CONTENTS

    PARA SUBJECT PAGE NO. NO.

    General V A. Foreword V B. Authority to Audit V C. Audit of Public Bodies VII D. Appointment and use of Authorised Auditors VII E. Executive Summary VIII Attachments A – E XVI SECTION A PUBLIC BODIES AND THEIR SUBSIDIARIES PARA SUBJECT PAGE NO. NO. 1. Foreword 1 2. Bank of Papua New Guinea 3 3. Border Development Authority 5 4. Civil Aviation Safety Authority of Papua New Guinea 10 5. Cocoa Board of Papua New Guinea and its Subsidiaries 11 5A. Cocoa Stabilization Fund 14 6. Cocoa Coconut Institute Limited of Papua New Guinea 16 7. Coffee Industry Corporation Limited and its Subsidiaries 22 7A. Coffee Industry Fund 29 7B. Patana No. 61 Limited 31 8. Government Printing Office 34 9. Immigration and Citizenship Service Authority 37 10 Independence Fellowship Trust 40 11. Independent Consumer and Competition Commission 41 12 Independent Public Business Corporation and its Subsidiaries 43 12A. Aquarius No. 21 Limited 55 12B. General Business Trust 56 12C. PNG Dams Limited 62 12D. Port Moresby Private Hospital Limited 66 13. Industrial Centres Development Corporation 67 14. Investment Promotion Authority 70 -i-

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  • 15. Kokonas Indastri Koporesen and its Subsidiaries 72 15A. Papua New Guinea Coconut Extension Fund 73 15B. Papua New Guinea Coconut Research Fund 74 16. Legal Training Institute 75 17. Mineral Resources Authority 83 18. Motu Koitabu Council and its Subsidiary 85 18A. Tabudubu Limited 86 19. National Agriculture Quarantine and Inspection Authority 87 20. National Agriculture Research Institute 90 21. National AIDS Council Secretariat 92 22. National Broadcasting Corporation 94 23. National Capital District Commission and its Subsidiaries 98 23A. National Capital District Botanical Enterprises Limited 104 23B. Port Moresby City Development Enterprises Limited 105 24. National Cultural Commission 106 25. National Economic and Fiscal Commission 107 26. National Fisheries Authority 109 27. National Gaming Control Board 112 28. National Housing Corporation 117 29. National Maritime Safety Authority 118 30. National Museum and Art Gallery 121 31. National Narcotics Bureau 122 32. National Research Institute 123 33. National Road Safety Council 125 34. National Roads Authority 127 35. National Training Council 130 36. National Volunteer Service 131 37. National Youth Commission 132 38. Oil Palm Industry Corporation 134 39. Ombudsman Commission of Papua New Guinea 138 40. Pacific Games (2015) Authority 139 41. Papua New Guinea Forest Authority 140 42. Papua New Guinea Institute of Medical Research 145 43. Papua New Guinea Institute of Public Administration 146 44. Papua New Guinea Maritime College 147 45. Papua New Guinea National Institute of Standards and Industrial Technology 150 46. Papua New Guinea Radio Communications & Telecommunications Technical Authority (PANGTEL) 151 47. Papua New Guinea Sports Foundation 155 48. Papua New Guinea University of Technology and its Subsidiary 157 48A. Unitech Development and Consultancy Company Limited 161 49. Parliamentary Members’ Retirement Benefits Fund 165 50. PNG Waterboard 166 51. Public Curator of Papua New Guinea 167 52. Security Industries Authority 168 53. Small Business Development Corporation 169 54. Tourism Promotion Authority 170 55. University of Goroka and its Subsidiary 172 55A. Unigor Consultancy Limited 174 56. University of Natural Resources and Environment 179 57. University of Papua New Guinea and its Subsidiary 182

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  • 57A. Unisave Limited 221 57B. Univentures Limited 222 SECTION B – NATIONAL GOVERNMENT OWNED COMPANIES PARA SUBJECT PAGE NO. NO. 58. Foreword 225 59. Air Niugini Limited 227 60 Livestock Development Corporation Limited 230 61. Mineral Resources Development Company Limited 234 62. Motor Vehicles Insurance Limited 241 63. National Airports Corporation Limited and its Subsidiaries 244 63A. Airport City Development Limited 249 63B. PNG Air Services Limited 250 64. National Petroleum Company of PNG (Kroton) Limited 252 65. NCD Water and Sewerage Limited (Eda Ranu) 253 66. Papua New Guinea Ports Corporation Limited 255 67. PNG Power Limited 258 68. Post PNG Limited 274 69. Telikom PNG Limited and its Subsidiaries 277 69A. Kalang Advertising Limited 280 69B. PNG Directories Limited 282 SECTION C – NATIONAL GOVERNMENT SHAREHOLDINGS IN OTHER COMPANIES PARA SUBJECT PAGE NO. NO. 70. Foreword 285 71. Bougainville Copper Limited 287 72. CTP (PNG) Limited 289 73. Gogol Reforestation Company Limited 290 74. Ok Tedi Mining Limited 291 75. Pacific Forum Line Limited 292 76. PNG Sustainable Development Program Limited 293 SECTION D – PROJECTS PARA SUBJECT PAGE NO. NO. 77. Foreword 297 78. Civil Aviation Development Investment Program (CADIP) 299 79. Lae Port Development Project 300 80. National Capital District Commission Urban Youth Employment Project 302 81. Port Moresby Sewerage System Upgrading Project (POMSSUP) 303 82. Productive Partnership in Agriculture Project 304 SECTION E – PROBLEM AUDITS PARA SUBJECT PAGE NO. NO. 83. Foreword 309 83.1 Exclusion of Entities from Future Reports 309 84. Audits in Arrears 310 84.1 General 310 84.2 Responsibility for preparation of Financial Statements 310 84.3 Legislative Requirements 311 84.4 Current Year Audits (2012 Audits) 311 84.5 Status of Current Year Audits 313 84.6 Audits in Arrears (2011 and prior years) 315 84.7 Long Outstanding Financial Statements 318 84.8 Status of Audits as at 30 June 2013 321 Acknowledgements 323

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  • Schedule A – Current Year Audits 325 Schedule B – Status of Audits in Arrears 328 Schedule C – Long Outstanding Financial Statements 330 Schedule D – Non-Operational Entities and Others 332 Schedule E – Prior year Audits completed during 2012/2013 333 Schedule F – Status of Audits during the year 2012/2013 336

    GENERAL

    A. FOREWORD

    My Annual Report to the National Parliament for the 2012 financial year is presented in four Parts. Part I deals with the Public Accounts of Papua New Guinea. Part II deals with National Government Departments and the Provincial Treasury Offices, whilst Part III deals with the audit of the Provincial Governments and Local-Level Governments.

    Part IV (this Part) of my Report deals with Public Bodies and their Subsidiaries, Government Owned Companies and National Government?s shareholdings in Other Companies. This Report is divided into five sections. Section A deals with Public Bodies and their subsidiaries, Section B deals with National Government owned companies, Section C deals with Companies in which the National Government has shareholdings and Section D deals with Projects implemented by the Entities. Section E is an additional section which provides details of entities that have ceased operating and those other entities the audits of which have been in arrears due to non-submission of financial statements.

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

    B. AUTHORITY TO AUDIT

    B.1 Constitution

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

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

    B.2 Audit Act

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

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  • B.3 Auditing and Reporting Requirements

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

    B.4 Matters of Significant Importance

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

    B.5 Audit Opinion on Financial Statements

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

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

    B.6 Public Finances (Management) Act, 1995

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

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

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

    B.7 Companies Act, 1997

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

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

    C. AUDIT OF PUBLIC BODIES

    C.1 Scope of Audit

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

    C.2 Audit Objectives

    Under the Companies Act, I am required to ascertain whether proper accounting records have been kept; whether the financial statements comply with generally accepted accounting practice; and whether those financial statements give a true and fair view of the matters to which they relate. The Act also requires the auditor to report the instances of non-compliance with these requirements. More details on the audit responsibilities under the Companies Act are provided in paragraph 58 of this Report which covers the National Government owned companies.

    C.3 Reporting Framework

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

    D. APPOINTMENT AND USE OF AUTHORISED AUDITORS

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

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

    2012 AUDITOR-GENERAL?S REPORT – PART IV

    E. EXECUTIVE SUMMARY

    E.1 Report Coverage

    This Report covers the audit reports issued by my Office on the audits of Public Bodies and their Subsidiaries, Government Owned Companies, Project audits and National Government?s shareholdings in Other Companies during the period July 2012 to June 2013 (2012/2013 Audit Cycle). The Report covers the audits of these entities? financial statements for a number of years, not just 2012.

    In 2012 there were 85 public entities subject to audit by my Office, consisting of 70 Public Bodies and their Subsidiaries and 15 National Government Owned Companies. In addition, I have also carried out audits on 5 Projects managed by Public entities as implementing agencies.

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

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

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

    E.3 Submission of current year Financial Statements

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

    Despite these legislative requirements, 51 entities had not submitted their 2012 financial statements to be audited and overall some 55 financial statements for 2011 and prior years had not been submitted for audit (Refer Table 1).

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

    Table 1

    STATUS OF AUDITS DURING THE YEAR 2012 (END OF 2012/2013 CYCLE)

    Year

    Audits Completed

    Audits Substantially Completed

    Audits in Progress

    Audits to Commence Shortly Financial Statements not Submitted

    Total 2012/2013

    Total 2011/2012 2012 9 12 7 11

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  • 51 90 85 2011 32 7 11 6 25 81 73 2010 20 12 6 2 11 51 43 2009 10 9 2 – 4 25 23 2008 6 4 1 – 4 15 13 2007 2 7 – – 3 12 7 2006 2 4 – – 3 9 7

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  • 2005 2 3 1 – 2 8 7 2004 2 3 1 – 2 8 5 2003 – 3 1 – 1 5 – Total 85 64 30 19 106 304 263

    Table 1 also shows that 179 audits were completed, substantially completed or still in progress as at 30 June, 2013. The details are graphically depicted in Attachment „C?, which also included the arrears of prior years. Table 1 also shows that of the 85 audits completed, only 9 were for the current year (2012), with 19 current year audits substantially completed or were in progress. A further 11 audits were to commence shortly. Graphical description of status of current year (2012) audits (excluding arrears) is given in Attachment „A?. The list of entities is at Schedule „A? (i), (ii), (iii) and (iv).

    E.4 Type of Audit Opinions Issued1

    In the period covered by the audit, 85 audit opinions were issued. Of the 85 audit opinions issued, 20 were unqualified, 34 were qualified, 30 were Disclaimer Opinions and 1 Adverse Opinion.

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

    Of the 20 unqualified opinions issued, 15 related to prior years and only 5 were for 2012 as follows:

    (i) Bank of Papua New Guinea; (ii) Post (PNG) Limited; (iii) Productive Partnership in Agriculture Project; (iv) National Agriculture Research Institute; and (v) NCDC Urban Youth Employment Project.

    Four of the qualified opinions related to 2012 and others were for prior years. The high numbers of Disclaimer Audit Opinions issued are reflection of the poor state of accounting record keeping in a number of public bodies.

    The list of entities and the type of audit opinions issued during the period July 2012 to June 2013 are provided in Attachment „D?.

    E.5 Key Findings

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

    E.6 Non-Submission of Financial Statements

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

    This legislative requirement has not been strictly adhered to by all respective public entities? management. To comply with this requirement, the financial statements are required to be submitted to my Office well before 30 June each year for my audit and inspection. Consequently, out of 85 public entities and 5 Projects only 39 (35 entities and 4 projects) have submitted their financial statements for 2012 (Refer Schedule A (i), (ii), (iii) and (iv) for my audit and inspection up to the time of preparing this Report. A total of 51 (50 entities and 1 project) failed to comply with these provisions (Refer Schedule A(v)).

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

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

    (ii) A build up of audits in arrears; and

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

    Responsibility for Submission of Financial Statements

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

    My Office recommends

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

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

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

    Details of audits that have gone into arrears due to non-submission of financial statements from 2011 or earlier are given below in Table 2 and Schedule „C?.

    Table 2

    Financial Statements not Submitted

    No. Section Para. No. Entity Year No. of Audits 1 A 8 Government Printing Office 2010 & 2011 2

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  • 2 A 12A Aquarius No. 21 Limited 2011 1 3 A 12D Port Moresby Private Hospital Limited 2011 1 4 A 17 Mineral Resources Authority 2011 1 5 A 21 National AIDS Council Secretariat 2011 1 6 A 23A National Capital District Botanical Enterprises Limited 2008 – 2011 4

    No. Section Para. No. Entity Year No. of Audits 7 A 23B Port Moresby City Development Enterprises Limited 2008 – 2011 4 8 A 25 National Economic and Fiscal Commission 2011 1 9

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  • A 28 National Housing Corporation 2011 1 10 A 30 National Museum and Art Gallery 2011 1 11 A 31 National Narcotics Bureau 2003 – 2007 5 12 A 35 National Training Council 2011 1 13 A 38 Oil Palm Industry Corporation 2011 1 14 A 40 Pacific Games (2015) Authority 2011 1 15 A 41 Papua New Guinea Forest Authority 2010 & 2011 2 16 A 45 Papua New Guinea National Institute of Standards & Industrial Technology 2010 & 2011 2 17 A 47 Papua New Guinea Sports Foundation

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  • 2006 – 2011 6 18 A 48 Papua New Guinea University of Technology 2010 & 2011 2 19 A 48A Unitech Development and Consultancy Company Limited 2011 1 20 A 51 Public Curator of Papua New Guinea 2004 – 2008 5 21 A 52 Security Industries Authority 2010 & 2011 2 22 A 55 University of Goroka 2011 1 23 A 55A Unigor Consultancy Limited 2010 & 2011 2 24 A 57 University of Papua New Guinea 2009 – 2011 3 25 B 60 Livestock Development Corporation Limited 2011 1 26

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  • B 64 National Petroleum Company of PNG (Kroton) Limited 2011 1 27 D 81 Port Moresby Sewerage System Upgrading Project 2010 & 2011 2

    Arrears Reduction Strategies

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

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

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

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

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

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

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

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

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

    (i) Petromin Limited

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  • (ii) National Development Bank Limited

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

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

    (i) bank reconciliation statements not being prepared in a timely way or not being prepared at all; (ii) transactions not having supporting documentation; (iii) fixed asset registers not being properly kept or maintained; (iv) no consistent and proper valuation of assets; (v) physical asset stock-takes not being carried out; (vi) property being acquired or disposed of without proper procedures being followed; (vii) failure to comply with International Financial Reporting Standards in the preparation of the financial statements; (viii) travel and other allowances not being fully acquitted;

    (ix) Internal Revenue Commission (IRC) regulations on payment of taxes not being followed; (x) entities paying housing allowances and Boards members allowances without tax but allowing officers to pay the tax; (xi) accounting, administrative and procedural manuals not being available; (xii) public servants serving on Statutory Boards receiving Board allowances contrary to regulations; (xiii) ineffective internal audit functions; and (xiv) ineffective budget controls.

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

    E.10 Poor Financial Management

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

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

    E.11 Recommendations for Improvement

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

    (i) Timely submission of financial statements; (ii) Improved record keeping and documentation;

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  • (iii) Maintenance and provision of quality information; (iv) Effective implementation of internal control systems; and (v) Entity financial management that is carried out by qualified and experienced accountants.

    E.12 Improvement Strategies

    In my view, for improvement to occur:

    (i) Chief Executive Officers must employ well trained accounting staff to manage the financial affairs of the organisation;

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

    (iii) Parliament must increase its reviews of the management of public entities and provide Chief Executive Officers with the incentives to improve their management structures; and

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

    E.13 Structure of the Report

    This Report is structured as follows:

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

    ATTACHMENT „A?

    STATUS OF CURRENT YEAR AUDITS 2012

    No. Status of Current Year Audits Number of Entities

    2012 2011 (1) Audits completed and reports issued thereon (Schedule A) 9 8 (2) Audits substantially completed (Schedule A) 12

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  • 4 (3) Audits in progress (Schedule A) 7 8 (4) Audits to commence shortly (Schedule A) 11 14 (5) Financial Statements not submitted (Schedule A) 51 51 (6) Audit Portfolios transferred to Provincial Government Audit Branch (Schedule A)

    2

    2 (7) Others – National Government shareholdings in other companies (Schedule D) 6 6

    98 93

    Please refer to Pages 325 to 336 for Schedules A to F.

    ATTACHMENT „B? STATUS OF AUDITS IN ARREARS BY NUMBER OF AUDITS (2011 AND PRIOR YEARS)

    No. Status of Audits in Arrears by No. of Audits (2011 & Prior Years)

    Number of Audits

    2012 Report 2011 Report (1) Audits substantially completed (Schedule B) 52 52 (2) Audits in progress (Schedule B)

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  • 23 24 (3) Audits to commence shortly (Schedule B) 8 11 (4) Financial Statements not submitted (Schedule B) 55 34

    138 121

    ATTACHMENT „C? STATUS OF AUDITS AS AT 30 JUNE 2013

    No. Status of Audits Number of Audits

    2012/2013 2011/2012 (1) Audits completed and reports issued thereon (Schedule A & E) 85 65 (2) Audits substantially completed (Schedule A & B) 64 56 (3) Audits in progress (Schedule A & B) 30 32 (4) Audits to commence shortly (Schedule A & B) 19 25 (5) Financial Statements not submitted (Schedule A & B) 106 85

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  • 304 263

    ATTACHMENT „D?

    TYPES OF AUDIT OPINIONS ISSUED

    (i) UNQUALIFIED OPINION

    No. Section Para. No. Entity Year No. of Audits 1 A 2 Bank of Papua New Guinea 2012 1 2 A 9 Immigration and Citizenship Service Authority 2010 1 3 A 10 Independence Fellowship Trust 2011 1 4 A 15 Kokonas Indastri Koporesen 2011

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  • 1 5 A 15A Papua New Guinea Coconut Extension Fund 2011 1 6 A 15B Papua New Guinea Coconut Research Fund 2011 1 7 A 16 Legal Training Institute 2011 1 8 A 20 National Agriculture Research Institute 2012 1 9 A 32 National Research Institute 2011 1 10 A 54 Tourism Promotion Authority 2011 1 11 B 68 Post PNG Limited 2012 1 12 B 69A Kalang Advertising Limited 2011 1 13 B

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  • 69B PNG Directories Limited 2010 & 2011 2 14 D 79 Lae Port Development Project 2010 & 2011 2 15 D 80 National Capital District Commission Urban Youth Employment Project 2011 & 2012 2 16 D 82 Productive Partnership in Agriculture Project 2011 & 2012 2

    20 (ii) QUALIFIED OPINION

    No. Section Para. No. Entity Year No. of Audits 1 A 3 Border Development Authority 2010 1 2 A 5 Cocoa Board of Papua New Guinea 2011 1 3 A

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  • 5A Cocoa Stabilization Fund 2011 1 4 A 7 Coffee Industry Corporation Limited 2011 1 5 A 7A Coffee Industry Fund 2011 1 6 A 7B Patana No. 61 Limited 2011 1 7 A 11 Independent Consumer and Competition Commission 2012 1 8 A 12 Independent Public Business Corporation 2010 1 9 A 12B General Business Trust 2011 1 10 A 13 Industrial Centres Development Corporation 2009 1 11 A 14 Investment Promotion Authority 2011

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  • 1 12 A 19 National Agriculture Quarantine and Inspection Authority 2012 1 13 A 26 National Fisheries Authority 2010 & 2011 2 14 A 27 National Gaming Control Board 2012 1 15 A 29 National Maritime Safety Authority 2010 & 2011 2 16 A 33 National Road Safety Council 2010 & 2011 2 17 A 37 National Youth Commission 2011 1 18 A 38 Oil Palm Industry Corporation 2009 & 2010 2 19 A 44 Papua New Guinea Maritime College 2008 1 20 A

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  • 56 University of Natural Resources and Environment 2010 1 21 B 59 Air Niugini Limited 2011 1 22 B 61 Mineral Resources Development Company Limited 2010 1 23 B 62 Motor Vehicles Insurance Limited 2009 1

    No.

    Section

    Para. No.

    Entity

    Year

    No. of Audits 24 B 63 National Airports Corporation Limited 2010 1 25 B 63B PNG Air Services Limited 2011 1 26 B 65 NCD Water and Sewerage Limited (Eda Ranu)

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  • 2011 & 2012 2 27 B 66 Papua New Guinea Ports Corporation Limited 2011 1 28 B 69 Telikom PNG Limited 2011 1 29 B 69A Kalang Advertising Limited 2010 1

    34 (iii) DISCLAIMED OPINION

    No. Section Para. No. Entity Year No. of Audits 1 A 6 Cocoa Coconut Institute Limited of Papua New Guinea 2008 – 2011 4 2 A 8 Government Printing Office 2009 1 3 A 12 Independent Public Business Corporation

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  • 2011 1 4 A 12C PNG Dams Limited 2004 – 2011 8 5 A 22 National Broadcasting Corporation 2010 & 2011 2 6 A 23 National Capital District Commission 2009 1 7 A 41 Papua New Guinea Forest Authority 2008 1 8 A 46 Papua New Guinea Radio Communications and Telecommunications Technical Authority (PANGTEL) 2010 1 9 A 48A Unitech Development and Consultancy Company Limited 2010 1 10 A 55A Unigor Consultancy Limited 2004 – 2009 6 11 A 57 University of Papua New Guinea 2008 1 12

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  • B 60 Livestock Development Corporation Limited 2009 1 13 B 66 Papua New Guinea Ports Corporation Limited 2010 1 14 B 67 PNG Power Limited 2010 1

    30 (iv) ADVERSE OPINION

    No. Section Para. No. Entity Year No. of Audits 1 A 48 Papua New Guinea University of Technology 2009 1

    1

    85 (v) INTERNAL CONTROLS REVIEW REPORTS

  • Page 30 of 307

  • No. Section Para. No. Entity Year No. of Audits 1 A 57 University of Papua New Guinea 2007 – June 2010 1

    1

    86

    ATTACHMENT „E?

    COMPARATIVE AUDIT OPINIONS ISSUED (2009 – 2012)

    No. Section Para. No. Entity Comparative Years

    2012 2011 2010 2009 1 A 2 Bank of Papua New Guinea Unqualified

  • Page 31 of 307

  • Unqualified Unqualified Unqualified 2 A 3 Border Development Authority

    Qualified Unqualified 3 A 5 Cocoa Board of Papua New Guinea

    Qualified Qualified Qualified 4 A 5A Cocoa Stabilization Fund

    Qualified Qualified Qualified 5 A 6 Cocoa Coconut Institute Limited of Papua New Guinea

    Disclaimer Disclaimer Disclaimer 6 A 7 Coffee Industry Corporation Limited

    Qualified Qualified Qualified 7 A 7A Coffee Industry Fund

    Qualified Qualified Qualified

  • Page 32 of 307

  • 8 A 7B Patana No. 61 Limited

    Qualified Qualified Qualified 9 A 8 Government Printing Office

    Disclaimer 10 A 9 Immigration and Citizenship Service Authority

    Unqualified New 11 A 10 Independence Fellowship Trust

    Unqualified Unqualified Disclaimer 12 A 11 Independent Consumer and Competition Commission Qualified Unqualified Unqualified Unqualified 13 A 12 Independent Public Business Corporation

    Disclaimer Qualified Qualified 14 A 12B

  • Page 33 of 307

  • General Business Trust

    Qualified Unqualified Unqualified 15 A 12C PNG Dams Limited

    Disclaimer Disclaimer Disclaimer 16 A 13 Industrial Centres Development Corporation

    Qualified 17 A 14 Investment Promotion Authority

    Qualified Qualified Unqualified 18 A 15 Kokonas Indastri Koporesen

    Unqualified Unqualified Unqualified 19 A 15A Papua New Guinea Coconut Extension Fund

    Unqualified Unqualified Qualified 20 A 15B Papua New Guinea Coconut Research Fund

    Unqualified

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  • Unqualified Qualified 21 A 16 Legal Training Institute

    Unqualified Unqualified Unqualified 22 A 19 National Agriculture Quarantine and Inspection Authority Qualified Qualified Qualified Qualified 23 A 20 National Agriculture Research Institute Unqualified Unqualified Unqualified Unqualified 24 A 22 National Broadcasting Corporation

    Disclaimer Disclaimer Disclaimer 25 A 23 National Capital District Commission

    Disclaimer 26 A 26 National Fisheries Authority

    Qualified Qualified Qualified 27

  • Page 35 of 307

  • A 27 National Gaming Control Board Qualified Qualified Qualified Qualified 28 A 29 National Maritime Safety Authority

    Qualified Qualified Qualified 29 A 32 National Research Institute

    Unqualified Unqualified Unqualified 30 A 33 National Road Safety Council

    Qualified Qualified Qualified 31 A 37 National Youth Commission

    Qualified Qualified Qualified 32 A 38 Oil Palm Industry Corporation

    Qualified Qualified 33 A 39 Ombudsman Commission of Papua New Guinea

  • Page 36 of 307

  • Unqualified Unqualified 34 A 41 Papua New Guinea Forest Authority No reports issued for the years 2009 to 2012 35 A 44 Papua New Guinea Maritime College No reports issued for the years 2009 to 2012

    No.

    Section Para. No.

    Entity Comparative Years

    2012 2011 2010 2009 36 A 46 Papua New Guinea Radio Communications and Telecommunications Technical Authority (PANGTEL)

    Disclaimer Disclaimer 37 A 48 Papua New Guinea University of Technology

    Adverse 38 A 48A Unitech Development and Consultancy Company Limited

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  • Disclaimer Disclaimer 39 A 54 Tourism Promotion Authority

    Unqualified Unqualified Unqualified 40 A 55A Unigor Consultancy Limited

    Disclaimer 41 A 56 University of Natural Resources and Environment

    Qualified Qualified 42 A 57 University of Papua New Guinea No reports issued for the years 2009 to 2012 43 B 59 Air Niugini Limited

    Qualified Qualified Qualified 44 B 60 Livestock Development Corporation Limited

    Disclaimer 45 B

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  • 61 Mineral Resources Development Company Limited

    Qualified Unqualified 46 B 62 Motor Vehicles Insurance Limited

    Qualified 47 B 63 National Airports Corporation Limited

    Qualified New 48 B 63B PNG Air Services Limited

    Qualified Qualified Qualified 49 B 65 NCD Water and Sewerage Limited (Eda Ranu) Qualified Qualified Qualified Qualified 50 B 66 Papua New Guinea Ports Corporation Limited

    Qualified Disclaimer Disclaimer 51 B 67 PNG Power Limited

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  • Disclaimer Disclaimer 52 B 68 Post PNG Limited Unqualified Unqualified Unqualified Unqualified 53 B 69 Telikom PNG Limited

    Qualified Unqualified Qualified 54 B 69A Kalang Advertising Limited

    Unqualified Qualified Qualified 55 B 69B PNG Directories Limited

    Unqualified Unqualified Unqualified 56 D 79 Lae Port Development Project

    Unqualified Unqualified New 57 D 80 National Capital District Commission Urban Youth Employment Project Unqualified Unqualified Newly Created 58

  • Page 40 of 307

  • D 82 Productive Partnership in Agriculture Project Unqualified Unqualified Newly Created

    xxii

    SECTION A

    PUBLIC BODIES AND THEIR SUBSIDIARIES

    1. FOREWORD

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

    The auditing and reporting requirements of the public bodies and their subsidiaries are stipulated under Section 8 of the Audit Act, 1989 (as amended). My findings in that regard are detailed in paragraphs 2 to 57B of this part of my Report.

    2. BANK OF PAPUA NEW GUINEA

    2.1 INTRODUCTION

    2.1.1 Legislation and Objectives of the Bank

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

    (a) to formulate and implement the monetary policy with a view to achieving and maintaining price stability; (b) to formulate financial regulation and prudential standards to ensure stability of the financial system in Papua New Guinea; (c) to promote an efficient national and international payments system; and

    (d) subject to the above, to promote macro-economic stability and economic growth in Papua New Guinea. 2.1.2 Functions of the Bank

    The primary functions of the Bank are to:

    (a) issue currency;

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

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

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

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

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

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

    Bank of Papua New Guinea

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  • 2.1.3 Structural Reforms at the Bank

    In addition to the Central Banking Act which was enacted in June 2000, three (3) other Acts were legislated in 2000 which gave enormous responsibilities to the Bank. These other Acts are: (a) The Banks and Financial Institutions Act, 2000; (b) The new Superannuation Act, 2000; and (c) The new Life Insurance Act, 2000.

    Each of these Acts provides additional responsibilities to the Bank.

    2.2 AUDIT OBSERVATIONS

    2.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the financial statements of the Bank for the year ended 31 December, 2012 was issued on 24 June, 2013. The report did not contain any qualification. 2.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records of the Bank for the year ended 31 December, 2012 was issued on 24 June, 2013. The report contained the following matter:

    Net Asset Deficiency – Going Concern

    The Bank has a net capital deficiency as at 31 December, 2012 where the Bank?s total liabilities exceeded its total assets by K1.2 billion. The capital deficiency along with other matters set forth in Note 1(a) indicated the existence of a material uncertainty that may cast doubt about the Bank?s ability to continue as a going concern and therefore the Bank may be unable to realise its assets and discharge its liabilities in the normal cause of business.

    The Bank has brought this matter to the attention of the Minister for Treasury and has submitted a letter dated 9 May, 2012 to the Minister requesting a promissory note for the net asset deficiency. At the time of issuing this report the promissory note was not provided to the Bank.

    3. BORDER DEVELOPMENT AUTHORITY

    3.1 INTRODUCTION

    3.1.1 Legislation

    The Border Development Authority was established under the Border Development Authority Act, 2008. This Act came into operation on 7 October, 2008. 3.1.2 The Objectives of the Authority

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

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  • 3.1.3 Functions of the Authority

    The functions of the Authority generally are to consult with relevant agencies and to supervise and co-ordinate all development activities in each of the border provinces and, without prejudice to the generality of the foregoing, are:- (a) the co-ordination of the planning, and implementation of capital works, infrastructure and socio-economic programs in respect to:- (i) education, health care, road network, communication, transport system, electricity, water, sewerage and all activities relevant to the improvement of basic living standards in the border provinces; (ii) liaison with public bodies, non-government organisations and private enterprise in identifying and negotiating sources of funding for short to medium term activities; (iii) the co-ordination of the development of specifications for contracts for all capital and infrastructure works and the advertising, evaluation and awarding of such contracts; (iv) the supervision and monitoring of the implementation of all contracts relating to such capital and infrastructure works; (v) the transformation of border provinces into agro financial sector by developing their respective natural resources; and (vi) the promotion of investors both foreign and local into the border provinces and to encourage and facilitate international cross border and inter border trade. (b) the establishment of programs and regulatory framework for immigration including the monitoring of immigrants and immigrant activity along the border with respect to:-

    (i) establishment of proper state of the art offices, and facilities for relevant government agencies including customs, immigration, quarantine, police, defence force such as security monitoring systems, communication, transport, electricity, water, sewerage, staff accommodation, computers and all other facilities that would be relevant to the administration of border activities; (ii) establishment of dialogue and co-operation with the respective cross border authority or government for the prevention of diseases, drug trafficking, human smuggling, money laundering and other illicit activities; and (iii) the development of long term activities for the establishment of infrastructure and other facilities. (c) such other functions as are likely to assist in the border administration activities.

    3.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    3.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Authority for the year ended 31 December, 2010 was issued on 21 February, 2013. The report contained a Qualified Opinion.

    “BASIS FOR QUALIFIED OPINION

    Other Income (PNG Maritime Transport Limited) – K1,482,562

    I noted that PNG Maritime Transport Limited shipping income from passengers and freight collections were banked into BDA bank account without proper checking and verification. I also observed that most of the shipping income general ledger entries were passed based on bank

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  • statements and not from the receipt books. This indicates a serious control deficiency in relation to collection of revenue and banking of collected funds. Hence, I was unable to place reliance on controls surrounding the collection of receipts from passengers and freights and banking of collected receipts.

    Missing Payment Vouchers – K120,714

    My examination of payments revealed that on seventeen (17) instances payment vouchers and supporting documents of payments totaling K120,714 were missing. Hence, I was unable to confirm that controls surrounding the custody and filing of source documents are effective. In the absence of payment vouchers and supporting documents I was unable to validate the above payments.

    Consultancy Payments – K122,513

    My review of consultancy payments revealed that payments totaling K122,513 were made to two (2) consulting firms without properly signed consultancy agreements in place. In the absence of the proper consultancy agreements, I was unable to verify the consultancy payments as valid and correct payments.

    QUALIFIED OPINION

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

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

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

    3.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records of the Authority for the year ended 31 December, 2010 was issued on 26 September, 2012. The report contained the following comments:

    Bank Reconciliation and Payment vouchers

    My review of the Authority?s bank reconciliations for Project Account # 1001559482 and Interest Income Account # 1001559487 revealed that reconciliations were not independently reviewed and approved by a responsible officer. As a result, there were unexplained reconciling items noted in their bank reconciliation statements. Further, I noted that payment vouchers were not properly and securely filed for retrieval for timely management reports and audit examination. Consequently, nineteen (19) payment vouchers and their supporting documents were not provided for audit verification.

    I recommended management to install proper control measures by reviewing the bank

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  • reconciliation by a senior officer and to securely file all documentation for future reference.

    Granting of Approval Limits

    In my last report, I stated that the Minister for Finance and Treasury in 2008 had delegated to Border Development Authority Board the financial approval powers for transactions for acquisition of property and service over K500,000 to an upper limit of K10,000,000 superseding normal procurement procedures stipulated under the Public Finances (Management) Act. I emphasised that these higher approval limits up to K10 million was not consistent with the approval limits set by the Public Finances (Management) Act, 1995 (as amended). Further, I noted that still the excessive delegated financial powers had not been revoked to date. As such, in my view, these excessive financial powers should be reviewed by the Minister responsible.

    Non-compliance of Procurement Procedures

    Part VII, Section 39 of the Public Finances (Management) Act and Part 13 of the Financial Management Manual explains explicitly the procurement process for procuring goods and services at each threshold. Public tendering attracts attention from wide range of suppliers within Papua New Guinea and overseas. It eliminates goods and services that are of low standard and ensures those procured are of good quality and at a better price. I brought this non-compliance of the Public Finances (Management) Act to management in my last report when the Authority management did not call for public tendering by using international media when procuring seven (7) ships from Indonesia. The Authority also did not observe the procurement process while employing two (2) consultants for feasibility study in relation to the Corporate Plan and Border Development study.

    Purchase of Ships

    The Authority had entered into a Sales and Purchase Agreement (SPA) with a ship building company in Indonesia to acquire seven (7) ships. I noted that all seven (7) ships arrived in Papua New Guinea. Out of the seven (7) ships, I visited three (3) ships and had discussions with the crew of the ship and according to their view, two (2) of the three (3) ships I visited had to be filled with water to balance the centre of gravity of the ship. They further stated that the metals used to build the ships were of substandard material. Consequently, rust was forming quickly thus the Authority had to maintain the ships on a continuous basis.

    PNG Maritime Limited

    I noted that PNG Maritime Limited was registered under the Companies Act, 1997 to take charge of the operations of the seven (7) ships. It commenced operations in mid-2010 on an adhoc basis. The financial statements of the company for the period ended 31 December, 2010 was not provided for my review and audit.

    Berthing Fees

    My examination of the port charges revealed that huge sums of money were paid to PNG Ports Limited for berthing of ships at various ports around the country. The ships were operated on an

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  • adhoc basis without proper schedule and docked at a port until it was used for operations. As a result of this uncertainty, ships were docked for prolonged periods resulting in additional charges being imposed by PNG Ports Limited.

    Breach of Functions

    My examination of the Authority?s Act revealed that its functions and powers do not provide for the Authority to make donations to groups and individuals. I noted that since its establishment, the Authority had donated funds to individuals and groups for various reasons for which valid explanations were not provided by the Authority.

    3.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the inspection and audit of the accounts and records and examination of the financial statements of the Authority for the year ended 31 December, 2011was in progress. The financial statements for the year ended 31 December, 2012 had not been submitted for my inspection and audit.

    4. CIVIL AVIATION SAFETY AUTHORITY OF PAPUA NEW GUINEA

    4.1 INTRODUCTION

    4.1.1 Legislation

    The Civil Aviation Safety Authority of Papua New Guinea was established on 1 January, 2010 after the enactment of the Civil Aviation Act, 2000. 4.1.2 Functions of the Authority

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

    4.2 STATUS OF FINANCIAL STATEMENTS

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

    The field work associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Authority for the years ended 31 December, 2010 and 2011 were in progress.

    The financial statements for the year ended 31 December, 2012 had not been submitted for my inspection and audit.

    5. COCOA BOARD OF PAPUA NEW GUINEA

    5.1 INTRODUCTION

    5.1.1 Legislation

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

    5.1.2 Functions of the Board

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

    5.1.3 Subsidiary

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

    5.1.4 Projects and Stabilization Funds

    The Board as a Trustee, administers the Cocoa Stabilization Fund as required under Part IV of the Cocoa Act, 1981. Comments in relation to this Fund are contained in paragraph 5A of this Report.

    Further, the Board also administers the operation of a World Bank counter GoPNG funded project, the Productive Partnership in Agriculture Project in Cocoa. Comments in relation to this project are contained in paragraph 5B of this Report.

    5.2 AUDIT OBSERVATIONS

    5.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Board for the year ended 30 September, 2011 was issued on 14 March, 2013. The report contained a Qualified Opinion:

    “BASIS FOR QUALIFIED OPINION

    1. Cash at Bank

    Cash at Bank was disclosed as K1,220,482 in the financial statements. Included in this account balance was the Board Main Operating Accounts balance of K585,447. However, the bank reconciliation statements from which the general ledger and the financial statements were derived from disclosed K868,980 as the closing reconciled account balance which resulted in a difference of K283,533 between the financial statements and the general ledger of the Board?s Main Operating Account. I was not provided a detailed reconciliation of the variance or supporting documents relating to the reconciliation of the difference in the account balance. Consequently, I am unable to confirm and verify the validity and the correctness of the Cash at Bank balance for the year ended 30 September, 2011.

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  • 2. Going Concern

    The Board has prepared its financial statements on a going concern basis. However, the National Court in its ruling of 19 March, 2010 awarded Agmark Pacific Limited K4,885,260 plus 8% interest and costs. This was subsequent to an earlier decision on 27 July, 2007 whereby an award of K6,292,441 was made against Cocoa Board. These rulings resulted from legal proceedings against Cocoa Board of Papua New Guinea allegedly for collections of Stabilisation Bounty illegally without the Minister?s approval. Further, should the appeal made in 2010 fail, the Board will not be able to pay the K4,885,260 within its current financial position unless an agreement is reached with Agmark Pacific Limited to pay the award over a period of time, or the State agrees to bail out the Board by paying the award, otherwise the Board may be considered as insolvent and may be placed under receivership.

    QUALIFIED OPINION

    In my opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraphs, the financial statements of Cocoa Board of Papua New Guinea for the year ended 30 September, 2011: (a) Give a true and fair view of the financial position and the results of its operations; and

    (b) The financial statements have been prepared in accordance with generally accepted accounting practice.”

    OTHER MATTERS

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

    1. Employment Contracts

    The Contract Officers? employment contracts expired in October, 2007. Due to the absence of a duly constituted Board, these contracts were not renewed. The contract officers were still performing the same duties and responsibilities at the same positions and were being paid the respective salaries, gratuities and entitlements including housing and gas allowances. However, as the former contracts had expired/lapsed, I was not able to confirm the correctness and the validity of those payments made during the year.

    2. Stabilisation Loan/Advance

    A deposit of K90,000 was made by a Sambam Agro Estate for the advances made to staff from the Stabilisation Fund for the purpose of land block purchase for cocoa development. I was informed by management that as the respective staff blocks are managed by the entity, Sambam Agro Estate, it had erroneously made repayments to the Board?s main operating bank account instead of the Stabilisation Fund?s bank account. During the year ended 30 September, 2011, the Board had not made repayments to the Fund.

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

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

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  • report on all investment decisions, a detailed report on investments, performance and returns for each year and a five year investment plan (up-dated each year) setting out investment policies, strategies and administrative systems to be pursued and providing forecasts of investment flows and returns. However, I noted that the management did not submit its relevant reports as required under Section 63 (2) of the Public Finances (Management) Act, 1995 to the Minister for the year ended 30 September, 2011.”

    5.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the accounts and records of the Board for the year ended 30 September, 2012 was substantially completed and the results were being evaluated.

    5A. COCOA STABILISATION FUND

    5A.1 INTRODUCTION

    5A.1.1 Legislation

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

    5A.2 AUDIT OBSERVATIONS

    5A.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Fund for the year ended 30 September, 2011 was issued on 14 March, 2013. The report contained a Qualified Opinion.

    “BASIS FOR QUALIFIED OPINION

    1. I audited the Statement of Receipts and Payments of Cocoa Stabilisation Fund for the year ended 30 September, 2010 and issued a disclaimer of opinion on them. Consequently, I was unable to quantify the effects of any material misstatement on the opening balances that might have a bearing on the balances reported for the year ended 30 September, 2011. Therefore, I was unable to perform sufficient audit procedures to satisfy myself as to the accuracy or completeness of the opening balances that would have consequential effect on the Statement of Receipts and Payments for the year ended 30 September, 2011, and the comparative amounts presented.

    2. In Note 2 to the financial statements Loans and Advances made to the Cocoa Board of Papua New Guinea were stated as K671,517. However, the audited financial statements of the Cocoa Board for the year ended 30 September, 2011 disclose the amount as K536,585 payable to the Stabilisation Fund. I was not provided the necessary explanations and the supporting documentation regarding the variance of K134,932 that was evident in the disclosure and as a result, I am unable to satisfy myself as to the accuracy or correctness of the account balance.

    QUALIFIED OPINION

    In my opinion, except for the effects of the matters described in the Basis for Qualified Opinion

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  • paragraphs, the financial statements of Cocoa Stabilisation Fund of Papua New Guinea for the year ended 30 September, 2011:

    Cocoa Stabilisation Fund

    (a) Give a true and fair view of the financial position and the results of its operations; and (b) The financial statements have been prepared in accordance with generally accepted accounting practice. OTHER MATTERS

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

    In Note 2 to the financial statements additional loans during the year were stated as K49,277. This was consequence of payments out of the Fund in relation to the Staff Savings and Loans Scheme. The monies were used to purchase blocks of land from land owners on behalf of the staff of the Board. I was informed by the management that these blocks of land were managed by Sambam Agro Estates and the repayments by the respective staff were erroneously paid into the Cocoa Board main operating bank account. These advances were outstanding since 2007 and remain as outstanding debtors as at 30 September, 2011. Further, the disbursement of these funds was without stipulated guidelines and policy for the application of these monies as the Fund?s activities were to be measured against its outputs in the industry. Contrary to this, I was earlier informed by the Board that, “the payments made from the Cocoa Stabilisation Fund were done after the National Executive Decision (NEC Decision No. 319/2006) to write off the outstanding Cocoa Industry Price Support Loan (K26.2 million) and abolish the Cocoa Stabilisation Fund and convert the K2.5 million as Grants Assistance to the Industry”.

    5A.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the field work associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Fund for the year ended 30 September, 2012 had been completed and the results were being evaluated.

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

    6.1 INTRODUCTION

    6.1.1 Legislation

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

    6.1.2 Functions of the Company

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

    6.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    6.2.1 Comments on Financial Statements

    In accordance with the provisions of the Companies Act, 1997, my reports on the financial statements of the Company for the years ended 31 December, 2008, 2009, 2010 and 2011 were issued on two separate dates. The 2008 and 2009 reports were issued on 14 March, 2013 while the 2010 and 2011 reports were issued on 30 June, 2013. These reports contained similar qualifications, hence, only the 2011 audit report is reproduced as follows:

    “BASIS FOR DISCLAIMER OPINION

    Departure from Accounting Standards

    In Note 1(c) to the financial statements, replanting and redevelopment costs for crops are capitalised and amortised over fifteen (15) years based on a prime cost method. However, the Institute had not specified its accounting treatment of the respective relevant costs or whether in compliance with the PNG Accounting Standards 03/04 which specifically cater for Plantations Accounting in PNG. As a result, I am unable to confirm and verify the referred accounting treatment or its application as stated in the notes to the financial statements for the year ended 31 December, 2011.

    Fixed Assets – K7,267,486

    The Institute did not maintain a proper, complete and accurate Fixed Assets Register to record the details and movements of assets under its custody and control. Further, the Institute did not conduct a valuation/board of survey for the assets under its custody since its inception after its amalgamation from PNG CCEA and PNG CCRI. Consequently, I was not able to physically inspect assets against the records and confirm the existence and occurrence of these assets. As a result, I am unable to conclude on the correctness of the measurement, existence, completeness and the ownership of the fixed assets disclosed as K7,267,486 for the year ended 31 December, 2011.

    Debtors – K1,268,015

    Debtors were stated as K1,268,015 in the financial statements. However, I was not provided the detailed listings and the schedules of the accounts for the year then ended. Consequently, I was unable to do subsequent testing for these accounts and as a result, I was unable to satisfy myself as to whether these transactions have occurred and the Institute is able to receive the money or resources from its debtors.

    Inter Company Accounts – K719,808

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  • Inter Company Accounts was disclosed as K719,808 in the financial statements. I was not provided the schedules and supporting documents pertaining to the account balance. As a result, I am unable to confirm the completeness and accuracy of the Inter Company Accounts balance for the year ended 31 December, 2011.

    Trade Creditors and Accruals – K4,909,421

    Trade Creditors and Accruals were stated as K4,909,421 in the financial statements for the year ended 31 December, 2011. However, I was not provided the creditor?s aged listing for my review and verification for subsequent settlement of the accounts. In the absence of the Trade Creditors aged listing, I am unable to state whether the creditors actually existed and the subsequent settlement of those accounts.

    Provisions – K949,089

    Provisions were stated as K949,089 in the financial statements. Included in this account balance were provisions for Annual Leave, Leave Fares and Provisions for Long Service Leave amounting to K32,687, K50,306 and K866,095 respectively. However, the leave reports and schedules that were provided for my review disclosed; Annual Leave as K284,109, Leave Fares as K186,994 and Long Service Leave as K842,370. Consequently, an unreconciled difference of K411,835 was noted. As a result, I am unable to ascertain the accuracy and the completeness of the amount disclosed as Provisions in the financial statements for the year ended 31 December, 2011.

    Grants – K11,244,198

    Grants were disclosed as K11,244,198 in the financial statements. However, a un-reconciled difference of K771,827 was noted as the bank statement balance was K10,472,372. Further, I was not provided other documentary evidence to verify and confirm the validity and the correctness of this account balance. As a result, I am unable to verify and confirm the accuracy and completeness of the Grants balance for the year ended 31 December, 2011.

    DISCLAIMER OF OPINION

    Because of the significance of the matters described in the Basis for Disclaimer of Opinion, I have not been able to obtain sufficient appropriate audit evidence and accordingly, I am unable to express an opinion on the financial statements of the PNG Cocoa Coconut Institute Limited for the year ended 31 December, 2011.”

    6.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records of the Institute for the years ended 31 December, 2008, 2009, 2010 and 2011 were issued on two separate dates. The 2008 and 2009 reports were issued on 14 March, 2013 while the 2010 and 2011 were issued on 30 June, 2013. These reports contained similar observations, hence, only the 2011 observations are reproduced as follows:

    OTHER MATTERS

    In accordance with the Audit Act, 1989 (as amended), I have a duty to report on other significant

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  • matters arising out of the financial statements to which the report relates. I draw attention to the following issues:

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

    The Institute is required to submit an annual report on its performance and management and a quarterly report on all investment decisions, a detailed report on investments, performance and returns for each year and a five (5) year investment plan (updated each year) setting out investment policies, strategies and administrative systems to be pursued and providing forecasts of investment flows and returns. However, I noted that the management did not submit its relevant reports as required under Section 63 (2) of the Public Finances (Management) Act, 1995 to the Minister for the year ended 31 December, 2011.

    2. IT Infrastructure

    The Institute had a big investment in computers and its peripherals. However, I noted that the IT Section was not functioning as no IT professional was in charge. I recommended the Institute to employ a competent IT professional to compliment the needs of this important support function of the Institute?s activities.

    3. Control over Fixed Assets

    A proper fixed assets register was not maintained to record and monitor the location, custody, usage and condition of all assets controlled by the Institute and further, management had not undertaken any physical inspection of the assets. I noted that the Institute had not conducted a valuation of its fixed assets since its inception after its amalgamation from PNG CCEA and PNG CCRI. I also observed that some of the Institute?s houses and the administration buildings in Tavilo and Stewart Research Stations, lacked periodic and scheduled maintenance and as a result, the assets of the Institute have deteriorated to an extent where huge reinvestment of capital will be required to maintain and upgrade the respective buildings. As a result, I was not able to satisfy myself as to the existence, obsolescence, deterioration and control over the assets.

    However, I was advised by management that under the current management, it is embarking on a program to roll out scheduled maintenances to rundown Institute properties, including houses.

    4. Accounting Administration and Procedural Manual

    The Institute did not have an up dated Accounting, Administration and Procedural Manual in place for the daily operations of the Institute. In the absence of the documentation in relation to systems and controls, I had no basis to measure the standard of operations in existence. Further, I was informed by management that the Accounting, Administration and Procedural Manual was expected to be completed in 2012, however, in 2012 the manual was not made available for my review.

    5. Travel Advance Register

    I observed that duty travels were not acquitted as the Institute did not maintain a travel advance register. The Institute did not comply with the Public Finances (Management) Act, 1995 and its Regulations where domestic travels should be acquitted within seven (7) days after return and

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  • fourteen (14) days for overseas travels. Consequently, I was not able to verify and confirm the correctness of the domestic and overseas travels amounting to K1,021,652 and K75,309 respectively for the year ended 31 December, 2011.

    6. Accounting System (Attaché? Software)

    I observed that staff responsible for data entry and administration had some knowledge of the system but were not conversant and competent with the operation and full integration and implementation of the accounting software. As a result, posting errors were common in the General Ledgers of the Attaché Accounting System.

    7. Intellectual Property Rights

    The Institute does not register and patent its knowledge and innovations with the Investments Promotion Authority. I informed management that, as a research institution, the protection of its knowledge and innovations are of paramount importance as they constitute the Institute?s intrinsic values and recommended for appropriate actions by the Institute.

    8. Segregation of Duties – Cash at Bank

    I noted that the Institute did not reconcile the bank account balances on a periodic basis and instill proper checks and balances for the bank accounts. Of the seventy seven (77) bank accounts and nine (9) petty cash floats maintained during the year ended 31 December, 2011, there were two (2) staff assigned to reconcile the bank accounts amongst other pressing Institute accounts duties. In most cases, the Institute did not appoint senior accountable officers to check the work of the two (2) accounts clerks as they were also writing and processing cheque payments.

    I recommended management to perform the bank reconciliation process periodically, as this is an important internal control mechanism to keep track of cash positions. It should track cheques paid out, monies received and the balance remaining at any point in time for effective management planning and decision-making regarding Institute finances.

    9. Insurance Coverage

    The financial statements disclosed fixed assets as K7,267,486 at the year end. I noted that the Institute did not insure its property, plant and equipment and other related items to guard against any unforeseen events of loss through perils such as fire and earthquake. Further, the Institute?s Research and Extension Staff and others were not covered under any Workers Compensation or Public Liability Insurance.

    10. Bank Audit Confirmation Certificates

    In my review of the bank reconciliation statements, I was not able to verify and confirm the bank statement balances for forty nine (49) out of seventy-seven (77) bank accounts owned by the Institute as their bank audit confirmation certificates were not provided for my review and confirmation.

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  • 11. Employees (Labourers) Records

    I was informed that there were no employee records except for the application forms filled by the employees initially upon employment. Due to a very large number of labourers and an understaffed Human Resources Department, the Institute is not able to accurately maintain all employees? files. As a result of this weakness, there is possibility that the payroll system may be manipulated and ghost names included in the payroll. I raised this issue with management and they informed that the current system will be reviewed and improved to keep track of labourers? records.

    6.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements for the year ended 31 December, 2012 was completed and the results were being evaluated.

    7. COFFEE INDUSTRY CORPORATION

    7.1 INTRODUCTION

    7.1.1 Legislation

    The Coffee Industry Corporation Limited was incorporated under the Companies Act as a company limited by guarantee, and was conferred with statutory powers relating to the control and regulation of the production, processing, marketing and export of coffee by the Coffee Industry Corporation (Statutory Functions and Powers) Act, 1991. Under this Act, the undertakings of the Coffee Industry Board, the Coffee Development Agency and the Coffee Research Institute were, on 1 October, 1991, transferred to and vested in the Coffee Industry Corporation Limited. The members of the Corporation, according to the Articles of Association are from the Growers Associations, the Coffee Exporters Association, the Plantation Processors Association, the Block Development Association, the Secretary – Department of Agriculture and Livestock, the Secretary – Department of Finance and the Secretary – Department of Trade and Industry. The liability of each member is limited to an amount not exceeding one hundred kina. 7.1.2 Functions of the Corporation

    The principal functions of the Corporation are: to engage in research, extension, promotion, marketing, administration, management and control of the coffee industry in Papua New Guinea; to act in the best interests of coffee producers; and to promote development of the coffee industry in Papua New Guinea. 7.1.3 Subsidiary of the Corporation

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

    7.2 AUDIT OBSERVATIONS

    7.2.1 Comments on the Financial Statements

    In accordance with the provisions of the Companies Act, 1997, my report on the financial statements of the Corporation for the year ended 31 December, 2011 was issued on 27 June,

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  • 2013. The report contained a Qualified Audit Opinion:

    “BASIS FOR A QUALIFIED OPINION

    1. CASH AND BANK – K6,584,394

    The financial statements disclosed K6,584,394 as cash and bank balance of the company. However, the trial balance/general ledger shows cash and bank balances as K6,964,265 leaving an unreconciled difference of K379,870. Therefore, I am unable to ascertain the accuracy of the cash and bank balances taken up as K6,584,394 in the financial statements as at 31 December, 2011.

    2. TRADE AND OTHER DEBTORS – K2,542,995

    2.1 Goods and Service Tax (GST) Receivables – K7,023 Cr

    The financial statements disclosed K2,542,995 as Trade and Other Debtors, of which K7,023 (Cr) was GST receivables. This amount was the final adjusted amount of GST receivables and GST payables of Coffee Industry Corporation (CIC) and Coffee Industry Fund (CIF) which were accumulated from 1999 to 2011. The Corporation provides a number of documentation of its own adjustment journals and Internal Revenue Commission (IRC) statements for review. However, no proper reconciliation has been done between the records from these two (2) organisations and therefore a difference of K2,361,912 existed between the documentation provided.

    Further, the documentation provided by the IRC didn?t include the GST returns filed by CIC for the period October, 2006 to December, 2010 and therefore were not included in the above GST balance.

    Therefore, I was unable to ascertain the accuracy of the GST receivables taken up as K7,023 (Cr) in the financial statements as at 31 December, 2011.

    2.2 Rent Receivables – K212,512

    The financial statements disclosed K212,512 as rent receivables. However, the trial balance and general ledger disclosed K125,510 leaving an unreconciled difference of K87,002. Also, I was not provided with all the lease agreements signed between the Coffee Industry Corporation (CIC) and the tenants and the complete schedule of the rent receivables. Further, some of the tenants vacated the property without settling their outstanding rents which have been outstanding for a number of years.

    Also, some of the lease agreements made available for my review had expired and some tenants paid rent more than that is specified in the lease agreement. As such, I am unable to verify the accuracy of the rent receivable balance taken up as K212,512 in the financial statements.

    2.3 Other Debtors – K1,231,911

    A sum of K1,231,911 was taken up under other debtors. However, the trial balance and general ledger balance shows K1,116,194 as receivables leaving an unreconciled difference of K115,717.

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  • Also, I was not provided with the detailed schedule and adequate source documentation of these receivables and their current status to verify the accuracy of the balance. Consequently, I am unable to ascertain the accuracy and completeness of the balance of K2,542,995 taken up as trade and other receivables as at 31 December, 2011.

    3. INVENTORIES – K869,168

    My audit on the inventories in 2010 revealed that records on the stocks were not adequately maintained and some inventories did not have stock cards to determine the accuracy of the stocks. Further, I was not provided with the inventory listing for the year 2011 to determine the accuracy of the stock value.

    Therefore, I am unable to ascertain the accuracy of the inventory value taken up in the financial statements as K869,168 for the year ended 31 December, 2011.

    4. FIXED ASSETS – K10,076,746

    4.1 The assets depreciation schedule provided was not updated with details of serial numbers and the identity of the custodian for control purpose. Further, the general ledger balances of the cost values of the assets, accumulated depreciations and depreciation charges for the year were not in agreement with the financial statements balances.

    4.2 An amount of K769,487 which was shown as Work In Progress (WIP) since 2005 included under land and buildings in 2011. However, I was unable to determine the valuation of this WIP which is now included under land & buildings due to non- availability of necessary documentation.

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

    In the above circumstances, I am unable to determine whether the net assets of K10,076,746 have been appropriately depreciated, measured and accounted for at the year end.

    5. CREDITORS AND ACCRUALS – K4,654,750

    5.1 Group Tax – K1,621,631

    Group tax payable to IRC amounting to K1,621,631 was outstanding and accumulated over years. I was informed that this liability has now formed part of debt servicing plan with IRC. However, no documentation was made available for my review to verify the arrangements entered into with IRC.

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

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  • As such, I am unable to determine the appropriateness and completeness of the balance of K1,621,631 as group tax payable disclosed in the financial statements as at 31 December, 2011.

    5.2 Rental Bonds Payable – K65,452

    The lease documents and schedules were not made available for my review to verify the accuracy of the amount of K65,452 taken up as rental bonds payable in the financial statements.

    5.3 Business Withholding Tax (BWHT) – K203,242

    An amount of K203,242 was disclosed as business withholding tax (BWHT) outstanding as at 31 December, 2011. I was not provided with adequate documentation to determine when this tax was deducted from the contractors and when it became due to IRC. Also, I was unable to verify whether business withholding tax had been deducted from all the contractors and also consultants who were providing service to the Corporation due to lack of documentation.

    Consequently, I am unable to determine the appropriateness of the balance of K4,654,750 taken up as creditors and accruals in the financial statements as at 31 December, 2011.

    6. EMPLOYEE PROVISIONS (current) – K106,810; (non-current) – K593,595

    I was not provided with the detailed break-up listing or proper schedules of the accrued long service leave and annual leave as at 31 December, 2011 to enable me to verify the accuracy and appropriateness of the balances disclosed in the financial statements. Further, these leave provisions were the same for 2010 financial year and no movement was noted in the respective accounts. Therefore, the employee?s provision was understated in the financial statements for the financial year ended.

    7. INCOME AND EXPENDITURE STATEMENT – K6,253,417 (profit)

    7.1 Rental Income – K888,409

    The Corporation did not provide me a complete schedule for all its rentals received during the year to determine the completeness of the income received. Also, all the lease agreements were not made available for verification to determine the accuracy of the rental income taken up in their books.

    In the above circumstances, I am unable to ascertain the accuracy of the balance of K888,409 taken up as rental income as at 31 December, 2011.

    QUALIFED OPINION

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

    (a) the financial statements of Coffee Industry Corporation Limited:

    (i) give a true and fair view of the state of affairs of the Corporation as at 31 December, 2011, the results of its operations and the cash flows for the year then ended; and

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  • (ii) comply with the Companies Act, 1997, International Financial Reporting Standards and other generally accepted accounting practice in Papua New Guinea.

    (b) proper accounting records have been kept by Coffee Industry Corporation Limited as far as appears from my examination of those records; and

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

    7.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records of the Corporation for the year ended 31 December, 2011 was issued on 27 June, 2013. The report contained the following issues:

    (i) Salaries and Allowances

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

    I was informed that an accounting firm advised the Corporation to pay the allowances in full and the respective officers to lodge their annual returns with the IRC. My review of the advice revealed that unless a variation has been obtained from the IRC by the respective officers both housing and motor vehicle allowances must be fully taxed. I brought this to the attention of management and it responded that “All contract officers receiving these allowances are directed by management to lodge their personal income taxes annually. The accountant wrote to IRC requesting for tax variation forms and was given a tax file number to file personal income instead.” My view continues to be that without evidence of tax variations approved by the IRC, officers receiving such allowances must be fully taxed.

    (ii) Inventories

    The operation of internal control over inventories was inadequate. My stock-take attendance in 2010 revealed that records of movements of inventories were not properly maintained. Officers responsible for recording the movements of the stock did not update the stock cards and some did not maintain these cards. No monthly stock-take was conducted.

    The value of the stock-take was not recorded at cost or net realizable value, whichever is less in accordance with CIC Financial Procedures Manual and to that extent the value may be overstated in the financial statements. (iii) Coffee Export Levy – K6,880,076

    The Corporation collects levy from the coffee exports as empowered by the Coffee Industry Corporation Act, 1991. However, the act of determining the levy amount receivable by the Coffee Industry Corporation Board was not gazetted as required by Section 7(2) of the Act. I brought this to the attention of management and it responded that, “we note your comments and

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  • recommendations in respect of levy rates imposed by the CIC and will take this matter to the Board for endorsement for gazettal of levy and registration fees for the purpose of legal validity.” As such, the appropriateness of charging the levy could not be verified.

    (iv) Goods and Services Tax

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

    (v) Status of the Coffee Industry Corporation Limited

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

    7.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Corporation had submitted its financial statements for the year ended 31 December, 2012 for my inspection and audit and arrangements were being made to commence the audit shortly.

    7A. COFFEE INDUSTRY FUND

    7A.1 INTRODUCTION

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

    7A.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    7A.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Fund for the year ended 31 December, 2011 was issued on 27 June, 2013. The report contained a Qualified Opinion.

    “BASIS FOR A QUALIFIED OPINION

    1. OTHER DEBTORS AND PREPAYMENTS – K173,124

    1.1 Interest Withholding Tax – K52,321

    Coffee Industry Fund (CIF) is exempted from income tax under Section 27(c) of the Income Tax Act, 1959 and therefore not subject to Income Withholding Tax (IWT) under Section 186 (4) (a) of

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  • the Income Tax Act, 1959.

    However, the interest withholding tax was deducted from the interest received on the interest bearing deposit (IBD) since the Coffee Industry Corporation (CIC) was incorporated as a company. IWT deducted amounted to K52,321 was transferred to CIC in 2011 without any explanation. Also, the Income Withholding Tax (IWT) amounting to K52,548 deducted up to 2008 and K14,293 deducted in 2011 were not taken up in the CIF or CIC books.

    Consequently, I am unable to ascertain whether it is appropriate that nil balance be taken up as interest withholding tax receivable as at 31 December, 2011.

    1.2 Short-Term Loan – K173,124

    The loan documents were not made available for my review. As a result, I was unable to determine the terms and conditions of this loan and its repayment schedule. Further, a current asset should be receivable within one (1) year. However, this amount was outstanding for more than one (1) year now and still treated as current asset which is not appropriate.

    Coffee Industry Fund

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

    QUALIFIED OPINION

    In my opinion, except for the effects on the financial statements of the matters referred to in the Basis for Qualified Opinion paragraphs, the financial statements of Coffee Industry Fund for the year ended 31 December, 2011: (i) give a true and fair view of the financial position and the results of its operations for the year then ended; and

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

    7A2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the audit and inspection of the accounts and records of the Fund for the year ended 31 December, 2011 was issued on 27 June, 2013. The report contained the following observation:

    1.0 REVENUE-INTEREST INCOME – K95,286

    Interest Bearing Deposit (IBD) Certificates were not made available for my review. I was therefore unable to verify the accuracy, correctness and completeness of the interest received monthly as I was relying only on the bank statements and the interest income schedule provided.

    I highlighted that unless adequate and appropriate source documents are maintained for all investments, the exact amount of investment and the interest earned on the IBDs could not be accurately determined and accounted for in the books. I also pointed out that the Fund may lose

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  • the interest income earned if the management is not making sound investment decisions as to ensure more return on capital. I brought this to the attention of management and they responded that “We note your observation and comments in relation to the IBD monthly certificates confirmation and will request the ANZ Bank to provide us monthly certificates in future. We advise also that we will update our Investment Register after we obtain Board approval on Investment options.”

    7A.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Fund for the year ended 31 December, 2012 had been submitted and the audit will commence shortly.

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

    7B.1 INTRODUCTION

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

    7B.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    7B.2.1 Comments on the Financial Statements

    My report to the members of Patana No. 61 Limited in accordance with the provisions of the Companies Act, 1997, on the financial statements for the year ended 31 December, 2011 was issued on 27 June, 2013. The report contained a Qualified Audit Opinion:

    “BASIS FOR A QUALIFIED OPINION

    Fixed Assets-K599,346

    The Company has not maintained a fixed assets register to enable me to verify the measurement and completeness of the assets, its present status and the accuracy of the depreciation claimed on these assets for the year ended 31 December, 2011. Further, the assets purchased over the years and used by the company were accounted for in the parent company?s (Coffee Industry Corporation) (CIC) fixed assets register, which is not appropriate. In the above circumstances, I am unable to determine the measurement of the assets and the accuracy of the depreciation claimed on these assets and the net value of the fixed assets stated as K599,346 in the financial statements for the year ended 31 December, 2011.

    Inter-Company Loan-K806,393

    I was not provided with the loan agreement entered into between the Company and the parent organisation – CIC to verify the terms and conditions of the loan and the repayment schedule. There was no movement in the loan amount since the loan was obtained from the parent entity. I am therefore, unable to ascertain the validity and accuracy of the loan amount disclosed as K806,393 in the financial statements at 31 December, 2011.

    Going Concern

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  • The financial statements are prepared on a going concern basis. However, the Company has not generated any income since being incorporated except claiming depreciation on the fixed assets and disclosed a negative balance of K207,050 as reserves.

    I was also not provided with any documentary evidence that the parent Corporation will provide all the necessary financial support for its continued operation.

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

    Non-Compliance of International Financial Reporting Standards (IFRS)

    The financial statements did not include the Cash Flow and the Changes in Equity Statements which are mandatory. As a consequence, the Company did not comply with the International Financial Reporting Standards, Presentation of Financial Statements (IAS-1) and Statement of Cash Flows (IAS-7).

    Operating Loss – K8,450

    No rental income was received from the tenants occupying the Company?s facilities (units and houses) for the year. I was informed that CIC officers are occupying these properties, but no rents had been collected from the occupants. Alternatively, no lease rentals were paid by the parent organisation.

    This practice of rent free accommodation provided to another entity is not a sound business practice. Once a company is incorporated it becomes a legal entity doing commercial business and as such, it should be operating on its own to generate income and meet its expenses and determine whether any profit or loss is made for the year.

    Consequently, I was unable to ascertain the appropriateness of the business practice followed by the Company and disclosing a business loss of K8,450 on account of providing depreciation on its fixed assets for the year ended 31 December, 2011.

    QUALIFIED OPINION

    In my opinion, except for the effects on the financial statements of the matters referred to in the qualification paragraphs: (a) The financial statements of Patana No. 61 Limited for the year ended 31 December, 2011;

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

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

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

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

    7B.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the audit and inspection of the accounts and records of the Company for the year ended 31 December, 2011 was issued on 27 June, 2013, the report contained the following observation:

    1.0 Investment Promotion Authority Documents

    I was not provided with the annual returns filed with the IPA for the financial years 2010 and 2011 as well as various forms needed to be filed in respect of appointment/change of the new directors. I brought this to the attention of management and it responded that “Management notes your comments and will provide the copies of relevant Forms and Annual Returns filed with the Registrar of Companies during 2012 audit.”

    7B.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Company had submitted its financial statements for the year ended 31 December, 2012 and the audit will commence shortly.

    8. GOVERNMENT PRINTING OFFICE

    8.1 INTRODUCTION

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

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

    8.1.2 Objective of the Government Printing Office

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

    8.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    8.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Printing Office for the year ended 31 December, 2009 was issued on 16 October, 2012. The report contained a Disclaimer of Opinion.

    “BASIS FOR DISCLAIMER OF OPINION

    Limitation on the Scope of my Audit

    Due to the disclaimer of opinion issued in respect of the year ended 31 December, 2008, I was

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  • unable to satisfy myself as to the opening balances. I was also unable to quantify the effects of misstatements, if any, which might have a bearing on the results of the operations of the Office. As such, I was unable to form an opinion regarding the accuracy of the financial records maintained by the Office and the closing balances stated in the financial statements.

    Trade Debtors

    My review of the Trade Debtors balance of K5,580,509 revealed that much of the 2008 balance still remained outstanding. Also, I noted that properly reconciled and monitored records of individual debtors were not maintained. Further, I noted that cash sales were included in this balance and no valid explanation was given for its inclusion. As such, I was unable to satisfy myself as to the accuracy and completeness of the trade debtors balance at the year end.

    GST Payable

    My review of the Goods and Service Tax (GST) account revealed that again the Printing Office had failed to prepare monthly GST reconciliations and submit them on a timely basis to Internal Revenue Commission (IRC). I drew management?s attention to Sections 63 and 85 of GST Act, 2003, which stipulates the due dates for remittance and penalties for defaults.

    As such, I was unable to independently verify the GST of K1,066,940 due to lack of proper reconciliations and supporting documentation.

    Trade Creditors

    Trade Creditors balance of K2,211,225 was stated at the year end. I noted that the Printing Office did not maintain records of its creditors and their individual reconciliations. Further, I noted that the transactions in relation to the balance of K2,211,225 were only recognised and posted in 2011 from 2010 paid vouchers for 2009 outstanding invoices. There was a perceived risk of understating the accounts payable, expenses and possible overpayment due to lack of timely record keeping. As such, I was unable to conclude on the accuracy, valuation and completeness of the creditors balance stated at year end.

    Property, Plant and Equipment

    My review of the Fixed Assets Register showed that the register was not properly maintained and updated showing addition and disposal of assets done during the year with supporting documentations. Further, there was no stock-take done at year end to confirm the existence and valuation of the assets held at year end. As such, I was unable to conclude on the accuracy, valuation and existence of the fixed assets balance of K3,837,856 at year end.

    Revenue

    The revenue balance has been stated as K5,150,868 at the year end. However, my review of the account showed that there was no audit trail. Accordingly, I was unable to execute all my planned audit procedures. I have in my past audit reports emphasised to management the importance of this account but still no improvements have been made.

    There was no correlation between job orders, printed materials, invoice, receipts and banking details. As such, I was unable to conclude on the accuracy and valuation of the revenue balance of

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  • K5,150,868 as stated in the financial statements.

    Cost of Goods Sold

    I noted that the Printing Office made a total payment of K2,152,643 for cost of goods sold to various suppliers during the year. However, I was unable to confirm whether the goods/supplies were actually received as there were no delivery dockets and receipt reports. Further, no proper contract agreements were put in place between the Printing Office and service providers. Accordingly, I was unable to satisfy myself as to the authenticity, validity and reliability of this balance.

    The permanent staff salary cost and other entitlements had not been incorporated into the financial statements to reflect the true cost of the Office. Further, the Government Printer?s report on page 4 of the financial statements disclosed that permanent staff salaries and benefits of approximately K500,000 were paid directly by the State. I was unable to verify the correctness of this balance in the absence of any supporting documentation.

    Related Party Transaction

    I stated in my last report that a prepayment of K150,000 was made to a Jack?s Investment Limited for some supplies to be provided at a later date. I was unable to sight the delivery dockets or receipt reports in relation to that prepayment. As such, I was unable to verify whether supplies had been received during the year. Further, it was noted that the Government Printer was one of the six (6) shareholders and one of the two (2) directors of this company. This information has not been disclosed as related party transaction in the financial statements.

    DISCLAIMER OF OPINION

    Because of the significance of the matters referred to in the preceding paragraphs, I have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, I do not express an opinion on the financial statements of Government Printing Office for the year ended 31 December, 2009.”

    8.3 STATUS OF FINANCIAL STATEMENTS

    The Government Printing Office had not submitted its financial statements for the years ended 31 December, 2010, 2011 and 2012 for my inspection and audit.

    9. PAPUA NEW GUINEA IMMIGRATION AND CITIZENSHIP SERVICE AUTHORITY

    9.1 INTRODUCTION

    9.1.1 Legislation

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

    Under this Act, all assets used for the Authority services (other than land held by the State) which immediately before the coming into operation of this Act, were held by the Department of Foreign

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  • Affairs and Trade and which, by agreement between the Department Head of that Department and the Authority, are necessary to be transferred to the Authority for the purposes of the Authority, are, on that coming into operation, transferred to and become assets of the Authority.

    9.1.2 The Objectives of the Authority

    The objectives of the Authority are the following:

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

    9.1.3 FUNCTIONS OF THE AUTHORITY

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

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

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  • Act or any other law; and (j) carry out such other duties as are necessary, supplementary, incidental to or consequential to achieve the objectives or the discharge of its functions under this Act.

    9.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    9.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Authority for the year ended 31 December, 2010 was issued on 13 February, 2013. The report did not contain any qualification, but had the following comments.

    OTHER MATTERS

    1. Fixed Assets Register

    I was provided with a Fixed Assets Register but it was not properly maintained by the Authority. Physical identification of assets was very difficult due to no proper serial number and/or tagging. In addition, the register provided did not indicate the costs of the assets and date acquired. Fixed assets in overseas missions were also not included in the register. I recommended the Authority to comprehensively maintain and update the Fixed Assets Register on a timely basis.

    2. Non-Acquittals of Travel Expenses

    Travel expenses incurred during the year totalled K570,011. My review revealed that the travel expenses were not acquitted by the concerned officers. Most of the cheque requisitions were only supported with request approval without proper copy of tickets, boarding passes and other necessary documents. This practice violated the Public Finances (Management) Act, 1995, requiring all the travels to be acquitted within seven (7) and fourteen (14) days for domestic and overseas travels respectively. I recommended the Authority to have all travel advances with supporting documents acquitted within the prescribed timeframe. 3. Overseas Recurrent Expenditure Acquittals

    I noted that monies sent to overseas missions for recurrent expenditure were not acquitted to the Head Office. During my examination, I was not provided with any reports in relation to the above. I recommended the Authority to properly coordinate and monitor the funds transferred to overseas missions by maintaining proper records and making timely acquittals.

    9.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements for the years ended 31 December, 2011 and 2012 had been submitted and arrangements were being made to commence the audit shortly.

    The Independence Fellowship Trust was established under the Independence Fellowship Trust Act (Chapter 1040). The object of the Trust is to benefit village development by making annual awards to selected

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  • citizens for the purposes of broadening their knowledge and experience, as well as implementing and encouraging that development. 10.1.2 Functions of the Trust

    The functions of the Trust are:

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

    10.2 AUDIT OBSERVATIONS

    10.2.1 Comments on the Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements for the year ended 31 December, 2011 was issued on 27 March, 2013. The report did not contain any qualification.

    10.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements for the year ended 31 December, 2012 had not been submitted by the Trust for my inspection and audit.

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

    11.1.2 Functions of the Commission

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

    11.2 AUDIT OBSERVATIONS

    11.2.1 Comments on the Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements for the year ended 31 December, 2012 was issued on 28 May, 2013. The report

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  • contained a Qualified Opinion:

    “BASIS FOR QUALIFIED OPINION

    Fixed Assets – K1,763,226

    The Commission disclosed its Fixed Assets as K1.76 million at 31 December, 2012. My examination revealed that the Peachtree accounting system used by the Commission crashed during 2012 and the Commission lost all its accounting and transaction details of the Fixed Asset Register. However, the Commission with the exception of its Fixed Asset Register was able to recover most of its accounting records with the help of an IT Consultant. Further, the audit was not able to obtain all the necessary information in relation to addition of K690,355 and the basis of K374,608 charged as depreciation in the accounts. As a result, I was unable to comment whether the fixed assets have been fairly stated in the financial statements at the year end.

    Independent Consumer and Competition Commission

    AUDIT OPINION

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

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

    (b) the financial statements are in agreement with those accounts and records, and show fairly the state of affairs of the Commission as at 31 December, 2012, and the results of its financial operations and cash flows for the year then ended.”

    12. INDEPENDENT PUBLIC BUSINESS CORPORATION

    12.1 INTRODUCTION

    The Independent Public Business Corporation was established under the Independent Public Business Corporation of Papua New Guinea Act, 2002 (as amended) which came into operation on 27 March, 2002. The above Act was amended through the Independent Public Business Corporation of Papua New Guinea (Amendment) Act, 2007 and the objectives and functions of the Corporation were changed. A major impact of the amendments made in the amended Act was that the Corporation, the Trusts, the State Owned Enterprises or any other enterprises in which the Corporation, the Trusts or a State Owned Enterprise holds any interest shall not be subject to the Public Finances (Management) Act, 1995. The amended Act also excludes the Corporation from the application of the Public Services (Management) Act, 1995 and the Salaries and Conditions Monitoring Committee Act, 1988. These amendments came into operation on 08 June, 2007.

    12.1.1 The objectives of the Corporation shall be:-

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

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

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

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

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

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

    12.1.2 Functions of the Corporation

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

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

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

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

    (c) may determine policies regarding:

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

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

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

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

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

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

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

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

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

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  • 12.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    12.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the Corporation?s financial statements for the years ended 31 December, 2010 and 2011 were issued on 05 September, 2012 and 27 June, 2013 respectively. The 2010 report contained Qualified Opinion whilst the 2011 report was a Disclaimer of Opinion. These reports contained varying Audit Opinions, however, only the 2011 report is reproduced.

    “BASIS FOR A DISCLAIMER OF OPINION

    1. Cash and Bank-K643,727

    The financial statements disclosed K643,727 as cash and bank balance, of which K2,093 was the Visa Debit Card Clearing account (VDCC) balance. This amount was business expenses spent using the Visa Debit Cards but yet to be acquitted by the cardholders. However, documentation made available to me disclosed that K112,447 spent through these VDCs in 2009 and 2010 are yet to be acquitted but were expensed out in 2010 and not taken up under Visa Debit Card Clearing accounts. It was not properly accounted for in the books as per the policy of IPBC. Consequently, I am unable to determine the accuracy of the cash and bank balance taken up as K643,727 in the financial statements as at 31 December, 2011. 2. Other Receivables-K739,557

    2.1 Business Travel Advances-K257,651

    Other receivables of K739,557 included K257,651 attributed to business travel advances. However, during the year the operation of the internal controls over the business travel advances was inadequate. Of the total travel advances of K257,651, a total of K87,360 was not acquitted by IPBC officers, while K170,291 was yet to be acquitted by the officers of the Ministry and Department of Public Enterprises.

    In 2009, from January to October, all the business travel advances paid were directly expensed which was not the correct accounting practice. I was not provided with all the relevant documentation in respect of these advances to determine whether they were acquitted in 2010 or 2011 and the amounts were refunded to the Corporation.

    Though the Corporation has a policy of acquitting the travel advances within seven (7) days on completion of the travel, travel advances amounting to K83,331 and K164,694 representing the Independent Public Business Corporation and office of the Ministry were outstanding for more than two (2) years as at 31 December, 2011. At the time of my audit, some of the officers and Directors of IPBC had left the organisation back in 2009, 2010 and 2011, however, their travel advances totaling K33,575 and K26,498 respectively were still included under travel advances.

    As a result, of the above inadequacies, I am unable to ascertain the accuracy and completeness of the balance of K257,650 taken up as business travel advances at 31 December, 2011.

    2.2 Rental Bonds – K253,160

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  • Rental bonds amounting to K253,160 were included in other receivables totaling K739,557. During 2010, rental bonds amounting to K16,998 were transferred to salary account and expensed, however, the Corporation claimed that the rental bonds were adjusted against the respective employees? final entitlements that had left the organisation in 2009. My review disproved the assurance from the Corporation that the rental bonds from the four (4) employees were recovered from their final entitlements or part of their entitlement.

    Also, Tevon Pty Ltd (the land lord) for the properties in respect of accommodation for the four (4) Lae Tidal Basin Project officers stationed at Lae has forfeited the rental bond of K26,750. However, the rental bonds for the above properties were still being included in the balance of K253,160, which is not appropriate. Further, the documents made available to me disclosed that Tevon Pty Ltd had claimed K165,213 from IPBC for the period October, 2010 to May, 2011 as a result of loss of rental for failing to give proper vacation notice by the Corporation. I was not provided with the current status of this claim to determine whether there is a liability existing at the time of this report.

    Consequently, I am unable to validate the accuracy and completeness of the balance of K253,160 taken up as rental bonds at 31 December, 2011.

    2.3 Lae Port Project Recoverable Costs – K149,951

    IPBC spent K2,713,440 in 2008, K3,066,245 in 2009 and K1,836,160 in 2010 towards Lae Tidal Basin Project. Until 2009, the amount spent towards this project was taken up as receivables in the financial statements. However, in 2010 all the expenses spent toward this project were expensed out excluding K674,395 which was reimbursed by Asian Development Bank (ADB) while the funding agency disallowed K149,951. However, the disallowed amount was shown as receivables in the 2011 accounts of the Corporation, which is not appropriate. The Corporation does not have a policy in respect of various projects it is presently mandated to determine the components of expenses which are going to be borne by the Corporation and the ones to be reimbursed by the funding agency.

    Consequently, I am unable to determine the accuracy of the balance of K149,951 taken up as receivables towards this project at 31 December, 2011.

    3. Related Party Balances – K19,400,627

    The financial statements disclosed K19,400,627 as receivables due from related parties under non-current assets. I was not able to verify this balance due to the following issues:

    3.1 Receivables from Investment Corporation of Papua New Guinea (ICPNG) were disclosed as K1,134,584. However, the accounts of ICPNG were not audited since 2002. Though audit of ICPNG? s accounts was one of the requirements in the vesting notice G33 dated 06 April, 2004, to date, this requirement has not been met. Therefore, the exact status of ICPNG?s financial position could not be determined to confirm whether the above receivables are payable to IPBC.

    3.2 Receivable from Aquarius No. 21 Limited was disclosed as K95,700. The financial statements of the company disclosed that a vacant land at Portion 1570 Granville, National Capital District is its only asset. However, the lease of the land expired in 2000 which indicates that the land is not legally owned by the Company. As such, there was no asset owned by the Company to extinguish

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  • its liability owed to the parent entity. Further, the audited financial statements of Aquarius No. 21 for 2011 was not made available for my review to verify whether the amount was shown as payable to IPBC.

    3.3 Receivable from Port Moresby Private Hospital Limited (POMPH) was disclosed as K22,000. In 2010 all the receivables from POMPH amounting to K5,852,280 were transferred to GBT books since the income from the hospital was accounted for in GBT books. However, in 2011, the expenses incurred on behalf of the hospital were accounted for in IPBC books which were not appropriate. Further, the audited financial statements of POMPH for 2011 was not made available for my review to verify the amount shown as payable to IPBC.

    3.4 Receivables from Department of Public Enterprises were disclosed as K4,614,900. This amount was spent from the General Business Trust operational funds. The fund was allocated by the Trust to Independent Public Business Corporation (IPBC) for its own normal operations as Trustee. Having paid this departmental expense, the Corporation then disclosed the amount as related party receivables. However, the National Executive Council (NEC) in its decision No.119/2011 abolished the Department of Public Enterprises. As such the amount of K4,614,900 expended by the Corporation on behalf of the then Department is unlikely to be recovered however, it is still taken up as receivable in the accounts.

    3.5 Receivables from Department of Communication and Information were disclosed as K1,148,614. This amount was spent from the General Business Trust operational funds. The operational fund was allocated by the Trust to Independent Public Business Corporation for its own normal operations as Trustee. Having paid this departmental expense, the Corporation then disclosed the amount as related party receivables. There was no evidence confirming any obligation on the department to reimburse the GBT operational funds.

    3.6 A total of K12,234,879 was disclosed as receivable from National Petroleum Company of PNG (Kroton) Limited (Formerly Kroton No.2 Limited) (NPCP). However, the audited financial statements of NPCP was were not made available for my review to verify the amount shown as liability to IPBC as at 31 December, 2011. My request to confirm the balance was also not responded to by NPCP at the time of this report.

    Consequently, I was unable to ascertain the correctness and validity of showing K19,250,676 as related party balances under Non-Current Assets in the financial statements for the year ended 31 December, 2011. In addition, the Corporation does not have a policy setting out the conditions in respect of expenses incurred on behalf of other government departments, companies vested with General Business Trust and accounting for them in its books. 4. Fixed Assets-K1,342,241

    The Corporation?s policy on accounting for fixed assets and depreciation for their economic useful period was not consistent as follows;

    4.1 All the fixed assets bought for the Lae Tidal Basin Project in 2008 and 2009 were taken up as receivables in the books of IPBC during the respective years. However, in 2010 all the assets bought for the project during the above years were reversed and taken up under fixed assets in IPBC books. All the depreciation for 2008 and 2009 were accounted in IPBC books under prior year adjustments.

    The policy in respect of capitalizing the assets bought for other projects/organisations and

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  • accounting for them in IPBC books was not made available for my review. Therefore, I was unable to determine the appropriateness of including K796,199 (gross value) under fixed assets bought for Lae Tidal Basin Project in the books of IPBC.

    4.2 A motor vehicle paid by Asian Development Bank (ADB) was taken up in IPBC books for K30,820 and depreciated since 2008, which was not appropriate.

    4.3 Further, assets purchased for the Port Moresby Sewerage Supply Upgrade Project (POMSSUP) amounting to K116,165 were taken up in the books of General Business Trust. Accounting for one of the project assets in the Corporation books and other project assets in the Trust books is not consistent with the Corporation?s policy in accounting for the assets purchased for the projects it is managing.

    Accounting for the cost of the above two projects assets in IPBC and GBT books did not comply with the measurement, recognition and depreciation of asset criteria as required by International Financial Reporting Standards (IAS-36) Property, Plant and Equipment.

    As such, I am unable to determine the accuracy of the measurement of the additions and the depreciation provided and the balance disclosed as K1,342,241 as at 31 December, 2011.

    5. Assets Held for Sale – K1,209,612

    The carrying value of certain fixed assets held for sale (office furniture and fittings) as at 31 December, 2011 was K1,209,612. These assets were bought in 2000 for the Deloitte Tower office, but the decision was later abandoned. The initial cost of these assets were K1,210,612 but were depreciated from 2003 to 2006. The Corporation stopped providing for depreciation in 2007 and showing the net value of these assets as held for sale.

    In 2009, the depreciation that was provided earlier amounting to K501,889 was reversed and the assets were taken up at their original value of K1,209,612.

    However, in 2010, K907,209 was provided as impairment on these assets. I was not provided with any documentation to substantiate for the impairment provision on these assets.

    According to Para 8 and 9 of (IFRS-5) Assets Held for Sale and Discontinued Operation the management must be committed to have a plan to sell the assets within one year from the date of classification to be qualified for recognition as assets held for sale. Though, management has disclosed these assets as held for sale for the last four (4) years, I was not provided with any such a plan since it was disclosed as assets held for sale.

    In the above circumstances, I am unable to determine the appropriateness of claiming K302,403 as assets held for sale after impairment of K907,209 in the financial statements as at 31 December, 2011.

    6. Employment Cost-K7,499,150

    In 2011, K7,499,150 was expensed as employment cost. However, I was unable to ascertain the appropriateness of this total remuneration on the following reasons: In 2007 through Independent Public Business Corporation (amendment) Act, 2007 amendments were made to the Independent Public Business Corporation Act, 2002 (as amended) which

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  • specifically excluded the applicability of the Public Finances (Management) Act, 1995, Public Services (Management) Act, 1995 and Salaries and Conditions Monitoring Committee Act, 1988. These amendments affected the Independent Public Business Corporation (IPBC), its Trusts and the State Owned Enterprises (SOEs). This amendment became applicable to the Corporation and its Trusts and the SOEs in 2007, but at the time of this report, the policy provided by one of the consultant was not adequate with the nature and complexity presently IPBC encountered in its human resources management. Further, some of the senior management staff remuneration has been determined based on a report provided by a private consultant which was based on private sector marketability of the respective positions, which was then approved by the IPBC Board.

    All other officers? salary of the Corporation was determined by the management and not from appropriate authorities. I did not have a base to determine the appropriateness of the salary paid to the top management as well as other officers based on the private consultant?s advice and its applicability to the Corporation owned by the State. Also, an over payment of gratuity to former CFO to the extent of K94,269 revealed that the Corporation failed to manage the public money adequately. Further, the former Managing Director was in the office in acting position for four (4) years since 2005 without National Executive Council (NEC) approval. During the period as Managing Director, all his allowances were not taxed appropriately as per Income Tax Act, 1959 and as advised by the Internal Revenue Commission (IRC). I have reported this matter in the prior year audits, however, the IPBC management had not taken appropriate action to rectify the issues. Consequently, I am unable to determine the validity of K7,499,150 paid as remuneration and other benefits to the employees of the Corporation in 2011. DISCLAIMER OF OPINION

    Because of the significance of the matters referred in the Basis of Disclaimer of Opinion, I have not been able to obtain sufficient appropriate audit evidence and accordingly, I am unable to express an opinion on the financial statements of the Independent Public Business Corporation for the year ended 31 December, 2011. OTHER MATTERS

    I wish to draw your attention to the following matters which I consider significant.

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

    Further, I have noted that some Board members of the previous board have raised their concerns against the amendments. I have enquired whether appropriate corporate governance policies were

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  • in place before this legislation was enacted. Management responded that corporate governance policies and procedures will be developed in due course. At the time of preparing this report, it has been six (6) years since the enactment of the new legislation and only a few policy and procedures have been developed and provided for my review, while others are yet to be developed. Non-Compliance of Kumul Agreement in Securing the Loan of AUD$ 1.681 Billion

    The Corporation has an obligation under the Kumul Agreement to submit the audited financial statements of the National Petroleum Company of PNG (Kroton) Limited (a wholly owned company of IPBC, formerly Kroton No. 2 Limited) for the previous year ended before 31 May of the following year to International Petroleum Investment Corporation (IPIC). However, the 2010 audited financial statements of the NPCP Limited is yet to be issued to IPIC therefore, IPBC is not complying with the terms of issuing the redeemable bonds to securing the loan of AUD$1.67 billion for funding the PNG Government stake of 19.6% interest in the PNGLNG Project. Though the audit of NPCP for 2010 financial year was completed in early May, 2011 at the time of this report, the management was unable to submit the signed financial statements of NPCP limited to enable me to issue the report. Also, management of NPCP has failed to submit its 2011 and 2012 financial statements for my audit at the time of issuing this report. Also, the General Business Trust (GBT) audited financial statements should be submitted to the loan provider, the IPIC before 30 June of the following year. However, the 2011 audited financial statement of GBT was issued at the same time of issuing this report, which indicates that the Corporation has not complied with the requirements of the agreement.”

    12.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records of the Corporation for the years ended 31 December, 2010 and 2011 were issued on 05 September, 2012 and 27 June, 2013 respectively. These reports contained similar observations, hence, only the 2011 comments are reproduced.

    1. Visa Debit Card

    Internal control over use and acquittal of visa debit cards was inadequate. Issues mentioned in earlier report were still prevailing in 2011. The visa cards in 2011 were used mostly in Port Moresby restaurants and supermarkets and advised that these were for meetings with consultants. However, these consultants were engaged by IPBC on full time basis and were paid consultancy fees. I brought this to the attention of management and advised that, “these entertainments are a part and parcel of running a business effectively and efficiently especially benchmarking with consultants and other peers to share ideas. I believe that this is norm in the corporate world”.

    2. Business Travel Advance

    Internal controls over business travel advances were not adequate as required by the Corporation?s Policy of 2004 as noted below:

    All the business travel advances paid up to October, 2009 were directly expensed. Expensing of travel advances in full is not in accordance with the practice of accounting for advances. The portion of advances actually spent on travels, less the unspent, is the correct amount for expensing.

    The Corporation?s policy requiring acquittal of travel advances within seven (7) days on completion

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  • of the travel was not fully complied with as advances totaling K248,025 remained unacquitted for more than two (2) years at 31 December, 2011. Outstanding travel advances of the officers who left the Corporation without acquitting were also included in the above travel advances.

    I brought this to the attention of management and it responded that “yes that is correct the previous management did not adhere to audit findings. In late 2011, some control measures were instituted”.

    3. Non-Compliance of former Managing Director?s Acting Position

    The former Managing Director of Independent Public Business Corporation (IPBC) was appointed to that position on acting basis by the National Executive Council (NEC) from 01 July, 2005 to 30 September, 2005 without approved terms and conditions of employment. Subsequently, the Minister for State Enterprises and Information approved proposed terms and conditions of Employment for the Acting Managing Director pending the confirmation of the position by the National Executive Council and the terms and conditions by IPBC Board and SCMC.

    The Acting Managing Director?s appointment expired on 30 September, 2005 but he has since occupied the position of Acting Managing Director without Gazette Notification of the re- appointment or confirmation until 07 July, 2008 when finally NEC had confirmed the position for a period of four (4) years. I noted that, the acting position from 01 October, 2005 to 06 July, 2008 was not ratified by the NEC. As such the position occupied and the remuneration paid for the period which was not ratified by NEC, was not as per the IPBC Act, 2002 (as amended).

    I brought this to the attention of management and it responded that “we will seek NEC ratification in consultation with legal division and provide the same”.

    4. Former Managing Director?s Contract and Remuneration

    The former Managing Director?s position was confirmed by National Executive Council (NEC) on 07 July, 2008 for a period of four (4) years. The Board on 13 March, 2009 has approved the Contract of Employment of the Managing Director and recommended to the Salaries and Conditions Monitoring Committee (SCMC) for its final approval of the remuneration package. However, I was not provided with the final signed contract copy of the former Managing Director to determine the remuneration package at the time of this report.

    I brought this to the attention of management, however, no signed contract copy of the former MD was made available for my review.

    5. Exemption of Allowances from income tax without Internal Revenue Commission (IRC) approval

    The former Managing Director (MD) claimed various allowances as non-taxable under Section 29(1) of Income Tax Act, 1959 amounting to K34,150 per annum for the period 01 July, 2005 to 07 July, 2008 and AUD$ 50,000 per annum from 08 July, 2008 till the date of his termination. However, these allowances were excluded from tax without seeking prior approval from the IRC by the Corporation which was not appropriate.

    I requested the Corporation since it was established in July, 2002 to seek the approval from IRC in respect of non-taxability of these allowances of its Managing Director. However, they have not responded to my request. Eventually, when the Corporation seeks the approval of IRC in 2010, in

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  • its letter dated 18 February, 2011 IRC advised that MD?s allowances are not exempted from income tax under Section 29(1) of Income Tax Act, 1959 and fully taxable. Therefore, the allowances which were not taxed earlier should be taxed and deducted from the former MD?s final entitlement.

    I brought this to the attention of management and it responded that “all allowances are taxed to the current Managing Director. The final entitlement for the former Managing Director has not been paid out yet”.

    6. Gratuity paid to Former Chief Financial Officer

    The former Chief Financial Officer?s (CFO), remuneration was revised and paid in Australian Dollars (AUD$) with effect from 01 July, 2010 as per former MD?s letter dated 13 January, 2011. However, no board resolution was sighted for this revision.

    A back pay of K289,367 (Gross) was paid on account of the revision (the difference between the Kina salary and AUD$ salary) for the period 01 July, 2010 to 19 January, 2011. However, it was noted that gratuity was also paid to the CFO for the full year (20- 01-2010 to 19-01-2011) amount to K169,499, which was not appropriate. The gratuity component should have not been paid for the period 01 July, 2010 to 19 January, 2011, since the gratuity component was part of the original contract (Kina base salary and not AUD$ base). I brought this to the attention of management and they advised that, “ the computation regarding the above gratuity was verified by Human Resource Manager and HR Consultant and appeared to be in order to be paid and hence was paid out”.

    7. Establishment of Audit Committee and Internal Audit Division

    I noted that the responsibilities of Independent Public Business Corporation (IPBC) had increased significantly in managing more projects, funds and diversified role in managing the SOEs.

    Therefore, it is important that the increased investments and operating activities are managed within a framework that ensures transparency and diligence.

    Since IPBC?s responsibility increased in managing the funds of the State its exposure to risk is very high. However, at present there is non-existence of an Internal Audit Division and an Audit Committee with appropriate specialist involvement.

    Therefore, I would recommend IPBC for the establishment of audit committee and internal audit division for operating in a transparent manner and diligently.

    12.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the inspection and audit of the accounts and records and the examination of the financial statements of the Corporation for the year ended 31 December, 2012 was completed and the results were being evaluated.

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

    12A.1 INTRODUCTION

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  • 12A.1.2 Legislation

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

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

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

    12A.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Company had not submitted its financial statements for the years ended 31 December, 2011 and 2012 for my inspection and audit despite several reminders.

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

    12B.1 INTRODUCTION

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

    12B.1.1 Objectives of the Trust

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

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

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

    12B.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    12B.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended), on the financial statements of the Trust for the year ended 31 December, 2011 was issued on 29 May, 2013. The report contained a Qualification.

    “QUALIFICATIONS

    1. Unquoted Equity Investments

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  • The financial statements disclosed K2,157,549,676 as unquoted equity investments under Non- Current Assets of which K408,813,009 was stated as investments in other entities. However, I was not provided with the audited financial statements of a number of investments taken up under other entities. Also, some of these investments did not exist, but were still included in the financial statements. Some of the investment values remain unchanged year after year. My request to provide the audited financial statements of those entities was not addressed by the Trustee at the time of this report.

    Therefore, I am unable to ascertain the accuracy of the balance taken up as investments amounting to K408,813,009 under others included along with the unlisted equity investments in the financial statements as at 31 December, 2011.

    2. Property, Plant and Equipment

    The financial statements disclosed K116,165 under property, plant and equipment. However, these assets did not belong to the Trust. These assets were purchased for the Port Moresby Sewerage Supply Upgrade Project (POMSSUP) funded by donor agencies. The Corporation does not have a proper policy on accounting for the assets which were bought for the various projects they manage. Though the value of the assets included in the financial statements was immaterial, the presentation of the financial statements was not appropriate. As such, I am unable to ascertain the appropriateness of K116,165 included under property, plant and equipment in the financial statements as at 31 December, 2011.

    QUALIFIED AUDIT OPINION

    In my opinion, except for the effects on the financial statements of the matters referred to in the qualification paragraphs: (a) The financial statements of General Business Trust for the year ended 31 December, 2011; (i) give a true and fair view of the state of affairs and the results of its financial operations, the change in equity and its cash flows for the year then ended; and

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

    (b) Proper accounting records have been kept by General Business Trust as far as appears from my examination of those records; and (c) I have obtained all the information and explanations required except for the matter referred to in Emphasis of Matter.

    EMPHASIS OF MATTER

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

    Investments in PNG Series II and PNG Series III Notes

    I wish to draw your attention to the following additional information on these investments. The

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  • management of the Trustee, Independent Public Business Corporation (IPBC), invested K15.0 million (AUD$ 5,920,500) in PNG Series II on 01 June, 2007 in Lehman Brothers through BSP Capital Limited. Again, on 21 September, 2007 the management invested K16.0 million (AUD$ 6,250,000) in PNG Series III Notes in Lehman Brothers through BSP Capital Limited, without proper evaluation on the overseas money market and without IPBC Boards consent. In September, 2008 Lehman Brothers filed for Bankruptcy in United States as a result of the global financial crunch which in turn reduced the investment value by AUD$ 9 for each AUD$100 Note on PNG Series II Notes. Likewise, on 27 April, 2009 the investment value of PNG Series III Notes had also reduced to AUD$ 70 for each AUD$ 100 Note. In 2010, BSP Capital Limited advised that the values of these investments have nil value. But in June 2011 BSP Capital offered in total K6,156,023 but without adequate documents for my review. In 2012, the IPBC Board authorized the IPBC management to negotiate with BSP Capital Limited for a settlement of 75% of the investment. After the balance sheet date on 30 November, 2012, a deed of settlement was entered into between Bank of South Pacific Limited (BSP), BSP Capital Limited and IPBC for a final settlement of K23,090,111 and it was paid by BSP towards PNG Notes 2 and PNG Notes 3. However, this was not adequately disclosed in the notes to the financial statements. I am concerned that the Trustee had not done proper evaluations on the investments and failed to obtain the Board?s approval before the investments were made, which lead to a loss of K7.9 million to the Trust and the State. In my view, investments in overseas financial/ money markets are not the core purpose of the establishment of the Trust. Further, I still believe that the funds vested with the Trust and managed by the Trustee (IPBC) are owned by the State although the amendments made to the Independent Public Business Corporation Act, 2002 (as amended) specifically excluded the compliance of Public Finances (Management) Act, 1995. The management still needed to seek the approval from the Board before making investment decisions in overseas money markets and the sale of assets vested with the Trust. Therefore, the Board needs to bring in an adequate and appropriate corporate governance regime in the management and affairs of the Trust fund which I believe is lacking at present. Exchangeable Bonds – K3,632,238,548

    I draw your attention to the exchangeable bonds liability disclosed under non-current liabilities amounting to K3,632,238,548. This liability is payable to International Petroleum Investment Company, (IPIC), based in Abu Dhabi, which resulted from the raising of AUD$ 1.681billion (K3.183 billion) in 2009 in exchangeable bonds to fund the State?s 19.6% stake in the PNG- LNG project. Oil Search Shares were pledged against the exchangeable bonds which will mature in 2014.

    However, the value of the Oil Search shares as at 31 December, 2011 was AUD$ 1.229 billion leaving an additional amount of AUD$ 452,223,894 (K955,166,420) which would have been payable by IPBC if the Bonds had been redeemed or had been exchanged as per the Bond Deed Poll of the Exchange Bonds agreement at the balance sheet date. Based on the position as at 31 December, 2011, I am of the view that IPBC should be prepared to meet any shortfall in the value of Oil Search shares in the event IPBC decides to exchange the bonds at any given date prior to the maturity date. Related Party Receivables: Loan to National Petroleum Company of PNG (Kroton) Limited (NPCP) (formerly Kroton No. 2 Limited) K1,959,803,971 I draw your attention to the related party receivables of K1,965,664,501 which comprises amongst others, a loan of K1,959,803,971 to National Petroleum Company of PNG (Kroton) Limited (NPCP) as disclosed in the financial statements. This loan is made up of K1,924,712,372 which was paid

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  • to Exxon Mobile on behalf of NPCP in 2009, 2010 and 2011, and another amount K35,091,599 paid towards operational expenses of NPCP in 2010 and 2011 by IPBC. NPCP holds the PNG Government?s 16.57% stake in the PNG LNG project. The IPBC Board resolved that this amount be considered as a loan and shall be paid back once the revenue starts flowing when the project commences operations. However, a copy of the signed loan agreement was not made available for my review to determine the status of the loan agreement. Further, my request to the management of NPCP to confirm this loan balance was not responded to positively at the time of this report. Further, the NPCP 2010 and 2011 audited financial statements were not made available for my review to determine the appropriateness of this receivable. Non-Compliance of Kumul Agreement

    As per the Kumul Agreement entered into between IPBC and IPIC, for borrowing the AUD$1.681 billion for financing the PNG State share of 19.6% towards the PNG LNG Project, the audited financial statements of the General Business Trust should be submitted to IPIC by 30 June of the following year for the previous year ended. However, the Corporation has not complied with this agreement by not submitting the financial statements of General Business Trust on time to enable me to issue the report as stipulated in the agreement.” 12B.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records of the Trust for the year ended 31 December, 2011 was issued on 29 May, 2013. The report contained the following observations:

    1. Sale of State Owned Assets without National Executive Council?s (NEC) Approval

    Several assets were sold between 2004 and 2011 totaling K5,591,741 without obtaining written NEC approval as required under Section 9(b)(1A) of the Independent Public Business Corporation Act, 2002 (as amended).

    When the matter was brought to the attention of the management, they advised that, “unfortunately records are difficult to find hence cannot locate the board submissions to NEC and the subsequent NEC decisions.”

    2. Loan to Post PNG Limited – K12.5 million

    The IPBC Board in its meeting No.2/2009 dated 20 August, 2009 approved the loan repayment of K12.5 million to the Bank of South Pacific (BSP) on behalf of Post PNG (the borrower of the loan). This loan refund was part of Post (PNG)?s total loan of K36.0 million borrowed from BSP for its new investments in properties in Lae. However, the loan refunded by IPBC on behalf of Post (PNG) Limited as at 31 December, 2011 amounted to K9,466,667 and it was capitalised. No documentation was made available to verify the appropriateness of the capitalisation of K9,466,667 paid by IPBC in 2010 & 2011 towards this loan repayment.

    Further, audit was informed that Post (PNG) Limited could not repay the balance of the loan and now IPBC is repaying the outstanding loan balance. It appears that Post (PNG) Limited entered into new capital expenditure without proper evaluation of its financial capacities and is now depending on IPBC for the bailout. It would be appropriate that IPBC should bring a total ban on all new

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  • projects by all the SOE?s unless approved by National Executive Council (NEC).

    I brought this to the management and they advised that “the former Chief Financial Officer of IPBC has mentioned in his letter to Post (PNG) Limited that it would be treated as capital.”

    3. Investment Corporation of Papua New Guinea

    This Corporation was vested with IPBC in pursuant to Gazettal Notice No33 dated 06 April, 2004. The value of this property was taken up in the financial statements as K8,660,957 for the last eight (8) years. The conditions attached with the vesting notice was not to use the GBT assets (money) for the disposal of remaining assets and settle the liabilities and submit all the outstanding financial statements to my Office to enable me to complete the audit and issue the reports. However, my repeated request to provide the financial statements for the outstanding years was not responded to positively by the respective managements that were in the office. I brought this matter to the management and they advised that “records are very difficult to find.”

    4. Investments in Niugini Insurance Corporation Limited (NIC)

    The Niugini Insurance Corporation (NIC) was corporatised and the business was transferred to Pacific MMI Insurance limited in 1998. However, NIC retained the insurance liability and assets attached with the liabilities at the time of corporatision. In 2010, IPBC informed my Office that they have filed an application for deregistration of the company however, no documentation was made available for my review to determine the appropriateness of the claim. I brought this matter to the management and they advised that “Management will address this in the wholesale changes IPBC is instituting.”

    5. Investment in Kulu Palm Oil Limited

    The State of PNG has 20% share holding in Kulu Palm Oil Limited (formerly CTP (PNG) Limited/ Pacific Rim Plantation Limited). However, in 2012 the 20% shareholding in the above Company was transferred to New Britain Palm Oil Limited (NBPOL) which brought the 80% shareholding from CTP (PNG) Limited in 2010.

    However, my request to provide the additional share certificates from NBPOL, National Executive Council (NEC) approval, IPBC Board approval and due diligence report in determining the share price were not made available by IPBC. Since the event took place in 2012 after balance sheet date but before issuing my audit report for 2011, I wish to draw the attention of shareholders of the Company (the State).

    I brought this to the attention of the management and they advised that, “As per Board secretary and the Chief legal officer?s advice, Kulu Oil Palm Ltd was bought by NBPOL. However, IPBC shareholdings remained the same but increased its shares in NBPOL. Hence there is no need for a new share certificate as per advice provided.”

    12B.3 STATUS OF THE FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Trust for the year ended 31 December, 2012 had been completed and the results were being evaluated.

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

    12C.1 INTRODUCTION

    12C.1.1 Legislation

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

    12C.1.2 The Objective of the Company

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

    12C.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    12C.2.1 Comments on Financial Statements

    In accordance with the provisions of the Companies Act, 1997, my reports on the financial statements of the Company for the years ended 31 December, 2004 to 2010 and 2011 were issued on 16 May, 2013 and 10 July, 2013 respectively. The reports contained similar Disclaimer Audit Opinions, hence, only the 2011 audit report is reproduced as follows:

    “BASIS FOR DISCLAIMER OF OPINION

    Opening Balances

    My report for the year ended 31 December, 2010 was a disclaimer of opinion. I was not able to satisfy myself as to the accuracy and completeness of the opening balances of share capital, fixed assets written-down value, accumulated depreciation and receivables. Since these opening balances entered into the determination of the results of operations and cash flows of the Company in 2011, I am unable to determine whether adjustments to the results of operations and cash flows might have been necessary for the year ended 31 December, 2011.

    Valuation of the Dams

    The financial statements disclosed that the total value of the two (2) Dams namely Sirinumu and Yonki was taken up in the financial statements as K97,648,890 (as per Note 5). This valuation was based on the book value of these Dams as per the 2002 financial statements of PNG Power Limited. However, I was unable to determine the accuracy of the value taken up in the books due to unavailability of valuation reports.

    As such, I am unable to verify the accuracy of the net value of the Dams taken up as K84,924,282 as at 31 December, 2011.

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  • Liabilities of the Dams

    According to the National Gazette No.G114 dated 16 July, 2002 the Papua New Guinea Electricity Commission (ELCOM) shall transfer to PNG Dams Limited all the liabilities relating to the two (2) Dams at the date of transfer. However, the financial statements did not disclose any liabilities for the year under review.

    Therefore, I am unable to determine whether any liability was payable but not included in the financial statements as at 31 December, 2011.

    Receivable

    An amount of K10,000 was disclosed as a receivable balance for the year ended 31st December, 2011. However, no documentation was provided for my inspection and verification to determine the accuracy of the balance. Consequently, I am unable to ensure the appropriateness of K10,000 taken up as receivable in the financial statements as at 31 December, 2011.

    Disclaimer of Audit Opinion

    In my opinion, because of the existence of the limitation on the scope of my work, as described in the preceding paragraphs and the effects of such adjustments, if any, as might have been determined to be necessary had the limitation not existed, I am unable to and do not express an opinion as to whether the accompanying financial statements gives a true and fair view of the financial position of the Company?s financial performance and its cash flows for the year ended 31 December, 2011.

    i) I am unable to form an opinion as to whether proper accounting records have been kept by the company, so far as appears from my examination of those records; and

    ii) with the exception of the matters described above, I have obtained all the information and explanations I have required.”

    12C.2.2 Audit Observations Reported to the Ministers

    My reports to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended) on the inspection and audit of the accounts and records of the Company for the years ended 31 December, 2004 to 2010 and 2011 were issued on 16 May, 2013 and 10 July, 2013 respectively. These reports contained similar comments; hence, only 2011 report is reproduced as follows:

    1. Non-submission of Financial Statements for Audit

    The company was vested with IPBC through Gazettal Notification No. G125 dated 02 August 2002. As a company owned by the State of Papua New Guinea, the audit of this entity was mandated to my Office. However, in spite of my repeated requests through IPBC/GBT management letters, these financial statements were not made available for audit until late 2009. The management has failed to comply with the requirements of Companies Act, 1997 and the vesting notice requirements by not submitting the financial statements for my audit inspection earlier. I also noted that unaudited financial statements were filed with Investment Promotion Authority to

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  • comply with the return requirements which was not proper. Further, only the financial statements for the years ended 31 December, 2004 to 2010 were submitted for audit. However, the financial statements for the period ended 31December, 2002 and 2003 are yet to be submitted. The values of the Dams were taken up in the accounts of PNG Power Limited for the above mentioned years, which is not appropriate. I brought this to the attention of management and they responded that “the previous management failed to comply with requests from AG?s Office to submit financial statements. We also note 2002 and 2003 financial statements were not submitted, we will now compile the 2002 and 2003 financial statements and submit them to your office”. 2. Transfer of Water Permits

    As a result of the Gazettal notification which vested the Dams with IPBC the permits held by PNG Power Limited for use of water from the Dams were also transferred to PNG Dams Limited. However, copies of the water permits transferred to the company by PNG Power Limited in 2002 were not provided for my inspection. As such, I was unable to verify if the conditions attached with the water permits were complied with. I brought this to the attention of management and they responded that “we will also rely on PNG Power to provide copies of the water permits transferred from PPL to PNG Dams Limited”. 3. Provision of Water to Water Authorities

    According to clause 5 of the lease agreement, the property (the Dams) shall be used as water storage for the controlled use of water from the storage for the generation of electricity and the provision of water to an approved water authority. I have sought an explanation as to whether the company had entered into an agreement with other water authorities like EDA RANU or Water PNG for the supply of water for any fees other than PNG Power Limited. To the date of this report, I have not received any response on the matter from the Company. I brought this to the attention of management and they responded that “at this stage, lack of records in file makes it difficult to respond to clause 5 of the lease agreement. We will investigate and consult with PPL”.

    4. Board Minutes

    I have not been provided with any Board minutes for the year under review to determine whether the financial statements were approved by the Board for filing with IPA along with the annual returns. I brought this to the attention of management and they responded that “this is also due to lack of good records keeping we are unable to provide the board minutes but will pursue with the legal services unit and PPL to obtain copies of the board minutes”. 5. Appointment of Director and Company Secretary

    The unaudited financial statements were signed by Mr. Sumasy Singin and Mr. Robert Nilkare as Directors for the year ended 31 December, 2004 for filing with IPA (Investment Promotion Authority) along with the annual returns. However, no annual returns were filed with IPA for the financial years 2005 to 2011. A company search report dated 18th February, 2010 disclosed that Mr. Masket Iangalio was the Director since 01 June, 2003 and not Mr. Sumasy Singin and Mr. Robert Nilkare at any time during the years 2003 to 2010. I brought this to the attention of management and they responded that “we will provide once the records are located”.

    12C.3 STATUS OF FINANCIAL STATEMENTS

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  • At the time of preparing this Report, the Company had not submitted its financial statements for the year ended 31 December, 2012 for my inspection and audit.

    12D. PORT MORESBY PRIVATE HOSPITAL LIMITED (A SUBSIDIARY OF INDEPENDENT PUBLIC BUSINESS CORPORATION) 12D.1 INTRODUCTION 12D.1.1 Legislation

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

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

    12D.1.2 Objective of the Company

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

    12D.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Company had not submitted its financial statements for the years ended 31 December, 2011 and 2012 for my inspection and audit.

    13. INDUSTRIAL CENTRES DEVELOPMENT CORPORATION

    13.1 INTRODUCTION

    13.1.1 Legislation

    The Industrial Centres Development Corporation was established under the Industrial Centres Development Corporation Act, 1990, which came into operation on 23 August, 1990. The Corporation commenced trading on 5 January, 1994. 13.1.2 Functions of the Corporation

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

    13.2 AUDIT OBSERVATIONS

    13.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act, 1989 (as amended) on the Corporation?s financial statements for the year ended 31 December, 2009 was issued on 13 November, 2012. The report contained a Qualified Audit Opinion.

    “BASIS FOR QUALIFIED OPINION

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  • Employee Provisions

    Employee provisions disclosed in the financial statements was K312,757. My examination revealed that the Corporation did not maintain history/ledger cards to calculate provision for annual leave, long service leave and other entitlements. Numerous variances were noted in calculating long service leave provisions. In addition, there were no provisions for staff gratuity for the year ended 31 December, 2009. As a result, I was unable to satisfy myself as to the accuracy and correctness of the employee provisions of K312,757 at year end.

    Sundry Debtors – K1,027,777

    Included in the above account were land sales debtors of K63,459.98 with credit balances. My examination revealed that these debtors were not issued with any invoices but continued to make payments which resulted in credit balance. As a result, the sundry debtors account was understated by the said amount.

    QUALIFIED OPINION

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

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

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

    13.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records of the Corporation for the year ended 31 December, 2009 was issued on 13 November, 2012. The report contained the following observations:

    1. Non-Compliance with Public Finances (Management) Act, 1995

    The Corporation had not prepared and submitted its financial statements to my Office before 31 March, 2010 to enable me to complete the audit on time for tabling the report in the Parliament before 30 June, 2010. Consequently, the Corporation breached Section 63(2) and 63(4) of the Public Finances (Management) Act 1995. 2. Other Internal Control Weaknesses

    Other weaknesses noted during my review were: * three (3) Board meeting minutes were not signed by the Chairman in order to confirm the minutes were true and correct record of the meeting; * lack of control on staff advances; * lack of adequate control procedures in place over payments made directly to suppliers by open cheque;

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  • * travel advance acquittal register was not maintained; * the Corporation has no Internal Audit Unit to support its operations and review regularly review the internal control environment; and

    * down payment of K60,000, K50,000 and K15,000 were made on three (3) different occasions to three different companies for the production/printing of Corporation?s annual report was never eventuated.

    I drew management?s attention to these weaknesses and I was advised that these matters were investigated and addressed.

    13.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the inspection and audit of the accounts and records and examination of the financial statements of the Corporation for the year ended 31 December, 2010 had been completed and the results were being evaluated.

    The fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Corporation for the year ended 31 December, 2011 was in progress. The financial statements for the year ended 31 December, 2012 had not been submitted for my inspection and audit.

    14. INVESTMENT PROMOTION AUTHORITY

    14.1 INTRODUCTION

    14.1.1 Legislation and Objective of the Authority

    The Investment Promotion Authority was established under the Investment Promotion Act, 1992. The objective of the Act was to provide for the promotion of investment in the interests of national, social and economic development. This Act repealed the National Investment and Development Act (Chapter 120) and the Investment Promotion Act, 1991. 14.1.2 Functions of the Authority

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

    14.2 AUDIT OBSERVATIONS

    14.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the Authority?s financial statements for the year ended 31 December, 2011 was issued on 15 August, 2012. The 2011 report contained a Qualified Opinion.

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  • “BASIS FOR QUALIFIED OPINION

    1. Prepayments – K209,425

    The Authority disclosed prepayments in its financial statements as K209,425 at the year end. My review of this account revealed that proper supporting documents were not maintained to substantiate this balance. As such, I was unable to verify the accuracy and completeness of prepayments disclosed at the year end. 2. Payroll Tax – K440,293

    My review of the above account revealed that there were no supporting documents provided to substantiate the closing payroll tax liability balance of K440,293 included in the creditors and accruals balance of K1,631,020. In the absence of proper reconciliations and supporting documents, I was unable to conclude on the existence and accuracy of the payroll tax liability account.

    Investment Promotion Authority

    QUALIFIED OPINION

    In my opinion, except for the effects of the matters described in the Basis for Qualified Opinion paragraphs, the financial statements of Investment Promotion Authority for the year ended 31 December, 2011: (a) are based on proper accounts and records; and

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

    14.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Authority for the year ended 31 December, 2012 was completed and the results were being evaluated.

    15. KOKONAS INDASTRI KOPORESEN (FORMERLY COPRA MARKETING BOARD OF PAPUA NEW GUINEA) 15.1 INTRODUCTION

    15.1.1 Legislation

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

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  • Funds are contained in paragraphs 15A and 15B respectively, of this Report. 15.1.2 Functions of the Koporesen

    The principal functions of the Koporesen are to regulate and assist in the export and marketing of copra in the best interest of the copra producers of Papua New Guinea, and to administer the Papua New Guinea Coconut Extension Fund and the Papua New Guinea Coconut Research Fund. 15.2 AUDIT OBSERVATIONS

    15.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Koporesen for the year ended 31 December, 2011 was issued on 22 November, 2012. The 2011 report did not contain any qualification. 15.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Koporesen for the year ended 31 December, 2012 was completed and results were being evaluated.

    15A. PAPUA NEW GUINEA COCONUT EXTENSION FUND

    15A.1 INTRODUCTION

    The Copra Marketing Board (Amendment) Act, 1997, provides for the establishment of the Papua New Guinea Coconut Extension Fund for the purpose of receiving levies and engaging in extension services and related programmes in accordance with the terms of the Act. 15A.1.1 Objective of the Fund

    The objective of the Fund is to engage in extension services and related programmes by itself or in co-operation with other persons or bodies for the benefit of the Copra Industry. The Fund was administered by the Copra Marketing Board, up to 3 June, 2002 and has since been administered by Kokonas Indastri Koporesen. 15A.2 AUDIT OBSERVATIONS

    15A.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Fund for the year ended 31 December, 2011 was issued on 22 November, 2012. The report did not contain any qualification.

    15A.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Fund for the year ended 31 December, 2012 was completed and results were being evaluated.

    15B. PAPUA NEW GUINEA COCONUT RESEARCH FUND

    15B.1 INTRODUCTION

    15B.1.1 Legislation and Objective of the Fund

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  • The Papua New Guinea Coconut Research Fund was established by the Kokonas Indastri Koporesen Act, 2002 following the repeal of the Copra Marketing Board (Amendment) Act, 1986, and the cessation of the Papua New Guinea Copra Research Fund. The Kokonas Indastri Koporesen deducts a copra research CESS of K4 per tonne of copra purchased from producers and pays it to the Research Fund. The Research Fund in turn, pays this CESS to the Cocoa Coconut Institute of Papua New Guinea. 15B.2 AUDIT OBSERVATIONS

    15B.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Fund for the year ended 31 December, 2011 was issued on 22 November, 2012. The report did not contain any qualification.

    15B.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Fund for the year ended 31 December, 2012 was completed and the results were being evaluated.

    16. LEGAL TRAINING INSTITUTE

    16.1 INTRODUCTION

    16.1.1 Legislation

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

    16.1.2 Functions of the Institute

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

    16.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    16.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Institute for the year ended 31 December, 2011 was issued on 30 April, 2013. The report did not contain any qualification.

    OTHER MATTER

    I wish to draw your attention to the following matter which I consider significant.

    Fixed Assets

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  • The Institute does not have a Fixed Assets Register to date. The Notes to the financial statements as at 31 December, 2011 disclosed that the Institute owned fixed assets with a total value of K1,614,990. However, the schedule provided for my review gave the total value of the fixed assets as K1,585,722, leaving an un-reconciled difference of K29,268. Further, there were no records to confirm or verify assets worth of K779,241 which were bought prior to 2009. Therefore, I am unable to attest to the completeness, accuracy and measurement of the fixed assets value stated in the financial statements as at 31 December, 2011.

    16.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, 1989 (as amended), on the inspection and audit of the accounts and records of the Institute for the year ended 31 December, 2011 was issued on 30 April, 2013. The report contained the following observations:

    1. Internal Controls

    The internal controls on; receipting and depositing of cash and cash equivalents, checking and verifying the accuracy of bank reconciliations, payroll processes, and raising of payments had been generally ineffective. There was no proper supervision and monitoring in respect of the above functions and responsibilities. Therefore, I brought these issues to the attention of the management of the Institute that in the absence of supervision and proper segregation of duties, risks of fraudulent acts, embezzlement or mishandling of cash and cash equivalents may exist. Also, errors in computation of taxes and other deductions may not be detected in a timely manner if payroll is not supervised and reviewed by a senior officer for accuracy. The management?s response was as follows:

    “Legal Training Institute has a small number of staff and our accounts system is managed by our Acting Manager Finance and Administration, the Accountant and the Accounts Clerk. We also had a Purchasing Officer. Our payroll system is manually prepared by our Acting Manager Finance and Administration but calculations are done by our Human Resources Payroll Clerk. These positions in my view are held by very senior officers of LTI one of whom was formerly employed by the DPM and holding on to the same type of position. All staff have their duty statements that are described as job descriptions so I do not see any problems there. However, I do agree that we need to work on some financial policies on procurement of goods and services etc and on our payroll”. 2. Proper Accounting System

    Up to the time of audit, the Institute did not have an appropriate accounting package to prepare regular management accounts on a timely manner. The accounts were summarized manually in a spreadsheet without any general ledger accounts. I have highlighted to management that without having a proper accounting package in place all accounting transactions and information might not be captured and recorded accurately and in a timely manner and would result in the financial statements being not accurate. In response the management stated as follows:

    “Our accounts have put into the MYOB accounting package and it is in operation now. My staff started using the MYOB with the 2012 accounts and now in operation for our 2013 accounts”.

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  • 3. Cash at Bank – Project Account

    This bank account was previously a Trust Account. However, neither the Trust Instruments governing the operation of the account nor approval from the Department of Treasury was with the Institute; therefore, in 2010 the Institute changed its name to Project Account. However, I was not provided with the Council?s approval/resolution regarding change of the Trust Account to Project Account. This matter was brought to the attention of the management and the management responded as follows: “The Director remembers that a decision was made by the LTI Council but we were unable to find the records of the decision”. 4. Petty Cash

    I noted that some cash received during the year had neither been banked nor recorded in the cash book. This implies that the monies were either misused or used for other daily operational needs without being recorded in the cash book. In response to the 2010 management letter, the management of the Institute assured me that a petty cash float would be established in 2011. However, the float was not established to date and yet other cash receipts were being used for the daily operational needs without registering in the cash book. Hence, I highlighted to management that a petty cash float must be established to avoid using other cash receipts for daily operational needs without keeping proper records in the cash book. In response the management stated as follows:

    “We do not have petty cash kept by the Institute, if there were, I was never aware of it”.

    5. FIXED ASSETS

    5.1 Fixed Assets Register

    At the time of audit, the Institute did not maintain its fixed assets register. I have highlighted to the management that a fixed assets register serves as the main control of all properties owned by the Institute. If a loss or theft occurs it may be difficult to identify the loss item to the Institute. Also, the Institute should undertake a periodic stock take of all fixed assets currently in place to establish their existence, custody and value. The damaged and rundown items and any other obsolete items should be written off with Council?s approval.

    The management?s response was as follows:

    “I agree with your recommendation this year, once we recruit the purchasing officer he/she will start by updating our assets register”.

    5.2 Disposal of Obsolete Assets

    In the financial year 2010, a survey of damaged capital assets was conducted by the Institute. In 2011, the Council decided to engage a valuer and auctioneer for disposal of the obsolete assets identified. These obsolete assets were mostly furniture and fixtures and office equipment. Further, to engage a valuer and auctioneer would be a costly exercise for the Institute. Therefore,

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  • the options are that the Institute should go for a public tender and call for quotes or can call for a quote from within the Institute staff and dispose the same as per its policy in a more acceptable manner. In response the Director stated that:

    “Yes, I agree. In 2012, I disciplined our Acting Manager Finance and Administration and our Senior Projects Officer on this very matter where no proper records were kept and no proper report was done too by the senior staff concerned. In future we will engage an independent Auctioneer. This year 2013, we are doing another stock take on our properties so we can update our inventory. If there are any obsolete items in the future we will engage a valuer and auctioneer to dispose of the properties”. 6. PAYROLL/STAFF PERSONNEL RECORDS

    6.1 Payroll

    I observed that the employees? remuneration pays were processed manually on excel spreadsheet. Also, some of the allowances were paid separately and not together with the fortnightly pays. I highlighted that control over the payroll may not be adequate and chances for additional allowances paid by oversight may exist. In addition, I informed that accuracy and reliability of using the excel spreadsheet cannot be ensured especially in determining the calculations of tax and other statutory deductions including superannuation contributions. I recommended that an accounting package must be introduced and all the remuneration components of the officers should be processed utilising the system?s own payroll module. The management responded as follows:

    “We have commenced using the MYOB Accounting Package System. The 2012 accounts have already been entered into the MYOB accounting system in 2013”.

    6.2 Casual Employees

    In 2011, the Institute employed twenty-two (22) casual staff. However, I was not provided with the approval granted by the DPM and the employment numbers awarded for the positions they held. Also, the wages for these casuals were not paid through the payroll to their respective bank accounts as required by a circular that was issued by DPM (Circular Instruction No. 21 of 2008) dated 22 September, 2008. I highlighted that all casual and part time employees should be held against position numbers obtained from the Secretary, Department of Personnel Management by application, prior to engagement and should be issued with staff payroll numbers. Also, payments of wages should be made through payroll against appropriate votes. Further, I recommended the management to carry out a review on the total manpower requirement and seek necessary approval for a new restructure. In response the management stated as follows:

    “LTI already made a re-organisation restructure submission to SCMC in April, 2011. SCMC?s response came in December, 2012 stating that our re-organisation structure was rejected. We will submit another re-organisation structure to the SCMC this year (2013)”. 6.3 Non-Compliance of Payments made towards Various Allowances for Utilities, Telephone, Entertainment, Higher Duty and Overtime My review and tests performed on selective payrolls indicated that except for the base salaries and

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  • DMAs, all other allowances paid to the Director, the Deputy Director, Senior Project and Liaison Officer, Senior Lecturer, and Senior Legal Officer were not taxed. Also, the Higher Duty Allowances and overtime allowances paid to other officers were not taxed appropriately. I indicated that non-compliance of Income Tax Act, 1959 (as amended), would attract penalties and interests on the accessed tax. Hence, I informed the management to ensure compliance with the relevant tax laws and deduct taxes appropriately from the officers. In response the management stated that:

    “LTI consults the Internal Revenue Commission (IRC) rules and regulations. Utilities, telephone and entertainment allowances are non-taxable items. LTI did not place tax on higher duty allowance (HDA) paid to the Deputy Director, Legal Officer and former Senior Lecturer as their appointments were on a one-off basis (and not continuous). The Director and Senior Project & Liaison Officer?s HDA are currently being taxed as they are on continuous appointment. In relation to taxing overtime, LTI follows the guidelines laid out in the IRC Tax Table. LTI taxes overtime when the total amount of overtime payment goes beyond the non-taxable benchmark indicated by IRC”.

    6.4 Director?s Employment Contract Observation I observed that the Council had approved to retain the incumbent acting Director of the Institute for a term of another four (4) years effective from 10 November, 2010. However, I was not provided with the signed contract instruments issued by the Department of Personnel Management (DPM) validating the appointment. In PPE# 17 the Director?s base salary was overpaid by K1,000. I noted that K270 is usually paid to the Director every fortnight as fuel allowance though the Director was provided with a motor vehicle on a twenty-four hour basis with fuel. The accuracy and correctness of the salaries paid to the Director could not be verified due to unavailability of signed employment contract. The management responded as follows:

    “That?s true. There has not been a contract drawn for the Director by Department of Personnel Management. We are now working on a draft contract. The reason for this was because we were still negotiating the Director?s term of contract. The Finance & Administration Manager will comment on the overpayment of K1,000. With the vehicle allowance, it is based on the contract that DPM issued in 2011 where she was receiving vehicle allowance of K7,020 per annum (K7,020 into 26 = K270). That was the basis of the payment only for diesel. A policy on the motor vehicle eligibility and allowance will be obtained from Department of Personnel Management and Department of Finance”. 6.5 Staff Ledgers Observation Maintenance of staff ledgers/employees history cards was not up to date. I was therefore unable to determine the accuracy of the accrued annual leave and availability of the balances of annual leaves, sick leaves and compassionate leaves for each officer. Leave without pays were not updated as well. Further, the details of staff dependents and their eligibility could not be verified for want of relevant documents. I indicated that inadequate record keeping of the staff expose the Institute to the risk of paying incorrect employee benefits. Thus, I recommended that staff ledgers/employee history cards be maintained for each employee capturing all details of leave credited and leave availed after each completed year of service. I also advised the management to update and include the appraisals awarded and the gratuity payments made to the contract officers to be kept in their respective personal files.

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  • The management?s response was as follows:

    “Noted and we will ensure our staff records are updated. The staff appraisals since 2011 have been done consistently as well as gratuity for contract officers”. 7. Repair/Adding Capital Goods to Director?s House Observation The repair and maintenance work carried out on the Director?s house and temporary accommodation for the Director cost the Institute K81,012 in 2009. Again in 2010 capital goods costing K3,290 had been purchased to be kept at the same place and in 2011, a fridge was added at a cost of K3,269. The house rented for the Director was owned by the National Housing Corporation (NHC) and they have been obliged to do the major renovations and equip the house with household furniture and white goods. Since the house was not owned by the Institute which gave incorrect information in the financial statements of 2011. Further, any capital goods purchased by the monies of Legal Training Institute which deemed to be used outside its normal operational requirements were not an acceptable practice. Consequently, I recommended that the Institute should initiate all possible steps to recover the above renovation and replacement costs from the NHC by deducting an agreed amount from the monthly rent. Also, it would be appropriate to disclose this renovation and replacement costs separately as Note to and forming part of the financial statements since the issue of recouping the money is still pending. The management in its response stated that:

    “We agree with everything that has been said but the National Housing Corporation has been defunct or not progressing well over the years, and the LTI Council have approved improvements to the Director?s house and to the purchases of furniture, fridge, washing machine etc to the NHC not providing services or maintenance for its houses. The lawn mower although has been bought for the Director?s house has been used at the office since the one at the office has been at the workshop for repair since it was newly bought. These properties still belongs to the Legal Training Institute. This is just the practical situation that has prompted the Council to approve the budget for the Director?s house over the years even before the current Director?s time”. 8. Council Approved Shut Down Period Extension of Two Weeks & CPI Increases

    I noted that an extra two (2) weeks extension of shutdown period was sought from the Council as per meeting minute number 1/2011 dated 18 February, 2011 under Director?s report in 2010/2011 after the official DPM issued closure of work at the year end. Again in 2011 at the Council Meeting #4 dated 16 November, 2011 the council approved for additional two (2) weeks shutdown period for the Institution.

    In emphasizing that DPM is the sole authority for approving the public holidays or to grant leave from performing normal operational duties, that salaries paid to the officers while on the Council approved extra two (2) holidays was not budgeted for. Therefore, I requested the management to provide documents relating to approval sought from and granted by the DPM for the extra two (2) weeks extension of the shut down period. In response the management stated as follows:

    “There was no approval obtained from the Department of Personnel Management. It was obtained

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  • only at the LTI Council level”.

    16.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Institute had not submitted its financial statements for the year ended 31 December, 2012 for my inspection and audit.

    17. MINERAL RESOURCES AUTHORITY

    17.1 INTRODUCTION

    17.1.1 Legislation

    The Mineral Resources Authority was established by the National Parliament under the Mineral Resources Act, 2005 on 9 November, 2005. This Act came into force on January 2006 but commenced operations in June 2007. 17.1.2 Objectives of the Authority

    The objective of the Authority is to be able to achieve stability, industry growth and a degree of assurance of future revenues from the mineral industry. More effective management of issues concerning landowners and their participation in the development process and allow for the development of a more settled investment climate and industry development. 17.1.3 Functions of the Authority

    The functions of the Authority are described as follows:

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

    (b) to promote the orderly exploration for the development of the country?s mineral resources; (c) to oversee the administration and enforcement of the Mining Act, 1992, the Mining (Safety) Act (Chapter 195A), the Mining Development Act (Chapter 197), the Ok Tedi Acts and the Ok Tedi Agreement, the Mining (Bougainville Copper Agreement) Act (Chapter 196) and the agreements that are scheduled to that Act, and any other legislation relating to mining or to the management, exploitation or development of Papua New Guinea?s mineral resources; (d) to negotiate mining development contracts under the Mining Act, 1992 as agent for the State; (e) to act as agent for the State, as required, in relation to any international agreement relating to mining or to the management, exploitation or development of Papua New Guinea?s mineral resources; (f) to receive and collect, on its own account and on behalf of the State, any fee, levy, rent, security, deposit, compensation, royalty, costs, penalty, or other money, or other account payable under the Mining Act, 1992, the Mining (Safety) Act (Chapter 195A), the Mining Development Act (Chapter 197), the Ok Tedi Acts and the Ok Tedi Agreement, the Mining (Bougainville Copper Agreement) Act (Chapter 196) and the agreements that are scheduled to that Act, or any other Act the administration of which is the responsibility of the Authority from time to time;

    Mineral Resources Authority

    (g) on behalf of the State, to receive and collect from persons to whom a tenement has been granted under the Mining Act, 1992 the security for compliance with the person?s obligations

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  • under the Mining Act, 1992 required to be lodged with the Registrar, and to hold and such security received or collected; (h) on behalf of the State, to administer and be responsible for the administration of any public investment programme relating to mining; (i) to conduct systematic geoscientific investigations into the distribution and characteristics of Papua New Guinea?s mineral and geological resources, located on, within or beneath the country?s land mass, soil, subsoil and the sea-bed; (j) to provide small scale mining and hydrogeological survey data services, and occupational health and safety community awareness programs; (k) to collect, analyse, store, archive, disseminate and publish (in appropriate maps and publications) on behalf of the State geoscientific information about Papua New Guinea?s mineral and geological resources; (l) to carry out such other functions as are given to the Authority by this Act or by any other law; and (m) generally to do such supplementary, incidental, or consequential acts and things as are necessary or convenient for the Authority to carry out its functions.

    17.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Authority for the year ended 31 December, 2010 was in progress.

    The Authority had not submitted its financial statements for the years ended 31 December, 2011 and 2012 for my inspection and audit.

    18. MOTU KOITABU COUNCIL

    18.1 INTRODUCTION

    18.1.1 Legislation

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

    18.1.2 Functions of the Interim Assembly

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

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

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

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  • District comprises the National Capital District Commission, the Motu Koitabu Council and the Local Level Governments in the National Capital District.

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

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

    18.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Council for the years ended 31 December, 2003 to 31 December, 2007 had been completed and awaiting the signed financial statements from the Council to issue the reports. The new Board and management declined to sign the financial statements.

    My reports on the entities for the years ended 31 December, 2008 to 31 December, 2012 will be reported under Part III of my Annual Report.

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

    18A.1 INTRODUCTION

    18A.1.1 Legislation

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

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

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

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

    18A.1.2 Functions

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

    (a) to promote the development of the Motu Koitabu people living within the National Capital

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  • District by the promotion of trade, commerce, communication and co-operation; and

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

    18A.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and audit of the accounts and records and the examination of the financial statements of the Company for the years ended 31 December, 2003 to 31 December, 2007 had been completed and awaiting the signed financial statements from the Company to issue the reports. The new Board and management of the Company declined to sign the financial statements.

    My reports on the entities for the years ended 31 December, 2008 to 31 December, 2012 will be reported under Part III of my Annual Report.

    19. NATIONAL AGRICULTURE QUARANTINE AND INSPECTION AUTHORITY

    19.1 INTRODUCTION

    19.1.1 Legislation

    The National Agriculture Quarantine and Inspection Authority (NAQIA) was established by the National Agriculture Quarantine and Inspection Authority Act, 1997. This Act came into operation on 29 May, 1997. Under this Act, all assets used for Quarantine and Inspection Services (other than land held by the State) and previously held by the Department of Agriculture and Livestock which were necessary to be transferred to the Authority for the purposes of the Authority, were transferred to and became the assets of the Authority at commencement.

    19.1.2 Objective of the Authority

    The main objectives of the Authority, as mentioned in the Act, are the conduct of quarantine and inspection of: any animal and species; any fish species; any plant species; any products derived from animals, fish and plants; and to prevent pests or diseases from entering in or going out of Papua New Guinea. 19.1.3 Functions of the Authority

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    19.2 AUDIT OBSERVATION

    19.2.1 Comments on Financial Statements

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  • My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the Authority?s financial statements for the year ended 31 December, 2012 was issued on 07 March, 2013. The report contained the following Qualified Opinion:

    “BASIS FOR QUALIFIED OPINION

    Cash Sales Receipts – Lae and Port Moresby Sea Ports

    The Authority disclosed its cash sales receipts as K19,872,743 at the year end. Of this amount, my examination of the cash sales receipts, on a sample basis, revealed that Lae Port fifteen (15) receipts and Port Moresby Sea Port twenty (20) receipts were missing from files. I was unable to quantify the actual cash sales receipts unaccounted for from the total cash receipts. I also noted that customers were allowed to pay at a later date for cash sales by the Authority. This highlights the internal control weakness in the revenue cycle. Consequently, I am unable to confirm the accuracy and completeness of the fees and charges stated in the financial statements.

    QUALIFIED OPINION

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

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

    (b) the financial statements are in agreement with those accounts and records, and show fairly the state of affairs of the Authority as at 31 December, 2012, and the results of its financial operations and cash flows for the year then ended.”

    20. NATIONAL AGRICULTURAL RESEARCH INSTITUTE

    20.1 INTRODUCTION

    20.1.1 Legislation

    The National Agricultural Research Institute (NARI) was established by the National Agricultural Research Institute Act, 1996. This Act came into operation on 10 October, 1996. Under this Act, all monies allocated to or standing to the credit of the research division of the Department of Agriculture and Livestock, and all assets used for research and research related functions (other than Land held by the State) and previously held by the Department of Agriculture and Livestock prior to the operationalisation of the Act, were transferred to the Institute to become the assets of the Institute at commencement. 20.1.2 Objectives of the Institute

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

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

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

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

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  • 20.1.3 Functions of the Institute

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

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

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

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

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

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

    National Agricultural Research Institute

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

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

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

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

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

    20.2 AUDIT OBSERVATIONS

    20.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements for the year ended 31 December, 2012 was issued on 18 June, 2013. The report did not contain any qualification.

    21. NATIONAL AIDS COUNCIL SECRETARIAT

    21.1 INTRODUCTION

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  • 21.1.1 Legislation

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

    21.1.2 The Objectives of the Council

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

    21.1.3 Functions of the Council

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

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

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

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

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

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

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

    National AIDS Council Secretariat

    21.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the inspection and audit of the accounts and records and the examination of the financial statements of the Council for the years ended 31 December, 2009 and 2010 were completed. The management however, had not responded to the matters raised in my management letter, for me to finalise and issue my report under the Audit Act, 1989 (as amended).

    The financial statements for the years ended 31 December, 2011 and 2012 had not been submitted by the Council for my inspection and audit. I have sent reminder and follow up correspondences, however, the management responded that the respective financial statements were under preparation.

    22. NATIONAL BROADCASTING CORPORATION

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  • 22.1 INTRODUCTION

    22.1.1 Legislation

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

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

    The Amendment Act No.49 of 1995 came into operation on 23 April, 1996 as per Gazettal Notification No.G.32. 22.1.2 Functions of the Corporation

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

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

    22.2 AUDIT OBSERVATIONS

    22.2.1 Comments on Financial Statements

    My reports to the Ministers under Section 8 of the Audit Act, 1989 (as amended), on the financial statements of the Corporation for the years ended 31 December, 2010 and 2011 were issued on 14 December, 2012 and 29 April, 2013 respectively. The reports contained similar Disclaimer of Opinions, hence only the 2011 report is reproduced.

    “BASIS FOR DISCLAIMER OF OPINION

    Internal Control Environment

    During my review, I identified significant weakness in the Corporation?s overall internal control environment operated during the period under audit. The accounting system (Attaché) and internal control environment at the National Broadcastin