Report of the Auditor-General Part IV 2014 on the Accounts of Public Authorities and Statutory Bodies

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    Auditor General’s Office

    Report of the Auditor-General 2014
    of Papua New Guinea

    Report of the Auditor-General

    2014
    40th Independence
    Anniversary
    Part 4

    Part 4
    Govt. Print – 357/220.09/2015

  • Page 2 of 396

  • Part 4
    Report of the Auditor-General
    2014

    on the Accounts of Public Authorities and Statutory Bodies established
    under the Act of Parliament and Government Owned Companies
    established under the Companies Act

    __________________________________________________________
     Public Bodies and their Subsidiaries

     National Government Owned Companies

     National Government Shareholdings in Other Companies

    Auditor-General’s Office of Papua New Guinea

  • Page 3 of 396

  • Page 4 of 396

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

    24 July 2015

    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 24th July 2015 upon
    the inspection and audit of the financial statements of the Public Bodies and their subsidiaries
    and National Government owned companies for tabling in the National Parliament. This
    Report (Part IV) also contains information on companies in which the Government does not
    hold majority interest. Section D of this Part of the Report contains information on the status
    of certain entities which have ceased operations and those entities audits of which have been
    in arrears. Further, the status of eleven Project Audits are summarised and the details are
    covered in my Special Project Audits Report to the Parliament.

    Yours sincerely,

    PHILIP NAUGA
    Auditor-General

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

  • Page 5 of 396

  • Page 6 of 396

  • 2014 AUDITOR-GENERAL’S REPORT – 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 …………………………………………………………………………………………………………..vi
    D. Appointment and use of Authorised Auditors …………………………………………………………………………. viii
    E. Executive Summary …………………………………………………………………………………………………………… viii
    Attachments A – E ……………………………………………………………………………………………………………. xviii

    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
    3A. Papua New Guinea Maritime Transport Limited ………………………………………………………….. 9
    4. Civil Aviation Safety Authority of Papua New Guinea ………………………………………………………………. 10
    5. Cocoa Board of Papua New Guinea and its Subsidiary ……………………………………………………………. 17
    5A. Cocoa Stabilisation Fund ………………………………………………………………………………………… 18
    5B. Cocoa Pod Borer Project Fund ………………………………………………………………………………… 19
    6. Cocoa Coconut Institute Limited of Papua New Guinea……………………………………………………………. 22
    7. Coffee Industry Corporation Limited and its Subsidiaries ……………………………………………………….. …23
    7A. Coffee Industry Fund………………………………………………………………………………………………. 24
    7B. Patana No. 61 Limited…………………………………………………………………………………………….. 25
    8. Government Printing Office ………………………………………………………………………………………………….. 26
    9. Independence Fellowship Trust …………………………………………………………………………………………. ..27
    10. Independent Consumer and Competition Commission …………………………………………………………….. 28
    11. Independent Public Business Corporation and its Subsidiaries ………………………………………………… 31
    11A. Aquarius No. 21 Limited ………………………………………………………………………………………….. 39
    11B. General Business Trust …………………………………………………………………………………………… 43
    11C. PNG Dams Limited ………………………………………………………………………………………………… 44
    11D. Port Moresby Private Hospital Limited ………………………………………………………………………. 48
    12. Industrial Centres Development Corporation ………………………………………………………………………….. 51
    13. Internal Revenue Commission. …………………………………………………………………………………………….. 55
    14. Investment Promotion Authority …………………………………………………………………………………………… 57
    15. Kokonas Indastri Koporesen and its Subsidiaries ……………………………………………………………………. 58
    15A. Papua New Guinea Coconut Extension Fund …………………………………………………………….. 60
    15B. Papua New Guinea Coconut Research Fund …………………………………………………………….. 61
    16. Legal Training Institute ………………………………………………………………………………………………………… 62
    17. Mineral Resources Authority ……………………………………………………………………………………………….. 63
    18. Motu Koitabu Council and its Subsidiary ………………………………………………………………………………… 71
    18A. Tabudubu Limited ………………………………………………………………………………………………….. 73

    -i-

  • Page 7 of 396

  • PARA SUBJECT PAGE
    NO. NO.

    19. National Agriculture Quarantine and Inspection Authority …………………………………………………………. 74
    20. National Agricultural Research Institute …………………………………………………………………………………. 80
    21. National AIDS Council Secretariat ………………………………………………………………………………………… 83
    22. National Broadcasting Corporation ……………………………………………………………………………………….. 94
    23. National Capital District Commission and its Subsidiaries ………………………………………………………… 95
    23A. National Capital District Botanical Enterprises Limited ……………………………………………….. 101
    23B. Port Moresby City Development Enterprises Limited ………………………………………………… 103
    23C. Port Moresby Nature Park Limited ………………………………………………………………………….. 105
    24. National Cultural Commission …………………………………………………………………………………………….. 107
    25. National Economic and Fiscal Commission ………………………………………………………………………….. 108
    26. National Fisheries Authority ……………………………………………………………………………………………….. 112
    27. National Gaming Control Board ………………………………………………………………………………………….. 114
    27A. National Gaming Control Board Community Benefit Fund Trust. ……………………………….. 120
    28. National Housing Corporation …………………………………………………………………………………………….. 124
    29. National Information and Communication Technology Authority ………………………………………………. 126
    30. National Maritime Safety Authority ………………………………………………………………………………………. 127
    31. National Museum and Art Gallery ……………………………………………………………………………………….. 130
    32. National Narcotics Bureau ………………………………………………………………………………………………….. 135
    33. National Research Institute ……………………………………………………………………………………………….. 141
    34. National Road Safety Council …………………………………………………………………………………………….. 144
    35. National Roads Authority……………………………………………………………………………………………………. 147
    36. National Training Council ………………………………………………………………………………………………….. 153
    37. National Volunteer Service …………………………………………………………………………………………………. 157
    38. National Youth Commission ……………………………………………………………………………………………….. 162
    39. Office of Climate Change and Development ………………………………………………………………………… 163
    40. Oil Palm Industry Corporation ……………………………………………………………………………………………. 165
    41. Ombudsman Commission of Papua New Guinea ………………………………………………………………….. 166
    42. Pacific Games (2015) Authority …………………………………………………………………………………………… 169
    43. Papua New Guinea Accident Investigation Commission …………………………………………………………. 170
    44. Papua New Guinea Immigration and Citisenship Service Authority ………………………………………….. 172
    45. Papua New Guinea Forest Authority ……………………………………………………………………………………. 174
    46. Papua New Guinea Institute of Medical Research …………………………………………………………………. 182
    47. Papua New Guinea Institute of Public Administration …………………………………………………………….. 186
    48. Papua New Guinea Maritime College …………………………………………………………………………………. 189
    49. Papua New Guinea National Institute of Standards and Industrial Technology …………………………. 194
    50. Papua New Guinea Sports Foundation ……………………………………………………………………………….. 199
    51. Papua New Guinea University of Technology and its Subsidiaries …………………………………………… 218
    51A. National Analytical and Testing Services Limited. ……………………………………………………… 225
    51B. Unitech Development and Consultancy Company Limited …………………………………………. 226
    52. Parliamentary Members’ Retirement Benefits Fund ………………………………………………………………. 227
    53. Public Curator of Papua New Guinea…………………………………………………………………………………… 228
    54. Security Industries Authority ……………………………………………………………………………………………….. 232
    55. Small Business Development Corporation …………………………………………………………………………… 236
    56. Tourism Promotion Authority ……………………………………………………………………………………………… 237
    57. University of Goroka and its Subsidiary………………………………………………………………………………… 238
    57A. Unigor Consultancy Limited…………………………………… .. ……………………………….246
    58. University of Natural Resources and Environment ………………………………………………………………… 247
    59. University of Papua New Guinea and its Subsidiaries ……………………………………………………………. 256
    59A. Unisave Limited …………………………………………………………………………………………………… 258
    59B. Univentures Limited ……………………………………………………………………………………………… 261
    60. Water PNG ………………………………………………………………………………………………………………………. 262

    -ii-

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  • SECTION B – NATIONAL GOVERNMENT OWNED COMPANIES

    PARA SUBJECT PAGE
    NO. NO.

    61. Foreword …………………………………………………………………………………………………………………………. 271
    62. Air Niugini Limited …………………………………………………………………………………………………………….. 273
    63 Livestock Development Corporation Limited …………………………………………………………………………. 278
    64. Mineral Resources Development Company Limited……………………………………………………………….. 279
    65. Motor Vehicles Insurance Limited ……………………………………………………………………………………….. 285
    66. National Airports Corporation Limited and its Subsidiary ………………………………………………………… 289
    66A. Airport City Development Limited …………………………………………………………………………… 290
    67. NCD Water and Sewerage Limited (Eda Ranu) …………………………………………………………………….. 291
    68. NPCP Holdings Limited and its Subsidiaries …………………………………………………………………………. 295
    68A. National Petroleum Company of PNG Investments Limited. …………………………………………. 296
    68B. National Petroleum Company of PNG (Kroton) Limited ……………………………………………….. 297
    68C. National Petroleum Company of PNG Pipeline and Gas Supply Limited. ……………………….. 298
    69. Papua New Guinea Ports Corporation Limited ………………………………………………………………………. 299
    70. PNG Air Services Limited ………………………………………………………………………………………………….. 302
    71. PNG DataCo Limited……………………..……………………………………………………………………304
    72. PNG Power Limited …………………………………………………………………………………………………………… 306
    73. Post PNG Limited …………………………………………………………………………………………………………….. 308
    74. Telikom PNG Limited and its Subsidiaries ……………………………………………………………………………. 311
    74A. Kalang Advertising Limited …………………………………………………………………………………….. 313
    74B. PNG Directories Limited ………………………………………………………………………………………… 314

    SECTION C – NATIONAL GOVERNMENT SHAREHOLDINGS IN OTHER COMPANIES

    PARA SUBJECT PAGE
    NO. NO.

    75. Foreword …………………………………………………………………………………………………………………………. 317
    76. Bougainville Copper Limited ……………………………………………………………………………………………….. 319
    77. Gogol Reforestation Company Limited…………………………………………………………………………………. 321
    78. Ok Tedi Mining Limited………………………………………………………………………………………………………. 322
    79. PNG Sustainable Development Program Limited ………………………………………………………………….. 323

    -iii-

  • Page 9 of 396

  • SECTION D – PROBLEM AUDITS

    PARA SUBJECT PAGE
    NO. NO.

    80. Foreword………………………………………………………………………………………………………………………… 327
    80.1 Exclusion of Entities from Future Reports ………………………………………………………………… 327
    81. Audits in Arrears ……………………………………………………………………………………………………………… 328

    81.1 General ……………………………………………………………………………………………………………… 328
    81.2 Responsibility for preparation of Financial Statements ……………………………………………… 328
    81.3 Legislative Requirements …………………………………………………………………………………….. 329
    81.4 Current Year Audits (2014 Audits) …………………………………………………………………………. 329
    81.5 Status of Current Year Audits ……………………………………………………………………………….. 331
    81.6 Audits in Arrears (2013 and prior years) …………………………………………………………………. 333
    81.7 Long Outstanding Financial Statements …………………………………………………………………. 336
    81.8 Status of Audits as at 30 June 2015 ………………………………………………………………………. 339

    Acknowledgements ………………………………………………………………………………………………………….. 341
    Schedule A – Current Year Audits ………………………………………………………………………………………. 344
    Schedule B – Status of Audits in Arrears ……………………………………………………………………………… 348
    Schedule C – Long Outstanding Financial Statements ………………………………………………………….. 351
    Schedule D – Non-Operational Entities and Others ………………………………………………………………. 353
    Schedule E – Prior year Audits completed during 2014/2015………………………………………………….. 354

    -iv-

  • Page 10 of 396

  • GENERAL

    A. FOREWORD

    My Annual Report to the National Parliament for the 2014 financial year is presented
    in four Parts. Part I deals with the Public Accounts of Papua New Guinea (PNG). Part
    II deals with National Government Departments and the Provincial Treasury Offices,
    whilst Part III deals with the audit of the Provincial Governments and Local-level
    Governments.

    Part IV (this Part) of my Report deals with Public Bodies and their Subsidiaries,
    Government Owned Companies and National Government‟s shareholdings in Other
    Companies.

    This Report is divided into four sections:
     Section A deals with Public Bodies and their subsidiaries;
     Section B deals with National Government owned companies;
     Section C deals with the Companies in which the National Government has
    shareholdings; and
     Section D is an additional section which provides details of entities that have
    ceased operating and those other entities the audits of which have been in
    arrears due to non-submission of financial statements.

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

    A.1 Audit and Delivery of Government Program

    I have carried out audits of Statutory Bodies and their Subsidiaries, Provincial
    Government and Local Level Government, Hospital Boards, Business Arms,
    Provincial Authorities and Other audits as mandated. These government entities are
    tasked to deliver government services to the people of Papua New Guinea.

    Although my report provides opinions on the financial affairs of these entities, other
    audit procedures performed by my Office give a picture of effectiveness of the
    delivery, by the public sector, of government policies and programs particularly their
    contribution to National Building through recovery, development and service delivery
    objectives of the Medium Term Development Strategies (MTDS) including:
     Welfare
     Health
     Economic Development and Growth
     Contribution to Nation Building
     Good Governance

    -v-

  • Page 11 of 396

  • General

     Rural Development
     Poverty Reduction
     Employment
     Strengthening Public Expenditure
     Management System including:
    – Fiscal Sustainability
    – Prioritisation of Resources, and
    – Cost effective implementation of programs.

    In addition, my audit findings that have been repeatedly highlighted show a slow
    progress in making improvements to governance structures and public accountability
    mechanisms in relation to expending public finances. Without strong governance
    support, service delivery as envisaged by the National Government remains to be
    frustrated.

    Besides the Audit of Financial Statements, I have extended my audit programs into
    the audit of service delivery, performance audit and major public works projects to
    enhance my Office‟s ability to deliver reports to Parliament on how well and effective
    the government programs are being delivered.

    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, in so far 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.

    -vi-

  • Page 12 of 396

  • General

    B.3 Auditing and Reporting Requirements

    In Section 8, Sub-sections 2 and 4 of the Audit 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 Audit Act requires me to audit the financial statements of the
    public bodies and to report an opinion to the aforementioned Ministers on:
     Whether the financial statements are based on proper accounts and records;
     Whether the financial statements are in agreement with those accounts and
    records; and
     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 (PFMA)

    The submission of the financial statements of public bodies for audit is required
    under Section 63(4) of the PFMA. 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 proceeding, 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

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

    -vii-

  • Page 13 of 396

  • General

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

    C. AUDIT OF PUBLIC BODIES

    C.1 Scope of Audit

    Presently, the limited resources available to my Office are directed primarily
    towards financial attestation and compliance or regularity audit of Public Bodies.
    Due to resource constraints, I have not been able to venture into the audits of
    information systems.

    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 Section B of this
    Report which covers the National Government owned companies.

    C.3 Reporting Framework

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

    -viii-

  • Page 14 of 396

  • General

    D. APPOINTMENT AND USE OF AUTHORISED AUDITORS

    Section 8(5) of the Audit Act 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.

    -ix-

  • Page 15 of 396

  • E. EXECUTIVE SUMMARY

    E.1 Report Coverage

    This Report covers the audit reports issued by my Office on the audits of Public
    Bodies and their Subsidiaries, Government Owned Companies, and National
    Government‟s shareholdings in Other Companies during the period July 2014 to
    June 2015 (2014/2015 Audit Cycle). The Report covers the audits of these entities‟
    financial statements for a number of years, not just 2014.

    In 2014 there were 100 public entities subject to audit by my Office, consisting of
    81 Public Bodies and their Subsidiaries and 19 National Government Owned
    Companies. In addition, the Statutory Bodies Audit Division also carried out audits
    on 11 Projects managed by Public entities as implementing agencies which are
    depicted in the Schedule ‘D’ of this report.
    The results of these audits are presented in a separate Special Projects Audit report
    presented to the National Parliament.

    I am also responsible for reporting on the audits of 4 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.

    The audit portfolio has increased from 89 entities in 2013 to 100 entities in 2014.

    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 overall poor state of the financial
    management structure in most public entities whose statements are subject to my
    audit and inspection.

    The overall purpose of financial statements is to provide information about the
    financial position and performance of an organisation. The information is useful to a
    wide range of stakeholders and the statements constitute a formal record of the
    financial and business activities of an organisation. As such, the statements are core
    component of an organisation‟s governance and accountability. Non-submission of
    the financial statements for audits in a timely manner greatly limits the ability of
    stakeholders to monitor performance and make informed decisions regarding the
    organisation.

    -x-

  • Page 16 of 396

  • Executive Summary

    Financial management in the public sector is the establishment and maintenance of
    polices, processes and procedures to achieve effective and efficient management of
    public funds in such a manner as to achieve the objectives of the organisation. It
    consists of planning, directing, monitoring, organising and controlling the monetary
    resources of an organisation. Unfortunately many organisations continue to indicate
    they are incapable of managing their financial affairs.

    Weaknesses with financial management are contributing to significant wastage of
    financial resources and indicate a serious lack of transparency and accountability.
    Ultimately these weaknesses adversely impact upon the delivery of services to the
    citisens of PNG.

    E.3 Submission of current year Financial Statements

    Section 63 (4) of the PFMA 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.

    Despite these legislative requirements, 66 entities had not submitted their 2014
    financial statements to be audited and overall some 41 financial statements for
    2013 and prior years had not been submitted for audit (Refer Table A). However, I
    noted some improvements during the cycle due to strategies implemented by my
    Office by compelling entities to submit their financial statements.

    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 A

    STATUS OF AUDITS DURING THE YEAR 2014 (END OF 2014/2015 CYCLE)

    Financial
    Year Audits Audits Audits in Audits to Statements Total Total
    Completed Substantially Progress Commence not 2014/2015 2013/2014
    Completed Shortly Submitted
    2014 18 2 8 5 66 99 –
    2013 24 11 17 7 27 86 96
    2012 25 12 10 3 10 60 86
    2011 27 7 5 1 2 42 54
    2010 9 3 – 1 2 15 32
    2009 4 1 – 1 – 6 14

    -xi-

  • Page 17 of 396

  • Executive Summary

    2008 3 – – 1 – 4 8
    2007 2 2 – 1 – 5 8
    2006 1 2 – 1 – 4 5
    2005 1 2 – 1 – 4 4
    2004 – 2 – – – 2 4
    2003 – 2 – – – 2 4

    Total 114 46 40 22 107 329 315

    Table A also shows that 200 audits were either completed, substantially completed or
    still in progress as at 30 June 2014. The details are graphically depicted in
    Attachment ‘C’, which also included the arrears of prior years. Table A also shows
    that of the 114 audits completed, only 18 were for the current year (2014), with 10
    current year audits substantially completed or were in progress. A further 5 audits
    were to commence shortly. Graphical description of the status of current year 2014
    audits (excluding arrears) is given in Attachment ‘A’. The list of entities is at
    Schedule ‘A’ (i), (ii), (iii) & (iv).

    E.4 Type of Audit Opinions Issued1

    In the period covered by the audit, 114 audit reports were issued. Of the 114 audit
    reports issued, 37 were unqualified, 37 were qualified, 39 were Disclaimer
    Opinions and one report related to Internal Control Review.

    Of the 37 unqualified opinions issued, 24 related to prior years and only 13 were for
    2014 as follows:
    1. Bank of PNG;
    2. Independent Fellowship Trust
    3. Investment Promotion Authority
    4. Kokonas Indastri Koporesen;
    5. PNG Extension Fund;
    6. PNG Coconut Research Fund;
    7. National Agricultural Research Institute;
    8. Post (PNG) Limited;
    9. National Research Institute
    10. NPCP Holdings Limited
    11. NPCP Investment Limited
    12. NPCP Pipeline and Gas Supply Limited
    13. National Petroleum Company of PNG (Kroton) Limited

    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.

    -xii-

  • Page 18 of 396

  • Executive Summary

    Six of the qualified opinions related to 2014 and others were for prior years. The high
    numbers of Disclaimer Audit Opinions issued are a reflection of the poor state of
    accounting, record-keeping and financial management practices in a number of public
    bodies.

    The list of entities and the type of audit opinions issued during the period July 2014 to
    June 2015 are provided in Attachment ‘D’.

    Types of Audit Opinions issued for each entity over the period of four years from
    2010 – 2014 are detailed on Attachment ‘E’.

    E.5 Key Findings

    The key findings from the audits centered primarily 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 PFMA 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 100 public entities and 11 Projects only 33 entities
    have submitted their financial statements for 2014 (Refer Schedule A (i), (ii), (iii) &
    (iv) for my audit and inspection up to the time of preparing this Report. A total of 66
    entities have failed to comply with these provisions (Refer Schedule A (v)). The
    public entities and project audits referred to above does not include 4 Companies
    with minority Government shareholdings.

    The Status of Audits in Table A also includes the Project Audits. Refer to Schedule
    D (iii) for status of Project Audits.

    The non-compliance of the public entities mentioned above has resulted in:
     My Office not being able to report adequately on the accountability of the use of
    public resources in a timely manner;
     A build-up of audits in arrears; and

    -xiii-

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  • Executive Summary

     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 Recommendation

    There is vigorous enforcement of the provisions of Section 63 of the PFMA and a
    legislative requirement is established to make the renewal of contracts of Chief
    Executive Officers subject to submission of financial statements and implementation
    and maintenance of 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 2013 or earlier are given below in Table B and Schedule ‘C’.

    Table B
    Financial Statements not Submitted

    No. Section Para Entity No. of
    No. Audits
    1 A 3A Papua New Guinea Maritime Transport Limited 1
    2 A 5B Cocoa Pod Borer Project Fund 1
    3 A 8 Government Printing Office 1
    4 A 17 Mineral Resources Authority 1
    5 A 23 National Capital District Commission 1
    6 A 23A National Capital District Botanical Enterprises Limited 1
    7 A 23B Port Moresby City Development Enterprises Limited 1
    8 A 28 National Housing Corporation 1
    9 A 29 National Information and Communication Technology Authority 1
    10 A 31 National Museum and Art Gallery 1
    11 A 32 National Narcotics Bureau 1
    12 A 43 Papua New Guinea Accident Investigation Commission 1
    13 A 45 Papua New Guinea Forest Authority 1
    14 A 51 Papua New Guinea University of Technology 1
    15 A 53 Public Curator of PNG 1
    16 A 55 Small Business Development Corporation 1
    17 A 64 Mineral Resources Development Corporation 1
    18 A 39 Office of Climate Change and Development 2
    19 A 40 Oil Palm Industry Corporation 2
    -xiv-

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    No. Section Para Entity No. of
    No. Audits
    20 A 47 Papua New Guinea Institute of Public Administration 2
    21 A 54 Security Industries Authority 2
    22 A 59A Unisave Limited 2
    23 A 59B Univenture Limited 2
    24 B 66 National Airport Corporation Limited 2
    25 B 66A Airport City Development Limited 2
    26 B 28A National Housing Estate Limited 4
    27 B 63 Livestock Development Corporation 4

    Total 41

    Arrears Reduction Strategies

    During the last Audit Cycle, I took 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:
     Forwarding reminder letters to entities on a regular basis until the submission
    of the financial statements;
     Copies of these reminder letters were forwarded to the Public Accounts
    Committee and to the Secretary for Finance for their necessary action;
     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 their responsibilities under the PFMA and the resultant
    breach of the that Act; and
     Senior officers of the Division attended various audit committee meetings
    during the cycle and emphasised the importance of brining the audits up to
    date. My officers attended the following audit committee meetings during the
    cycle:
    ‒ National Capital District Commission;
    ‒ Civil Aviation Safety Authority of PNG;
    ‒ University of PNG;
    ‒ National Housing Corporation; and
    ‒ University of Goroka.

    I have set a goal to significantly reduce the arrears situation and the entities listed
    under Attachment ‘F’ indicate the arrears cleared during the audit cycle. This
    reduction largely reflects the collective efforts of all my staff members to better
    manage the audits in arrears.

    -xv-

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  • Executive Summary

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

    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 SCMC Act which stipulates:

    “(a) 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
    (b) Whereby or under any law, power is given to a public authority, to determine or
    vary the salaries and conditions of employment of employees of the public
    authority, that power shall be exercised subject to this Act.”

    E.8 Non-Compliance with the Audit Act 1989

    Some entities owned by the State have amended their enabling Acts to exclude my
    Office from performing the audit of those entities and appointed their own auditors
    contrary to the Audit Act. The following state owned entities have appointed their own
    Auditors:
     Petromin Limited; and
     National Development Bank Limited.

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

    As reported in previous years, during the course of audits I noted serious deficiencies
    in accounting and record keeping practices and the maintenance of internal controls.
    These deficiencies, which contributed to the limitation on the scope of my audit
    procedures, included:
     Bank reconciliation statements not being prepared in a timely way or not being
    prepared at all;
     Transactions not having supporting documentation;
     Fixed asset registers not being properly kept or maintained;
     No consistent and proper valuation of assets;
     Physical asset stock-takes not being carried out;
     Property being acquired or disposed of without proper procedures being
    followed;
     Failure to comply with International Financial Reporting Standards in the
    preparation of the financial statements;
     Travel and other allowances not being fully acquitted;

    -xvi-

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  • Executive Summary

     Internal Revenue Commission (IRC) regulations on payment of taxes not
    being followed;
     Entities paying housing allowances and Boards members allowances without
    tax but allowing officers to pay the tax;
     Accounting, administrative and procedural manuals not being available;
     Public servants serving on Statutory Boards receiving Board allowances
    contrary to regulations;
     Ineffective internal audit functions; and
     Ineffective budget controls.

    The above factors contributed to the limitations on the scope of my audits which
    resulted in the issuance of Disclaimer Audit Opinions in respect of many of the
    Reports issued during the year, as shown in 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 the 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 understood and practiced 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
    exercise proper leadership that provides an environment where there is:
     Timely submission of financial statements;
     Improved record keeping and documentation;
     Maintenance and provision of quality information;
     Effective implementation of internal control systems;
     Sound financial management implemented and adopted by qualified and
    experienced accountants; and
     Implementation of all my audit recommendations.

    -xvii-

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  • Executive Summary

    E.12 Improvement Strategies

    In my view, for improvement to occur:
     Chief Executive Officers must employ well trained and professionally
    qualified accounting staff to manage the financial affairs of the organisation;
     Chief Executive Officers must understand the value of and how to implement
    a strong governance framework and their performance should be regularly
    assessed against implementation of the framework; and
     Parliament must increase its reviews of the management of public entities and
    provide Chief Executive Officers with incentives to improve their
    management structures; and the Department of Finance must exercise its
    discretion to invoke Section 63(8) of the PFMA 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; and
    Section D – Problem Audits.

    -xviii-

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  • Executive Summary

    ATTACHMENT ‘A’

    STATUS OF CURRENT YEAR AUDITS 2014

    No. Status of Current Year Audits Number of Entities
    2014/2015 2013/2014
    1 Audits completed and reports issued thereon 18 14
    2 Audits substantially completed 2 5
    3 Audits in progress 8 5
    4 Audits to commence shortly 5 10
    5 Financial Statements not submitted 66 62
    6 Audit Portfolios transferred to Provincial Government Audit Division 0 0
    7 Ceased Companies 0 0
    Total 99 96

    Status of Current Year Audits 2014

    Audits completed and
    Audit Portfolios transferred Ceased Companies reports issued thereon
    to Provincial Government 0% 18%
    Audit Branch
    0% Audits substantially
    completed
    2%

    Audits in progress
    8%

    Financial Statements not Audits to commence
    submitted shortly
    67% 5%

    Please refer to details in Schedule ‘A’ on Pages 344 to 347.

    -xix-

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  • Executive Summary

    ATTACHMENT ‘B’

    STATUS OF AUDITS IN ARREARS BY NUMBER OF AUDITS
    (2013 AND PRIOR YEARS)

    Status of Audits in Arrears by Number of Audits (2013 Number of Audits
    No.
    and Prior Years) 2014/2015 2013/2014
    1 Audits substantially completed 44 52
    2 Audits in progress 32 9
    3 Audits to commence shortly 17 17
    4 Financial Statements not submitted 41 54
    Total 134 132

    Status of Audits in Arrears by Number of Audits
    (2013 and Prior Years)

    Audits substantially
    Financial Statements completed
    not submitted 33%
    30%

    Audits in progress
    Audits to commence 24%
    shortly
    13%

    Please refer to details in Schedules ‘B’ on Pages 348 to 350.

    -xx-

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  • Executive Summary

    ATTACHMENT ‘C’

    STATUS OF AUDITS AS AT 30 JUNE 2015

    Number of Audits
    No. Status of Audits
    2014/2015 2013/2014
    1 Audits completed and reports issued thereon 114 101
    2 Audits substantially completed 46 57
    3 Audits in progress 40 14
    4 Audits to commence shortly 22 27
    5 Financial Statements not submitted 107 116
    329 315

    Status of Audits as at 30 June 2015
    Financial Statements not
    submitted 37% Audits completed and
    reports issued thereon
    32%

    Audits to commence Audits substantially
    shortly completed
    Audits in progress 18%
    9%
    4%

    Please refer to details Schedules ‘A’ and ‘B’ on Pages 344 to 350.

    -xxi-

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  • Executive Summary

    ATTACHMENT ‘D’

    TYPES OF AUDIT OPINIONS ISSUED

    (i) UNQUALIFIED OPINION

    Para. No. of
    No. Section No. Entity Year Audits
    1 A 2 Bank of Papua New Guinea 2014 1
    2 A 5B Cocoa Pod Borer Project Fund 2010-2012 3
    3 A 9 Independent Fellowship Trust 2012 & 2013 2
    4 A 14 Investment Promotion Authority 2013 & 2014 2
    5 A 15 Kokonas Indastri Koporesen 2014 1
    6 A 15A Papua New Guinea Coconut Extension Fund 2014 1
    7 A 15B Papua New Guinea Coconut Research Fund 2014 1
    8 A 20 National Agricultural Research Institute 2014 1
    9 A 33 National Research Institute 2013 & 2014 2
    10 A 34 National Roads Safety Council 2013 1
    11 A 41 Ombudsman Commission of Papua New Guinea 2013 1
    12 A 52 Parliamentary Members‟ Retirement Benefits Fund 2013 1
    13 A 68 NPCP Holdings Limited 2014 1
    14 B 68A NPCP Investments Limited 2014 1
    15 B 68B National Petroleum Company PNG (Kroton) Limited 2011-2014 4
    16 B 68C NPCP Pipeline and Gas Supply Limited 2014 1
    17 B 73 Post (PNG) Limited 2014 1
    18 N/A N/A Japanese Fund for Poverty Reduction Project 2013 1
    19 N/A N/A Lae Port Development Project 2008-2009 & 2012 3
    20 N/A N/A Port Moresby Sewerage System Upgrading Project 2010-2012 3
    21 N/A N/A Town Electrification Investment Program 2011 & 2012 2
    22 N/A N/A Wutung Pilot Border Trade and Investment Project 2011-2013 3
    37

    (ii) QUALIFIED OPINION

    Para. No. of
    No. Section No. Entity Year Audits
    1 A 3 Border Development Authority 2011 1
    2 A 4 Civil Aviation Safety Authority of Papua New Guinea 2012 1
    3 A 9 Independent Fellowship Trust 2014 1
    4 A 10 Independent Consumer and Competition Commission 2014 1
    5 A 11 Independent Public Business Corporation 2012 1
    6 A 11D Port Moresby Private Hospital Limited 2011 & 2012 2
    7 A 12 Industrial Centres Development Corporation 2011 1
    8 A 19 National Agriculture Quarantine and Inspection Authority 2013 1
    9 A 25 National Economic and Fiscal Commission 2014 1

    -xxii-

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  • Executive Summary

    Para. No. of
    No. Section No. Entity Year Audits
    9 A 27 National Gaming Control Board 2013 1
    National Gaming Control Board Community Benefit
    10 A 27A Fund Trust 2013 1
    11 A 30 National Maritime Safety Authority 2013 & 2014 2
    12 A 35 National Roads Authority 2013 1
    13 A 36 National Training Council 2010-2014 5
    14 A 37 National Volunteer Service 2011-2013 3
    15 A 47 Papua New Guinea Institute of Public Administration 2011 1
    16 A 48 Papua New Guinea Maritime College 2011 & 2012 2
    Papua New Guinea National Institute of Standards and
    17 A 49 Industrial Technology 2010 1
    18 A 54 Security Industries Authority 2011 1
    19 A 58 University of Natural Resources and Environment 2013 1
    20 A 62 Air Niugini Limited 2013 1
    21 B 65 Motor Vehicles Insurance Limited 2011 1
    22 B 67 NCD Water and Sewerage Limited (Eda Ranu) 2013 1
    23 B 69 Papua New Guinea Ports Corporation Limited 2012 & 2013 2
    24 B 70 PNG Air Services Limited 2013 & 2014 2
    25 N/A N/A Civil Aviation Development Investment Program 2013 1
    37
    (iii) DISCLAIMED OPINION

    Para. No. of
    No. Section No. Entity Year Audits
    1 A 11A Aquarius No. 21 Limited 2011 & 2012 2
    2 A 11C PNG Dams Limited 2012 1
    3 A 17 Mineral Resources Authority 2011 1
    4 A 21 National AIDS Council Secretariat 2011 & 2012 2
    5 A 23 National Capital District Commission 2010-2012 3
    6 A 23A National Capital District Botanical Enterprises Limited 2007-2012 6
    7 A 23B Port Moresby City Development Enterprises Limited 2006-2012 7
    8 A 31 National Museum and Art Gallery 2011 & 2012 2
    9 A 32 National Narcotics Bureau 2010-2012 3
    10 A 45 Papua New Guinea Forest Authority 2009 1
    11 A 46 Papua New Guinea Institute of Medical Research 2012 & 2013 3
    12 A 51 Papua New Guinea University of Technology 2010 1
    13 A 53 Public Curator of Papua New Guinea 2011 1
    14 A 57 University of Goroka 2011 & 2012 2
    15 A 59A Unisave Limited 2011 1
    16 A 60 Water PNG 2011 & 2012 2
    17 A 64 Mineral Resources Development Company Limited 2011 1
    18 N/A N/A Town Electrification Investment Program 2013 1
    39

    -xxiii-

  • Page 29 of 396

  • Executive Summary

    (iv) INTERNAL CONTROL REVIERW

    Para. No. of
    No. Section No. Entity Years Audit
    1 A 50 Papua New Guinea Sports Foundation 2005-2013 1
    1
    GRAND TOTAL 114

    -xxiv-

  • Page 30 of 396

  • Executive Summary

    ATTACHMENT ‘E’

    COMPARATIVE AUDIT OPINIONS ISSUED (2010–2014)
    Para.
    No. Section Entity 2014 2013 2012 2011 2010
    No.
    Bank of Papua New
    1 A 2 Guinea Unqualified Unqualified Unqualified Unqualified Unqualified
    Border Development
    2 A 3 Authority N/A N/A N/A Qualified Qualified
    Civil Aviation Safety
    Authority of Papua
    4 A 4 New Guinea N/A N/A Qualified Unqualified Unqualified
    Cocoa Board of
    5 A 5 Papua New Guinea N/A Qualified Qualified Qualified Qualified
    Cocoa Stabilisation
    6 A 5A Fund N/A Unqualified Qualified Qualified Qualified
    Cocoa Pod Borer
    7 A 5B Project Fund N/A N/A Unqualified Unqualified Unqualified
    Cocoa Coconut
    Institute Limited of
    8 A 6 Papua New Guinea N/A N/A Disclaimer Disclaimer Disclaimer
    Coffee Industry
    9 A 7 Corporation Limited N/A N/A Qualified Qualified Qualified
    10 A 7A Coffee Industry Fund N/A N/A Qualified Qualified Qualified
    Patana No. 61
    11 A 7B Limited N/A N/A Qualified Qualified Qualified
    Government Printing
    12 A 8 Office N/A N/A N/A Disclaimer Disclaimer
    Independence
    13 A 9 Fellowship Trust Qualified Unqualified Unqualified Unqualified Unqualified
    Independent
    Consumer and
    Competition
    14 A 10 Commission Qualified Unqualified Qualified Unqualified Unqualified
    Independent Public
    15 A 11 Business Corporation N/A N/A Qualified Disclaimer Qualified
    Aquarius No.61
    16 A 11A Limited N/A N/A Disclaimer Disclaimer Disclaimer
    General Business
    17 A 11B Trust N/A N/A Qualified Qualified Unqualified
    18 A 11C PNG Dams Limited N/A N/A Disclaimer Disclaimer Disclaimer
    Port Moresby Private
    19 A 11D Hospital Limited N/A N/A Qualified Qualified Qualified
    Industrial Centres
    Development
    20 A 12 Corporation N/A N/A N/A Qualified Qualified
    Investment
    22 A 14 Promotion Authority Unqualified Unqualified Unqualified Qualified Qualified
    Kokonas Indastri
    23 A 15 Koporesen Unqualified Unqualified Unqualified Unqualified Unqualified
    Papua New Guinea
    Coconut Extension
    24 A 15A Fund Unqualified Unqualified Unqualified Unqualified Unqualified
    Papua New Guinea
    Coconut Research
    25 A 15B Fund Unqualified Unqualified Unqualified Unqualified Unqualified

    -xxv-

  • Page 31 of 396

  • Executive Summary

    Para.
    No. Section Entity 2014 2013 2012 2011 2010
    No.
    Legal Training
    26 A 16 Institute N/A N/A Qualified Unqualified Unqualified
    Mineral Resources
    27 A 17 Authority N/A N/A N/A Disclaimer Disclaimer
    National Agriculture
    Quarantine and
    30 A 19 Inspection Authority N/A Qualified Qualified Qualified Qualified
    National Agricultural
    31 A 20 Research Institute Unqualified Unqualified Unqualified Unqualified Unqualified
    National AIDS
    32 A 21 Council Secretariat N/A N/A Disclaimer Disclaimer Disclaimer
    National
    Broadcasting
    33 A 22 Corporation N/A N/A Disclaimer Disclaimer Disclaimer
    National Capital
    District Commission
    34 A 23 and its Subsidiaries N/A N/A Disclaimer Disclaimer Disclaimer
    National Capital
    District Botanical
    35 A 23A Enterprises Limited N/A N/A Disclaimer Disclaimer Disclaimer
    Port Moresby City
    Development
    36 A 23B Enterprises Limited N/A N/A Disclaimer Disclaimer Disclaimer
    National Cultural
    38 A 24 Commission N/A N/A N/A Qualified Qualified
    National Economic
    and Fiscal
    39 A 25 Commission Qualified Qualified Qualified Qualified Qualified
    National Fisheries
    40 A 26 Authority N/A N/A N/A Qualified Qualified
    National Gaming
    41 A 27 Control Board N/A Qualified Qualified Qualified Qualified
    National Gaming
    Control Board
    Community Benefit
    A 27A Fund Trust N/A Qualified N/A N/A N/A
    National Housing
    42 A 28 Corporation N/A N/A N/A N/A Disclaimer
    National Information
    and Communication
    Technology
    43 A 29 Authority N/A N/A N/A Disclaimer Disclaimer
    National Maritime
    44 A 30 Safety Authority Qualified Qualified Qualified Qualified Qualified
    National Museum
    45 A 31 and Art Gallery N/A N/A Disclaimer Disclaimer Disclaimer
    National Narcotics
    46 32 Bureau N/A N/A Disclaimer Disclaimer Disclaimer
    National Research
    47 A 33 Institute Unqualified Unqualified Unqualified Unqualified Unqualified
    National Road Safety
    48 A 34 Council N/A Unqualified Qualified Qualified Qualified
    National Roads
    49 A 35 Authority N/A Qualified Qualified Qualified Qualified
    A National Training
    50 36 Council Qualified Qualified Qualified Qualified Qualified

    -xxvi-

  • Page 32 of 396

  • Executive Summary

    Para.
    No. Section Entity 2014 2013 2012 2011 2010
    No.
    A National Volunteer
    51 37 Service N/A Qualified Qualified Qualified Disclaimer
    A National Youth
    52 38 Commission N/A N/A N/A Qualified Qualified
    Oil Palm Industry
    54 A 40 Corporation N/A N/A N/A N/A Qualified
    Ombudsman
    Commission of
    55 A 41 Papua New Guinea N/A Unqualified Unqualified Unqualified Unqualified
    Papua New Guinea
    Immigration and
    Citisenship Service
    58 A 44 Authority N/A N/A N/A Qualified Unqualified
    Papua New Guinea
    Institute of Medical
    60 A 46 Research N/A Disclaimer Disclaimer Qualified Qualified
    Papua New Guinea
    Institute of Public
    61 A 47 Administration N/A N/A N/A Qualified Unqualified
    Papua New Guinea
    62 A 48 Maritime College N/A N/A Qualified Qualified Qualified
    Papua New Guinea
    National Institute of
    Standard and
    Industrial
    63 49 Technology N/A N/A N/A N/A Qualified
    Papua New Guinea
    University of
    Technology and its
    65 51 Subsidiaries N/A N/A N/A N/A Disclaimer
    Unitech Development
    and Consultancy
    67 51B Company Limited N/A N/A Qualified Qualified Disclaimer
    Parliamentary
    Members Retirement
    68 52 Benefits Fund N/A Unqualified Unqualified Unqualified Unqualified
    Public Curator of
    69 53 Papua New Guinea N/A N/A N/A Disclaimer Disclaimer
    Security Industries
    70 54 Authority N/A N/A N/A Qualified Qualified
    Small Business
    Development
    71 A 55 Corporation N/A N/A N/A Qualified Qualified
    Tourism Promotion
    72 A 56 Authority N/A Unqualified Unqualified Unqualified Unqualified
    73 A 57 University of Goroka N/A N/A Disclaimer Disclaimer Disclaimer
    University of Natural
    Resources and
    75 A 58 Environment N/A N/A Qualified Qualified Qualified
    77 A 59A Unisave Limited N/A N/A N/A Disclaimer N/A
    78 A 59B Univentures Limited N/A N/A N/A Disclaimer Disclaimer
    79 A 60 Water PNG N/A N/A Disclaimer Disclaimer Disclaimer
    80 B 62 Air Niugini Limited N/A Qualified Qualified Qualified Qualified

    -xxvii-

  • Page 33 of 396

  • Executive Summary

    Para.
    No. Section Entity 2014 2013 2012 2011 2010
    No.
    Mineral Resources
    Development
    82 B 64 Company Limited N/A N/A N/A Disclaimer Qualified
    Motor Vehicles
    83 B 65 Insurance Limited N/A N/A N/A Qualified Qualified
    National Airports
    84 B 66 Corporation Limited N/A N/A N/A N/A Qualified
    NCD Water and
    Sewerage Limited
    86 B 67 (Eda Ranu) N/A Qualified Qualified Qualified Qualified
    NPCP Holdings
    87 B 68 Limited N/A N/A Qualified Qualified Qualified
    NPCP Investments
    88 B 68A Limited Unqualified N/A N/A N/A N/A
    National Petroleum
    Company of PNG
    89 B 68B (Kroton) Limited Unqualified Unqualified Unqualified Unqualified Qualified
    NPCP Pipeline and
    90 B 68C Gas Supply Limited Unqualified N/A N/A N/A N/A
    Papua New Guinea
    Ports Corporation
    91 B 69 Limited N/A Qualified Qualified Qualified Disclaimer
    PNG Air Services
    92 B 70 Limited Qualified Qualified N/A N/A N/A
    94 B 72 PNG Power Limited N/A N/A Disclaimer Disclaimer Disclaimer
    95 B 73 Post PNG Limited Unqualified Unqualified Unqualified Unqualified Unqualified
    Telikom PNG
    96 B 74 Limited N/A N/A Qualified Qualified Unqualified
    Kalang Advertising
    97 B 74A Limited N/A N/A Qualified Unqualified Qualified
    PNG Directories
    98 B 74B Limited N/A N/A Unqualified Unqualified Unqualified

    -xxviii-

  • Page 34 of 396

  • Executive Summary

    ATTACHMENT ‘F’

    AUDITS IN ARREARS (2013 AND PRIOR YEARS) COMPLETED DURING
    2014/2015 AUDIT CYCLE
    Audits Audits
    Para Total Total
    No. Section Entity Completed and Substantially
    No. Units Units
    Reports Issued Completed
    1 A 3 Border Development Authority 2011 1 2012 1
    Papua New Guinea Maritime
    2 A 3A Transport Limited 2011 & 2012 2
    Civil Aviation Safety Authority
    3 A 4 of Papua New Guinea 2012 1
    4 A 5B Cocoa Pod Borer Project Fund 2010-2012 3
    5 A 8 Government Printing Office 2012 1
    6 A 9 Independence Fellowship Trust 2012 & 2013 2
    Independent Public Business
    7 A 11 Corporation 2012 1
    8 A 11A Aquarius No. 21 Limited 2011 & 2012 2
    9 A 11B PNG Dams Limited 2012 1
    Port Moresby Private Hospital
    10 A 11C Limited 2011 & 2012 2
    Industrial Centers Development
    11 A 12 Corporation 2011 1 2012 & 2013 2
    12 A 14 Investment Promotion Authority 2013 1
    13 A 16 Legal Training Institute 2013 1
    14 A 17 Mineral Resources Authority 2011 1
    15 A 18 Motu Koitabu Council 2003 – 2007 5
    16 A 18A Tabudubu Limited 2003 – 2007 5
    National Agriculture Quarantine
    17 A 19 and Inspection Authority 2013 1
    National AIDS Council
    18 A 21 Secretariat 2011 & 2012 2
    National Capital District
    19 A 23 Commission and its Subsidiaries 2010-2012 3
    National Capital District
    20 A 23A Botanical Enterprises Limited 2007-2012 6
    Port Moresby City Development
    21 A 23B Enterprises Limited 2006-2012 7
    22 A 26 National Fisheries Authority 2012 1
    23 A 27 National Gaming Control Board 2013 1
    National Gaming Control Board
    24 A 27A Community Benefit Fund Trust 2013 1
    National Maritime Safety
    25 A 30 Authority 2013 1
    26 A 31 National Museum and Art Gallery 2011 & 2012 2
    27 A 32 National Narcotics Bureau 2010-2012 3

    -xxix-

  • Page 35 of 396

  • Executive Summary

    Audits Audits
    Para Total Total
    No. Section Entity Completed and Substantially
    No. Units Units
    Reports Issued Completed
    28 A 33 National Research Institute 2013 1
    29 A 34 National Road Safety Council 2013 1
    30 A 35 National Roads Authority 2013 1
    31 A 36 National Training Council 2010-2013 4
    32 A 37 National Volunteer Service 2011-2013 3
    33 A 40 Oil Palm Industry Corporation 2011 1
    Ombudsman Commission of
    34 A 41 Papua New Guinea 2013 1
    35 A 42 Pacific Games (2015) Authority 2012 & 2013 2
    Papua New Guinea Immigration
    36 A 44 and Citisenship Service Authority 2012 & 2013 2
    Papua New Guinea Forest
    37 A 45 Authority 2009 1 2010 1
    Papua New Guinea Institute of
    38 A 46 Medical Research 2012 & 2013 2
    Papua New Guinea Institute of
    39 A 47 Public Administration 2011 1
    Papua New Guinea Maritime
    40 A 48 College 2011 & 2012 2 2013 1
    Papua New Guinea National
    Institute of Standards and
    41 A 49 Industrial Technology 2010 1 2011-2013 3
    Papua New Guinea Sports
    42 A 50 Foundation 2005-2013 1
    Papua New Guinea University of
    43 A 51 Technology and its Subsidiaries 2010 1 2011 1
    National Analytical & Testing
    44 A 51A Services Limited. 2011 1
    Unitech Development and
    45 A 51B Consultancy Company Limited 2013 1
    Parliamentary Members‟
    46 A 52 Retirement Benefits Fund 2013 1
    Public Curator of Papua New
    47 A 53 Guinea 2011 1 2012 1
    48 A 54 Security Industries Authority 2011 1
    Small Business Development
    49 A 55 Corporation 2012 1
    University of Goroka and its
    50 A 57 Subsidiary 2011 & 2012 2
    51 A 57A Unigor Consultancy Limited 2010-2013 4
    University of Natural Resources
    52 A 58 and Environment 2013 1
    53 A 59 University of Papua New Guinea 2009-2012 4
    54 A 59A Unisave Limited 2011 1
    55 A 60 Water PNG 2011 & 2012 2
    56 B 62 Air Niugini Limited 2013 1

    -xxx-

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  • Executive Summary

    Audits
    Para Audits Completed Total Total
    No. Section Entity Substantially
    No. and Reports Issued Units Units
    Completed
    Mineral Resources
    Development Company
    57 B 64 Limited 2011 1
    Motor Vehicles Insurance
    58 B 65 Limited 2011 1
    NCD Water and Sewerage
    59 B 67 Limited (Eda Ranu) 2013 1
    National Petroleum Company
    60 B 68B of PNG (Kroton) Limited 2011-2013 3
    Papua New Guinea Ports
    61 B 69 Corporation Limited 2012 & 2013 2
    62 B 70 PNG Air Services Limited 2013 1
    63 B 72 PNG Power Limited 2013 1
    Telikom PNG Limited and its
    64 B 74 Subsidiaries 2013 1
    65 B 74B PNG Directories Limited 2013 1
    Civil Aviation Development
    66 N/A N/A Investment Program 2013 1
    Japanese Fund for Poverty
    67 N/A N/A Reduction Project 2013 1
    68 N/A N/A Lae Port Development Project 2008-2009 & 2012 3
    Port Moresby Sewerage
    69 N/A N/A System Upgrading Project 2010-2012 3
    Town Electrification
    70 N/A N/A Investment Program 2010-2012 3
    Wutung Pilot Border Trade
    71 N/A N/A and Investment Project 2011-2013 3
    96 44

    -xxxi-

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  • SECTION A

    PUBLIC BODIES AND

    THEIR SUBSIDIARIES

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  • 1. FOREWORD

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

    The auditing and reporting requirements of the public bodies and their subsidiaries are
    stipulated in Section 8 of the Audit Act. My findings in that regard are detailed in
    paragraphs 2 to 60 of this part of my Report.

    -1-

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  • -2-

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  • 2. BANK OF PAPUA NEW GUINEA

    2.1 INTRODUCTION

    2.1.1 Legislation

    The Bank of Papua New Guinea (BPNG) 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.

    2.1.2 Objectives of the Bank

    The main objectives of the Bank of PNG as stipulated in the new Act are:
     To formulate and implement the monetary policy with a view to achieving and
    maintaining price stability;
     To formulate financial regulation and prudential standards to ensure stability of
    the financial system in PNG;
     To promote an efficient national and international payments system; and
     Subject to the above, to promote macro-economic stability and economic growth
    in PNG.

    2.1.3 Functions of the Bank

    The primary functions of the Bank are to:
     Issue currency;
     Act as banker and agent of the Government;
     Regulate banking, credit and other financial services as empowered by the Act
    or by any other law of the Independent State of PNG;
     Manage the gold, foreign exchange and other international reserves of PNG;
     Perform any function conferred on it by or under international agreement to
    which PNG is a party;
     Perform any other functions conferred on it by or under any other law of PNG;
    and
     Advise the Minister as soon as practicable where the Bank considers that a body
    regulated by the Central Bank is in financial difficulty.

    2.1.4 Structural Reforms at the Bank

    In addition to the Central Banking Act three (3) other Acts were legislated in 2000
    which gave enormous responsibilities to the Bank. These other Acts are:

    -3-

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  • Bank of Papua New Guinea

    1. Banks and Financial Institutions Act 2000;
    2. Superannuation Act 2000; and
    3. 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 on the financial
    statements of the Bank for the year ended 31 December 2014 was issued on 16 June
    2015. The report did not contain any qualification.

    2.2.2 Audit Observation Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act on the inspection and
    audit of the accounts and records of the Bank for the year ended 31 December 2014
    was issued on 16 June 2015. The report contained the following matter:

    Compliance with the Central Banking Act 2000

    During the year, the Bank made a PGK102 million dividend payment to the
    Independent State of Papua New Guinea. This payment was in contravention of
    Section 49(3) of the Papua New Guinea Central Banking Act 2000 which states that
    no amount shall be paid into the Consolidated Revenue Fund where in the opinion of
    the Bank, the assets of the Bank are, or after payment would be, less than the sum of
    its liabilities and paid-up capital.

    -4-

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  • 3. BORDER DEVELOPMENT AUTHORITY

    3.1 INTRODUCTION

    3.1.1 Legislation

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

    3.1.2 Objectives of the Authority

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

    3.1.3 Functions of the Authority

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

    -5-

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  • Border Development Authority

    – 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, communications,
    transport, electricity, water, sewerage, staff accommodation, computers and
    all other facilities that would be relevant to the administration of border
    activities;
    – 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
    – The development of long-term activities for the establishment of
    infrastructure and other facilities.

     Such other functions as are likely to assist in the border administration activities.

    3.1.4 Subsidiary of the Authority

    The Subsidiary of the Authority is Papua New Guinea Maritime Transport Limited.
    Comments in relation to the Company are contained in paragraph 3A of this Report.

    3.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    3.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act on the Authority‟s
    financial statements for the year ended 31 December 2011 was issued on 27 October
    2014. The report contained a Qualified Opinion.

    “BASIS FOR QUALIFIED OPINION

    Interest Bearing Deposits (IBD) – K7,488,161

    My review of the Interest Bearing Deposits for the year ended revealed that the
    Authority did not properly maintain source documents relating to its investments. I
    was not provided with investment certificates to satisfy myself on the accuracy and
    existence of the investments disclosed in the financial statements totalling
    K7,488,161. Consequently, I was unable to verify the IBD interest income of
    K506,223 as stated in the financial statements.

    Fixed Assets – K27,340,525

    The Authority disclosed K27,340,525 as its year-end balance for Fixed Assets. My
    examination of the Fixed Assets Register revealed that it was not properly maintained
    and timely updated. I noted that some expenses incurred to maintain the ships were
    not assessed and capitalised.

    -6-

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  • Border Development Authority

    Further, I noted with concern that the ships were not valued by an independent marine
    valuer to determine their fair values against their written down values. As such, I was
    unable to determine the completeness, accuracy and valuation of the fixed assets
    balance disclosed at year end.

    Project Expenses – K19,036,521

    In my previous reports, I have stated that the Minister for Finance and Treasury in
    2008 had delegated to Border Development Authority‟s Board the financial approval
    powers for transactions for acquisition of property and services over K500,000 to an
    upper limit of K10,000,000 superseding normal procurement procedures under the
    PFMA.

    I emphasised in those reports that these higher approval limits up to K10 million was
    not consistent with the approval limits set by the PFMA. In relation to this, I noted
    that still the excessive delegated financial powers had not been revoked to date.
    Consequently, I noted that a total of K19,036,521 was paid out as project expenses for
    preparation of various project documentation and designs which represent more than
    sixty percent of the Authority‟s total expenses for the year. As such, I was unable to
    determine as to whether proper procedures have been followed in awarding contracts
    to suppliers.

    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 2011 and
    the results of its financial operations for the year then ended.”

    3.2.2 Audit Observations Reported to the Minister

    My report to the Ministers under Section 8(2) of the Audit Act on the inspection and
    audit of the accounts and records of the Authority for the year ended 31 December
    2011 was issued on 27 October 2014. The report contained the following comments:

    1. Bank Reconciliation

    My review of the Authority‟s bank reconciliations revealed that
    reconciliations were not prepared on a timely basis and independently
    reviewed by a responsible officer of the Authority. This issue was highlighted
    in my previous audits and yet to be addressed by the management.

    -7-

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  • Border Development Authority

    I recommended Management to install proper control measures by reviewing
    the bank reconciliation by a senior officer and to securely file all
    documentation for future reference.

    2. Approval Limits and Procurement Procedures

    2.1 Granting of Approval Limits

    As reported in my previous 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 under the PFMA. I emphasised that these higher
    approval limits up to K10 million was not consistent with the approval limits
    set by the PFMA.

    Further, I noted that still the excessive delegated financial powers had not
    been revoked to date. In my view this excessive approval limit will prevent the
    Authority to follow the established procedures set out in the PFMA and may
    open avenues for malpractices.

    2.2 Condition of Ships

    I noted that at the end of 2010, the Authority had taken delivery of all the
    seven ships built and brought from a ship builder in Indonesia. However, I
    noted with concern that the ships on most occasions were not operating as
    expected due to substandard materials used to build the ships. I also noted that
    the ships were docked for prolonged periods for repair and maintenance at
    various ports and as a result, the Authority has incurred huge Port docking
    charges.

    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 2012 was completed and the results were being evaluated.

    The financial statements for the year ended 31 December 2013 had been submitted for
    my inspection and audit and arrangements were being made to commence the
    fieldwork without delay. The financial statements of the Authority for the year ended
    31 December 2014 had not been submitted for my inspection and audit.

    -8-

  • Page 48 of 396

  • 3A. PAPUA NEW GUINEA MARITIME TRANSPORT LIMITED
    (Subsidiary of the Border Development Authority)

    3A.1 INTRODUCTION

    The Papua New Guinea Maritime Transport Limited was incorporated under the
    Companies Act on 3 September 2009. The Company is wholly owned by the Border
    Development Authority.

    3A.1.1 Functions of the Company

    The primary function of the Company is to take charge of the management and
    operations of seven vessels acquired and maintained by the Border Development
    Authority. The vessels are to serve the border provinces and other maritime
    provinces in the Country.

    3A.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the audit and
    inspection of the accounts and records and the examination of the financial
    statements of the Company for the years ended 31 December 2011 and 2012 had
    been completed and results were being evaluated.

    The Company had not submitted its financial statements for the years ended 31
    December 2013 and 2014 for my inspection and audit.

    -9-

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  • 4. CIVIL AVIATION SAFETY AUTHORITY OF PNG

    4.1 INTRODUCTION

    4.1.1 Legislation

    The Civil Aviation Safety Authority of PNG 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; and
     Ensure the provision of meteorological services and science.

    4.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    4.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act on the financial
    statements of the Authority for the year ended 31 December 2012 was issued on 27
    February 2015. The report contained a Qualified Opinion.

    “BASIS FOR QUALIFIED OPINION

    Revenue and Receivables from the National Airport Corporation (NAC) and the
    PNG Air Services Limited (PNGASL)

    Section 147E of the Civil Aviation Act 2000 stipulates that NAC and PNGASL are to
    remit a percentage of airport facility charges, security levies and upper airspace
    aeronautical charges to CASA. Given the technical and logistical difficulties in
    determining the charges, the Authority was unable to accurately record and collect the
    income owed by NAC and PNGASL. The income and the related receivables from
    those two entities are material, which can potentially affect the financial statements
    and disclosures of the Authority at the reporting date. Due to those limitations, I was
    not able to verify the completeness and accuracy of revenue and receivable balances
    reported in the financial statements for the year ended 31 December 2012.

    – 10 –

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  • Civil Aviation Safety Authority of PNG

    Fixed Assets

    In 2010, the functions of the Civil Aviation Authority (CAA) were restructured into
    three separate entities, namely National Airport Corporation (NAC), PNG Air Service
    Limited (PNGASL) and Civil Aviation Safety Authority (CASA).

    There was no proper valuation and transfer of assets at the time of the separation. As a
    result, all the titles of the property assets continue to be in the name of CAA but used
    by the respective entities. The three entities including the Authority did not accurately
    and completely record all fixed assets used. Further, it is not possible for me to
    confirm whether all the property assets recorded on the current fixed assets register
    are owned by the Authority. Therefore, I was not able to satisfy myself on the
    completeness, existence, accuracy and ownership of the fixed assets stated in the
    financial position of the Authority as at 31 December 2012 and the related
    depreciation charged to the comprehensive income for the year ended.

    QUALIFIED OPINION

    In my opinion, except for the effects of the matters described in the Basis for
    Qualified Opinion paragraphs, the financial statements of Civil Aviation Safety
    Authority for the year ended 31 December 2012:
    (a) Give a true and fair view of the financial position and the results of its
    operations for the year then ended; and
    (b) The financial statements have been prepared in accordance with the Finance
    Instructions issued under the PFMA.”

    4.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act on the inspection and
    audit of the accounts and records of the Authority for the year ended 31 December
    2012 was issued on 27 February 2015. The report contained the following
    observations:

    Compliance with Public Finances (Management) Act 1995

    The audit of the 2012 statutory financial statements commenced in July 2014 which
    was after the deadline of 30 June 2013. As such, the Directors did not meet the
    deadline set by Section 63 of the PFMA for audited financial statements of public
    bodies to be furnished to the Minister before 30 June of the subsequent year.

    – 11 –

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    Consultancy Agreements

    There was no standard policy in place for the procurement of consultants. I was
    unable to verify whether proper procurement processes were followed, including
    compliance with PFMA in the engagement of numerous consultants during the year.
    This engagement of consultants causes significant financial outlay including the risk
    of litigation, also failure to follow proper processes including approval at the relevant
    levels compounds these risk including the engagement of consultants. I recommended
    to the Management that a policy be prepared on procurement of consultants taking
    into account the requirements of PFMA as the base and the Management concurred to
    my recommendations.

    Acquittals of Credit-Card Transactions

    The Chief Executive Officer, Chief Operating Officer, Executive Manager Corporate
    Service and Finance and Administration Manager are issued with credit-cards. The
    credit-card policy requires that all credit-card users to provide monthly
    acquittals/reconciliations. The policy further states that the cards used by the
    executive management team are normally at their discretion. I have not been provided
    credit-card statements and acquittals for 2012 for certain months of all the credit-
    cards. Failure to acquit use of funds and reconciliation of the credit-card statements
    leaves an environment open to misuse.

    I recommended to Management that as senior members of the management team, they
    should set the tone and example of CASA by ensuring that credit card statements are
    reconciled monthly and transactions acquitted on time. The Management responded
    that, “the Director/CEO will issue instructions for credit card holders to provide
    acquittals at the end of each month temporarily; in the meantime, a policy is
    developed to cater for Credit Cards.”

    Accounting Policies and Procedure

    From my review of the accounting process, I noted the absence of a detailed
    accounting procedures manual which prescribes the accounting procedures, detailing
    the process involved in the initiation, authorisation, recording, reconciling and
    reporting of financial decisions and transactions. Without a procedures manual there
    is no systematic and controlled approach to the accounting function which may result
    in inaccurate and delayed financial reporting. Duties related to initiating, authorising,
    recording and reporting of a financial event may not be adequately segregated to
    different officers.

    – 12 –

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    I recommended to Management that a proper accounting manual be prepared and all
    staff be adequately trained on their duties and responsibilities in accordance with the
    policies and procedures. Management responded that “ Management has approved a
    Finance Policies and Procedures Manual in 2013 and is now used to date.”

    Goods and Services Tax Reporting

    The statement of account on GST for CASA obtained from the Internal Revenue
    Commission (IRC) indicates a GST receivable of K292,383 as at 31 December 2012.
    However, the amount recorded in CASA‟s accounts was K40,047 leaving a difference
    of K252,336. The IRC statement was not reconciled to the general ledger balances at
    any point in time during the year under audit. It is likely that the account of CASA as
    presented does not reflect the accurate position of GST.

    I noted that IRC disallowed some of the inputs claimed as CASA‟s income which is
    mainly from government budget. The fact remains that CASA did not maintain
    reconciliation of the GST account.

    I recommend to Management that GST statement should be obtained from IRC and
    the balance reconciled to ledger at each reporting date. Management accepted my
    recommendation and will have it implemented accordingly.

    Group Tax Payments

    In respect of group tax or salaries and wages tax, I noted the following:

     Group tax returns for 2012 were not yet lodged within the time set by IRC.
    Group tax for the 2012 financial year was paid in 2013.

    Failure to lodge group tax returns and the accompanying payment in a timely manner
    to IRC will result in IRC imposing significant penalties. The penalties include a flat
    20% charge on the amounts outstanding and a further 20% per annum on the amount
    outstanding from the date when it is first due.

    I recommend to Management that group tax be paid to IRC within the prescribe time
    of seven days after month end to avoid penalties. The Management responded as
    follows; “Management normally makes provision for GP Tax obligations, but at times
    due to late release of budget funds it is unable to make monthly payments.
    Management accepts auditor‟s recommendation and will make GP Tax payments on
    time to avoid being penalised.”

    – 13 –

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    Payroll Records

    I noted that the leave liability reports as generated from the standalone payroll system
    did not agree to the corresponding general ledger balances.

    I also noted that the records of staff leaves were maintained on excel out of the payroll
    system. Further, I noted inconsistencies in the records of outstanding leave days,
    when comparing the reports submitted to me by the Executive Manager Corporate
    Services, to that submitted by the Payroll Officer. It appears that the leave records in
    the accounts have not been updated to reflect the liability owed by the Authority.

    I recommend the following to be considered:

     A specialised payroll package such as Abel should be installed to maintain a
    single record of transactions associated with the various leave entitlements;
     The amounts reflected by the subsidiary record must be reconciled to the
    accounts on a monthly basis to reflect the accurate position of leave liabilities
    and activities; and
     All leave taken should be evidenced on leave request forms, and data be
    correctly entered into the specialised payroll system.

    Management responded as follows: “During the year payroll was instructed to
    automate all staff leave records through the payroll system and no excel or manual
    register will be maintained. Accordingly, IT personnel are tasked to enhance the
    payroll system to maintain staffs leave balances.”

    Trade Debtors Collection

    I noted that of the total Trade debtors of K1,683,000, more than 50% were overdue
    for more than three months at closing date. I also, noted that an amount of K56,784
    has been fully provided. This indicates a weakness in debt management system in
    collection of the debts and will impact on the cash flow. Failure to actively follow up
    on outstanding debtors may result in most debtors becoming unrecoverable.

    I recommend that the Management should establish an appropriate credit policy and
    define measures to pursue for debtors remaining outstanding for a certain period. The
    Management responded as follows: “Management will take on board auditor‟s
    recommendations and will improve on debt collection and debt management. The
    appropriate clause of CAA Act 2000 will be evoked to assist with debt collections.”

    Rental Bonds – K453,879

    I noted the following discrepancies in respect of rental bonds:

    – 14 –

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