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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: [email protected] 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-

• Page 8 of 396

• 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-

• Page 19 of 396

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   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
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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.

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  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;

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   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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  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-

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• 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-

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• 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-

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• 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

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• Page 36 of 396

• 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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• Page 38 of 396

• SECTION A

  PUBLIC BODIES AND

  THEIR SUBSIDIARIES

• Page 39 of 396

• Page 40 of 396

• 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:

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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.

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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:

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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.

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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.

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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.

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• Page 49 of 396

• 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.

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• Civil Aviation Safety Authority of PNG

  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.

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• Civil Aviation Safety Authority of PNG

  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.”

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• Civil Aviation Safety Authority of PNG

  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:

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• Civil Aviation Safety Authority of PNG

   Four staff had rental deposits in two separate properties; and
   Some rental bonds paid during the year were expensed instead of recording
  them as assets.

  Furthermore, I was not provided rental agreement for certain staff.

  The above issues indicate a number of concerns including the following:

   There appears to be no proper control and monitoring of rental bonds and the
  subsequent refund of these bonds;
   There appears to be no proper accounting of rental bonds; and
   The Authority risks the loss of these funds.

  I recommended that Management should keep a proper record and control over the
  rental bonds. The rental bonds account should be regularly reviewed by the head of
  finance. The current rental bonds account should be reviewed and matched to
  respective staff currently in employment and the relevant rental agreements.
  Management responded that “auditor‟s recommendations are noted. Management
  will improve on the monthly reviews of GL Accounts reconciliations.”

  General Journals

  In respect of general journals, I noted the following:

   Journals were not prepared on a journal entry form;
   Journal entries were not numbered in any sequential order;
   The name and signature of the officer preparing the journal, and the officer
  posting the journal entries, did not appear on any of the journal entries; and
   The journals were not marked as “posted”.

  The lack of control over journal entries leaves room for unauthorised entries and
  fraudulent financial reporting.

  I recommend the following:

   Prepare journals on a journal entry form;
   Journal entries must be numbered in a sequential order;
   The name and signature of the officers preparing the journal, authorising the
  journal and posting the journals should appear on all of the journal entries,
  indicating that the authenticity of the journals; and
   The journals should be marked as “posted” after processing into the accounts.

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• Civil Aviation Safety Authority of PNG

  The Management responded as follows: “Audit recommendations noted and
  management will make improvements where necessary. All GL Journals will be
  referenced and clear authentication of the officer posting the journals captured. This
  process will be fully automated.”

  4.3 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 2013 was in progress.

  The Authority had not submitted its financial statements for the year ended 31
  December 2014 for my inspection and the audit.

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• 5. COCOA BOARD OF PNG

  5.1 INTRODUCTION

  5.1.1 Legislation

  The Cocoa Board of PNG 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 stockholding arrangements within the
  cocoa industry;
   To promote research and development programmes for the benefit of the cocoa
  industry; and
   To promote the consumption of PNG cocoa beans and cocoa products.

  5.1.3 Subsidiary of the Board

  The 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 (KIK) of PNG. Comments in relation to the Cocoa
  Coconut Institute Limited of PNG are contained in paragraph 6 of this Report.

  5.1.4 Stabilisation Funds and Projects

  The Board as a Trustee administers the Cocoa Stabilisation Fund as required under
  Part IV and VI of the Cocoa Act 1981. Further, the Board manages the Cocoa Pod
  Borer Project Fund as well. Comments in relation to the Funds are contained in
  paragraph 5A and 5B of this Report.

  The Board also administers the operations of the Productive Partnership in
  Agriculture Project. Comments in relation to the project are contained in my Special
  Project Audits Report to Parliament.

  5.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Board for the year
  ended 30 September 2014 had not been submitted for my inspection and audit, despite
  repeated reminders.

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• 5A. COCOA STABILISATION FUND (Subsidiary of Cocoa Board of PNG)

  5A.1 INTRODUCTION

  5A.1.1 Legislation

  The Cocoa Stabilisation Fund was established under Section 19 of the Cocoa Act
  1981. The Fund is administered by the Cocoa Board of PNG with the objective of
  establishing price stabilisation, price equalisation and stockholding arrangements
  within the cocoa industry.

  5A.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Fund for the year
  ended 30 September 2014 had not been submitted for my inspection and audit, despite
  repeated reminders.

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• 5B. COCOA POD BORER PROJECT FUND

  5B.1 INTRODUCTION

  5B.1.1 Framework

  The National Government has funded the Cocoa Pod Borer Project based on the
  Project Proposal for Cocoa Pod Borer Management Project submitted by the Cocoa
  Board of Papua New Guinea. The Project is administered by the Cocoa Board of
  Papua New Guinea and was implemented in 2010.

  5B.1.2 Objectives of the Project Fund

  The Principal objectives of the Project Fund are:

   To facilitate the impartation of skills and knowledge on better management
  practices that will result in the reduction of Cocoa Pod Borer (CPB) infestation
  to less than 10% of production, and increase cocoa yields;
   To introduce and/or enhance farmers skills and knowledge in the combined
  use of basic CPB management via the five Golden rules and the Integrated
  Pest Disease Management technology; and
   To provide farmer support by way of making high yielding cocoa planting
  materials, tools, equipment and chemicals readily available or accessible to
  cocoa farmers which would enable effective adaption of good management
  practices.

  5B.2 AUDIT OBSERVATIONS

  5B.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the Fund‟s
  financial statements for the years ended 30 September 2010, 2011 and 2012 were all
  issued on 22 September 2014. These reports did not contain any qualifications.

  5B.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act, on the inspection and
  audit of the accounts and records of the Fund for the years ended 30 September 2010,
  2011 and 2012 were all issued on 22 September 2014. For the purpose of this Report,
  only significant matters arising out of 2012 report are reproduced below:

  – 19 –

• Page 59 of 396

• Cocoa Pod Borer Project Fund

  Non-Compliance with the Public Finances (Management) Act 1995

  The PFMA Section 63(2) and 63(4) requires the Fund to furnish to the Minister before
  30 June in each year, a performance and management report of its operations for the
  year ending 31 December preceding, together with financial statements. Before
  furnishing financial statements to the Minister, the Fund shall submit them to the
  Auditor-General who shall report to the Minister.

  However, the Project had not prepared and submitted its financial statements for the
  year ended 30 September 2012 to my Office on a timely basis to enable me to conduct
  the audit on time. Accordingly, the Project had breached Sections 63(2) and 63(4) of
  the PFMA.

  Advance Register

  My examination of staff advances revealed that the Project did not maintain an
  Advance Register. In the absence of proper Advance Register, I was unable to
  determine whether all the advances were properly accounted for during the year under
  review.

  Management responded to my observation as follows:

  “A register has now been established to record all advances made to staff.”

  Segregation of Duties

  My review on the bank reconciliation statements revealed that there was no
  segregation of duties over the functions of bank reconciliations process. Lack of
  independent review on the bank reconciliations may result in errors and fraud being
  undetected. Accordingly, I was unable to obtain comfort over the controls
  surrounding the bank reconciliation process.

  Management noted my observation and responded as follows:

  “We are now ensuring that bank reconciliations are prepared and reviewed
  independently by competent personnel.”

  Fixed Assets

  My review of Fixed Assets revealed that the Project motor vehicles were not
  registered with “Z” number plates to signify the State ownership.

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• Cocoa Pod Borer Project Fund

  Since, the Project is funded by the Government and it is managed by a Statutory
  Authority (Cocoa Board of Papua New Guinea), the vehicles should be registered and
  fitted with “Z” number plates to signify State ownership.

  Management responded to the above observation as follows:

  “We will be ensuring that all vehicles purchased with Government funding are
  registered with Government plate numbers.”

  Procurement Process

  Subject to Financial Management Manual Part 12 Division 3, three written quotations
  must be obtained for purchases valued between K5,000 and under K100,000. However,
  my review of the payment process of the Project revealed that payments totalling
  K127,471 were paid without obtaining three written quotes from three different
  suppliers.

  As a result, I was unable to satisfy myself and rely on the effectiveness of the controls
  surrounding the functions of the payment process.

  Management responded to my observation as follows:

  “We are ensuring that three written quotations from potential suppliers are obtained
  before purchases are made for amounts valued between K5,000 and K100,000.”

  5B.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Project had not submitted its financial
  statements for the years ended 30 September 2013 and 2014 for my inspection and
  audit, despite reminders.

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• Page 61 of 396

• 6. COCOA COCONUT INSTITUTE LIMITED OF PNG

  6.1 INTRODUCTION

  6.1.1 Legislation

  The 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 (KIK) of PNG.

  6.1.2 Functions of the Company

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

  6.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Institute had submitted its financial
  statements for the year ended 31 December 2013 for my inspection and audit and
  arrangements were being made to commence the fieldwork shortly.

  The Institute, despite reminders, had not submitted its financial statements for the year
  ended 31 December 2014 for my inspection and audit.

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• 7. COFFEE INDUSTRY CORPORATION LIMITED

  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 PNG;
   To act in the best interests of coffee producers; and
   To promote development of the coffee industry in PNG.

  7.1.3 Subsidiaries 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 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 2013 was in progress.

  The financial statements of the Corporation for the year ended 31 December 2014 had
  not been submitted for my inspection and audit.

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• 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 stabilise the coffee industry by giving the Coffee
  Industry Corporation the financial ability to implement schemes relating to
  stabilisation and equalisation of coffee prices and stock holdings of coffee.

  7A.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 Fund for the year ended 31 December 2013 was in progress.

  The financial statements of the Fund for the year ended 31 December 2014 had not
  been submitted for my inspection and audit.

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• 7B. PATANA NO.61 LIMITED (Subsidiary of Coffee Industry Corporation
  Limited)

  7B.1 INTRODUCTION

  Patana No.61 Limited was incorporated under the Companies Act. The Company was
  acquired by the Coffee Industry Corporation Limited on 10 February 1994 and has a
  total issued capital of two 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 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 year ended 31 December 2013 was in progress.

  The financial statements of the Company for the year ended 31 December 2014 had
  not been submitted for my inspection and audit.

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• 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.

  8.1.1 Objective of the Office

  The main objective of the Government 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 an affordable
  cost.

  8.2 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 Printing Office for the year ended 31 December 2012 had been completed and
  results were being evaluated.

  The Government Printing Office had not submitted its financial statements for the
  years ended 31 December 2013 and 2014 for my inspection and audit, despite my
  reminders.

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• 9. INDEPENDENCE FELLOWSHIP TRUST

  9.1 INTRODUCTION

  9.1.1 Legislation

  The Independence Fellowship Trust was established under the Independence
  Fellowship Trust Act (Chapter 1040).

  9.1.2 Objective of the Trust

  The object of the Trust is to benefit village development by making annual awards to
  selected citisens for the purposes of broadening their knowledge and experience, as
  well as implementing and encouraging that development.

  9.1.3 Functions of the Trust

  The functions of the Trust are to:
   Make selections of candidates to receive the awards of fellowships;
   Determine the number and value of awards; and
   Invest the funds of the Trust.

  9.2 AUDIT OBSERVATIONS

  9.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Trust for the years ended 31 December 2012 and 2013 were issued
  on 28 September 2014 and these reports did not contain any qualifications. My report
  on the 2014 financial statements was issued on 12 May 2015 and contained the
  following qualifications.

  “Limitation of Scope – Payment Vouchers – K667,950

  During my review, the Trust had not provided the source documents for payments
  amounting to K667,950 selected for my verification. As such, I was unable to
  substantiate the payments made in respect of the various expenses incurred by the
  Trust for K667,950 during the year.”

  9.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act on the inspection and
  audit of the accounts and records of the Trust for the years ended 31 December 2012
  and 2013 were issued on 28 September 2014. My report for the year ended 31
  December 2014 revealed generally satisfactory results.

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• 10. INDEPENDENT CONSUMER AND COMPETITION
  COMMISSION

  10.1 INTRODUCTION

  10.1.1 Legislation

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

  10.1.2 Functions of the Commission

  The main functions of the Commission are:

   To formulate and submit to the Minister policies in the interest of consumers;
   Consider and examine and where necessary, advise the Minister on the
  consolidation or updating of legislation providing protection to the consumer;
   Liaise with Departments and other agencies of Government on matters relating to
  consumer protection legislation;
   Receive and consider complaints from consumers on matters relating to the
  supply of goods and services;
   Investigate any complaint received;
   Make available to consumers general information affecting the interests of
  consumers;
   Liaise with business, commercial and professional bodies and associations in
  order to establish codes of practice to regulate the activities of their members in
  their dealings with consumers;
   Advise consumers of their rights and responsibilities under laws relating to
  consumers protection;
   Promote and participate in consumer education activities;
   Establish appropriate systems whereby consumer claims can be considered and
  redressed;
   Liaise with consumer organisations, consumer affairs authorities and consumer
  protection groups overseas and to exchange information on consumer issues with
  those bodies;
   Arrange for the representation of consumers in court proceedings relating to
  consumer matters; and
   To do all other things relating to consumer affairs.

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• Independent Consumer and Competition Commission

  10.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  10.2.1 Comments on the Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Commission for the year ended 31 December 2014 was issued on 18
  June 2015. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Limitation of Scope – Other Debtors – K38,077

  The Commission did not provide me with the necessary supporting schedules and
  other documentation for me to verify the other debtors stated as K38,077 at the year
  end. Consequently, I was unable to state whether the other debtors have been fairly
  stated in the financial statements.

  Limitation of Scope – Payment Vouchers – K954,894

  During my review of expenses related to Consultancy Services and other payments, I
  noted that the payment vouchers submitted for my verification were unsigned and
  generated from the computer system. The Commission was unable to locate and
  provide the actual certified and approved vouchers amounting to K954,894 for my
  verification. As a result, I was unable to validate the payments of K954,894 made by
  the Commission during the year.

  QUALIFIED OPINION

  In my opinion, except for the effects of the matters 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
  2014, and the results of its financial operations and cash flows for the year
  then ended.”

  10.2.2 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 Commission for the year ended 31 December
  2014 was issued on 18 June 2015. The Report contained the following significant
  matters:

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• Independent Consumer and Competition Commission

  Salary and Wages Tax

  During my review of the Salary and Wages Tax account, I noted that the Salaries and
  Wages Tax returns had not been lodged with the Internal Revenue Commission (IRC)
  on a timely basis and the liabilities continue to accrue. As a result, the Commission
  had breached Division 2B of Income Tax Act 1959 which stipulates that all
  organisations should lodge Group Tax on or before the 21st day of the following
  month.

  I recommended Management to lodge the Group Tax returns at the end of every
  month to the IRC so as to comply with Division 2B of Income Tax Act 1959 and
  to avoid any tax penalties. The Commission concurred with my observation and
  agreed to comply with the requirement as recommended.

  Travel and Subsistence Payments Lacking Acquittal

  My review of the Travel and Subsistence payments revealed that the Commission did
  not maintain a Travel Advance Register for the travels taken by its officers at a total
  cost of K251,736 which had not been acquitted at the year end. Furthermore, no travel
  advance acquittal forms were filled and attached with other relevant supporting
  documents.

  I recommended to the Commission that a Travel Advance Register be maintained and
  updated on a regular basis as required under PFMA and Finance Management
  Manual Part 20 (Para 11.2). The Commission agreed to take necessary action to
  rectify the issue.

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• Page 70 of 396

• 11. INDEPENDENT PUBLIC BUSINESS CORPORATION

  11.1 INTRODUCTION

  11.1.1 Legislation

  The Independent Public Business Corporation (IPBC) 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
  PNG (Amendment) Act 2007 at which time the objectives and functions of the
  Corporation were changed.

  A major impact of the amendments made 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 PFMA. 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 8 June 2007.

  11.1.2 Objectives of the Corporation shall be:

   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;
   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 NEC;
   To enhance the financial position of the State or State Owned Enterprises; and
   To enter into and perform financial and other arrangements that in the opinion
  of the Corporation have as their objective either:
  – The advancement of the financial interests of the State or State Owned
  Enterprises; or
  – The development of the State or any part thereof.

  11.1.3 Functions of the Corporation

   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.
   Without limiting the generality of Subsection (1) but subject to the provisions of
  this Act, the Corporation may:

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• Independent Pubic Business Corporation

  ‒ Undertake the function of holding and monitoring corporation for State
  owned assets and Majority State Owned Enterprises;
  ‒ Undertake the function of planning, coordinating and managing State
  assets, infrastructure and projects;
  ‒ Determine policies regarding:
  ‒ The conduct of its affairs and the affairs of any of the Trusts; and
  ‒ The administration, management and control of the Corporation and
  any of the Trusts;
  ‒ Borrow, raise or otherwise obtain financial accommodation in PNG;
  ‒ Advance money or otherwise make financial accommodation available to
  the State or State Owned Enterprises;
  ‒ Act as a central borrowing and capital raising authority for State Owned
  Enterprises;
  ‒ Act as agent for State Owned Enterprises in negotiating, entering into and
  performing financial arrangements;
  ‒ Provide a medium for the investment of funds of State Owned Enterprises;
  ‒ Manage or cause to be managed the Corporation‟s financial rights and
  obligations; and
  ‒ Such other functions and duties as are prescribed by the Act or any other
  Act.

  11.1.4 Subsidiaries of the Corporation

  The subsidiaries of the IPBC are Aquirus No. 21 Limited, General Business Trust,
  PNG Dams Limited and Port Moresby Private Hospital Limited. Comments in
  relation to these subsidiaries are contained in paragraphs 11A, 11B, 11C and 11D of
  this Report.

  11.1.5 Projects of the Corporation

  The IPBC manages Japanese Fund for Poverty Reduction Project and Lae Port
  Project. It also implements the Port Moresby Sewerage and Supply Upgrading
  Project. Comments in relation to these Projects are contained in the Special Project
  Audits Report to Parliament.

  11.2 AUDIT OBSERVATIONS

  11.2.1 Comments on the Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Corporation for the year ended 31 December 2012 was issued on 18
  November 2014. The report contained a Qualified Opinion.

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• Independent Pubic Business Corporation

  “BASIS FOR QUALIFIED OPINION

  Trade and other Receivables – K3,230,379

  Included in the trade and other receivable was Lae Port Development Project (LPDP)
  Recoverable Cost totaled K737,321. This amount was incurred from various
  expenditures on behalf of LPDP. In the previous year, the expenditures incurred on
  behalf of LPDP were expensed, however, they have been recorded as a receivable in
  the current year. Consequently, I was unable to determine whether this receivable
  account was correctly reported in the financial statements as at 31 December 2012.

  Employment Cost – K7,240,829

  In 2012, K7,240,829 was expensed as employment cost. However, I was unable to
  ascertain the appropriateness of this total remuneration provided due to 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 specifically excluded the applicability of the PFMA, 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 Consultants was
  not adequate with the nature and complexity that IPBC presently 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. Salary of all other officers 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.

  Consequently, I was unable to determine the validity of K7,240,829 paid as
  remuneration and other benefits to the employees of the Corporation in 2012.

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• Independent Pubic Business Corporation

  QUALIFIED OPINION

  In my opinion, except for the effects of the matters referred to in the qualification
  paragraphs, the financial statements of the Independent Public Business Corporation
  comply with generally accepted accounting practice, and give a true and fair view of
  the Corporation‟s affairs as at 31 December 2012 and of the results and cash flows for
  the year then ended.

  EMPHASIS OF MATTERS

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

  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 PFMA, 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 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 years since the enactment
  of the new legislation and only few policy and procedures have been developed and
  provided for my review, while others are yet to be developed.

  Investment made in Aquarius No 21 Limited by Motor Vehicles Insurance Trust
  Limited, transferred to IPBC

  I draw your attention that the Aquarius No 21 Limited (the Company) which owns
  this vacant land portion 1570 (now 2500) was acquired by the Motor Vehicles
  Insurance Trust Limited (MVITL) in 1998 at a cost of K5.0 million, whereas the
  valuation report subsequent to the purchase indicated that the market value was K2.5
  million.

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• Independent Pubic Business Corporation

  However, since 1999 the value of the land was recorded at K950,000 in the books, by
  which MVITL (now MVIL) has incurred a loss of K4.0 million through this
  investment.

  This company was transferred to IPBC as per restructured deed of agreement entered
  into between Motor Vehicles Insurance Limited (MVIL) and Privatisation
  Commission dated 3 April 2002.

  The document made available for review disclosed that an Urban Development Lease
  (UDL) over Portion 1570 (now 2500) was granted to Glory Estate Limited (then
  Known as Kembis Holding Limited) in 2009. Further, the advice given by a law firm
  was evident that IPBC lost all avenues to reclaim this vacant land.

  IPBC and MVIL had failed to apply for a new State lease for this vacant land in time,
  in spite of my advice for this requirement in my management letters and reports since
  2002.

  Establishment of Internal Audit Division

  I draw your attention that the responsibilities of Independent Public Business
  Corporation (IPBC) had increased significantly in managing more projects,
  investments, managing its 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. Therefore, the establishment of Internal Audit Division with
  appropriate staff is an utmost important.

  Audit of Investment Corporation of Papua New Guinea Financial Statements

  The Corporation has spent K1,134,584 for Investment Corporation of Papua New
  Guinea (ICPNG) and this amount was disclosed as receivables in the financial
  statements. However, during the year under audit, IPBC Board resolved to make a
  provision for bad debts for the said amount. The audit of ICPNG financial statements
  was one of the requirements in the Gazettal Notice 33 dated 6 April 2004 but until the
  date of this Report, this requirement has not been met. Therefore, the exact status of
  ICPNG financial position could not be determined.

  Fixed Assets held for Sale

  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 this decision was later abandoned.

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• Independent Pubic Business Corporation

  The initial cost of these assets was K1,210,612 and provided depreciation from 2003
  to 2006. In 2007, the Corporation stopped providing depreciation and began showing
  the net value of these assets as held for sale.

  The depreciation earlier provided which amounts to K501,889 was reversed in 2009
  and the assets were taken up at its 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 this impairment provision.

  Further, in 2012, the Board resolved these assets be written off from the books either
  by auction or donation. However, at the time of this Report, I was not provided with
  necessary documentation to ascertain whether these assets were auctioned or donated
  and its outcome.”

  11.2.2 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 Corporation for the year ended 31 December
  2012 was issued on 18 November 2014. The report contained the following
  observations:

  Visa Debit Card

  Internal control over use and acquittal of visa debit cards was inadequate. Issues
  mentioned in earlier report were still prevailing in 2012. The visa cards in 2012 were
  used mostly in Port Moresby restaurants and supermarkets for meetings with
  Consultants. I brought this to the attention of management and I was informed that,
  “some restaurants used for the official lunches and dinners do not accept purchase
  orders, as such visa debit/credit cards were used. Moving forward, timely acquittals
  are demanded from the card holders.”

  Business Travel Advance

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

  The Corporation‟s Policy requiring acquittal of travel advances within seven days on
  completion of the travel was not fully complied with as advances totalling K248,025
  related to 2006 to 2010 remained unacquitted as at 31 December 2012. Outstanding
  travel advances of the officers who left the Corporation without acquitting were also
  included in the above travel advances. The present board in its meeting No.1 Dated 14
  March 2014 resolved that this advances be written-off.

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• Independent Pubic Business Corporation

  I brought this to the attention of management and they responded that “the advances
  written off were for the period 2006 to 2010. The previous management had failed to
  follow up on proper acquittal of these. Current management‟s attempt to rectify this
  issue was futile, thus the request for write-off.”

  Former Managing Director’s Contract and Remuneration

  The former Managing Director‟s position was confirmed by National Executive
  Council (NEC) on 7 July 2008 for a period of four years. The Board on 13 March
  2009 had 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 and they responded that “we have
  exhausted all avenues to locate a contract copy. However, should one be located the
  documents we will make them available.”

  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 1 July 2005 to 7 July 2008 and AUD$ 50,000 per annum from 8 July 2008 till
  the date of his termination. However, these allowances were excluded from tax
  without seeking prior approval from the Internal Revenue Commission (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, no response was received from the management. Eventually, IRC in its
  letter dated 18 February 2011 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 they responded that “we advise that
  the former Managing Director‟s final entitlement on unexpired contract is not yet
  paid, and also management will confirm status of the tax exemption notice from
  Internal Revenue Commission for prior payments. If the final contract entitlement is
  to be paid, then relevant taxes on allowances will be deducted from gross amount and
  submitted to IRC.”

  – 37 –

• Page 77 of 396

• Independent Pubic Business Corporation

  11.3 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 Corporation for the year ended 31 December 2013 was in progress.

  The financial statements for the year ended 31 December 2014 had not been
  submitted for my inspection and audit.

  – 38 –

• Page 78 of 396

• 11A. AQUARIUS NO.21 LIMITED (Subsidiary of IPBC)

  11A.1 INTRODUCTION

  11A.1.2 Legislation

  Aquarius No. 21 Limited was incorporated under the Companies Act. 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 (MVIL) dated 3 April 2002.

  11A.2 AUDIT OBSERVATIONS

  11A.2.1 Comments on the Financial Statements

  My reports in accordance with the provisions of the Companies Act on the financial
  statements of the Company for the years ended 31 December 2011 and 2012 were
  both issued on 15 August 2014. The reports contained Disclaimer of Opinions,
  hence only the 2012 report is reproduced as follows:

  “BASIS FOR DISCLAIMER OF OPINION

  Opening Balance

  My report on the financial statements of Aquarius No. 21 Limited for the year ended
  31 December 2011 was disclaimed on the basis of limitation of scope with regard to
  the carrying value of land, status of ownership of land and uncertainty of going
  concern. I was unable to perform sufficient audit procedures to satisfy myself as to
  the completeness and accuracy of the opening balances. Any adjustments that might
  have been found to be necessary on such opening balances would have had a
  consequential effect on the financial statements for the year ended 31 December
  2012. Consequently, I was unable to quantify the effects of any material
  misstatements in the opening balances that might have a bearing on the balances
  reported in the financial statements for the year ended 31 December 2012.

  – 39 –

• Page 79 of 396

• Aquarius No.21 Limited

  Carrying value of Land

  The value of land has been carried in the books of Aquarius No. 21 Limited at
  K950,000 based on the agreement between Bank of South Pacific Limited (formerly,
  PNGBC Limited), Independent Public Business Corporation (formerly, Privatisation
  Commission) and the Liquidator of Motor Vehicles Insurance Limited dated 9 April
  2001. I was not able to place any reliance on the valuation. Further, the land lease of
  “TSL Volume 14 Folio 250” had expired in 2000, however, I was not provided with
  any new state lease. Therefore, I was unable to conclude whether the Company‟s
  claim of ownership was accurate and whether the carrying value of land of K950,000
  at 31 December 2012, was appropriate.

  Status of Ownership of the Land

  The documents made available for review disclosed that a UDL over Portion 1570
  (now 2500) was granted to Glory Estate Limited (then known as Kembis Holding
  Limited) in 2009. The asset was claimed to be owned by the Company.

  As per the advice given by a law firm it was evident that IPBC lost all avenues to
  reclaim this vacant land. Further, as per the recommendation of the Audit & Risk
  Committee, the IPBC Board endorsed the provision of the loss.

  Therefore, it was not appropriate to claim this vacant land as an asset of the Company.

  Uncertainty of Going Concern

  The financial statements were prepared on a going concern basis, the validity of
  which was dependent upon the shareholder, IPBC, not calling in the amount due by
  Aquarius No. 21 Limited and providing continued and additional financial support. I
  have not obtained sufficient and appropriate evidence that IPBC would provide the
  financial support required.

  Also, it was now evident that the company had no assets to generate income and pay
  its liabilities.

  Therefore, the going concern basis was not appropriate, adjustments would need to be
  made relating to the recoverability and classification of recorded amounts or the
  amounts and classification of liabilities to reflect the fact that the entity may be
  required to realise its assets and extinguish its liabilities other than in the normal
  course of business, and the resulting amounts may differ from those stated in the
  financial statements. It was not possible for me to quantify the extent of the
  adjustments required.

  – 40 –

• Page 80 of 396

• Aquarius No.21 Limited

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis for Disclaimer of
  Opinion paragraphs, I have not been able to obtain sufficient appropriate audit
  evidence and accordingly, I was unable to express an opinion on the financial
  statements of Aquarius No. 21 Limited as at 31 December 2012, and of its financial
  performance and its cash flows for the year then ended.

  EMPHASIS OF MATTER

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

  Investment made in Aquarius No. 21 Limited by Motor Vehicles Insurance Trust
  Limited

  I drew attention of the shareholders that the Aquarius No. 21 Limited (the Company)
  which owns this vacant land (Portion 1570 now 2500) was acquired by the Motor
  Vehicles Insurance Trust Limited (MVITL) in 1998 at a cost of K5.0 million, whereas
  the valuation report of the vacant land subsequent to the purchase indicated that the
  market value was K2.5 million. However, since 1999 the value of the land has been
  taken up at K950,000 in the books, therefore MVITL (now MVIL) had incurred a loss
  of K4.0 million through this investment.

  This Company was transferred to IPBC as per restructured deed of agreement dated 3
  April 2002 entered into between Motor Vehicles Insurance Limited (MVIL) and
  Privatisation Commission.

  IPBC and MVIL had failed to apply for a new State lease for this vacant land, in spite
  of the issue being highlighted in my Management Letters since 2002.

  OTHER MATTER

  In accordance with Section 8(2) of the Audit Act 1989 (as amended), I have a duty to
  report on any significant matters out of the financial statements, to which the report
  relates. I draw attention to the following issue:

  Annual Returns Filed with Investment Promotion Authority (IPA)

  I was not provided with the copy of the Annual Return filed with IPA by the
  Company to determine whether it complied with the requirements of the Companies
  Act 1997.”

  – 41 –

• Page 81 of 396

• Aquarius No.21 Limited

  11A.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, management advised that the deregistration
  process of the Company is in progress. That being the case, this will be my last report
  on the Company to Parliament.

  – 42 –

• Page 82 of 396

• 11B. GENERAL BUSINESS TRUST (Trust under IPBC)

  11B.1 INTRODUCTION

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

  11B.1.1 Objectives of the Trust

   The Independent Public Business Corporation of PNG (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 privatisation matters may vest certain assets and liabilities in
  the IPBC as Trustee of the Trust; and
   All the State Owned Enterprises and other investments owned by the State of
  PNG are vested in the Trust by the Minister responsible for privatisation as
  approved by the NEC from time to time.

  11B.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 Trust for the year ended 31 December 2013 was in progress.

  The Trust had not submitted its financial statements for the year ended 31 December
  2014 for my inspection and audit.

  – 43 –

• Page 83 of 396

• 11C. PNG DAMS LIMITED (Subsidiary of IPBC)

  11C.1 INTRODUCTION

  11C.1.1 Legislation

  PNG Dams Limited was incorporated under the Companies Act on 5 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 PNG Electricity Commission (ELCOM). This was gazetted
  through Gazettal Notification No. G114 dated 16 July 2002. The Company was
  vested with the IPBC through the Gazettal Notification No. G125 dated 2 August
  2002.

  11C.1.2 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.

  11C.2 AUDIT OBSERVATIONS

  11C.2.1 Comments on the Financial Statements

  My report in accordance with the provisions of the Companies Act on the
  Company‟s financial statements for the year ended 31 December 2012 was issued
  on 28 August 2014. This report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Opening Balances

  My report for the year ended 31 December 2011 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 2012, 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 2012.

  Valuation of the Dams

  The financial statements disclosed that the total value of the two dams, namely;
  Sirinumu and Yonki were taken up in the financial statements as K97,648,890.

  – 44 –

• Page 84 of 396

• PNG Dams Limited

  The valuation was based on the book value of the 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 was unable to verify the accuracy of the net value of the dams taken up as
  K83,333,706 at 31 December 2012.

  Liabilities of the Dams

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

  Therefore, I was unable to determine whether any liability was payable but not
  included in the financial statements as at 31 December 2012.

  Receivable

  An amount of K80,000 was disclosed as receivable for the year ended 31 December
  2012. However, no documentation was provided for my inspection and verification
  to determine the accuracy of the balance. Consequently, I was unable to ensure the
  appropriateness of K80,000 taken up as receivable in the financial statements as at
  31 December 2012.

  DISCLAIMER OF 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 was
  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 2012:

  (i) I was 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;
  (ii) With the exception of the matters described above, I have obtained all the
  information and explanations I have required.”

  – 45 –

• Page 85 of 396

• PNG Dams Limited

  11C.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 Company for the year ended 31 December
  2012 was issued on 28 August 2014. The report contained the following
  observations:

  Transfer of Water Permits

  As a result of Gazettal notification which vested the dams with IPBC, the permits
  held by PNG Power Limited (PPL) 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 PPL in 2002 were not provided for my review and inspection.

  As such, I was unable to verify whether the conditions attached with the water
  permits are complied with. I brought this to the attention of the 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.”

  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 with other
  water authorities like EDA RANU or Water PNG for the supply of water for any
  fees other than PPL. At the time of this report, I had 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
  responds to Clause 5 of the lease agreement. We will investigate and consult with
  PPL.”

  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 Investment Promotion Authority (IPA) along with the Company‟s 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.”

  – 46 –

• Page 86 of 396

• PNG Dams Limited

  Appointment of Director and Company Secretary

  The unaudited financial statements were signed by one of the former Chairman and an
  officer of IPBC who were not formally appointed as Directors of the Company for the
  year ended 31 December 2004 for filing with IPA along with the Company‟s annual
  returns. However, no annual returns were filed with IPA for the financial years ended
  from 2005 to 2011. A company search report dated 18 February 2010 disclosed that
  the former Managing Director of IPBC was the Director since 1 June 2003 and not the
  former Chairman and the officer of IPBC at any time during 2003 to 2010. I brought
  this to the attention of Management and they responded that “our legal division is
  attending to the appointment of Director and Company Secretary. We will provide
  copies of all relevant forms once they are duly signed and lodged with IPA.”

  11C.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 Company for the year ended 31 December 2013 was in progress.

  The financial statements for the year ended 31 December 2014 had not been
  submitted for my inspection and audit.

  – 47 –

• Page 87 of 396

• 11D. PORT MORESBY PRIVATE HOSPITAL LIMITED (Subsidiary of
  IPBC)

  11D.1 INTRODUCTION

  11D.1.1 Legislation

  Port Moresby Private Hospital Limited (formerly Negliw No. 81 Limited) was
  incorporated under the Companies Act 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.

  11D.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.

  11D.2 AUDIT OBSERVATIONS

  11D.2.1 Comments on the Financial Statements

  My reports in accordance with the provisions of the Companies Act on the
  Company‟s financial statements for the years ended 31 December 2011 and 2012
  were both issued on 28 August 2014. The reports contained Qualified Opinions,
  hence only the 2012 report is reproduced as follows:

  “BASIS FOR QUALIFIED OPINION

  Related Party Balance

  The financial statements disclosed that K6,584,989 was payable to related party
  payables, General Business Trust, under current liabilities. However, the audited
  financial statements of General Business Trust showing K5,937,416 as receivable
  from Port Moresby Private Hospital as at 31 December 2012, leaving an
  unreconciled difference of K647,573.

  Therefore, I was unable to ascertain the accuracy of showing K6,584,989 as related
  party payable in the financial statements for the year end 31 December 2012.

  – 48 –

• Page 88 of 396

• Port Moresby Private Hospital Limited

  Uncertainty of Going Concern

  The financial statements were prepared on a going concern basis, the validity of
  which I was not able to ensure as the hospital project was still incomplete and I was
  not provided with any documentary evidence that the parent organisation, the
  Independent Public Business Corporation, will continue to provide the financial
  support required by the Company to complete the project and commence the
  operation of the hospital.

  The financial statements do not include any adjustments that might result from the
  outcome of this uncertainty. If the going concern basis is not appropriate, adjustments
  would need to be made relating to the recoverability and classification of recorded
  amounts or the amounts and classification of liabilities to reflect the fact that the
  entity may be required to realise its assets and extinguish its liabilities other than in
  the normal course of business, and the resulting amounts may differ from those stated
  in the financial statements. It is not possible for me to quantify the extent of the
  adjustments required.

  QUALIFIED OPINION

  In my opinion, except for the effects of the matters referred to in the above
  qualification paragraph:
  (a) The financial statements of Port Moresby Private Hospital Limited for the year
  ended 31 December 2012;
  (i) Give a true and fair view of the financial position and the results of its
  operations and cash flows for the year then ended;
  (i) The financial statements have been prepared in accordance with the
  Companies Act 1997, International Financial Reporting Standards and
  other generally accepted accounting practice; and
  (b) Except as noted under Other Matters paragraph, proper accounting records
  have been kept by the Company; and
  (c) I have obtained all the information and explanations required.

  OTHER MATTER

  In accordance with Section 8(2) of the Audit Act 1989 (as amended), I have a duty to
  report on any significant matter out of the financial statements, to which the report
  relates. I draw attention to the following issue:

   The lease agreement between Independent Public Business Corporation and
  Pacific International Hospital disclosed that the annual rent for this hospital
  facility was K267,266 for period of forty (40) years.

  – 49 –

• Page 89 of 396

• Port Moresby Private Hospital Limited

  The current value of the property was K48 million as per the valuation report.
  However, the current annual rent was less than 1% of the value of the hospital
  property. Audit was not provided with adequate explanation for leasing the facility at
  a very low lease rental.”

  11D.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 Company for the year ended 31 December 2013 was in progress.

  The financial statement for the year ended 31 December 2014 had not been submitted
  for my inspection and audit.

  – 50 –

• Page 90 of 396

• 12. INDUSTRIAL CENTRES DEVELOPMENT CORPORATION

  12.1 INTRODUCTION

  12.1.1 Legislation

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

  12.1.2 Functions of the Corporation

  The main functions of the Corporation are:
   Overall planning and implementation of the Government‟s industrial centre
  development programme;
   Preparation of feasibility studies in order to identify appropriate forms of
  industrial development;
   To identify therewith or otherwise, regions and sites in the country for industrial
  centres; and
   To do such supplementary, incidental or consequential acts, as are necessary for
  the development and promotion of industrial centres in PNG.

  12.2 AUDIT OBSERVATIONS

  12.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the Corporation‟s
  financial statements for the year ended 31 December 2011 was issued on 30 March
  2015. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Trade Debtors –Malahang Industrial Centre (MIC)

  The MIC trade debtors balance was reported as K904,401 at the year end. I noted that
  K522,339 still remained outstanding for a long period of time, therefore the
  collectability of this amount is in doubt. As such, I was unable to satisfy myself as to
  the accuracy and collectability of the trade debtors as reported at the year end.

  Sundry Debtors – K2,031,358

  Included in the above account were land sales debtors totaled K479,395 of which an
  amount of K442,623 had been outstanding for over 90 days.

  – 51 –

• Page 91 of 396

• Industrial Centres Development Corporation

  In addition, land sales debtors with credit balances (as a result of customers payments)
  totaled K63,460 were not allocated with invoices. As a result, the sundry debtors
  account was understated by the said amount. Consequently, I was unable to ascertain
  the accuracy, correctness and collectability of the sundry debtors as reported in the
  financial statements as at 31 December 2011.

  Cash at Bank – K10,770,650

  The bank confirmation certificates for the Business Growth Centre (BGC), Ulaveo
  Industrial Centre (UIC) and Lands accounts for the year ended 31 December 2011
  were not provided to me at the time of audit for my review. As a result, I was unable
  to confirm the closing bank balances as reported in the financial statements.

  QUALIFIED OPINION

  In my opinion, except for the effect 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 2011 and the results of its financial operations and cash flows for
  the year then ended.”

  12.2.2 Audit Observations Reported to the Ministers

  My report to the Ministers under Section 8(2) of the Audit Act on the inspection and
  audit of the accounts and records of the Corporation for the year ended 31 December
  2011 was issued on 30 March 2015. The report contained the following significant
  matters:

  Advance/Acquittals Register

  The Corporation had not maintained advance/acquittal register for Head Office and
  Malahang Industrial Centre despite my recommendation in previous Management
  Letters. Due to non-existence of Advance/Acquittal Register during the year under
  review, I was unable to trace the authenticity of advances against its acquittals. The
  Corporation in its response agreed to take necessary remedial action to rectify the
  issue.

  Staff Advance – K310,035

  I noted that the Corporation had made progress in recouping outstanding staff
  advances during 2011. However, staff advances amounting to K81,684 outstanding
  for considerable period was not recouped during the year. I drew this to the
  Management‟s attention and the Management responded as follows;

  – 52 –

• Page 92 of 396

• Industrial Centres Development Corporation

  “All advances have been minimised; those requesting advance assistance from ICDC
  were given against their entitlements. As for the list of outstanding debtors as per the
  audit report, action had been taken to recoup these amounts. Effort is being made to
  enforce full repayment by Management.”

  Inter-company Accounts

  During my examination, I noted that despite my prior year‟s recommendations, the
  inter-company/project transactions were not being reconciled to show a nil balance at
  year end. Inter-company/project transactions supposed to offset each other showing a
  zero balance, however this had not happened.

  There was a total of K166,538 that was still needed to be reconciled and cleared. I
  drew this to the Management‟s attention and the Management responded as follows:

  “We agree with your comment that the intercompany balances should offset each
  other. The above difference will be further investigated and rectified in 2012
  accounts. The advances in question were given based on directions from the
  Corporation‟s Managing Director and Secretary for Commerce and Industry being
  the parent company of the Ministry; on the understanding that the funds used will be
  reimbursed as soon as the funds are made available for these particular projects.
  Unfortunately these have not been honored by the Department of Commerce and
  Industry to date despite repeated requests for reimbursements of same. A proper
  reconciliation though would be prepared to ensure any differences are identified and
  cleared.”

  Printing of Annual Reports

  During my review, I observed that for three consecutive years (2009, 2010 and 2011),
  the Corporation had made three different down payments amounting to K125,525 to
  three different companies for the production of its annual reports. To date, there were
  no reports printed. I noted that the Management had no action plan established to
  complete the printing of annual reports and the recovery of those monies paid to the
  entities. I drew this issue to the attention of the Management and they responded as
  follows:

  “The timing of the production of these reports have somewhat been stalled due to the
  resignation and departure of some key personnel tasked with this job. We have since
  followed up on some of these companies for recovery of the funds paid but this has
  been a problem itself mainly because some of these deals were paid as initial down
  payments for the production of such jobs as per the agreement signed by the
  Managing Director of ICDC at that time and the supplier.”

  – 53 –

• Page 93 of 396

• Industrial Centres Development Corporation

  Non-Compliance with the Public Finances (Management) Act 1995

  The Corporation had not prepared and submitted its financial statements to my Office
  before 31 March 2012 to enable me to conduct the audit and issue the audit report
  within the time frame stipulated in the Act. Consequently, the Corporation had
  breached Section 63(2) and 63(4) of the PFMA.

  Other Internal Control Weaknesses

  Other weaknesses noted during my review were:

   Certain cost on preliminary activities were over spent by the Corporation on the
  projects and they were still incomplete;
   Inadequate control over cash encashment and payment to suppliers;
   Reconciliations of general ledger accounts were not prepared on a periodic
  basis;
   There was no Internal Audit Unit established as per Section 9 of the PFMA
  ;and
   Minister‟s approval of the land sale was not provided for my verification.

  I drew Management‟s attention to these weaknesses and I was advised that steps have
  been taken to address these issues.

  12.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and
  records and examination of the financial statements of the Corporation for the years
  ended 31 December 2012 and 2013 had been completed and the results were being
  evaluated.

  The financial statements for the year ended 31 December 2014 had not been
  submitted for my inspection and audit.

  – 54 –

• Page 94 of 396

• 13. INTERNAL REVENUE COMMISSION

  13.1 INTRODUCTION

  13.1.1 Legislation

  The National Executive Council (NEC) in its meeting on 5 December 2013, Decision
  No: 419/2013 approved that the Internal Revenue Commission be transformed into a
  Statutory Authority through a separate Act of Parliament.

  In accordance with the NEC decision, the Internal Revenue Commission Act, 2014
  was drafted and certified on 5 August 2014. In September 2014, the Internal Revenue
  Commission started carrying out its operations as a Statutory Authority.

  Prior to September 2014, the Internal Revenue Commission was operating as a
  Department of the National Public Service under the Department of Finance.

  13.1.2 The Objective of the Commission

  The objective of the Internal Revenue Commission is to raise revenue for the
  government from taxes imposed on income that is liable to be taxed under the taxation
  laws it administers. The Commission assesses and collects taxes. It conducts tax
  education and awareness campaigns, and proposes tax administration reform
  measures to ensure that a conducive business environment is established for collecting
  right amount of taxes.

  13.1.3 The Powers and Functions of the Commission

  The powers and functions of the Internal Revenue Commission are to enable the
  Commissioner General to:

   administer and enforce the revenue laws;
   promote compliance with the revenue laws;
   take such measures as may be required to improve service provided to
  taxpayers with a view to improving efficiency and maximising revenue
  collection;
   take such measures as may be required to counteract tax fraud and other forms
  of tax evasion;
   advise the State on matters relating to taxation and to liaise with relevant
  stakeholders on such matters;
   represent the State internationally in respect of matters relating to taxation; and
   carry out such functions as are given to the Internal Revenue Commission
  under this Act or any other law.

  – 55 –

• Page 95 of 396

• Internal Revenue Commission

  13.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the field work associated with the inspection and
  audit of the accounts and records and the examination of the financial statements of
  the Commission for the period 18 September to 31 December 2014 had been
  completed and the results were being evaluated.

  – 56 –

• Page 96 of 396

• 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;
   Facilitate the introduction of citisens and foreign investors to each other and to
  activities and investments of mutual benefits;
   Provide a system of certification of foreign enterprises;
   Advise the Minister on policy issues which relate to the Act; and
   Maintain a register of foreign investment opportunities.

  14.2 AUDIT OBSERVATIONS

  14.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the Authority‟s
  financial statements for the years ended 31 December 2013 and 2014 were issued on
  18 February and 15 May 2015 respectively. The reports did not contain any
  qualifications.

  – 57 –

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• 15. KOKONAS INDASTRI KOPORESEN (Formerly Copra Marketing
  Board of PNG)

  15.1 INTRODUCTION

  15.1.1 Legislation

  The (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 PNG and required KIK to only regulate the
  copra price in PNG.

  The Kokonas Indastri Koporesen Act subsequently established PNG Coconut
  Extension Fund and PNG Coconut Research Fund. Comments in relation to these
  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 PNG and to
  administer the PNG Coconut Extension Fund and the PNG Coconut Research Fund.

  15.2 AUDIT OBSERVATIONS

  15.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Koporesen for the year ended 31 December 2014 was issued on 26
  May 2015. The report did not contain any qualification.

  15.2.2 Audit Observations Reported to the Ministers

  My report to Ministers under Section 8(2) of the Audit Act on the inspection and audit
  of the accounts and records of the Koporesen for the year ended 31 December 2014
  was issued on 26 May 2015. The report contained the following comment:

  Managing Director’s Contract of Employment

  My examination of the personnel records for the year ended 31 December 2014
  revealed that the National Executive Council (NEC), in its Decision No: 14/2013
  dated 23 February 2013, confirmed the appointment of the Managing Director of KIK
  for a period of four years.

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• Kokonas Indastri Koporesen

  The NEC further directed the Secretary for the Department of Personnel Management
  to prepare a “Contract of Employment” for the Managing Director, which was not
  finalised at the time of audit. I brought this to the attention of Management in my last
  report as I was unable to determine on what basis the Managing Director‟s
  Remuneration was calculated.

  The Management took note of my concerns and advised that the Managing Director
  was on the same scale as the previous Managing Director and adjustments would be
  effected once the “Employment Contract” is signed.

  – 59 –

• Page 99 of 396

• 15A. PNG COCONUT EXTENSION FUND

  15A.1 INTRODUCTION

  The Copra Marketing Board (Amendment) Act 1997 provides for the establishment
  of the PNG 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 programs
  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 KIK.

  15A.2 AUDIT OBSERVATIONS

  15A.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 Extension Fund for the year ended 31 December 2014 was issued
  on 26 May 2015. The report did not contain any qualification.

  – 60 –

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• 15B. PNG COCONUT RESEARCH FUND

  15B.1 INTRODUCTION

  15B.1.1 Legislation and Objective of the Fund

  The PNG Coconut Research Fund was established by the Kokonas Indastri
  Koporesen Act following the repeal of the Copra Marketing Board (Amendment)
  Act and the cessation of the PNG Copra Research Fund. The KIK deducts a copra
  research fee 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 PNG.

  15B.2 AUDIT OBSERVATIONS

  15B.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 Research Fund for the year ended 31 December 2014 was issued
  on 26 May 2015. The report did not contain any qualification.

  – 61 –

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• 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 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 Institute for the year ended 31 December 2013 had been completed. The
  Management Letter response together with the signed financial statements were being
  awaited to issue the audit report.

  The financial statements for the year ended 31 December 2014 had not been
  submitted for my inspection and audit.

  – 62 –

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• 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 objectives of the Authority are 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:
   To advise the Minister on matters relating to mining and the management,
  exploitation and development of Papua New Guinea‟s mineral resources;
   To promote the orderly exploration for the development of the country‟s
  mineral resources;
   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 PNG‟s mineral resources;
   To negotiate mining development contracts under the Mining Act as agent for
  the State;
   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 PNG‟s mineral resources;
   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, the Mining (Safety)
  Act, the Mining Development Act, the Ok Tedi Acts and the Ok Tedi
  Agreement, the Mining (Bougainville Copper Agreement) Act 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;

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• Mineral Resources Authority

   On behalf of the State, to receive and collect from persons to whom a
  tenement has been granted under the Mining Act the security for compliance
  with the person‟s obligations under the Act required to be lodged with the
  Registrar, and to hold and such security received or collected;
   On behalf of the State, to administer and be responsible for the administration
  of any public investment program relating to mining;
   To conduct systematic geoscientific investigations into the distribution and
  characteristics of PNG‟s mineral and geological resources, located on, within
  or beneath the country‟s land mass, soil, subsoil and the sea-bed;
   To provide small scale mining and hydrogeological survey data services, and
  occupational health and safety community awareness programs;
   To collect, analyse, store, archive, disseminate and publish (in appropriate
  maps and publications) on behalf of the State geoscientific information about
  PNG‟s mineral and geological resources;
   To carry out such other functions as are given to the Authority by this Act or
  by any other law; and
   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 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  17.2.1 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 13 April
  2015. This report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Opening Balances

  I was unable to obtain sufficient appropriate audit evidence regarding the financial
  statements for the year ended 31 December 2010 and my audit opinion was
  disclaimed for that year. Accordingly, I am not in a position to and do not express an
  opinion on the corresponding figures for the year ended 31 December 2010. Any cut
  off errors at 31 December 2010 would affect the results of operations for the year
  ended 31 December 2011.

  Tenement Rent Income

  Reported in the Statement of Comprehensive Income is an amount of K6,024,706
  being for tenement rent income. During the audit, completeness of revenue
  recognition of the tenement income account could not be verified.

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• Mineral Resources Authority

  I noted that the Authority did not have proper controls over the raising of tenement
  income invoices and subsequent recognition in the accounting records. No audit
  evidence could be obtained to satisfy myself that all tenement income was raised and
  recognised during the financial year ended 31 December 2011.

  Production Levies

  Reported in the Statement of Comprehensive Income was an amount of K24,805,275
  being for production levies income. During the audit, completeness and accuracy of
  the production levies account could not be verified. It was noted that the Authority did
  not have proper controls and procedures to capture all the production levies.
  Production levies were calculated based on 0.25% of assessable income of producing
  mines. I noted during the audit that not all producing mines remitted their production
  levies.

  Additionally, the Authority did not have a process to verify and ascertain the base and
  assessable income as described by the producing mines to calculate and remit the
  production levies.

  Non-Compliance with the Mineral Resource Authority Act 2005 and Public
  Finances (Management) Act 1995

  The 2011 Statutory Financial Statements of the Authority was not furnished within
  five months after the balance date due to weaknesses in the Authority‟s accounting
  system and overall internal control environment. The audit only commenced in early
  March 2014, as such management was unable to meet the deadlines required under
  Section 36(1) of the Mineral Resource Act 2005 which requires audited financial
  statements of the Authority to be furnished to the Minister before 31 May 2012.

  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
  Mineral Resource Authority for the year ended 31 December 2011.”

  17.2.2 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
  2011 was issued on 13 April 2015. The report contained the following observations:

  Internal Control Environment

  I have identified several weaknesses in Authority‟s accounting system and overall
  internal control environment operated during the year ended 31 December 2011.

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• Mineral Resources Authority

  Management information were insufficient and reconciliations were not performed
  for items included in the Statement of Financial Position and/or reconciliations
  between the general ledger and sub ledgers which resulted in significant delays in
  receipt of information for the audit.

  I recommended that Management implements a system whereby reconciliations are
  prepared for each item stated on the Statement of Financial Position and that
  reconciling items are followed up promptly and resolved. Management should ensure
  that reconciliations are performed between the general ledgers and sub-ledger and that
  reconciling items are followed up promptly in order to ensure completeness of data
  for reporting purposes.

  The Management responded that during the financial year ending 31 December 2014,
  the management accounting and reporting process including reconciliations will
  receive focussed attention.

  Trade Debtors

  The Authority‟s trade debtor‟s increased to K723,195 from K225,586 in the prior year
  and an aging report of customers summarising the balance was not available. These
  balances could be impaired or unallocated receipts may not have been allocated to this
  balance. I also noted that the Authority did not have a standard policy regarding the
  determination and provision for bad and doubtful debts. A proper policy on the
  determination of bad and doubtful debts is vital in order to ensure there is consistency
  in the method applied in delivering such accounting estimates.

  I recommended that Management should create a module for aging report in the
  system, if possible. Register all invoices in the system by the date of issue and
  integrate the tenement rental sub-ledger with the general ledger and prepare monthly
  reconciliations between the two. In addition, Management should maintain the sub-
  ledger and reconciling items between the sub-ledger and general ledger should be
  followed up and rectified promptly. Unallocated receipts should be reconciled on a
  monthly basis and debtors accounts followed up in order to allocate potential
  unallocated receipts which may relate to customer accounts on a timely basis.

  Management responded as follows:

  “MRA has set up an electronic tenement management system and it is expected that
  an application will be included that will enable inter-phase with the general ledger to
  capture the financial aspect of the operations. Accordingly, an accounts receivable
  module enabling aged debtors reporting will be possible for after the financial year
  ending 31 December 2014.”

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• Mineral Resources Authority

  Board of Directors Meetings Minutes

  The Board meeting minutes have not been readily available on request and as required
  by my audit. In addition, not all Board meeting minutes for the year under review
  have been presented to me for review. These indicate non-compliance of the MRA Act
  Section 18(1), which states that four Board meetings are to be held in a financial year.

  I recommended that the Management should ensure that the organisation has four
  Board meetings in a year and keeps proper records of all meeting minutes resolutions
  to support the Authority‟s decisions made throughout the year. Also, the minutes of
  the meetings should be taken, signed off by the chairman/secretary and kept.

  Management responded as follows:

  “Management accepted the recommendation for 2011. In 2011, the Authority did not
  have a full functional Board. There was no quorum to convene full Board meetings at
  the time and whatever the composition at the time was, and the limited number was
  convening as sub-committees and providing guidance to the Authority‟s management.

  MRA has, since year opening 2012 acted on the recommendation of the auditor and
  appointed a permanent Board Secretary (who is also Principal Council of the
  Authority) to provide support to the Board since 2012 (to present), proper and sealed
  Board minutes and resolutions have been kept. The Authority is also implementing
  “The Directors interest register” and “Resolution/Minutes register”, which should be
  effective and operational by the end of the 2014 financial year.”

  Internal Audit Function

  I have noted non-compliance with the MRA Act Section 39(5) which states that MRA
  is required to appoint an internal auditor who is to provide a written audit report not
  less than quarterly to the Minister and Treasury. There was an internal auditor for the
  financial year ending 31 December 2011, however, no internal audit work was carried
  out for the period.

  MRA Operating Bank Account – K14,044,267

  The Authority‟s Operating Bank Account remained unreconciled as at 31 December
  2011 by K116, 000. Bank reconciliations are a key control in safeguarding the entity‟s
  most valuable asset, cash, from misappropriation.

  I also noted that the account had unpresented cheques totalling K1,625,268. Of this
  balance, K51,303 related to the year ended 31 December 2009, K29,491 related to the
  year ended 31 December 2010 and the remaining balance of K1,544,474 related to the
  year ended 31 December 2011.

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  The existence of unexplained variances in the bank reconciliation could mean that the
  responsible staff member was not diligently carrying out the reconciliation on a month
  by month basis. This resulted in the bank account remaining unreconciled and as such
  misstated in the financial statements of the Authority.

  I recommended that Management should investigate and resolve all variances noted in
  a timely manner on a going forward basis. They should also determine whether the
  aging of the unreconciled variances would justify journal entries to be posted and
  recognise unpresented cheques older than three years. The Management concurred
  with my recommendation.

  Accruals and Journal Entry Processing

  I have been unable to determine if journals were processed at year end and was not
  provided with any list of journals processed relating to the year ended 31 December
  2011. Thus, I was unable to verify the authorisation, accuracy and validity of any
  journal entries which may have been processed.

  I recommended that the Authority prepares monthly journal listings which should be
  reviewed and signed off as evidence of review. Journal entries should be supported by
  sufficient and appropriate supporting documents as described in the MRA‟s
  Accounting Policies and Procedures Manual.

  Royalty Trust Deeds

  Note 20 to the financial statements reported a Royalty held in Trust from Simberi
  Gold and New Guinea Gold land owners totaled K2,771,390. I noted that there was
  no formal trust deed in place setting out the rights and obligations of all parties
  involved. In the absence of a royalty trust deed, any legal issues arising from the use
  of these funds could have an impact on the Authority in the future. I have
  recommended that all future trust funds held for on behalf of land owners should be
  covered by a properly executed trust deed.

  Revenue – Tenement Income

  I have noted that there was a significant risk around the completeness of tenement
  income for the year. This is mainly due to the following factors as described below:

  Tenement income was not being apportioned according to the tenement period to
  which it related, thus causing cut off issues within the revenue recognition. This is
  based on my selected sample amounting to K1,129,220. An amount of K497,467
  related to revenue earned during the year ending 31 December 2011. However, this
  was recognised during the financial year ended 31 December 2010.

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  I also noted that currently the Authority does not have a proper invoicing system. The
  Authority issue letters to the tenement holders notifying them of their tenement rental
  obligations. This letter then serves as the invoice from the Authority. These letters
  do not have the properties of sufficient invoices in the sense that they have no
  sequence or numbering which will enable the Authority to have proper control over
  the completeness of invoices raised for a particular financial year. This also has the
  potential to lead to further cut off issues around revenue recognition.

  I recommended that the Authority should implement proper policies and procedures
  around revenue recognition. Tenement income should be apportioned correctly with
  reference to the financial period to which it relates and accounted for accordingly. I
  also recommended that the Authority implement a tenement revenue management
  system that where the tenement division is interlinked with the accounts division. The
  tenement division should enter the details of all the tenement applications approved
  by the Minister which should automatically prompt or alert the accounts divisions to
  raise sequence numbered invoices to the relevant tenement holders. Management
  responded that “External accounting support and the implementation of an electronic
  tenement management system will be a focus for 2014 onwards.”

  Revenue – Production Levies

  I noted that the production levies have been calculated and remitted by producing
  mines. Production levies income has been calculated based on 0.25% of assessable
  income of producing mines and accounted for almost 70% of the Authority‟s income.

  The Authority did not test the veracity of the revenue and did not maintain a register
  of mining companies that were required to pay these production levies. As a result of
  the lack of control around the raising of production levy income, it was highly likely
  that not all producing mines were remitting the required production levy to the
  Authority. For example neither the Tolukuma nor Sinivit Gold Mine remitted any
  production levies during the financial year ended 31 December 2011.

  I recommended that Management implement policies and procedures whereby it is
  mandatory for all producing mines to declare their assessable income to the Authority
  regardless of whether they made a profit or a loss for the relevant financial period.

  Management responded as follows:

  “Management on its own has already implemented this recommendation. A
  submission is currently pending Board Approval to implement the audit of production
  levies for the last 3 financial years including the financial year ending 31 December
  2014.”

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  17.3 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 in progress.

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

  – 70 –

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• 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).

  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 hence, the Motu
  Koitabu Council was established.

  The 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 the National Capital
  District (NCD). The government of the National Capital District comprises the
  NCD Commission, the Motu Koitabu Council and the Local-level Governments in
  the NCD.

  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.

  18.1.2 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.

  18.1.3 Subsidiary of the Council

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

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• Motu Koitabu Council

  18.2 STATUS OF FINANCIAL STATEMENTS

  Management in its letter dated 12 August 2009 informed me that the Council was
  unable to provide any of the financial records and information requested by my Office
  for the years ended 31 December 2003 to 2007 due to difficulty in locating the
  documents and records.

  In addition, the Council was unable to provide the signed financial statements to
  enable me to provide an opinion on its accounts and records. Due to the limitation of
  scope of this audit, I intend to exclude this entity from my future reports to
  Parliament.

  – 72 –

• Page 112 of 396

• 18A. TABUDUBU LIMITED (Subsidiary of Motu Koitabu Council)

  18A.1 INTRODUCTION

  18A.1.1 Legislation

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

  Motu Koitabu Interim Assembly holds 99 percent of the shares in Tabudubu
  Limited. The Company 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.

  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 NCD by virtue of Section 47(2) of the
  National Capital District Commission Act 1990.

  18A.1.2 Functions of the Company

  The main functions of the Company as per the Memorandum of Association are to:
  (a) Promote the development of the Motu Koitabu people living within the NCD
  by the promotion of trade, commerce, communication and co-operation; and
  (b) Implement the directives of the Motu Koitabu Council and the National
  Capital District Commission.

  18A.2 STATUS OF FINANCIAL STATEMENTS

  The Management in its letter dated 12 August 2009 informed me that the Company
  was unable to provide any of the financial records and information requested by my
  Office for the years ended 31 December 2003 to 2007 due to difficulty in locating
  the documents and records.

  In addition, the Company was unable to provide the signed financial statements to
  enable me to provide an opinion on its accounts and records. Due to the limitation
  of scope of this audit, I intend to exclude this entity from my future reports to
  Parliament.

  – 73 –

• Page 113 of 396

• 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 Objectives 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 PNG.

  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;
   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;
   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;
   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;
   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;

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• National Agriculture Quarantine and Inspection Authority

   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;
  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;
   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;
   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;
   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;
   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;
   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;
   Provide quarantine and inspection information and services to individuals,
  agencies and other organisations within the country and overseas in respect of
  animals and plants;
   Levy fees and charges for any of the purposes of this Act and any regulations
  made there under;
   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
   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 OBSERVATIONS

  19.2.1 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 2013 was issued on 22
  September 2014. The report contained a Qualified Opinion.

  – 75 –

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• National Agriculture Quarantine and Inspection Authority

  “BASIS FOR QUALIFIED OPINION

  Payment of Labour and Land Mobilisation Costs to Lands Investment Limited

  Note (6) to the financial statements disclosed Land and Building as K31,929,972 at 31
  December 2013. The Land and Building included cost associated with construction of
  the prefabricated houses of K3,523,998. During the year, the Authority made a
  payment of K1,048,998 to the Lands Investment Limited comprising of K742,500 for
  labour (30% of K2,475,000 contract) and K342,498, for the Mobilisation of Earth
  Works in relation to construction of nine prefabricated houses under the Staff Housing
  Project. The Authority paid K1,048,998 in addition to the contract value of
  K2,475,000 as approved by the Central Supplies and Tender Committee. Further,
  there was no specific clause in the contract in respect of the above payments of
  K1,048,998. As such, I was unable to ascertain the basis on which this payment was
  made to Lands Investments Limited. I was unable to sight any formal Board Meeting,
  Tender Committee nor Central Supplies and Tender Board approval in relation to
  these (K1,048,998) additional payments. As such, I was unable to validate the
  payments amounting to K1,048,998 made to the contractor.

  Other Debtors Balance – K2,549,232

  My review on the other debtors balance of K2,549,232 revealed that the balance is
  related to two additional units of Tropicana Building occupied by the Authority since
  2011. The Authority occupied the additional units without obtaining formal approval
  from the Office Allocation Committee. The Authority since made numerous attempts
  to obtain approval from the Office Allocation Committee but was not successful.
  However, NAQIA continues to occupy and make payments for the two additional
  units at Tropicana Limited from its internally generated revenue. I was unable to
  comment as to whether the Authority‟s current rental arrangement was in line with the
  Guidelines set by the Office Allocation Committee and the recommended practice.

  No Audit Trail on Government Special Grant and Donor External Grants

  I was not provided with detailed schedules and the supporting documents of the
  Government Special Grants and the Donor External Grants as disclosed in the
  financial statements. A total of K2,433,113 of Government Special Grants and Donor
  External Grants were recognised as revenue and expenses for the year ended 31
  December 2013. However, I was not adequately provided with the supporting
  schedules and the source documentations. There were no reconciliation statements of
  the grants and the disbursement to indicate when the funds were received and the
  amount expensed during the year under review and the unused balance at the year
  end.

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• National Agriculture Quarantine and Inspection Authority

  Further, the details of expenditures incurred and acquittals made during the year for
  Bogia Coconut Syndrome and the Newcastle diseases in Vanimo were not provided
  for my audit verification. In the absence of the proper schedules and supporting
  documents, I was unable to verify the amounts disclosed in the financial statements.

  QUALIFIED OPINION

  In my opinion, except for the effects of the matter referred to in the Basis for
  Qualified Opinion paragraphs 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 2013, and
  the results of its financial operations and cash flows for the year then ended.”

  19.2.2 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
  2013 was issued on 22 September 2014. The report contained the following
  significant matters:

  Board Meeting Minutes

  The Authority‟s Board Members term expired in March 2013 and they were not
  renewed. The National Executive Council (NEC) did not appoint new members to the
  Board and as such the Authority did not have any Board Meetings until November
  2013.

  However, I noted that important decisions for the Authority such as Staff Housing
  project and the rental of additional two units of the Tropicana Building were made
  without the Authority‟s Board deliberation. Further, the minutes of the one meeting
  held on 15 November 2013 was not authenticated by the Chairman.

  I brought the matter to the attention of Management and they responded to my
  concern as follows:

  “We confirm that all the other formalities for the full board appointments of the
  Board‟s non ex-officio members were completed and names of the applicants
  submitted to the Minister for Agriculture and Livestock for his recommendations to
  Public Service Commission for its proper assessment prior to the National Executive
  Council (NEC) for its endorsement.

  – 77 –

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• National Agriculture Quarantine and Inspection Authority

  Awaiting the outcome, the current National Agriculture Quarantine & Inspection
  Authority Board Chairman and the ex officio members of the NAQIA Board
  conducted a Board Meeting on the 15 November 2013. The draft meeting minutes of
  that meeting was made available to your officers during the field work. Therefore, we
  confirm that there was no major breakdown in the corporate governance control
  within the Authority.”

  Progress Reports

  During my examination of the institutional houses I noted that there were no progress
  reports produced to the Authority by the Contractor (Lands Investments Limited) on a
  regular basis in relation to the nine Staff Institutional Houses built at Kilakila. Due to
  lack of Co-ordination, nine prefabricated housing project was delayed by more than
  six months. The delay in completing these projects has incurred additional costs. I
  brought the matter to the attention of the Management and was responded as follows:

  “Verbal progress report was provided to the Management by the contractor and the
  Property and Assets section performed inspections and provided Board briefs for
  their noting in the Board Meeting. The project was delayed due to many reasons as
  stated below:

   The full building materials were not supplied at once upon the payment of
  70% of the total cost of the building materials or prefabricated steel houses;
   There was continuous heavy rainfall in the first quarter of 2013 which affected
  the foundation works of the constructions site due to high moisture and areas
  being flooded with water;
   Engagement of the semi-skilled labour force for the construction of the
  houses;
   Stop work notice issued by previous Board;
   Employees were not paid by the contractor on a regular fortnightly basis
  which affected the work morale of the employees; and
   There were break and enter to the ware houses and more materials were
  stolen by the semi-skilled employees and the youths from the nearby KilaKila
  settlement.”

  Cash at Bank – K139,749

  My review of the Bank Reconciliation Statements revealed that cheques during 2012
  amounting to K139,749 were recorded as unpresented cheques. Since these cheques
  have become stale after twelve months, they had to be written back to the cashbook.

  – 78 –

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• National Agriculture Quarantine and Inspection Authority

  The cheques which added up to cash at bank balance comprised of K12,577 for
  Westpac Trust Account, K39,330 for Donor Imprest Account and K87,842 from the
  Operating Account.

  I recommended the Authority to make necessary adjustments in the respective
  accounts.

  Property Title Deeds

  I noted that the Authority had been occupying more than thirty properties under its
  custodianship throughout the country as at 31 December 2013. Of the total properties,
  some properties had title deeds. Most of the properties had “Certificate Authorising
  Occupancy” and for the remainder title deeds were yet to be issued by the Department
  of Lands. During my examination, I was not able to verify all the properties under the
  custodianship of the Authority due to lack of supporting documentation.

  Management of the Authority responded to my query as follows:

  “We take note of the comments. We have submitted that most of our Properties are
  under Certificate of Occupancy (COA) due to the fact that they were transferred from
  DAL when NAQIA was incorporated through the NAQIA Act 1997 and we have
  engaged Conveyance Officers to get proper land titles and due to Lands Office
  relocations the files were all over the place and the officers are still working on it.”

  19.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements for the year ended 31
  December 2014 had been submitted for my inspection and audit and arrangements
  were being made to commence the audit shortly.

  – 79 –

• Page 119 of 396

• 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 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 PNG.

  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;
   Promote and facilitate applied and adaptive research in food crops, livestock,
  alternative cash crops, and resource management;
   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;
   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;

  – 80 –

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• National Agricultural Research Institute

   Maintain and conserve the diversity of genetic resources for food and
  agriculture, act as custodian for these resources and promote the effective
  utilisation of these resources in the country;
   Update and maintain the national inventory on soil resources and to develop,
  promote and maintain sustainable practices in agriculture;
   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;
   Perform such other functions as are given to it under this Act or any other law;
   Formulate national agricultural research policies, define sectoral research
  priorities and allocate funds and advise the Minister and the NEC on these
  matters; and
   Generally, 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(4) of the Audit Act on the financial
  statements of the Institute for the year ended 31 December 2014 was issued on 26
  May 2015. The report did not contain any qualification.

  20.2.2 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 Institute for the year ended 31 December
  2014 was issued on 26 May 2015. The report contained the following observations:

  Accounting System/Software

  My review of the accounts and records of the Institute for the year ended 31
  December 2014 revealed that the Institute had been using the Quicken Accounting
  Package for years. I noted that the transactions from the Quicken cash ledgers were
  transferred manually to spreadsheets for reporting purposes as the Quicken was
  programmed to adopt cash basis of accounting. I further noted that the Accpac
  Accounting System acquired was purchased some years back but was not fully
  utilised. In my view, possibility of errors and mistakes would be minimised, a lot of
  time saved and a better audit trail would be available when this new Accpac
  Accounting System is fully utilised.

  Management concurred with my comments and responded that the Accpac
  Accounting System had been implemented progressively and when the internet
  facilities in all the centres including the Head Office are upgraded, the new system
  will be fully implemented.

  – 81 –

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• National Agricultural Research Institute

  Budget for Public Investment Program (PIP)

  I noted with concern that the Institute was not funded under the PIP to carry out and
  implement high priority research and development projects totalling K12,474,000.
  These planned projects span over four to five years as part of the Institute‟s
  performance in meeting its mandated objective as a research Institute to better
  contribute to the development of the country in terms of food security and income
  generation for farmers.

  I recommended Management to prepare and submit more realistic, scheduled,
  achievable and properly constructed PIP budgets in the future. Management
  responded that budgets prepared and submitted over the years met my
  recommendation and criteria and were being funded in prior years. However, the
  continuous funding for PIP stopped since 2013 and as a result, the Institute was
  unable to implement the high priority research and development projects.

  Valuation of Land and Non-Disclosure

  My review of the fixed assets of the Institute revealed that the land titles already
  issued to the Institute for its establishments and research activities by the State were
  not valued and disclosed in the financial statements as at 31 December 2014. I
  recommended Management to value its land and make proper disclosure in the
  Institute‟s accounting records. The Management concurred with my findings and
  stated that valuation of land would be an expensive exercise. However, the
  Management agreed in principle to take appropriate action to value the fourteen
  Leased Land under its custody.

  – 82 –

• Page 122 of 396

• 21. NATIONAL AIDS COUNCIL SECRETARIAT

  21.1 INTRODUCTION

  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 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;
   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:
   Make recommendations and provide guidelines on the related issues to the
  NEC, PGs and LLGs;
   Foster, co-ordinate and monitor HIV/AIDS prevention, control and
  management strategies and program;
   Accept, administer and account for the funds and other resources allocated to
  it;
   Consult and co-ordinate with the appropriate state agencies and other persons
  and organisations on matters related to its activities;
   Initiate, encourage, facilitate and monitor preparation and dissemination of
  information, counselling, care and legal services, research on or in relation to
  HIV/AIDS; and
   Perform such other functions given to it under Section 5 of this Act or any
  other law.

  21.2 AUDIT OBSERVATIONS

  21.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the Council‟s
  financial statements for the years ended 31 December 2011 and 2012 were issued on
  the 21 and 22 April 2015 respectively.

  – 83 –

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• National AIDS Council Secretariat

  These reports contained Disclaimer of Opinions, hence only the 2012 report is
  reproduced.

  “BASIS FOR DISCLAIMER OF OPINION

  Internal Control Environment

  I noted significant weaknesses in the National AIDS Council Secretariat‟s overall
  internal control environment operated during the year 2012. The accounting system
  and internal control environment of the Secretariat continued to be severely deficient.
  The inefficient management control processes, inadequate financial reporting
  structure, and inexperienced and un-skilled staff had contributed to the undue delay in
  the preparation of the financial statements. Further, the Secretariat was unable to
  provide details for mismatched accounting records and other financial information. As
  a result, I was unable to place any reliance on the effectiveness of the Secretariat‟s
  internal control systems for the year then ended.

  Limitation of Scope – General Ledger Control Account Reconciliation

  During my review, I noted that payments made on behalf of Development Account
  were paid from Recurrent Account due to unavailability of funds on the premise that
  Development Account would reimburse Recurrent Account when funds are available.
  The expenses were charged to MYOB general ledger account 1350, which correspond
  to PGAS vote item 135 for Other Operational Expenses. The amounts paid on behalf
  of Development Account was reimbursed during the year and receipted in the MYOB
  general ledger account 1350. However, the interbank transfer transactions
  reconciliation was not performed in a timely manner. General ledger accounts
  reconciliation is one of the key internal control processes to maintain integrity of the
  financial data, provided it is performed in an effective manner on a timely basis. The
  Secretariat has adjusted its Development Expense by K391,337 in order to agree with
  the cash balance at year-end without any basis. As a result, I was unable to comment
  on the integrity of the financial records.

  Limitation of Scope – Lack of Source Documents

  The Secretariat is obliged to keep proper accounts and records of its transaction and
  affairs as required under Section 62(1) of the PFMA. However, my examination of
  the Secretariat‟s accounts and records revealed that the Secretariat did not properly
  maintain its accounting and transaction records. As a result, I was not able to verify
  the payments amounting to K130,000 which relate to Development Account from the
  cashbook to the supporting documents as payment vouchers were not provided for my
  verification. The lack of source documents and inappropriate record keeping limits the
  scope of my audit. Consequently, I was unable to perform the necessary audit
  procedures to determine the authenticity of the amounts disclosed in the expenditure
  account.

  – 84 –

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• National AIDS Council Secretariat

  Staff Advances Account

  I noted that a total of eighteen staff were given their motor vehicle and housing
  allowances in advance totalling K460,908. Of the total advance, three years
  employment contract advance accounts for K242,414 and the balance of K218,494
  relates to twelve months advance. However, the advance amount was not initially
  recorded in the MYOB Staff Advances Account as receivable to offset against the
  subsequent fortnightly repayments. Hence, the repayments of K248,167 posted to
  Staff Advances Account did not offset against the debit balance, resulting in
  K248,167 being shown as credit balance in the Staff Advances Account at the year
  end.

  Conversely, the payroll records showed that staff owed the Secretariat K200,603 as at
  31 December 2012. In such situation, where advance amounts were not initially
  recorded in the Staff Advances Account it will be difficult for the Secretariat to
  determine in the general ledger account the outstanding advance balances that were
  yet to be recouped as at 31 December 2012. It was noted during my review that the
  Staff Advances Account was not properly maintained and reconciled. As a result, I
  was unable to determine the accuracy and completeness of the balance disclosed in
  the MYOB Staff Advances Account at year end.

  Payroll Clearing Account – K626,696

  Payroll Clearing Account represents the group tax payable to Internal Revenue
  Commission. There were no proper listings or yearly break-up provided except for the
  general ledger net credit balance of K626,696. Conversely, the payroll records
  showed that group taxes for pay periods 14 to 26 of 2012 totalling K750,922
  remained outstanding at year end due to cash flow problems faced by the Secretariat.
  A variance of K124,226 was noted between the general ledger account and payroll
  records. Apparently, the Payroll Clearing Account was not properly managed and
  reconciled. As a result, I was unable to conclude on the accuracy and completeness of
  the balance disclosed in the Payroll Clearing Account at year end.

  DISCLAIMER OF OPINION

  In my opinion, because of the existence of the limitation of scope on my work as
  described in the Basis for Disclaimer of Opinion paragraphs, and the effects of such
  adjustments, if any, that might have been determined to be necessary had the
  limitations not existed, I was unable to and do not express an opinion on the financial
  statements of the Secretariat for the year ended 31 December 2012.”

  21.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act on the inspection and
  audit of the accounts and records of the Council for the years ended 31 December
  2011 and 2012 were issued on 21 and 22 April 2015 respectively.

  – 85 –

• Page 125 of 396

• National AIDS Council Secretariat

  For the purpose of this Report, only significant matters arising out of the 2012 report
  is reproduced below.

  Development Budget

  My review of the 2012 development budget revealed that the Secretariat exceeded its
  development budget by 76% overspending in certain vote items totalling K458,584. I
  also noted that a total of twenty six activities were budgeted for and received funding.
  However, funds were not utilised for the budgeted activities. As a result, the
  Secretariat had not achieved some of its planned activities. Further, the spending of
  K250,000 for Condom Procurement and Distribution and K94,369 for Corporate
  Image Building were unbudgeted expenditures. Accordingly, I was unable to state
  whether all factors were taken into consideration before formulating the budget.

  Council Meeting Minutes

  Section 12(1) of the National AIDS Council Act 1997 stipulates that the Council shall
  meet as often as the business of the Council requires, and at such times and places as
  the Chairman directs, but in any event not less frequently than once in every quarter.
  However, during my audit, I noted that there were no National AIDS Council
  Secretariat (NACS) Council Meetings held during the year. In the absence of Council
  Meetings, I was unable to confirm whether the policies and functions of the NACS
  had been fully implemented and its objectives were achieved.

  Secretariat Management responded to the above observation as follows:

  “There was no Council in existence in 2012 after the term of the previous Council
  expired in 2011. Therefore, there was no meeting held during the whole year.”

  Non-Compliance with the Public Finances (Management) Act 1995

  Section 63(2) and 63(4) of the PFMA requires the Secretariat to furnish to the
  Minister before 30 June in each year, a performance and management report of its
  operations for the year ending 31 December preceding, together with financial
  statements. Before furnishing financial statements to the Minister, the Secretariat shall
  submit them to the Auditor-General who shall report to the Minister. However, the
  Secretariat had not prepared and submitted its financial statements for the year ended
  31 December 2012 to my Office on a timely basis to complete the audit on time.
  Accordingly, the Secretariat had breached Section 63(2) and 63(4) of the PFMA.

  The Management noted my observation and stated that NACS will now ensure to
  prepare the financial statements on time and submit to audit in compliance to Section
  63(2) and 63(4) of the PFMA.

  – 86 –

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• National AIDS Council Secretariat

  Bank Reconciliations

  My review of the Secretariat‟s Recurrent and Development Accounts bank
  reconciliations revealed the following discrepancies:

   The Secretariat‟s bank reconciliations were generated from MYOB
  Accounting System. However, the system generated bank reconciliations were
  not checked and reviewed by competent personnel on a monthly basis to
  ensure accuracy of the reconciled bank balances. The lack of regular
  independent review on the bank reconciliations by competent officers may
  result in errors, variances, misstatements and fraudulent application of public
  monies not being detected in a timely manner;
   Un-presented cheques totalling K621,205 (Recurrent – K227,246 and
  Development K393,959) were disclosed in the reconciliations as at 31
  December 2012. Of the total unpresented cheques, K58,258 (Recurrent –
  K50,179 and Development K8,079) were for 2008 to September 2011 and had
  become stale. However, they were not cleared in a timely manner; and
   December bank reconciliation for Recurrent Account showed outstanding
  deposit of K5,465. However, this was a direct deposit, which was already
  cleared in the bank statement on 1 December 2012 and subsequently taken up
  in operating bank general ledger account (Recurrent Account). As a result,
  there was a variance of K5,465 between the general ledger account and the
  bank reconciliation. This error was never detected and corrected due to lack of
  independent review being performed on the reconciliations.

  Management agreed with my findings and responded as follows:

   “There was no independent review performed on bank reconciliations.
  However, the Accountant who is the senior officer in the Finance Team will
  now review the bank reconciliations. The stale cheques have been written back
  to cash account in 2013; and
   The error presentation of K5,464.50 as outstanding deposit will be corrected
  in the 2014 financial year.”

  Monthly Bank Reconciliations for Provincial AIDS Committees

  The Secretariat in collaboration with Volunteer Servicers Overseas rolled out
  Financial Management System (FMS) Toolkit in 2011 as part of Provincial AIDS
  Committees‟ (PACs) Capacity Building. This will enable the PACs to prepare their
  own monthly bank reconciliations based on the funds received and expenses incurred
  for the purpose of submitting a quarterly acquittal reports. Despite the introduction
  and roll out of FMS Toolkit, the PACs still did not prepare their own monthly bank
  reconciliations due to lack of competent officers with the capacity and knowledge to
  use the FMS Toolkit.

  – 87 –

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• National AIDS Council Secretariat

  The Management responded to my observation as follows:

  “Despite the roll out of the FMS Toolkit followed with the refresher workshop for the
  PACs‟ Capacity Building to enhance officers‟ skills and knowledge in order to utilise
  the Toolkit to prepare bank reconciliations and acquittal reports to be submitted to
  NACS. None of the PACs are using the FMS Toolkit in reporting due to their
  incompetence and lack of supervision.”

  Activity Plan and Activity Report from Provincial AIDS Committees

  My inspection of the acquittals for the grants allocated to the PACs revealed that the
  PACs did not attach their activity plan and activity report together with the acquittals
  and submit to Finance Division. The progress/activity reports were sent to the Care &
  Support Division for data keeping purpose. Without the activity report attached to the
  acquittals, I was unable to substantiate that the funds used were for the intended
  purposes.

  The Management noted my observation and responded that PACs will be advised to
  attach the activity plan and activity report to the acquittal report and submit them to
  Finance Division.

  Fixed Assets Register

  My review of the Fixed Assets Register (FAR) revealed that the Register was
  incomplete and could not be relied upon. Accordingly, the following discrepancies
  were noted:

   The Information Technology (IT) Section keeps a separate record of all the IT
  or Information and Communication Technology (ICT) equipment (both
  hardware and software) purchased by the Secretariat. However, the ICT
  equipment was not captured in the FAR maintained by the Secretariat. As a
  result, ICT equipment totalling K263,549 that were purchased during the year
  under review from the Development Account were not taken up in the FAR;
  and
   A total of 393 assets listed in the FAR did not have historical cost/purchase
  cost, purchase date, cheque/ILPOC numbers and serial numbers of which 44
  were purchased in 2012. Consequently, I was unable to carry out physical
  inspection to confirm certain fixed assets against the records to verify their
  existence and condition.

  Due to the above observations, the FAR did not represent the total value of the assets
  owned by the Secretariat and I was unable to verify and confirm the existence of
  individual assets.

  – 88 –

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• National AIDS Council Secretariat

  The Management admitted that the FAR was incomplete and responded that NACS
  will now maintain a Master FAR that will incorporate ICT and General Assets and
  ensure to upload all necessary details and particulars of each asset.

  Renovation or Office Improvement

  During the year, the Secretariat carried out office refurbishment at the Head Office
  and various PACs Offices at a total cost of K222,379. However, the payment was not
  recognised as lease improvements (Capital Expenditure) and was not subsequently
  captured in the FAR.

  The Management responded to my observation as follows:

  “NACS will now ensure to capture all office refurbishment cost for Head Office and
  PACs under appropriate expenditure category and upload details in the FAR.”

  Travel Advances Register

  My analysis of travel advances revealed that the Secretariat did not maintain a proper
  Travel Advances Register. As a result, the following details were not updated in the
  Register:

   Return date for each responsible officer from duty trip;
   Acquittal dates;
   Year-end final balances on how much were acquitted and how much were still
  outstanding;
   For those travels that have been acquitted, it did not show any evidence that
  the Financial Delegate had verified the acquitted amounts as correct; and
   Further, payments totalling K436,729 for duty travels were not captured in the
  Travel Register and subsequently were not acquitted. It is a requirement under
  the Financial Management Manual Part 20 paragraphs 11.2 and 12.10 that
  cash advanced to officers travelling overseas on official duty must acquit
  travel advances within 14 days of return from duty travel and advances to
  officers for domestic duty travels to be acquitted within 7 days of return from
  duty travel by submitting an acquittal form.

  Due to above weaknesses, I was unable to confirm the correctness of the duty travel
  payments, amount acquitted and the amount outstanding at the year end. Further, I
  was unable to state whether the responsible officers on duty travel had acquitted
  within the required time frame.

  Management responded to the above issue as follows:

  “NACS maintains Travel Acquittal Register, but the officers on duty travel are not
  cooperating in terms of acquittal.

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  The controls surrounding the Travel Acquittal Register will now be strengthened and
  those who do not acquit their first travel allowance will not be given travelling
  allowances when they want to travel for the second time until the first travel
  allowance is acquitted. NACS will ensure that officers on duty travel acquit their
  travel advances upon return within the required timeframe.”

  Staff/Salary Advances Register

  The Secretariat allows its staff to obtain cash advances for personal use. However, I
  noted that the Secretariat did not maintain a Staff/Salary Advances Register to keep
  track of advances made and their subsequent recoveries. Consequently, on several
  instances, five staff frequently skipped their fortnightly repayments for advances
  received without formal approval from the Director. This indicates that staff advances
  and repayments were not properly managed. In the absence of Staff Advances
  Register, I was unable to confirm whether staff advances had been properly accounted
  for during the year under review. The Management admitted that there was no proper
  Staff Advances Register and responded that as a way forward, the Payroll Officer had
  created a Cash Advance Register for NACS officers that were given cash advances.

  Advance Payments without Proper Approval

  The Payroll Officer, received advance for his annual housing allowance of K5,300 in
  February 2012 with fortnightly repayment of K203 within twenty six fortnights. In
  May 2012, he further advanced himself an additional K5,300 without going through
  proper approval procedures. Though the total advance was K10,600, he did not
  increase his fortnightly repayments of K203. Occasionally, he reduced his fortnightly
  repayments to K103 and deliberately skipped repayments during the year.

  The Management agreed with my observation and responded as follows:

  “The current Director has banned all forms of advances and that all existing and
  outstanding advance holders have signed pledges with the Director to forgo their
  final entitlements should they exit NACS for whatever reason and deductions to
  continue without hindrance until the advances are fully recovered.”

  Three Years Employment Contract Motor Vehicle and Housing Allowances Paid in
  Advance

  Three senior officers were paid in advance K94,310, K60,698 and K87,406
  respectively their three years employment contract motor vehicle and housing
  allowances between March and May 2012.

  The then Acting Director approved his own three years advances totalling K94,310 on
  5 March 2012 in his capacity as Acting Director when the former Director, was on
  recreational leave.

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  The other staff requested for their housing and motor vehicle allowances to be
  advanced for the period of their contracts. The Acting Director then sent an Internal
  Memo dated 29 May 2012 to all staff advising that their requests would not be
  approved as this was not right, as the remaining two years were not part of the current
  financial year’s budget. Nevertheless, the Acting Director against the established
  practice went ahead and paid advances to him and the other two senior officers their
  three years contract motor vehicle and housing allowances. As a result, much of the
  budget appropriations has been advanced to the three senior officers and thus affected
  the Secretariat‟s cash flow to meet its operational needs.

  The above issue was brought to the attention of Management and they responded as
  follows:

  “The former Acting Director erroneously approved the senior officers‟ three (3) years
  employment contract motor vehicle and housing allowances to be paid in advance.
  The current Director when appointed to the Office in April 2013 has banned all forms
  of staff advances and has put in recovery initiatives to ensure that all current staff
  debts are repaid in full during the term of their contract.”

  Payments Without Sufficient Documentation – K870,000 (Development Account)

  During my audit, I noted that payments totalling K870,000 were made to PACs for
  the improvement of the Volunteer Counseling and Testing (VCT) sites. However,
  there were no invoices or improvement reports to indicate that actual improvements
  were carried out on various VCT sites. Consequently, I was unable to state whether
  there were actual improvements carried out.

  Management noted my finding and responded as follows:

  “NACS only paid lump sum grant for the improvement of the VCT sites. Hence, paid
  vouchers and supporting documents including invoices are kept at the PACs level.
  Unfortunately, NACS has not made any attempts to keep copies at Head Office.”

  Havies Database Consultants – K215,000

  Havies Data Consultant was engaged on 15 July 2012 to develop and set up ART
  Logistical Management Information System to be rolled out to selected sites in PNG.
  I noted that, initially the contractual agreement was signed between the service
  provider (Havies Data Consultant) and the National Department of Health. However,
  the obligation to pay the Consultant was transferred from the Department of Health to
  the NACS without proper documentation. Subsequently, on 2 August 2012 and 30
  October 2012 payments of K105,000 and K110,000 were made to the Consultant on
  cheque numbers 4540 and 4864.

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  Further, I was unable to determine basis on which NACS was obliged to pay for the
  arrangement made between the Consultant and the National Department of Health.

  Moreover, I was unable to state whether the payment was budgeted for in 2012
  budget. Despite the payments being made, there were no progress and completion
  report received from the Consultant to confirm the outcome of the ART database roll
  out in the Provinces.

  The above concern was brought to the attention of the Management and they
  responded as follows:

  “The Monitoring & Evaluation Manager had erroneously advised the former Acting
  Director who approved the payment to the Consultant by way of contract outside the
  established procedures of the PFMA and which was an unbudgeted expenditure. It
  was also a Department of Health function to pay for such a technology because it will
  be used by the Department of Health. Whether the project was completed or not
  remains a question and mystery up to now. The Monitoring and Evaluation Manager
  will now follow-up with the Consultant to provide report on the project undertaken to
  NACS.”

  Leave Fares – K192,584

  My review on leave fares revealed the following discrepancies:

   On several instances, I noted that applications for recreational leaves
  submitted by officers applying for leave were not approved by the Director.
  Despite leave applications not being approved by the Director, officers
  proceeded on leave and were paid leave fares. Further, leave application forms
  were not attached to the payment vouchers and were not subsequently filed in
  the respective employee‟s file; and
   General Order 14.47 states that an officer shall pay to the State at the time of
  applying for the payment of recreation leave fares, a contribution towards the
  cost of the fares which shall be calculated at 10% of his/her gross substantive
  fortnightly salary at the date immediately prior to proceeding on recreational
  leave. However, the Secretariat had not been deducting the 10% of the
  employees‟ gross substantive fortnightly salary prior to employees‟
  proceeding on recreational leave. As a result, employees were not contributing
  towards their leave fare costs thereby breaching the aforementioned General
  Order.

  Management agreed with my above observations and responded as follows:

  “Leave applications for all NACS staff going on recreational leave will now be
  approved by the Director.

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  NACS will ensure to attach the copy of the leave applications to the payment vouchers
  and filed in the employee files. Further, the General Order 14.47 will now be applied
  to all staff recreational leave payments.”

  Non Remittance of Salaries and Wages Taxes to Internal Revenue Commission
  (IRC)

  The payroll records showed that group taxes for pay periods 14 to 26 of 2012 totalling
  K750,922 remained outstanding at year end. Pursuant to Section 299G of the Income
  Tax Act 1959 the group employer (in this case the NACS) is required to remit salary
  and wages tax to IRC within 7 days after month-ended. Failure to remit salary and
  wages tax on time will result in penalty of 20% for outstanding tax payable and an
  additional interest of 20% per annum on the amount that remains unpaid.

  Management noted my finding and explained as follows:

  “Pay periods 14 to 26 group taxes were not paid due to cash flow problem faced by
  the Secretariat. In 2014, a submission was made to the Department of Treasury for
  additional funds for NACS to settle its outstanding group tax liability was not
  fruitful.”

  21.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Council had submitted its financial
  statements for the years ended 31 December 2013 and 2014 for my inspection and
  audit and arrangements were being made to commence the audits without delay.

  – 93 –

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• 22. NATIONAL BROADCASTING CORPORATION

  22.1 INTRODUCTION

  22.1.1 Legislation

  The National Broadcasting Commission (NBC) 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 programs.

  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;
   Do all in its power to preserve and stimulate pride in the indigenous and
  traditional cultural heritage of PNG;
   Take extreme care in broadcasting material that could inflame racial or
  sectional feelings; and
   Co-operate with the Government in broadcasting social, political, economic
  and educational programs.

  22.2 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 Corporation for the year ended 31 December 2013 was in progress.

  The financial statements of the Corporation for the year ended 31 December 2014 had
  not been submitted for my inspection and audit.

  – 94 –

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• 23. NATIONAL CAPITAL DISTRICT COMMISSION

  23.1 INTRODUCTION

  23.1.1 Legislation

  The National Capital District Government (Preparatory Arrangements) Act 1982
  established the National Capital District Interim Commission. The purpose of this Act
  was to establish an interim government for the NCD and make preparatory
  arrangements for the establishment of a government for the NCD as required by
  Section 4(4) of the National Constitution. The National Capital District Government
  (Preparatory Arrangements) (Amendment) Act 1986 came into operation in 1987.

  The National Capital District Commission Act 1990, which became operational on 5
  November 1990, established the NCD Commission. The introduction of this Act
  resulted in the amalgamation of Motu Koitabu Interim Assembly with the NCD
  Commission. Consequently, the assets, liabilities and the obligations of the Interim
  Assembly were absorbed by the Commission on the commencement date.

  Amendments through the National Capital District Commission (Amendment) Act
  1992 which came into effect on 30 November 1992 resulted in the establishment of
  the Motu Koitabu Council.

  That was followed by the establishment of the system of government for the NCD
  through the National Capital District Commission (Amendment) Act 1995 which came
  into operation on 19 July 1995. The NCD comprises the NCD Commission, the Motu
  Koitabu Council and Local-level Governments in the NCD.

  23.1.2 Functions of the Commission

  The functions of the NCD Commission are to:
   Control, manage and administer the NCD to ensure its welfare and that of the
  persons in its jurisdiction; and
   Ensure that an adequate level of assistance is given towards the successful
  operation of Tabudubu Limited – the Company established by the Motu
  Koitabu Interim Assembly for the Motu Koitabu people of the NCD.

  23.1.3 Subsidiaries of the Commission

  The subsidiaries of National Capital District Commission are National Capital
  District Botanical Enterprises Limited, Port Moresby City Development Enterprises
  Limited and Port Moresby Nature Park Limited. Comments in relation to these
  subsidiaries are contained in paragraphs 23A, 23B and 23C of this Report.

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• National Capital District Commission

  23.1.4 Projects of the Commission

  The National Capital District Commission implements National Capital District
  Urban Youth Employment Project. Comments in relation to this Project are contained
  in the Special Project Audits Report to Parliament.

  23.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  23.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the Commission‟s
  financial statements for the years ended 31 December 2010, 2011 and 2012 were
  issued on 6 November 2014, 13 April and 4 May 2015 respectively. The reports
  contained Disclaimer of Opinions, hence only the 2012 report is reproduced as
  follows:

  “BASIS FOR DISCLAIMER OF OPINION

  Limitation of Scope Regarding Opening Balances

  Because of the disclaimer of opinion in respect of the prior year ended 31 December
  2011, I was not able to satisfy myself as to the resolution of the issues which formed
  the basis for the disclaimer on the opening balances. Since these opening balances
  entered into the determination of the result of operations, financial position and cash
  flows of the Commission in the current year, I was unable to determine whether
  adjustments to the results of operations, financial position and cash flows might have
  been necessary as at and for the year ended 31 December 2012.

  Deposit at Call

  As set out in Note 7 of the Financial Statements, deposits on call totaled K477,615.
  The financial institutions with whom these deposits were held at balance date did not
  respond to my request for confirmation of balances. Furthermore, due to the absence
  of appropriate third party documentation in the Commission‟s possession, I was
  unable to adequately and comfortably conclude on the existence and confirmation of
  the Commission‟s rights over this balance as at year end.

  Land and Garbage Rate Debtors

  Land and garbage rate debtors, net of provision at balance date totaled K31 million.
  The database from which generation reports are produced and based on now these
  debts have been extracted and journalised into the general ledger debtors accounts,
  has been inaccurate and physically unverifiable to physical building and properties.
  Consequently, it appeared that the rates debtors were incomplete and inaccurate.

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• National Capital District Commission

  Due to this limitation of scope and exceptions, I was unable to obtain comfort over the
  completeness and accuracy of the debtors as well as the adequacy of the doubtful
  debts provision.

  Capital Road Works

  The Commission in 2005 capitalised all road improvement costs totalling K136.6
  million that were previously expensed. I was unable to satisfy myself with the
  existence, completeness and accuracy of the road improvement cost capitalised in
  2005 due to unavailability of appropriate physical verification exercise
  documentation.

  The carrying value of these assets at 31 December 2012 was K116.5 million which
  primarily includes amount capitalised in 2005. I was unable to test check the accuracy
  of the depreciation charges for reasonableness as the lives of these roads are
  unpredictable given the extreme tropical weather experiences in NCDC. As a result, I
  was unable to verify reasonableness of the corresponding yearly depreciation charge
  of K40.6 million on the road assets and their carrying values as at year end.

  Investments

  As set out in Note 13 of the financial statements, the Commission has investments in
  various unquoted securities with a total carrying value, net of impairment provision of
  K152,982. Management had not performed an exercise to determine the fair value of
  these investments at year end. Accordingly, I was unable to confirm whether these
  investments are reflected at appropriate carrying value.

  Land, Garbage and Sanitation Rates Income

  The Land, Garbage and Sanitation rates income was calculated based on the
  information recorded within the TARMIS system. The property data base was
  unverified and outdated in contrast to the development of the city. I noted that more
  property owners were not registered and more revenue could have been collected if
  the data base was updated and physical verification exercise was conducted by the
  NCDC. In addition, the initial calculation of the rates included certain properties of
  institutions which were exempted from paying these rates. This error was adjusted as
  part of the provision for doubtful debts.

  Furthermore, provision and adjustments for defaulters of 40% for land rates and 60%
  for garbage rates were made against the TARMIS generation report figures. These
  figures were on estimate basis and have no valid support for the adjustments
  amounting to K16.3 million included in the opening balance which was incorporated
  in relation to exempt properties and institutions. As a result, I was unable to determine
  if the Land, Garbage and Sanitation rates income were fairly stated in the income
  statement.

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• National Capital District Commission

  Provision for Employee Benefits

  Employee benefits provision comprising of long service leave and annual leave
  amounted to approximately K6.9 million. I was unable to substantiate this balance as
  the Commission‟s Human Resource staff could not locate and provide me the
  appropriate supporting documentation. Consequently, I was unable to satisfy myself
  with the completeness and accuracy of this balance.

  Prior Year Adjustments

  Prior year tax adjustment totaled K4.4 million was deducted against the Retained
  Earnings during the year under audit. I was not provided with proper supporting audit
  evidence to support the adjustment, as a result, I was unable to execute my planned
  audit procedures. Accordingly, I was unable to conclude on the validity and accuracy
  of the Prior Year adjustments reported in the financial statement as at 31 December
  2012.

  Contingent Liabilities

  Note 19 of the financial statements outlined a significant number of pending legal
  cases amounting to over K30 million. As I did not receive adequate information from
  the Commission or it‟s legal advisors regarding the nature and likely outcome of these
  cases, I was unable to obtain comfort regarding whether or not the treatment of these
  claims as contingent liabilities was appropriate.

  Related Party Disclosures

  As set out in Note 12 of the financial statements, not all disclosures required by IAS
  24- Related Party Disclosures were included in the financial statements. The amounts
  involved were not disclosed in the following related party transactions – grant to
  Motu Koitabu Assembly, Tabudubu Limited and National Capital Botanical
  Enterprises Limited, stipends or sitting allowances to commissioners and salaries and
  other employment benefits to key management personnel. This represents a departure
  from IAS 24 – Related Party Disclosures.

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis for Disclaimer of
  Opinion, I have not been able to obtain sufficient appropriate audit evidence and
  accordingly, I was unable to express an opinion on the financial statements of the
  National Capital District Commission for the year ended 31 December 2012.”

  – 98 –

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• National Capital District Commission

  23.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act on the inspection and
  audit of the accounts and records of the Commission for the years ended 31 December
  2010, 2011 and 2012 were issued on 6 November 2014, 13 April and 4 May 2015
  respectively. The reports contained similar comments; hence only the 2012 report is
  reproduced as follows:

  Budget and Controls

  While there appears to be adequate budget controls and monitoring procedures in
  place, the effectiveness of these controls and their application on transactions could
  not be reviewed as selected vouchers for audit purpose could not be located. In
  addition to the specific issues I have identified in the course of my audit, my general
  observation was that the issues identified were isolated incidents and general physical
  controls environment had been gradually changed a step at a time. The complete
  change of culture had been initiated and it would require the full endorsement and
  support of all staff.

  I recommended that the issues around internal controls, governance and appropriate
  resources requirement be reviewed regularly to ensure adherence and continuity as a
  matter of priority.

  Further, while I was not required to specifically look for fraud, my audit suggested
  that the inadequate internal control environment provides an ideal opportunity for
  fraud or other improper activities to occur. A number of staff of the finance division
  have been involved in misappropriation of the assets of the Commission and have
  been terminated in relation to fraud. This indicates that a thorough investigation into
  all the matters identified in my report was required as a matter of priority to ensure
  that fraudulent activities were uncovered and promptly corrected. Accordingly, I
  recommended that a regular surprise audit be conducted as a matter of priority,
  together with a review to strengthen the processes and procedures.

  Minutes of Board Meetings

  Board minutes were not provided for my review. I was unable to conclude on the
  completeness and accuracy of the board minutes due to the Commission‟s inability to
  secure quorums on all those board meetings. Furthermore, copies of tender board
  minutes and other sub-committee meetings were not provided for my review.

  Record Keeping within the Finance Office

  Filing and safeguarding of payment authorisation forms and other supporting
  documents required significant improvement. During the course of my audit, a
  number of payment authorisation forms and the supporting documentation requested
  were not provided to me as they were missing from the files.

  – 99 –

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• National Capital District Commission

  I recommended to Management that store room access must be limited to authorised
  personnel and movement of records in and out of the store room must be recorded in
  documents register and monitored to avoid losing. The Management agreed to my
  recommendation.

  General Controls relating to Information Technology

  General controls around information technology need urgent attention. Some of the
  significant issues noted and reported were:

   Lack of documentation surrounding IT risk assessment;
   Lack of information and communication on IT policies and procedures; and
   Lack of a disaster recovery plan.

  I recommended to Management the following:

   IT policies and procedures should be formally documented and communicated
  to staff;
   There should be a “help desk” log book in which staff can raise issues with
  the IT consultants;
   Management ensure that environment risks (i.e. fire, smoke, water, power,
  temperature, humidity, destruction of accounting records and supporting
  documentation etc.) to the computer locations are appropriately mitigated; and
   Management ensures that disaster recovery plans are documented, tested and
  updated regularly as part of business continuity plan.

  Motor Vehicle Controls

  Vehicle usage control register was not fully implemented by all divisions of NCDC.
  Number plate appeared to be all private without the “Z” plate as required under the
  Motor Traffic Act.

  23.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Commission had not submitted its financial
  statements for the years ended 31 December 2013 and 2014 for my inspection and
  audit.

  – 100 –

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• 23A. NATIONAL CAPITAL DISTRICT BOTANICAL ENTERPRISES
  LIMITED (Subsidiary of NCDC)

  23A.1 INTRODUCTION

  The NCD Botanical Enterprises Limited was incorporated under the Companies Act
  1997 on 17 January 2000. Port Moresby City Development Enterprises Limited, a
  100% owned subsidiary of the NCD Commission, holds 94% of the shares and the
  NCD Commission holds the remaining 6% shares directly or indirectly through
  trust.

  The main objective of the Company is to take control over the operations of the
  Botanical Gardens.

  23A.1.1 Functions of the Company

  The Company‟s activities include the sale of flowers and conducting research
  relating to orchids and horticulture.

  23A.2 AUDIT OBSERVATIONS

  23A.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies Act on the financial
  statements of the Company for the year ended 31 December 2007 was issued on 17
  November 2014. My reports for the years ended 31 December 2008, 2009, 2010,
  2011 and 2012 were all issued on 4 May 2015. The reports contained Disclaimer of
  Opinions, hence, only the 2012 report is reproduced as follows:

  “BASIS FOR DISCLAIMER OF OPINION

  Limitation of Scope regarding Opening Balances

  Because of the disclaimer of opinion in respect of the prior year ended 31 December
  2011, I was not able to satisfy myself as to the resolution of the issues which formed
  the basis for the disclaimer on the opening balances. Since these opening balances
  entered into the determination of the results of operations, financial position and
  cash flows of the entity for the period audited, I was unable to determine whether
  adjustments to the results of operations, financial position and cash flows might
  have been necessary as at and for the year ended 31 December 2012.

  Limitation of Scope regarding Accounting Records

  I refer to the Management Declaration dated 22 April 2015 which stated that

  – 101 –

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• National Capital District Botanical Enterprises Limited

  “The Company has gone into care and maintenance basis for the years ended 31
  December 2008 to 2012 and no records were maintained by its management on its
  activities. Based on this understanding, the Commission holds no current records of
  current transactions”. As a result of this limitation, I was unable to perform the
  necessary and appropriate audit procedures.

  Preparation of the Financial Statements

  National Capital District Botanical Enterprises Limited has not prepared its financial
  statements within five months after the balance date and has consequently breached
  Section 179 (1) of the Companies Act 1997. The Company‟s financial statements were
  submitted to me on 12 November 2014.

  DISCLAIMER OF OPINION

  In my opinion, because of the limitation of the scope of my work and other matters
  referred to in the Basis for Disclaimer of Opinion paragraphs above, and the effects of
  such adjustments, if any, as might have been determined to be necessary had the
  limitations and other matters not existed, I am unable to and do not express an opinion
  on the financial statements of the National Capital District Botanical Enterprises
  Limited for the year ended 31 December 2012.

  OTHER MATTER

  In accordance with the Audit Act 1989, I have a duty to report on significant matters
  arising out of the financial statements, to which the report relates. Without qualifying
  the audit opinion, I draw attention to the following issue:

  Going Concern

  Note 1B(i) of the financial statements stated that the accounts have been prepared on
  the basis of the continuation of Company as a going concern. This is dependent upon
  generating adequate cash flows from operations and the continued financial support of
  the Company‟s shareholders. The Company has been making losses in the past and is
  in a net liability position at year end. The continuity of the entity depends on the
  subsidy received from the National Capital District Commission, however the entity
  has not received any written commitment from the Commission that subsidy will
  continue to be given for the foreseeable future. Accordingly, there is significant
  uncertainty about the ability of the Company to continue as a going concern should
  the Commission discontinue the subsidy.”

  23A.3 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 2013 and 2014 for my inspection and
  audit.

  – 102 –

• Page 142 of 396

• 23B. PORT MORESBY CITY DEVELOPMENT ENTERPRISES
  LIMITED (Subsidiary of NCDC)

  23B.1 INTRODUCTION

  The NCD Commission acquired 100% shares of Vatar No.16 Pty Limited in 1994
  with the intention to utilise the land called „Duran Farm‟ for the construction of
  houses for its staff on the Home Ownership Scheme. The Company changed its
  name in November 1996 to Port Moresby City Development Enterprises Limited.
  This Company is a fully owned subsidiary of the NCD Commission.

  23B.1.1 Functions of the Company

  The Company‟s activities include business promotions in the NCD and the
  management of the Taurama Leisure Centre‟s gymnasium.

  23B.2 AUDIT OBSERVATIONS

  23B.2.1 Comments on Financial Statements

  My reports in accordance with the provisions of the Companies Act on the financial
  statements of the Company for the years ended 31 December 2006 and 2007 were
  both issued on 17 November 2014. My reports for the years ended 31 December
  2008, 2009, 2010, 2011 and 2012 were all issued on 4 May 2015. The reports
  contained Disclaimer of Opinions, hence, only the 2012 report is reproduced as
  follows:

  “BASIS FOR DISCLAIMER OF OPINION

  Limitation of Scope Regarding Accounting Records

  I refer to the Management Declaration dated 22 April 2015 which states that “The
  Company has gone into care and maintenance basis for the years ended 31
  December 2008 to 2012 and no records were maintained by its management on its
  activities. Based on this understanding, the Commission holds no current records of
  current transactions”. As a result of this limitation, I was unable to perform the
  necessary and appropriate audit procedures.

  Preparation of the Financial Statements

  National Capital District Botanical Enterprises Limited has not prepared its
  financial statements within five months after the balance date and has consequently
  breached Section 179 (1) of the Companies Act 1997.

  – 103 –

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• Port Moresby City Development Enterprises Limited

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis for Disclaimer of
  Opinion paragraphs, I have not been able to obtain sufficient appropriate audit
  evidence to provide a basis for an audit opinion. Accordingly, I was unable to express
  an opinion on the financial statements of Port Moresby City Development Enterprises
  Limited for the year ended 31 December 2012.

  OTHER MATTER

  In accordance with the Audit Act 1989, I have a duty to report on significant matters
  arising out of the financial statements, to which the report relates. Without qualifying
  the audit opinion, I draw attention to the following issue:

  Going Concern

  Note 12 of the financial statements stated that the Company is dependent upon the
  continued financial support of its shareholders (NCDC) to meet its obligations. The
  Company has been making losses in the past and is in a net liability position at year
  end. The continuity of the entity depends on the subsidy received from the National
  Capital District Commission, however the entity has not received any written
  commitment from the Commission that subsidy will continue to be given for the
  foreseeable future. Accordingly, there is significant uncertainty about the ability of
  the Company to continue as a going concern should the Commission discontinue the
  subsidy.”

  23B.3 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 2013 and 2014 for my inspection and
  audit.

  – 104 –

• Page 144 of 396

• 23C. PORT MORESBY NATURE PARK LIMITED (Subsidiary of NCDC)

  23C.1 INTRODUCTION

  23C.1.1 Legislation

  Port Moresby Nature Park Limited was incorporated on 1 December 2011 under the
  Companies Act 1997. The Company is a subsidiary of the National Capital District
  Commission (NCDC).

  In early 2012, a Deed of Trust was signed between Port Moresby Nature Park
  Limited (being the Trustee) and the National Capital District Commission (being the
  Settlor). The Trust Deed provided the intention of the Settlor (NCDC) to make Port
  Moresby Nature Park Limited a charitable body to be known as “Port Moresby
  Nature Park Trust.”

  On 11 June 2012, the Port Moresby Nature Park Limited was granted status of a
  charitable body based on the nature of its business operations. Hence, the Company
  has been exempted from Income Tax.

  23C.1.2 The Objective of the Company

  The objective of the Company is to allow the residents and visitors to Papua New
  Guinea (PNG) enjoying a botanical and zoological experience consisting of the flora
  and fauna of PNG in a safe, secure setting in Port Moresby, for the purposes of
  education and for purposes beneficial to the community, including:

   Allowing persons, including residents of, and visitors to, PNG to enjoy the
  benefits of flora and fauna of PNG in a peaceful, well-ordered and secure
  recreational settings in the grounds of the Port Moresby Nature Park;
   Encouraging a greater understanding of the cultural significance of the flora,
  fauna and environment of Papua New Guinea;
   Furthering the appreciation and learning of Papua New Guinea in relation to
  the flora, fauna and environment of Papua New Guinea;
   Promoting the use of the Port Moresby Nature Park to stimulate interest and
  research into Papua New Guinea flora, fauna and environment and assisting
  the conservation efforts of the Government of Papua New Guinea and the
  National Capital District Commission (NCDC) in relation to the environment;
  and
   Allowing students from any educational institute to gain practical training,
  education and research opportunities on specific terms.

  – 105 –

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• Port Moresby Nature Park Limited

  23C.1.3 Functions of the Company

  The functions of the Company include:

   Encouraging, promoting and supporting the use of new and established
  technologies to make the unique natural environment of Papua New Guinea
  more accessible to the public of Papua New Guinea;
   Promoting, assisting and initiating research in Papua New Guinea into the
  study of Papua New Guinea flora, fauna and the environment including the
  provision of such financial assistance as may be necessary to enable or assist
  such research;
   Promoting, supporting and initiating research in Papua New Guinea on the
  flora, fauna and environment of Papua New Guinea and educating and
  informing different communities about the results of such research;
   Providing a forum for information from international contributors from the
  global community for the purpose of educating the Papua New Guinea public
  in relation to the flora, fauna and environment of Papua New Guinea;
   Doing such other lawful acts and things as are incidental to or conducive to
  the attainment of any of the foregoing activities; and
   Generally:

  o Carrying out fund raising schemes and charitable projects for the
  purpose of the Company, including exhibition and competitions; and
  o Establishing, promoting and fostering workshops and other educational
  activities for the purpose of the Company;

  23C.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the fieldwork associated with the audit of the
  accounts and records and the examination of the financial statements of the Company
  for the years ended 31 December 2012 and 2013 were in progress.

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

  – 106 –

• Page 146 of 396

• 24. NATIONAL CULTURAL COMMISSION

  24.1 INTRODUCTION

  24.1.1 Legislation

  The National Cultural Commission was established under the National Cultural
  Commission Act 1994. This Act came into operation on 15 November 1994 there by
  repealing the National Cultural Committee (Interim Arrangements) Act 1993.

  Under the Act, all assets held by and obligations and liabilities imposed on the former
  National Cultural Committee immediately before the operationalisation of the Act
  were on that date transferred to the Commission.

  24.1.2 Functions of the Commission

  The main functions of the Commission are to:
   Perform the cultural functions of the former National Cultural Committee and
  in this connection, to assist and facilitate, preserve, protect, develop and
  promote the traditional cultures of the indigenous people of PNG;
   Encourage the development, promotion and protection of the contemporary
  cultures of PNG;
   Facilitate the marketing of selected and approved aspects of the cultures of
  PNG;
   Co-ordinate with related Government and non-Government agencies on
  cultural matters;
   Co-ordinate cultural activities with provincial cultural bodies;
   Liaise with non-Government organisations on cultural matters; and
   Liaise with international cultural organisations.

  24.2 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 Commission for the year ended 31 December 2012 was suspended due to lack of
  information flow from the Commission to proceed with the audit.

  The financial statements of the Commission for the year ended 31 December 2013
  had been submitted for my inspection and audit.

  The financial statements of the Commission for the year ended 31 December 2014
  had not been submitted for my inspection and audit.

  – 107 –

• Page 147 of 396

• 25. NATIONAL ECONOMIC AND FISCAL COMMISSION

  25.1 INTRODUCTION

  25.1.1 Legislation

  The National Economic and Fiscal Commission was established in April 1996 under
  the National Economic and Fiscal Commission Act 1996 and Section 117 of the
  Organic Law on Provincial and Local-level Governments.

  25.1.2 Functions of the Commission

  The main functions of the Commission are to:

   Provide assessment and views on national macro and micro economic issues
  and their relevance on the overall development of rural and urban communities;
   Consider and co-ordinate requests by Provincial Governments and Local-level
  Governments for foreign grants, loans and other financial assistance for
  development purposes;
   Ensure that Provincial Governments and Local-level Governments obtain a fair
  share of the national wealth and make recommendations to the NEC on the
  allocation of grants to Provincial Governments and Local-level Governments;
   Recommend suitable economic development strategies and sound fiscal
  management policies to the Minister responsible for financial matters;
   Carry out cost and benefit analysis on the development of all natural resources
  and the impact of such development on national development and make such
  analysis available to the NEC;
   Review public accounting and related practices;
   Make yearly reports and recommendations to the NEC through the Minister
  responsible for financial matters;
   Assist the Provincial and Local-level Service Monitoring Authority with
  assessments and views on the planning and implementation systems of the
  Provincial Governments and Local-level Governments;
   Establish and maintain a gradation system for the purpose of classifying
  provinces and districts according to the stages of development of each;
   Assist the Provincial and Local-level Service Monitoring Authority in carrying
  out its other functions; and
   Provide advice to the Minister responsible for Provincial Government and
  Local-level Government (now Inter Government Relations) matters as and
  when required.

  – 108 –

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• National Economic and Fiscal Commission

  25.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  25.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the Commission‟s
  financial statements for the year ended 31 December 2014 was issued on 29 May
  2015. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Salaries and Allowances

  The Commission has disclosed its Salaries and Allowances as K895,657 at 31
  December 2014 in the financial statements. The supporting documentation in relation
  to payroll records were not provided for my review and verification. In the absence of
  these documentation, I was unable to confirm and verify the accuracy of the account
  balance of K895,657 stated at the year end.

  QUALIFIED OPINION

  In my opinion, except for the effects of the matters referred to in the Basis for
  Qualified Opinion paragraph above:
  (a) The financial statements are based on proper accounts and records; and
  (b) The financial statements are in agreement with those accounts and records,
  and show fairly the state of affairs of the Commission for the year ended 31
  December 2014 and the results of its financial operations for the year then
  ended.”

  25.2.2 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 Commission for the year ended 31 December
  2014 was issued on 29 May 2015. The report contained the following observations:

  Meeting Minutes

  The Commission, under Section 9(1) of the National Economic and Fiscal
  Commission Act 1996 is expected to meet at least three times in each year and to
  record Minutes of its Meetings and forward copies of the minutes to the Minister. I
  noted that there were no Board Meetings held as required by the enabling Act. I
  requested the Management to explain why no Board Meetings were held during the
  year under review and the Management responded as follows:

  – 109 –

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• National Economic and Fiscal Commission

  “NEFC provided a recommendation and a NEC submission to the Minister of
  Treasury to re-establish the Board but the Minister wanted a provincial reprehensive
  in the Board although the NEFC Act does not specifically state so and thus the
  submission is currently being reviewed. The AGO recommendations are
  acknowledged and will be adhered.”

  Finance and Administration

  I recommended the Commission to recruit additional staff to assist the current Finance
  and Administration Officer and also to provide training to ensure that the officers are
  appropriately and adequately skilled in discharging their duties. There should be
  different officers performing incompatible functions to maintain segregation of duties
  for effective internal control of the organisation. The Management responded to my
  observation as follows:

  “We have submitted the NEFC structure realignment and is in the process of being
  approved by the Department of Personnel Management. We acknowledge this
  internal control weakness raised and have since appointed an officer with suitable
  skills. This will also provide an opportunity for more important segregation of
  functions.”

  Fixed Assets Register

  The Commission, under the Public Finances (Management) Act 1995 and the
  Financial Management Manual (Section 12) is required to properly maintain and
  safeguard Assets under its custody. My review of the Fixed Assets revealed that the
  Commission did not maintain a proper Register for all its Assets for the year under
  review. The Register did not capture the total value of the assets as at the balance date
  and there was no physical stock take of the Commission‟s assets as at balance date.
  As a result, I was unable to determine the fair value, the state, and the location of the
  assets.

  I recommended the Management to perform a complete stock-take of all its assets and
  update the Fixed Assets Register to reflect the accurate information. The Commission
  responded to my concern as follows:

  “We acknowledged the issue raised and will address the matter as soon as the
  structure realignment is approved by DPM.”

  Staff Personnel Files

  My review of the personnel emoluments revealed that Staff Personal Files were not
  properly maintained. I noted that records such as salaries and allowances variation
  advices, tax declaration forms and appointment letters were either missing or not
  maintained regularly.

  – 110 –

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• National Economic and Fiscal Commission

  The Commission also did not maintain control records like salary history cards/leave
  history records (annual leave, long service leave and sick leave) to assist in the
  verification of annual leave and long service leave entitlements.

  I recommended the Management to update all Staff Personnel Files on a regular basis
  for ease of reference and the Management responded as follows:

  “We acknowledged the issue raised and will engage an experience HR Officer as
  soon as DPM approves the structure realignment as a corrective measure.”

  Travel and Subsistence

  Financial Management Manual Part 20 (paragraph 11.2-12.10) requires all travel
  allowances received by officers on duty travel to be properly acquitted. However, I
  noted that travel advances were not fully acquitted upon return by the officers of the
  Commission. I advised the Management of the Commission that duty travels must be
  acquitted within seven days of return from duty trips for domestic travels and within
  fourteen days for overseas travels.

  The Management responded to my observation as follows:

  “Some officers have not properly acquitted advances despite ongoing follow ups by
  the Administration Team. We acknowledge and agree with the issue raised and will
  comply in taking corrective measures to rectify this weakness.”

  – 111 –

• Page 151 of 396

• 26. NATIONAL FISHERIES AUTHORITY

  26.1 INTRODUCTION

  26.1.1 Legislation

  The National Fisheries Authority was established under the Fisheries Management
  Act 1998. This Act came into operation on 11 February 1999 and replaced the
  Fisheries Act 1994. Under this Act, all assets including monies held in trust accounts
  which were held or occupied by the National Fisheries Authority established under
  the Fisheries Act were transferred to and became assets of the Authority.

  26.1.2 Functions and Powers of the Authority

  The primary functions and powers of the Authority are described as follows:
   The Authority shall:
  ‒ Manage the fisheries within the fisheries waters in accordance with this
  Act, taking into account the international obligations of PNG in
  relation to tuna and other highly migratory fish stocks;
  ‒ Make recommendations to the Board on the granting of licences and
  implement any licensing scheme in accordance with this Act;
  ‒ Liaise with other agencies and persons, including regional and
  international organisations and consultants, whether local or foreign,
  on matters concerning fisheries;
  ‒ Operate research facilities aimed at the assessment of fish stocks and
  their commercial potential for marketing;
  ‒ Subject to the Pure Foods Act, the Commerce (Trade Descriptions)
  Act, the Customs Act, the Customs Tariff Act and the Exports (Control
  and Valuation) Act control and regulate the storing, processing and
  export of fish and fish products;
  ‒ Appraise, develop, implement and manage projects, including trial
  fishing projects;
  ‒ Prepare and implement appropriate public investment programmes;
  ‒ Collect data relevant to aquatic resources;
  ‒ Act on behalf of the government in relation to any domestic or
  international agreement relating to fishing or related activities or other
  related matters to which the Independent State of PNG is or may
  become a party;
  ‒ Make recommendations on policy regarding fishing and related
  activities;
  ‒ Establish any procedures necessary for the implementation of this Act,
  including tender procedures; and

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• National Fisheries Authority

  ‒ Implement any monitoring, control, and surveillance scheme, including
  co-operation, agreements or arrangements with other States or relevant
  international, regional or sub-regional organisations, in accordance
  with this Act.

   The Authority has, in addition to the powers otherwise conferred on it by this
  Act and any other law, full powers to do all things that are necessary or
  convenient to be done for or in connection with the performance of its functions
  and the achievement of its objectives.

  26.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and
  records and the examination of the financial statements of the Authority for the year
  ended 31 December 2012 was substantially 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 Authority for the year ended 31
  December 2013 was in progress.

  The Authority had not submitted its financial statements for the year ended 31
  December 2014 for my inspection and audit.

  – 113 –

• Page 153 of 396

• 27. NATIONAL GAMING CONTROL BOARD

  27.1 INTRODUCTION

  27.1.1 Legislation

  The National Gaming Control Board was established in September 1993 by the
  enactment of the Gaming Machine Act 1993.

  27.1.2 Functions of the Board

  The principal functions of the Board are to consider applications for and where
  appropriate grant permits and licences under this Act and to control the operations of
  gaming machines as specified in this Act and any other law.

  27.1.3 Subsidiary of the Board

  National Gaming Control Board Community Benefit Trust Fund is a subsidiary of the
  Board. Comments in relation to this subsidiary are contained in paragraph 27A of this
  Report.

  27.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  27.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the Board‟s
  financial statements for the year ended 31 December 2013 was issued on 13 March
  2015. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Opening Balances

  In year 2013, the Board‟s financial statements reflected only the operations of the
  Board as the Community Benefit Fund (CBF) balances were removed from the
  Board‟s accounts and accounted for separately under CBF. Due to errors and material
  limitations of scope highlighted in previous audits, I was unable to confirm the
  completeness and accuracy of the opening balances as at 1 January 2013.
  Consequently, I could not perform tests to verify the completeness and accuracy of
  these balances as at 31 December 2013 as well as amounts transferred to CBF in year
  2013.

  Fixed Assets

  A poker machine register was maintained by the Board.

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• National Gaming Control Board

  However, it was evident that the Board did not prepare and maintain a complete fixed
  assets register to record details of all fixed assets costing K58,424,001. There was also
  no physical stock take (excluding poker machines) undertaken by the Board to
  confirm the existence of these assets and/or possible impairment. Considering this, I
  was unable to confirm the completeness, existence, accuracy and valuation of fixed
  assets and associated depreciation recorded in the financial statements.

  QUALIFIED OPINION

  In my opinion, except for the effect of the matters described in the Basis for Qualified
  Opinion paragraphs, the financial statements of the Board for the year ended 31
  December 2013:
  (a) Give a true and fair view of the financial position and the results of its
  operations for the year then ended; and
  (b) With exception of instances of non-compliance described under Other Matter,
  the financial statements have been prepared in accordance with the Finance
  Instructions issued under the PFMA.

  OTHER MATTER

  In accordance with the Audit Act, I have a duty to report on significant matters arising
  out of the financial statements, to which the report relates. I draw attention to the
  following issue:

   The Board has not prepared and submitted its financial statements prior to 30
  June for the year ending 31 December proceeding, to enable me to conduct
  audit and report results before the deadline resulting in breach of Section 63(2)
  and Section 63(4) of the PFMA. The financial statements were submitted to
  me for audit on 3 July 2014.”

  27.2.2 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 Board for the year ended 31 December 2013
  was issued on 13 March 2015. The report contained the following observations:

  Fixed Assets

  i) As per Ministerial approval under Section 61 of the PFMA, the Board entered
  into an agency agreement with Consolidated Gaming Services (PNG) Limited
  (Agent) for five years at a cost of K62.6million. The agreement allowed the
  Agent to, “import, supply, acquire, possess, service, maintain, install and
  operate approved gaming machines to premises.” In accordance with the
  agreement, the agent imported and supplied poker machines/spares at a cost of
  K8.58 million to NGCB.

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• National Gaming Control Board

  The importation and supply by the Agent appears to be a breach of Section
  130 (3) of Gaming Control Act 2007, as only the Gaming machine operators
  have the license to import and supply poker machines under the current
  legislation. It also appears that this procurement did not have National
  Executive Council (NEC) approval as the contract value exceeded K10
  million.

  In the absence of NEC approval, and delivery details, I could not confirm if
  this major procurement was in accordance with provisions of PFMA, Gaming
  Control Act 2007 and if all machines or spares paid for have been received.
  ii) The Board did not have listing of spare parts for poker machines. Thus the
  value of spares, if any, was not reflected in the financial statements.
  iii) The poker machine register indicated that there were 1,172 machines as at
  balance date. However, as per Central Control Monitoring System (CCMS)
  report, only 1062 machines were functioning and/or “online” and remaining
  110 machines being “off line”. The operational/functional status of these
  machines could not be established.

  I recommended to Management that all major procurements are to be in
  accordance with the PFMA and Gaming Control Act 2007. If doubt arises,
  appropriate legal advice is to be sought and followed. In addition, all Poker
  machines delivered must be substantiated with delivery dockets and shipping
  documents, as well as detailing quantity and machine and serial numbers of
  machine(s) supplied. These details must be promptly registered in the Poker
  machines register. Instances where the machines are obsolete, damaged or
  unserviceable, adjustments must be made on the poker machine register and
  financial statements to reflect this potential impairment of loss.

  Management responded as follows:

  i) “Consolidated Gaming Services (PNG) Ltd. was contracted by NGCB
  to import, supply and service gaming machines on behalf of NGCB
  which NGCB paid on invoice by CGS. This is in line with Section
  130(3)(f) – delegate to, or engage a corporation to service, repair and
  maintain gaming machines. NGCB (deem holder of operator license)
  purchase gaming machines from Consolidated Gaming Services;
  ii) This has to be verified with CGS. We have received invoices charging
  on gaming machines only no mention of spare parts. We have been
  paying for machines as stated on invoice; and
  iii) This will be corrected because CMCS report only indicates machines
  that are online.”

  – 116 –

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• National Gaming Control Board

  Other Debtors and Prepayments

  Other Debtors included Gaming Revenue debtors of K6.75 million. This largely
  included amounts not banked by respective gaming permit holders. Based on
  subsequent collection in the year 2014, audit could not confirm if the entire amount
  had been realised and recovered. There was inadequate monitoring and enforcement
  of banking requirements of gaming permit holders. This potentially tantamount to
  breaches of the Gaming Control Act 2007. I recommended Management that there
  must be stricter monitoring and enforcement of timely banking of gaming profits.
  This will also ensure that site owners do not use the gaming proceeds in advance.

  Gaming Machine Operators

  I observed that the three gaming machine operators, (Lord and Co, Monian and
  United Pacific Corporation) with their respective gaming machine licenses expired in
  March 2013 but only renewed in August 2013.

  As the permit(s) allow the respective operator to import, supply, service and operate
  gaming machines, any operation/trading including sites during the period April to
  August 2013 was a breach of Section 156(3) of Gaming Control Act 2007. I
  recommended Management to ensure that all license renewal(s) applications are to be
  received timely and attempts should be made to issue new licenses upon the expiry of
  existing license to ensure full compliance with the Gaming Control Act 2007.

  Revenue

  Review of Revenue account had noted the following:

  i) As per Section 163(1) of Gaming Control Act 2007, Gaming Machine permit
  holder and/or machine operators must bank the previous day‟s gross profit. I
  did not find evidence of compliance, in entirety. Considering this, the Board
  did not enforce Section 163(2) of the Gaming Control Act 2007, by disabling
  gaming sites in accordance with section 172(4) of Gaming Control Act 2007;
  ii) In the absence of a proper monitoring/reporting system, audit could not
  confirm the correctness and completeness of K930,521 earned as Text Lotto
  levy from Digicel in the year; and
  iii) As per Section 199(1) of Gaming Control Act 2007, “it is a condition that
  each licensed bookmaker must maintain with the Board a deposit of K50,000
  and a bank guarantee of K100,000.” However, I noted that the Board held
  bank guarantee(s) that were not current.

  I recommended Management that there must be a stricter monitoring of banking of
  gaming proceeds and enforcement for non-compliance with the respective provisions
  of the Gaming Control Act 2007.

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• National Gaming Control Board

  Management agreed to my recommendation to address the issues and to make
  improvement.

  Administrative Expenses

  There were instances, where other administration related payments were not
  supported by three quotations, official invoice(s) and delivery docket(s). Other
  exceptions included travel related expenses not being substantiated with evidence of
  travel and car hire payments made on proforma or quotes without official invoice and
  receipts. In the absence of the above, I was unable to establish the status of refunds, if
  any in relation to travel, accommodation and car hire.

  I recommended the Management that procurement must be in accordance with PFMA.
  Hence, the practice of obtaining three quotes and calling for tenders should be
  followed.

  I also recommended Management that all payments are to be adequately supported
  with original invoices or receipts and delivery dockets to confirm receipt of goods
  ordered and paid for. In respect to hotel, travel and hire car, it is imperative that final
  invoice(s) is obtained to ensure all charges are reflected correctly and to follow up on
  any unused funds, if any.

  Management responded as follows:

  “There is no legal requirement for NGCB to obtain three quotations for the supply of
  goods and services required for the effective and efficient management of its affairs.
  There is no provision in the relevant legislations which imposes a duty on NGCB to
  obtain three quotations although it is good business practice to obtain quotations to
  compare prices for economic reasons. This is a matter of choice but not a
  requirement. In relation to travel acquittal, nearly all or most acquittals have
  boarding passes attached.”

  Conflict of Interest

  I have observed that the provisions of the Gaming Control Act 2007 permit NGCB as
  one of the four Gaming Machine Operators in the country. I viewed this as a potential
  for conflict of interest as one of the major player in the industry is also the regulator.
  This has potential for non-compliance with provisions of the Gaming Control Act
  2007 as well as perceived bias against other players in the industry. I brought this
  issue to the Management and they responded as follows:

  “There may be a possibility of conflict of interest but the position of NGCB as an
  operator is not by choice. The position is expressly created by the legislation in
  Section 130(3) of the Act.

  – 118 –

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• National Gaming Control Board

  If the legislation has considered that there was a potential for a conflict of interest
  then it would not have enacted the said provision. Parliament in its wisdom
  considered that there was no conflict of interest situation and therefore enacted
  Section 130(3) which states, “The Board shall be deemed to be the holder of an
  operator‟s license.”

  Annual Reports

  The Board did not comply with Section 23(1) Gaming Control Act 2007, by not
  furnishing to the Minister a report on the progress and performance of the Board for
  the previous financial year then ended. Board also did not adhere to Section 23(4) by
  not reporting to each Provincial Government every six months on the gaming
  activities conducted in the provinces. I brought this to the attention of the
  Management and they responded that the 2013 draft annual report has been produced
  and is in the pipeline to be printed. Management will also address the requirement of
  reporting the operation of gaming machines to Provincial Governments.

  Prior Year Issues

  The following issues highlighted in prior year audit remain unresolved:
  a) There was still no financial policy and procedure manual in place;
  b) The utilisation and/or monitoring of an operational budget was not evident in
  year 2013; and
  c) The NGCB has yet to obtain the source code from Coutara Limited.

  27.3 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 Board for the year ended 31 December 2014 was in progress.

  – 119 –

• Page 159 of 396

• 27A. NATIONAL GAMING CONTROL BOARD COMMUNITY
  BENEFIT FUND TRUST (Subsidiary of National Gaming Control Board)

  27A.1 INTRODUCTION

  27A.1.1 Legislation

  The Community Benefit Fund (CBF) was established under the provision of Section
  163(6)(a) of the Gaming Control Act 2007 on 1 May 2007 when the Act was passed
  and certified by the Parliament.

  The Gaming Control Act authorises the Board of NGCB to establish a “Community
  Benefit Fund” and shall open a trust account to be called the “Community Benefit
  Fund Account” in which payments of 14% of monthly gaming revenues are made.

  The Trust is managed and operated by a Board of Trustees comprised of the
  Chairman of the NGCB Board and four additional Trustees as members appointed
  by the Minister in a notice in the National Gazette, and in accordance with the terms
  of a trust deed that is settled by the Board.

  The CBF started its operations in 2008.

  27A.1.2 Objectives of the Fund

   The trust is established to provide for and apply the income and capital of the
  Trust Fund towards generally charitable purposes, including without
  limitation, the alleviation of poverty, the advancement of education, sports
  development and other purposes generally beneficial to the people of Papua
  New Guinea;
   To undertake research into the problems associated with gambling activities
  including the social and economic impact of gambling on individuals,
  families and the communities at large; and
   To promote community awareness and education in respect of problem
  gambling and the provision of counselling, rehabilitation and support services
  for problem gamblers and their families.

  27A.1.3 Functions of the Fund

  To provide for and apply the income and capital of the fund toward generally
  charitable purposes, including but not exclusive of, the following areas:

   Provision and improvement of social welfare;
   Development of sports and improvement of recreational facilities;

  – 120 –

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• National Gaming Control Board Community Benefit Fund Trust

   Improvement of education and learning tools (not including school fees);
   Assistance to churches and religious groups;
   Provision of medical assistance;
   Assistance to education, health and law and order projects; and
   Undertake research into problems on gambling and promote community
  awareness and education on negative aspects of gambling.

  27A.2 AUDIT OBSERVATIONS AND RECOMMENDATION

  27A.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the Fund‟s
  financial statements for the year ended 31 December 2013 was issued on 5 March
  2015. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Opening Balances

  In year 2013, Community Benefit Fund (CBF) balances were removed from
  National Gaming Control Board (NGCB) accounts and accounted for separately
  under CBF. Due to errors and material limitations of scope highlighted in prior
  audits of NGCB, I could not confirm the completeness and accuracy of opening
  balances of CBF as at 1 January 2013. Consequently, I could not perform tests to
  verify the completeness and accuracy of CBF balances as at 31 December 2013 as
  well as amounts transferred to CBF in year 2013.

  Donations

  A total of K80,628,198 had been paid out as donations for various purposes during
  the year. Out of that amount, K14,310,973 payments were not supported with any
  form of acquittals or reports. In the absence of the supporting documents, I could
  not confirm if the respective payments made were for all intended purposes and/or
  objectives of the payments were achieved.

  QUALIFIED OPINION

  In my opinion, except for the effect of the matters described in the Basis for
  Qualified Opinion paragraphs the financial statements of the NGCB Community
  Benefit Fund for the year ended 31 December 2013:
  (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.”

  – 121 –

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• National Gaming Control Board Community Benefit Fund Trust

  27A.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 Fund for the year ended 31 December 2013
  was issued on 5 March 2015. The report contained the following observations:

  Trust Deed

  My review of the Fund noted that there was no gazettal of the Trust Deed. The
  Community Benefit Fund (CBF) bank account also operated as a normal account
  rather than a Trust account. As highlighted in the past audit, Trust Deed also did not
  make any reference to the PFMA, the acquittal needs, investments and
  accountability.

  In addition, the delay in the preparation of financial statements was also a breach of
  clause 10.4(d) of the Trust Deed.

  I recommended the Management to ensure that the CBF bank account is
  appropriately named as a Trust account. I also suggested in the past that the Trust
  Deed must specify the requirements of complying with the relevant legislations
  including PFMA, eligibility for assistance, investment guidelines, the reporting and
  acquittal processes and others. The Management responded as follows:

  “CBF Management will organise gazettal of the Trust Deed upon Trustees approval
  in its next meeting on the 11 December 2014 Trust Deed has been finalised as is per
  BOT‟s approval.”

  Donations

  My review of the donations noted the following observations:

  i) A number of payments were made on account of Prime Minister‟s
  commitment(s) and approvals by the Prime Minister, based on written memo
  and requests;
  ii) There were instances of donations made without being recorded in the CBF
  register;
  iii) There were also cases of funding made without proper CBF application(s);
  and
  iv) I also did not sight evidence of acquittals relating to prior years.

  Board Expenses (BOT)

  During the year, the BOT related expenses amounted to K305,704.

  – 122 –

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• National Gaming Control Board Community Benefit Fund Trust

  I noted that three of the Directors were paid their monthly board fees as one annual
  lump sum in advance in January 2013.

  In the absence of BOD rates determination, I could not confirm the correctness of the
  amounts paid as stipends and sitting allowances.

  27A.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the fieldwork associated with the audit of the
  accounts and records and the examination of the financial statements of the Fund for
  the year ended 31 December 2014 was in progress.

  – 123 –

• Page 163 of 396

• 28. NATIONAL HOUSING CORPORATION

  28.1 INTRODUCTION

  28.1.1 Legislation

  The National Housing Commission Act (Chapter 79) was repealed by the National
  Housing Corporation Act 1990. The assets and liabilities of the former National
  Housing Commission were transferred to the National Housing Corporation in March
  1990.

  28.1.2 Functions of the Corporation

  The principal functions of the Corporation are to:
   Improve housing conditions;
   Provide adequate and suitable housing or letting to eligible persons;
   Sell houses to eligible persons;
   Make advances to eligible persons and approved applicants to enable them to
  become the owners of houses occupied by them;
   Develop residential land by way of providing adequate services for human
  settlements;
   Carry out and promote research or investigations into matters connected with
  urban development and human settlements; and
   Maintain dwellings and associated buildings vested in the Corporation.

  28.1.3 Subsidiary of the Corporation

  The National Housing Corporation has a subsidiary Company, National Housing
  Estate Limited. The Company was incorporated under the Companies Act on 28
  September 2007. The principal purpose of the Company is to provide Real Estate
  Services. From information available, the Company commenced its normal operations
  as of 1 January 2010.

  However, the Company had not submitted its financial statements for the years ended
  31 December 2010, 2011, 2012, 2013 and 2014 for my inspection and audit despite
  numerous reminders from my Office.

  – 124 –

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• National Housing Corporation

  28.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and
  records and examination of the Corporation for the year ended 31 December 2011
  was in progress. The financial statements for the year ended 31 December 2012 had
  been submitted and the audit arrangements were in progress to commence the audit
  without delay.

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

  – 125 –

• Page 165 of 396

• 29. NATIONAL INFORMATION AND COMMUNICATIONS
  TECHNOLOGY AUTHORITY (NICTA)

  29.1 INTRODUCTION

  29.1.1 Legislation and Objectives of NICTA

  The National Information and Communications Technology Authority (NICTA) was
  established on 1 November 2009 by the National Information and Communications
  Technology Act 2009. The Authority succeeds the PNG Radio Communications and
  Telecommunication Technical Authority (PANGTEL) which was established on 1
  January 1997 as part of the Government‟s policy to corporatise the Post and
  Telecommunication Corporation (PTC) and to have it divided into three different
  organisations namely: Telikom PNG Limited, Post PNG Limited and Pangtel.

  NICTA is a 100% Government-owned statutory authority, established to regulate the
  telecommunication industry in PNG.

  Under the Post and Telecommunication Corporation (Corporatisation) Act 1996
  assets, rights and liabilities as well as employees of the Corporation were transferred
  to Pangtel as per the allocation statement approved by the then Minister for
  Communications at the net book value recorded in the books of the Corporation as at
  31 December 1996. In the same manner, the assets, rights and liabilities as well as
  employees of Pangtel were transferred to NICTA by virtue of Section 305 of the
  National Information and Communications Technology Act.

  29.1.2 Functions of the Authority

  The main functions or principal activities of the Authority are to exercise all licensing
  and regulatory functions in relation to the Information and Communications
  Technology Industry and perform all other functions as stated under Section 9 of the
  NICTA Act 2009.

  29.2 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 Authority for the year
  ended 31 December 2012 was in progress.

  The financial statements of the Authority for the years ended 31 December 2013 and
  2014 had not been submitted for my inspection and audit.

  – 126 –

• Page 166 of 396

• 30. NATIONAL MARITIME SAFETY AUTHORITY

  30.1 INTRODUCTION

  30.1.1 Legislation

  The National Maritime Safety Authority was established by the National Maritime
  Safety Authority Act 2003.

  30.1.2 Functions of the Authority

  The functions of the Authority are to:
   Perform the functions and exercise the powers as are conferred upon it by this
  Act or under any other law;
   Co-ordinate search and rescue operations for vessels in distress or lost at sea
  pursuant to the terms and conditions of a search and rescue plan prepared by the
  Minister, from time to time, and approved by the Authority;
   Co-ordinate with other agencies and persons, including regional and
  international organisations and consultants, whether local or foreign, on matters
  concerning maritime safety, marine pollution prevention or search and rescue
  operations at sea;
   Collect data relevant to maritime safety, marine pollution prevention and search
  and rescue operations at sea;
   Act on behalf of the State in relation to any domestic or international agreement
  relating to maritime safety, marine pollution prevention or search and rescue
  operations at sea to which the State is or may become a party;
   Make recommendations on policy to the Minister regarding maritime safety,
  marine pollution prevention and search and rescue operations at sea;
   Provide consulting services, training and management services relating to any of
  its functions whether in PNG or overseas;
   Where appropriate to consult with:
  ‒ Other agencies of National Government;
  ‒ Provincial Governments;
  ‒ Local-level Governments; or
  ‒ Commercial, industrial and other relevant bodies and organisations, in
  relation to matters affecting them in the performance of its functions.
   Generally to do such supplementary, incidental or consequential acts and things
  as are necessary or convenient for carrying out its functions.

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• Page 167 of 396

• National Maritime Safety Authority

  30.2 AUDIT OBSERVATIONS

  30.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the Authority‟s
  financial statements for the years ended 31 December 2013 and 2014 were issued on
  26 January and 28 May 2015 respectively. The reports contained Qualified Opinions,
  hence only the 2014 report is reproduced.

  “BASIS FOR QUALIFIED OPINION

  Fees and Levies

  The Authority disclosed its Operating Revenue as K29,938,173 in the financial
  statements. Included in this account balance was revenue earned from fees and levies
  of K24,238,077. During my review of the billing and collection of the various fees
  and levies, I noted that there was no proper and accurate system or database available
  to capture all the foreign vessels operating in PNG territorial waters. Further, the
  Authority did not keep proper, accurate and complete information such as name of the
  vessels, owner, length of vessels, and the place of registration. I noted that billing and
  collection of these fees and levies were based on the information provided by the
  shipping agents which may not be reliable. In the absence of a proper database and a
  comprehensive revenue collection system, I was unable to state whether the revenue
  billing and collection by the Authority was accurate and complete. However, the
  Authority is currently addressing this issue by introducing new systems and
  mechanisms so that there is a high degree of certainty that all revenue is captured by
  the system.

  QUALIFIED OPINION

  In my opinion, except for the effects of the matter referred to in the Basis for
  Qualified Opinion paragraph the financial statements of National Maritime Safety
  Authority;
  (a) Are based on proper accounts and records and are in agreement with those
  accounts and records; and
  (b) Comply with generally accepted accounting practice and give a true and fair
  view of the financial position of the Authority as at 31 December 2014 and the
  results of its operations and its cash flows for the year ended on that date.”

  30.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act on the audit and
  inspection of the accounts and records of the Authority for the years ended 31
  December 2013 and 2014 were issued on 26 January and 28 May 2015 respectively.

  – 128 –

• Page 168 of 396

• National Maritime Safety Authority

  The reports contained similar observations, hence only the 2014 report is reproduced
  as follows:

  Trade Debtors

  My review of the Authority‟s trade debtors revealed that a large number of debtors
  totalled K596,750 which represents 15% of the total accounts receivable remained
  outstanding for over 90 days. I further noted that most of these long outstanding
  debtors may not be collectable.

  I brought this matter to the attention of Management and they responded as follows:

  “We understand that and have already provided for over 15% for doubtful debts in
  the financials. Recovery process is in progress at this stage and all debts over ninety
  (90) days are being referred to our legal team who have instigated legal proceedings.
  Management will seek board approval for write-off once we hear from them.”

  Fixed Assets

  During my review of the Fixed Assets Register, I noted that the Authority‟s Fixed
  Assets Register contained many old assets which existence cannot be verified. I
  further noted that the Authority did not conduct a complete stock take of all its Fixed
  Assets. As a result, those assets with nil written down values from previous years
  were still reported in the Assets Register.

  I brought this matter to the attention of Management and they responded as follows:

  “Management acknowledged that due to lack of manpower there was no proper
  maintenance of our Fixed Assets Register. We have created a Fixed Assets Register
  and management to record and classify items purchases. The recruitment of the
  procurement Officer who will properly record, classify, monitor, labeling and doing
  quarterly audit of the fixed assets. We are currently working on identifying assets with
  zero balance book values. Asset verification exercise will follow thereafter and the
  register will be updated with old assets disposed/sold.”

  – 129 –

• Page 169 of 396

• 31. NATIONAL MUSEUM AND ART GALLERY

  31.1 INTRODUCTION

  31.1.1 Legislation

  The National Museum and Art Gallery of Papua New Guinea was established under
  the provisions of the National Museum and Art Gallery Act 1992. This Act came into
  operation on 15 April 1992.

  31.1.2 Functions of the Museum

  The main functions of the Museum are to:
   Protect and conserve the cultural and natural heritage of PNG;
   Research and document the prehistory of PNG and manage the national
  archaeological collections, and monitor archaeological research in PNG;
   Maintain the national register of traditional and archaeological sites;
   Identify and maintain a register of national cultural property and monitor the
  collection and export of artefacts; and
   Issue permits and perform other duties as required by the National Cultural
  Property (Preservation) Act (Chapter 156).

  31.2 AUDIT OBSERVATIONS

  31.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the Museum‟s
  financial statements for the years ended 31 December 2011 and 2012 were both
  issued on 22 September 2014. These reports contained Disclaimer of Opinions, hence
  only the 2012 report is reproduced as follows:

  “BASIS FOR DISCLAIMER OF OPINION

  Accounting System

  The Museum did not maintain a proper accounting system for a systematic
  preparation of financial statements. Consequently, the financial statements, trial
  balance and the cashbook presented for my review could not be relied upon. The
  Museum did not maintain necessary accounting records and documents such as
  receipt books, Fixed Assets Register and expenditure records which should form the
  basis of the preparation of the financial statements. In the absence of these records
  and documents, I was not able to place any reliance on the computer generated
  Access-Based General Ledger which was used as the basis for the preparation of the
  financial statements.

  – 130 –

• Page 170 of 396

• National Museum and Art Gallery

  I therefore, could not extend my audit procedures to perform sufficient tests to verify
  the validity and accuracy of the figures reflected in the financial statements.

  Statutory Records

  During my examination, I observed that there were significant variances between the
  financial statement balances and general ledger balances. Further, some payrolls and
  payment vouchers were not provided for my verification. As such, I was unable to
  reconcile these balances due to lack of proper and reliable accounting records.

  Cash at Bank – K1,425,283

  The Museum disclosed its bank balance as K1,425,283 at 31 December 2012. During
  my examination, I noted that the JK McCarthy Bank Account and Museum Book Shop
  Account were not reflected in the general ledger and the financial statements
  submitted for my review. Further, transactions that took place from these bank
  accounts and the Project Account were not documented and incorporated into the
  Museum‟s financial statements together with those from the Main Operating Account.
  I was also not provided with the independent bank confirmation for these undisclosed
  bank accounts for my review. As a result, I was unable to ascertain the accuracy and
  completeness of the total bank balance of K1,425,283 disclosed at the year end.

  Fixed Assets – K3,019,182

  The Museum did not properly maintain and update its Fixed Assets Register with the
  details of acquisitions and disposals during the year. During my review, I noted that
  the JK McCarthy Museum and other land and improvements in Goroka were valued
  at K700,000. The Museum also has seventeen other land improvements in Port
  Moresby, however, the Museum has only disclosed land and building value of
  K621,646 in its financial statements.

  Furthermore, I noted that artifacts and science collections have accumulated over
  many years and hence there was a large volume of collections and artifacts for which
  there was no proper database system maintained to record, update and revise the
  collections periodically.

  In the absence of such proper documentation, the accuracy, completeness and
  existence of these collections could not be verified.

  Salary and Allowances (Payroll) – K2,399,427

  During my examination, I was provided with incomplete payroll summary sheets for
  all the fortnights to verify the payments made during the year. I was unable to perform
  the necessary audit examination to satisfy myself as to the accuracy of the amount
  stated in the accounts. As a result, I was unable to state whether the amount has been
  fairly stated in the accounts.

  – 131 –

• Page 171 of 396

• National Museum and Art Gallery

  DISCLAIMER OF OPINION

  In my opinion, because of the significance of the matters described in the Basis for the
  Disclaimer of Opinion paragraphs, I have not been able to obtain sufficient audit
  evidence and accordingly, I was unable to express an opinion on the financial
  statements of the Papua New Guinea National Museum and Art Gallery for the year
  ended 31 December 2012.”

  31.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act on the audit and
  inspection of the accounts and records of the Museum for the years ended 31
  December 2011 and 2012 were both issued on 22 September 2014. These reports
  contained similar observations, hence only the 2012 observations are reproduced.

  Non-Submission of Financial Statements

  The Museum had not prepared and submitted its financial statements to my Office
  before 31 March 2013 to enable me to conduct the audit and issue the report within
  the timeframe stipulated by the Law. Consequently, the Museum has breached
  Sections 63 (2) and 63 (4) of the PFMA.

  Acquittal of Travel Related Expenses

  During my examination, I noted that the payments relating to Travel and Subsistence
  totalling K420,596 was paid to staff during the year. A total of K49,812 was not
  acquitted by officers of the Museum after travel which was contrary to the
  requirements of the PFMA.

  Staff Personnel Files

  During my review on the Museum‟s Staff Personnel Files, I noted that the personnel
  files were not properly maintained and updated on a regular basis. Some employees
  did not have employment contracts, appointment letters and other staff advices
  relating to salary and allowances. Although, some employees had employment
  contracts in their files, the rates of salaries and allowances did not correspond to the
  rates on which salaries and allowances were paid to them. Further, salaries/wages
  declaration forms and leave records of employees were not properly maintained.

  As a result, I was not able to verify the rates on which some of the casual employees
  were paid their wages since their personnel files were not provided for my review.

  – 132 –

• Page 172 of 396

• National Museum and Art Gallery

  Ministerial Support/Grant

  I observed that the Museum was funding a monthly grant of K8,333 while Tourism
  Promotion Authority and National Cultural Commission were paying K25,000 and
  K8,333 respectively per month. These grants are for the purpose of supporting the
  Ministry‟s operations in terms of logistical support including airfares and associated
  costs incurred by the Minister while on official duty for any one of these three
  institutions. This monthly grant by the Museum has now increased to K20,000 as
  advised by the Finance Manager.

  During my review, I noted that there were no proper acquittals made by the Ministry
  over the years for the use of these grants. I also noted that this arrangement between
  the Ministry and its three sister institutions had no legal basis as there was no
  documentary evidence to legitimise the funding to the Ministry.

  Bank Reconciliations

  I noted that there was lack of control over bank reconciliations process as there was
  no independent verification of the reconciliation to certify that they were done
  correctly. Also bank reconciliations for several months were not provided to me for
  my review upon requests thus I was unable to perform further tests to verify the
  accuracy of the cash at bank balance.

  Internal Control Weaknesses

  Other internal controls breakdown and weaknesses noted during my audit are
  summarised in the subsequent paragraphs:

  (i) The Board of Trustees Meeting Minutes for the year ending 31 December
  2012 were not provided for my review;
  (ii) I was not provided with the 2012 budget documents despite numerous requests
  and as such, I was unable to perform budget analysis with actual expenditure
  incurred during the year;
  (iii) Payroll records were not maintained properly as the payroll summary sheets
  were incomplete and as such, I was not able to verify the total payroll amount
  from the payroll file;
  (iv) The Museum did not maintain any schedules and calculations of all Contract
  Gratuities paid to its contract officers during the year;
  (v) I was not able to substantiate the validity and the authenticity of payments
  amounting to K82,969 due to insufficient or missing supporting documents;
  (vi) There were no Terms of Reference or Service Agreements between the
  Museum and various service providers;

  – 133 –

• Page 173 of 396

• National Museum and Art Gallery

  (vii) The Museum has neither maintained any records for petty cash, nor done any
  reconciliations;
  (viii) Leave records of employees of the Museum were not properly maintained by
  the Human Resources Department. I was not able to determine when the leave
  fares were paid and to verify if employees were qualified for recreational leave
  and leave fares in the absence of the leave records; and
  (ix) The Management responded to all the observations highlighted in my
  Management Letter and agreed to take necessary action to rectify the issues.

  31.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Museum for the
  years ended 31 December 2013 and 2014 had not been submitted for my inspection
  and audit, despite reminders.

  – 134 –

• Page 174 of 396

• 32. NATIONAL NARCOTICS BUREAU

  32.1 INTRODUCTION

  32.1.1 Legislation

  The National Narcotics Bureau was established in April 1992 by the enactment of the
  National Narcotics Control Board Act 1992.

  32.1.2 Functions of the Bureau

  The principal functions of the Bureau are to make recommendations to the Board on
  policies, plans, matters or projects relating to abuse of drugs; coordinate and monitor
  the Government and non-Government drug education, awareness and rehabilitation
  program, and conduct surveys and gather and evaluate information, on the
  consumption, cultivation, trafficking and manufacture of drugs.

  32.2 AUDIT OBSERVATIONS

  32.2.1 Comments on Financial Statements

  My reports to the Minister under Section 8(4) of the Audit Act on inspection and audit
  of the accounts and records of the Bureau for the years ended 31 December 2010,
  2011 and 2012 were all issued on 22 September 2014. The reports contained
  Disclaimer of Opinions, hence only the 2012 report is reproduced.

  “BASIS FOR DISCLAIMER OF OPINION

  Opening Balances

  The 2011 audit report was issued with a disclaimer of opinion due to limitation of
  scope arising from my inability to obtain satisfactory accounting records, source
  documentations and reconciliations to satisfy myself as to the accuracy and
  completeness of opening balances of Fixed Assets, Cash at Bank and the Surplus
  disclosed at year end. I was unable to perform sufficient audit procedures to satisfy
  myself as to the accuracy or completeness of the opening balances. Consequently, I
  was unable to quantify the effects of any material misstatements in the opening
  balances that might have consequential effects on the financial statements of the
  Bureau for the year ended 31 December 2012.

  Scope Limitation – Cash at Bank

  The Bureau did not provide me the monthly bank reconciliation statements for my
  inspection and verification.

  – 135 –

• Page 175 of 396

• National Narcotics Bureau

  Bank reconciliation is a control mechanism to ensure effective management of cash to
  detect and avoid misstatements, errors and fraud that may occur in handling of cash.
  In the absence of bank reconciliation statements, I was unable to verify and confirm
  the validity, completeness and accuracy of the cash at bank as at 31 December 2012.

  Scope Limitation – Fixed Assets

  The financial statements disclosed Fixed Assets as K2,060,175 at 31 December 2012.
  However, the Bureau did not maintain a proper, complete and accurate Fixed Assets
  Register to record the details and movements of assets under its custody and control,
  nor a stock take conducted annually to verify their existence and values. Physical
  inspection of certain assets against the records to confirm their condition and
  existence was not possible because of the absence of a proper Fixed Asset Register.
  Consequently, I was unable to determine the completeness, existence and accuracy of
  the fixed assets balance of K2,060,175 as disclosed in the financial statements.

  Scope Limitation – Lack of Supporting Documents

  A surplus of K60,032 was determined at the yearend after recognising receipts of
  K5,670,583 and payments of K5,240,219 during the year ended 31 December 2012.
  However, majority of the payment vouchers and source documents relating to
  payments were not provided for audit verification. Consequently, it was not possible
  for me to carry out necessary audit procedures to verify the correctness of the
  payments made during the year to arrive at the surplus of K60,032 as disclosed in the
  financial statements for the year ended 31 December 2012.

  DISCLAIMER OF OPINION

  In my opinion, because of the existence of the limitation of scope on my work as
  described in the Basis for Disclaimer of Opinion paragraphs, and the effects of such
  adjustments, if any, that might have been determined to be necessary had the
  limitations not existed, I was unable to and do not express an opinion on the financial
  statements of the Bureau for the year ended 31 December 2012.”

  32.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act on inspection and
  audit of the accounts and records of the Bureau for the years ended 31 December
  2010, 2011 and 2012 were all issued on 22 September 2014. For the purpose of this
  Report, only significant matters arising out of 2012 report is reproduced below:

  – 136 –

• Page 176 of 396

• National Narcotics Bureau

  Non–Compliance with the Public Finances (Management) Act 1995

  The PFMA Section 63(2) and 63(4) requires the Bureau to furnish to the Minister
  before 30 June in each year, a performance and management report of its operations
  for the year ending 31 December preceding, together with financial statements.
  Before furnishing financial statements to the Minister, the Bureau shall submit them
  to the Auditor-General who shall report to the Minister. However, the Bureau has not
  prepared and submitted its financial statements for the year ended 31 December 2012
  to my Office on a timely basis to enable me to conduct the audit on time.
  Accordingly, the Bureau had breached Section 63(2) and 63(4) of the PFMA.

  Board of Directors

  I observed that since 2002, the Bureau was operating without a fully constituted
  Board to implement the Bureau‟s policies on drug abuse and initiate legislation
  covering drug abuse. The fully constituted Board shall initiate and implement policies
  on drug abuse, initiate adequate legislation covering all aspects of drug abuse, advise
  the Government on all international aspects of drug abuse and carry out other
  functions as stipulated under Section 7 of the National Narcotics Bureau Act 2002. In
  the absence of a fully constituted Board, I was unable to confirm whether the
  functions of the Bureau had been fully implemented.

  Management responded to my observation as follows:

  “The appointment of the Board of Directors is done by the portfolio Minister and the
  National Executive Council (NEC) under the NNB Act 2002 and Regulatory Statutory
  Act 2004.”

  Corporate Plan

  My audit revealed that the Bureau did not have a Corporate Plan in place to measure
  its performance against the functions for which the Bureau was established. In the
  absence of this document, I was unable to state whether the functions of the Bureau
  had been effectively and efficiently carried out.

  Operational and Accounting Procedural Manual

  I noted that the Bureau was operating without any proper internal control mechanism
  such as Operational and Accounting Procedural Manual. The Manual must be
  compiled, well documented and communicated to all levels of the organisation and be
  used in every day work by all personnel.

  – 137 –

• Page 177 of 396

• National Narcotics Bureau

  I recommended Management to adopt the Accounting and Administration Procedural
  Manual in line with the PFMA and General Orders of the Public Service.
  Management informed me that “since the inception of the Bureau, the Bureau was
  operating without a Procedural Manual, however under the current leadership, a
  procedural manual will be produced when funds are available.”

  Personnel Files

  My review of Personnel Files revealed that the Bureau did not properly maintain
  Personal Files of its employees. The absence of maintaining and updating of
  Personnel Files had resulted in the following:

   Several contract officers‟ employment contract documents were not on file. As
  a result, I was unable to verify the legitimacy of the contract positions held by
  the officers and the corresponding salaries and allowances paid to the officers
  during the year; and
   Tax declaration forms were not completed and filed in the respective officer‟s
  personal files. In the absence of filed tax declaration forms, I was unable to
  validate the salary and wages tax deductions.

  Scope Limitation – Accounting System and Records

  Subject to Section 62(1) of the PFMA, the Bureau is obliged to keep proper accounts
  and records of its transactions and affairs. However, my review of the Bureaus‟
  accounts and records keeping and filing system revealed that the Bureau did not
  maintain a proper accounting records and filing system. I noted that payment
  vouchers were not filed in a sequential order and most vouchers were missing from
  the file. The accounting records such as registers, bank reconciliation statements,
  cashbooks and receipt books were not available for my review. The Bureau has a
  serious problem in maintaining a proper filing system and record keeping.
  Consequently, the following documents were not on file:

   Signed employment contract documents;
   Payroll reports for each pay periods, gratuity and other allowances
  calculations/working papers;
   Most of the payment vouchers and source documents for the payments made
  during the year; and
   Lease agreement documents for certain contract officers‟ accommodation
  rental.

  Due to lack of source documents and proper record keeping, I was unable to perform
  the necessary audit procedures to determine the authenticity of amounts disclosed in
  the expenditure accounts. The absence of source documents limits the scope of my
  audit.

  – 138 –

• Page 178 of 396

• National Narcotics Bureau

  Management responded to the above weakness as follows:

  “We assure that we will try to improve in the record keeping and filing system.”

  Segregation of Duties – Internal Control

  My review of internal control functions surrounding segregation of duties revealed
  that the Bureau lacked segregation of duties. As a result, the Bureau may be
  vulnerable to risks of fraud, error and misappropriation of public funds.

  Contract Agreements

  The Bureau engaged a security Firm to provide security service and employed
  ECCOM Business to provide consultancy service. However, I was not provided with
  the Contractual Agreements for my review. Consequently, I was unable to verify the
  payments made to the service providers as valid and correct payments.

  Procurement Process – Internal Control

  My review of the payment process of the Bureau revealed that payments totalling
  K436,622 lacked three written quotations from three different suppliers. The Bureau
  breached the requirements under Financial Management Manual Part 12, Division 3,
  which states that three written quotations must be obtained for purchases valued
  between K5,000 and under K100,000. Further, there were no supporting documents to
  substantiate the payments made. Accordingly, I was unable to obtain comfort over the
  controls surrounding the functions of payment process.

  The procurement process weaknesses were brought to the attention of Management
  and they responded that “they will try to improve in their procurement process.”

  Travel Advance Register

  My examination of duty travel expenditures revealed that the Bureau did not maintain
  a Travel Advance Register to keep proper records of all the duty travel advances and
  expenses made during the year under review. I also noted that travel advances were
  never acquitted. As required under Financial Management Manual Part 20,
  Paragraph 12.2 a Financial Delegate/Authorising Officer shall maintain a Register of
  Advances on duty travel. In the absence of Travel Advances Register and the
  corresponding Travel Advances Acquittals, I was unable to confirm that the duty
  travel payments were made for intended purposes.

  – 139 –

• Page 179 of 396

• National Narcotics Bureau

  Cash Advances

  My examination of cash advances revealed that the Bureau allows its officers to
  obtain cash advances for personal use. Conversely, the Bureau did not maintain a
  Staff Advance Register to keep track of advances made and their subsequent
  recoveries. Accordingly, I was unable to confirm whether staff advances had been
  properly accounted for during the year under review. Further, the Bureau also
  provided cash amounting to K429,500 to group of staff to carry out program activities
  such as drug awareness, rehabilitation and education. However, the payment of
  K429,500 to group of staff members to carry out program activities was never
  acquitted. In the absence of acquittals, I was unable to authenticate as to whether the
  funds were used for the intended purposes.

  32.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Bureau had not submitted its financial
  statements for the years ended 31 December 2013 and 2014 for my inspection and
  audit, despite reminders.

  – 140 –

• Page 180 of 396

• 33. NATIONAL RESEARCH INSTITUTE

  33.1 INTRODUCTION

  33.1.1 Legislation

  The National Research Institute (NRI) was established under the Institute of Applied
  Social and Economic Research Act (Chapter 165). The name of the Institute was
  changed from „PNG Institute of Applied Social and Economic Research‟ to „National
  Research Institute‟ following the approval of the NEC through its Decision No. 42/90
  of 7 March 1990.

  The Institute of Applied Social and Economic Research (Amendment) Act 1987 came
  into operation on 1 January 1988, and on this date, the promotion and cultural
  functions of the former Institute of PNG Studies; and functions to do with Educational
  Research for National and Provincial Departments of Education carried out by the
  former Educational Research Unit (UPNG), formed part of the National Research
  Institute.

  33.1.2 Functions of the Institute

  The functions of the Institute include the promotion of research into PNG society and
  economy; the undertaking of research into social, political and economic problems of
  PNG in order to formulate practical solutions to such problems; where practicable, the
  provision, by agreement with the body concerned, of consultancy services to the
  Government and to Government institutions; the promotion of the functions and
  objects of the Institute of PNG Studies; and research into all aspects of education for
  National and Provincial Departments of Education.

  33.2 AUDIT OBSERVATIONS

  33.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on inspection and
  audit of the accounts and records of the Institute for the years ended 31 December
  2013 and 2014 were issued on 25 February and 16 June 2015 respectively. The
  reports did not contain any qualification.

  33.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act on inspection and
  audit of the accounts and records of the Institute for the years ended 31 December
  2013 and 2014 were issued on 25 February and 16 June 2015 respectively.

  – 141 –

• Page 181 of 396

• National Research Institute

  For the purpose of this Report, only matters arising out of the 2014 report are
  reproduced below:

  Fixed Assets Register

  My examination of the Fixed Assets Register (FAR) revealed that the Register was
  not properly maintained. Accordingly, the following discrepancies were noted:
   A total of one hundred and ninety-eight assets in the Register did not have
  serial numbers. Without proper tagging/labeling, the identification of the
  Institute‟s fixed assets would be deemed impossible. It will be difficult for the
  Institute to know if the assets are lost through theft. In addition, I was unable
  to carry out physical inspection to confirm certain fixed assets against the
  records to verify their existence and condition due to lack of asset
  identification;
   Assets purchased prior to 2013 had no acquisition/purchase dates recorded in
  the Register. In the absence of the purchase dates, I was unable to confirm the
  depreciation charges calculated and expensed against the assets in the
  accounts; and
   Institute did not have a clear policy on capitalisation of fixed assets where all
  items above certain limit should be recorded in the FAR. As such, I noted
  instances where items without useful lives were captured in the Register.

  Due to the above observations, I was unable to rely on the FAR maintained by the
  Institute.

  Management agreed with my findings and responded as follows:

  “We will organise for a physical stock-take of fixed assets towards the end of 2015.
  During the stock-take we will arrange to tag all the assets with serial numbers where
  possible. The Institute has also formulated a fixed assets policy to determine the
  capitalisation limit of the fixed assets in 2015. Further, the Institute has started
  indicating the acquisition dates.”

  Title Deeds to Leasehold Land

  The Institute claimed to own three properties located at section 482 allotment 61,
  allotment 62 and section 484 allotment 35 with a total carrying value of K224,240.
  However, I was not able to confirm the ownership of the above properties as the
  Institute did not have title over the properties. I noted that the said properties were
  registered under a deregistered company‟s name. During my prior year audit, I
  brought the same issue to the attention of the Management and they responded that
  they have now engaged a land administration specialist to advice on the necessary
  arrangements required to effect the transfer of title deeds.

  – 142 –

• Page 182 of 396

• National Research Institute

  The above issue was again brought to the attention of the Management and they
  responded as follows:

  “We will advise you further on the progress regarding the transfer of title in the next
  course of your audit.”

  Travel Advance Register & Travel Advance Acquittals

  My inspection of the Travel Advances Register revealed that the Register was not
  properly maintained. Thus, most of the travel advances and the related travel &
  subsistence expenses incurred during the year were not captured in the Register.
  Accordingly, the Institute had breached the requirement under Financial Management
  Manual Part 20 paragraph 12.2 that a Financial Delegate/Authorising Officer shall
  maintain a register of advances to officers on duty travel.

  Further, the Institute had also neglected the requirements under the Financial
  Management Manual Part 20 paragraphs 11.2 and 12.10 that cash advanced to
  officers travelling overseas on official duty must acquit travel advances within 14
  days of return from duty travel and advances to officers for domestic duty travels to
  be acquitted within 7 days of return from duty travel by submitting an acquittal form.

  Due to the above weaknesses, I was unable to substantiate as to how much advances
  were acquitted and how much were outstanding at the year end. Management
  responded to my observation as follows:

  “As this has been an issue for some time, we will try our very best to up-date and keep
  a proper Travel Advance Register in the future.”

  Appointment of Council Members

  I noted that the Chairman and the Community Representative of the NRI Council
  term had expired on the 17 January 2010. During my 2014 audit, I observed that there
  were no appointments made for the respective position. The Institute advised me that
  they are awaiting response from National Executive Council, based on Minister for
  Higher Education, Research, Science and Technology submission.

  – 143 –

• Page 183 of 396

• 34. NATIONAL ROAD SAFETY COUNCIL

  34.1 INTRODUCTION

  34.1.1 Legislation

  The National Road Safety Council was established under the National Road Safety
  Council Act 1997. This Act came into operation on 1 May 1998. The Council
  commenced its operational activities from May 1998.

  34.1.2 Functions of the Council

  The principal functions of the Council are to:
   Determine the goals and objectives in the promotion of road safety in PNG;
   Advise the National Government on all matters relating to road safety which
  the Council may from time to time consider desirable or which the National
  Government may refer to the Council;
   Recommend to appropriate authorities the adoption of precautionary measures
  of all kinds calculated to prevent accidents involving the use of motor vehicles;
   Foster, promote and conduct educational campaigns designed to stimulate
  compliance with acceptable and proven principles of road safety;
   Enlist the aid of all agencies and individuals who in the opinion of the Council
  are able to promote any acceptable and proven principles of road safety;
   Procure sufficient personnel and finance for purposes of the Council and to co-
  ordinate and control their use;
   Foster and promote road safety research;
   Determine measures which will lead to the improvement of road safety and
  implementation of such measures;
   Monitor and evaluate the effectiveness of programs and strategies of
  organisations involved in the promotion of road safety;
   Formulate, monitor and update an appropriate long-term national program for
  the improvement of road safety in PNG and to supervise its implementation;
   Consider and implement any other aspects of road safety as may be referred to
  it from time to time;
   Perform such other functions as are given to it under this Act or any other law;
   Advise the Minister and the NEC on all or any of its functions specified in this
  section; 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.

  – 144 –

• Page 184 of 396

• National Road Safety Council

  34.2 AUDIT OBSERVATIONS

  34.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act, on the Council‟s
  financial statements for the year ended 31 December 2013 was issued on 26 January
  2015. The report did not contain any qualification.

  34.2.2 Audit Observations Reported to the Ministers

  My report to the Ministers under Section 8(2) of the Audit Act on the audit and
  inspection of the accounts and records of the Council for the year ended 31 December
  2013 was issued on 26 January 2015. The report contained the following
  observations:

  Fixed Assets

  My review of the Council‟s Fixed Assets Register revealed that the register presented
  a large quantity of fully depreciated, obsolete or disposed assets in the register. These
  assets carried either nil or negative balances in the year under review. I sought the
  Management‟s explanation and the Management responded as follows:

  “The Management would seek approval from the Board to dispose and remove fully
  depreciated and obsolete assets still present in the fixed assets register.”

  Damaged Motor Vehicle

  During my review of the Council‟s Fixed Assets Register, I followed up on the
  progress made on the Executive Director‟s official vehicle (Toyota L/Cruiser –
  registration no. BDV 596) that was involved in a car collision in 2012. The Police
  Incident Report and Conviction Notice confirmed the driver of the other (Digicel)
  vehicle was convicted for drunk driving and caused the accident.

  My examination revealed that the matter was still with the courts for Digicel to
  compensate for damaged vehicle‟s cost recovery or vehicle replacement cost. I sought
  explanation from the Management and they responded to my query as follows:

  “This particular vehicle concerned involved in a car collision resulting in our vehicle
  at a disposal state. Our vehicle concerned involved with the accident with Digicel
  PNG and the driver of Digicel PNG was convicted and the court case is before the
  National Court. We will advise you of the outcome of the court case when a decision
  is made.”

  – 145 –

• Page 185 of 396

• National Road Safety Council

  Traffic Infringement Notices (TIN)

  My review of the traffic infringement fines revealed that controls surrounding this
  area have improved compared to prior years. However, there were instances where
  TIN books were given to police officers that were never returned to the Council and
  some inspectors have lost the TIN books. I brought this matter to the Management
  and the Management responded as follows:

  “We are developing an internal control system to control all the TIN books from
  delivery of the TIN books from the printer to storage and distribution to inspectors
  and police officers, and whoever loses their TIN books issues is responsible and is
  penalised.”

  Personnel Files

  My review of the Staff Personnel Files revealed that salary history cards, employment
  letters, birth/marriage certificates and salary declaration forms were not maintained
  for most of the files examined. In the absence of such valid documents, I was unable
  to verify each officer‟s salary/wage and allowances paid and accruals provided for at
  year end. I requested the Management for explanation and the Management responded
  as follows:

  “We have instructed the division to properly keep the personnel files of our staffs and
  update each staff file regularly.”

  34.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Council for the
  year ended 31 December 2014 had not been submitted for my inspection and audit.

  – 146 –

• Page 186 of 396

• 35. NATIONAL ROADS AUTHORITY

  35.1 INTRODUCTION

  35.1.1 Legislation

  The National Roads Authority was established by the National Roads Authority Act
  2003 and came into operation in 2004.

  35.1.2 Objectives of the Authority

  The objectives of the Authority are to:
   Raise funds for the maintenance of public roads;
   Ensure the efficient preparation of effective annual road maintenance
  programmes; and
   Ensure that all routine, specific and emergency maintenance of roads and road
  rehabilitation and reconstruction funded by the Authority are executed in a
  transparent, effective and efficient manner, in order to optimise the contribution
  of road assets to the economic and social development of PNG.

  35.1.3 Functions of the Authority

  The functions of the Authority are to:
   Establish and operate a Road Fund from road user charges, budget and other
  sources;
   Establish resources and an organisation to enable the Authority to perform its
  functions;
   Maintain and manage updated data on asset conditions using the Road Asset
  Management System, Bridge Inventory and Bridge Maintenance and other
  approved systems;
   Formulate and determine prioritised annual road maintenance plans and
  programmes using the Road Asset Maintenance System, Bridge Inventory and
  Bridge Maintenance and other approved systems to be supported by the road
  sector cost recovery revenues;
   Establish annual road maintenance funding requirements in accordance with
  the future annual road maintenance plans;
   Determine and implement road user charges in accordance with the financial
  resource requirements of the annual road maintenance plans;
   Deliver the required routine, specific and emergency road maintenance in
  accordance with the maintenance service levels established for each class or
  type or road, through the contracting of independent contractors, and to
  monitor and supervise the contracts as they are executed;

  – 147 –

• Page 187 of 396

• National Roads Authority

   Deliver road improvement, and road restoration when required, by
  undertaking the design studies necessary for the programmed road
  improvement or rehabilitation projects by:
  ‒ Prepairing corresponding construction plans, specifications, cost
  estimates, and the other documents required for the proper tendering
  of the programmed works;
  ‒ Monitoring and supervising the works as are executed, by such
  qualified consultants and/or contractors as are engaged; and
  ‒ Ensuring safety audits on design, construction, maintenance and safety
  aspects of road.

   Establish and sustain contract management capacity to ensure the validity of
  contracts and the effective management of contracts awarded for the execution
  of agreed road maintenance works and rehabilitation and reconstruction
  projects;
   Ensure that all contracts are tendered through a transparent and competitive
  procedure to ascertain economic efficiency and sustainability in delivery of
  road maintenance and rehabilitation works;
   Keep adequate records and to maintain a management information system
  which provides the Board and staff with accurate and timely information on
  commitments, expenditures and revenue for the purchase of consultancy and
  contracting services and other purchases and outlays;
   Report publicly and transparently on collection of user charges, revenues, and
  in detail on the use of the revenues on the road maintenance programs in
  accordance with internationally accepted accounting principles;
   Establish environmental management capacity;
   Provide a continuing programme of professional staff development and
  required skills training for non-professional staff; and
   Construct, erect or affix signs or marks on road transport infrastructure in
  accordance with the Motor Traffic Act (Chapter 243).

  35.2 AUDIT OBSERVATIONS

  35.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the inspection and
  audit of the accounts and records of the Authority for the year ended 31 December
  2013 was issued on 20 February 2015. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Cash at Bank – K70,930,974

  During my review of the Authority‟s Operating and Road Fund Bank Accounts,

  – 148 –

• Page 188 of 396

• National Roads Authority

  I noted that the bank reconciliations were not done on a monthly basis and the bank
  reconciliations for 2013 were prepared only in 2014. Further, the bank reconciliations
  were not done properly and checked by an independent person. The cash at bank
  balance of K70,930,974 disclosed in the financial statements as at 31 December 2013
  did not agree to bank reconciliation balance of K69,578,582 resulting in a variance of
  K1,352,392. As a result, I was unable to obtain comfort over the accuracy and
  completeness of cash at bank balance of K70,930,974 as reported in the financial
  statements at 31 December 2013.

  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 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 for the year ended 31
  December 2013 and the results of its financial operations and cash flows for
  the year then ended.”

  35.2.2 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
  2013 was issued on 20 February 2015. The report contained the following
  observations:

  Corporate Plan

  Audit noted that the Authority did not have a Corporate Plan in place to guide its
  operations and performance. Without a Corporate Plan, the Authority will not have a
  clear direction and vision on as to how it will achieve its short and long term
  objectives and goals. In the absence of this document, I was unable to state whether
  the functions of the Authority had been effectively and efficiently carried out and the
  expected outcome was achieved.

  The Management noted my observation and responded as follows:

  “It realises the importance of having in place a Corporate Plan and a Business Plan.
  Thus the Authority is now channeling its concentration on certain activities to enable
  the development of the Corporate Plan 2015-2020 and a Business Plan 2015-2020.”

  ACCPAC Accounting System

  During my review, I observed that the Authority has not fully utilised all the options
  available in the ACCPAC Accounting System.

  – 149 –

• Page 189 of 396

• National Roads Authority

  Further, officers using the System were not given adequate training to use it. The
  Authority only uses the receipt, payment and payables general ledger (GL) accounts
  in the ACCPAC Accounting System to post transactions. The other facilities such as
  debtors GL account, creditors/debtors aged listings functions and bank reconciliation
  module in the Accounting System were not utilised. Based on posting of transactions
  in the above mentioned GL accounts, the System produced GL account details and the
  trial balance from which the financial statements were manually prepared by using
  Microsoft Excel.

  The Management agreed to my findings and responded as follows:

  “The Authority needs to fully utilise the models in the Accounting System. As such,
  the Management has identified that the Accounting System version 5.5A needs to be
  upgraded to version 6.5 with the hiring of ACCPAC specialist to upgrade the System
  and to install other accounting modules. They also indicated that staff training is also
  featured in the Terms of Reference for hiring the ACCPAC expert.”

  Withholding Taxes

  Withholding taxes mainly relates to withholding of 10% of the payments that were
  made to the contractors that did not have valid Certificate of Compliance. The 10%
  withholding taxes are payable to Internal Revenue Commission (IRC). In accordance
  with Section 280(1f) and (6) of the Income Tax Act 1959, it is a requirement that the
  paying authority (in this case its National Roads Authority) shall remit to IRC the
  total amount of tax deducted from those payments made during the 12 months that
  ended 31 December in the preceding year by 21 February. A paying authority who
  contravenes, or fails to comply with, a provision of this section is guilty of an offence.
  Further, Section 354O(1) of the Income Tax Act 1959 stipulate that a
  person/organisation who is a paying authority shall, before 15 January or within
  fourteen days after entering into a contract, complete a registration form and lodge it
  with IRC to register as a paying authority. A paying authority, who fails to comply
  with this requirement, is guilty of an offence and must remit the 10% contract
  payment withholding taxes, the Authority has to register as paying authority with
  IRC. In the absence of paying authority‟s registration, I was unable to confirm that the
  Authority has remitted 10% contract payment withholding taxes to IRC.

  The Management agreed to my observation and stated that the Authority would
  follow up with IRC and register to obtain the new Tax Identification Number to effect
  the remittance of withholding taxes.

  Certificate of Compliance

  My review of road maintenance contract payments revealed that several contractors
  without valid Certificate of Compliance (COC) were paid a total amount of
  K2,638,244.

  – 150 –

• Page 190 of 396

• National Roads Authority

  Despite the contractors lacking valid COC, the Authority failed to withhold the 10%
  of the claim for remittance to IRC. It is specified under Section 280 (9) of the Income
  Tax Act 1959 that the paying authority is required to deduct 10% of the gross amount
  of the payment and remit the tax to IRC.

  The Management agreed to my observation and responded as follows:

  “Due to oversight or transaction not being appropriately posted to the balance
  withholding tax account, 10 % of few payments were not withheld for remittance to
  IRC. However, in the future the Management will ensure that correct amount is
  withheld for the period and is captured in the ACCPAC System.”

  Payments without Obtaining Three Quotations

  I noted that payments totalling K119,690 (which were valued between K5,000 and
  under K100,000) were made without obtaining three quotations from different
  suppliers. It has breached the requirements of Financial Management Manual Part 12
  Division 3 which states that three written quotations must be obtained for purchases
  valued between K5,000 and under K100,000. The Authority did not comply with this
  provision.

  The Management concurred with my finding and responded as follows:

  “There were instances where three quotes were not obtained from different supplies
  due to availability of only one supplier, consideration of quality of goods and services
  from reputable companies and urgency of procuring certain expenditures.

  Ultimately, the Management agrees that three quotations must be obtained for
  purchases above K5,000 and less than K100,000 in compliance to Part 12 Division 3
  of PFMA.”

  Segregation of Duties

  During my review on internal control of the Authority, I noted that payments
  amounting to K258,214 were not being authorised by requisition authorising officer,
  certified by certifying officer and approved by financial delegate for commitment.
  Individuals doing more than one task at the same time may compromise internal
  control and prone to make mistake and likely to open avenues for malpractice. In the
  absence of segregation of duties, I was unable to obtain comfort over the controls
  surrounding procurement process.

  Management has taken note on my observation and stated that necessary actions will
  be taken to improve the internal control weakness.

  – 151 –

• Page 191 of 396

• National Roads Authority

  Duty Travel Expenses Lacking Acquittal

  My review of the travel expenses revealed that payments totalling K739,507 for duty
  travels posted to Travel Allowances and Travel and Accommodation Accounts were
  not acquitted. As a result, I was unable to verify the airfare payments and hotel
  accommodation payments to boarding passes and receipts docket. It is a requirement
  under the Financial Management Manual Part 20 paragraphs 11.2 and 12.10 that
  cash advanced to officers travelling overseas on official duty must acquit travel
  advances within fourteen days of return from duty travel and advances to officers for
  domestic duty travels to be acquitted within 7 days of return from duty travel by
  submitting an acquittal form. In the absence of travel acquittals, I was unable to
  confirm the legitimacy of duty travel expense payments.

  Management responded to my concern as follows:

  “This area has been lacking effective control measures to properly account for travel
  related expenses and informed me that a travel coordinator has been appointed to
  manage the travel acquittal process.”

  Salary and Wages Tax and Dependents Declaration Forms

  My examination of personnel files revealed that most of the Authority‟s employees
  did not have salary and wages tax declaration forms and birth certificates of officers‟
  children in their personal files. A completed and signed salary and wages declaration
  form and birth certificates are the basis for claiming dependents tax rebates and also
  for claiming dependents leave fares. In the absence of salary and wages tax
  declaration forms, I was unable to state whether salary and wages tax were properly
  calculated without adjusting for dependent rebates.

  Further, the Public Services General Order # 14.41 specify that the officers can claim
  leave fares for their spouse and children under the age of 19 who are wholly
  dependent and maintained by the officer. However, due to lack of dependents
  declaration and birth certificates of the children, I was unable to comment on the
  legitimacy of dependents leave fares claimed by officers.

  Management agreed with my findings and stated that necessary actions will be taken
  to ensure that signed tax declaration forms and birth certificates are kept in the
  employee files.

  35.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Authority had submitted its financial
  statements for the year ended 31 December 2014 for my inspection and audit and
  arrangements were being made to commence the fieldwork shortly.

  – 152 –

• Page 192 of 396

• 36. NATIONAL TRAINING COUNCIL

  36.1 INTRODUCTION

  36.1.1 Legislation

  The National Training Council was established under the National Training Council
  Act 1991. Although the Act came into operation on 5 December 1991, the Council
  formally began operating in April 1992 following its inauguration.

  36.1.2 Objectives of the Council

  The objectives of the Council are to:
   Foster the comprehensive development of training with regard to the needs and
  the resources of the country;
   Foster the co-ordination of training institutions so that the most effective use
  can be made of resources available for training which ensures increased
  productivity and capacity building in the workforce;
   Make the benefits of training as widely as possible;
   Plan and encourage the development of a system of training fitted to the
  requirements of the country and its people;
   Establish, preserve and improve standards of training throughout the country;
   Make the most effective use of the resources available for training related
  purposes in so far as this can be done by legislative and administrative
  measures; and
   Generally augment and support the role and functions of the Commission for
  Higher Education as specified in the Higher Education Act (Chapter 397).

  36.1.3 Functions of the Council

  The principal functions of the Council are to be responsible for supervising and
  managing the implementation of the National Training Policy and for monitoring,
  reviewing and revising the National Training Policy when necessary; to provide
  guidelines to the NEC, Provincial Government, and the in-service Training
  Institution‟s Governing Councils on any issues related to training; and to formulate
  and publish guidelines on human resource requirements, localisation and
  indigenisation issues and related matters.

  – 153 –

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• National Training Council

  36.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  36.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the Council‟s
  financial statements for the years ended 31 December 2010, 2011, 2012, 2013 and
  2014 were all issued during the audit cycle. The 2010 and 2011 reports were issued
  on 31 October 2014, the reports for 2012 and 2013 were issued on 26 January 2015
  and the 2014 report was issued on 2 June 2015. The reports contained Qualified
  Opinions, hence only the 2014 report is reproduced.

  “BASIS FOR QUALIFIED OPINION

  Other Receipts – K73,046

  The Council disclosed in its accounts K73,046 as Other Receipts received for
  registration and renewal fees from the training providers during the year. I noted that
  some receipts were recorded from the receipts issued while others were taken
  directly from the bank statements without proper supporting documents. As a result,
  there was no audit trail to verify that all the fees expected to be collected from the
  training providers have been collected and accounted for in the financial statements.
  Consequently, I was unable to ascertain the accuracy and valuation of the fees
  collected at year-end.

  Fixed Assets – K783,134

  My review of the Fixed Assets Register maintained by the Council revealed that it
  was not properly maintained. In the absence of a proper Fixed Assets Register and
  lack of stock-take and valuation reports, I was unable to determine the value,
  condition and existence of assets totalling K783,134 disclosed by way of notes in the
  financial statements.

  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 of the Council 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 Council as at 31 December 2014 and the
  results of its operations for the year then ended.”

  – 154 –

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• National Training Council

  36.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act on the inspection and
  audit of the accounts and records of the Council for the years ended 31 December
  2010 and 2011 were issued on 31 October 2014, the reports for 2012 and 2013 were
  issued on 26 January 2015 and the 2014 report was issued on 2 June 2015. These
  reports contained similar observations, hence only the 2014 report is reproduced.

  Accounting System

  I noted that the Council had not maintained a proper accounting system to record its
  transactions. The accounts and records of the Council were prepared manually and
  transferred to spreadsheets. There were no proper trial balance and general ledgers
  created apart from the cashbook provided for my examination. Further, I noted that
  there were no operational and policy manuals such as procedural policy and
  accounting procedures manual to guide the administration of the Council.

  I recommended that the Council deliberate on the matter and employ a proper
  automated accounting system (such as MYOB or other systems) appropriate for the
  entity and compile procedural manuals for internal use.

  Management concurred with my comments and added that they would do their best to
  secure a suitable accounting system for its usage.

  Project Funds

  I noted that as part of its operations, the Council also maintains the following project
  expenditures:

   Training levy of 2% as support grants to training providers; and
   Overseas Students Support Grants which is used to assist Papua New Guinean
  students undertaking studies overseas.

  My review of the above project expenditures revealed that there was no separate
  policy for each of these projects. In addition, there were no proper guidelines, control
  and monitoring on how each project would be managed and assistance granted.
  Further, there were no evaluations done for each of the projects in relation to the
  grants and assistance provided to different recipients under each project. I
  recommended Management to develop a proper policy for each project and to
  withhold the 2% training levy until a proper policy was developed.

  Management concurred with my comments and would do their best to develop a
  policy for each Project. Further, the 2% training levy was put on hold pending proper
  policy and guidelines to be approved by the National Training Council Secretariat.

  – 155 –

• Page 195 of 396

• National Training Council

  Personnel Emoluments

  My examination of the staff personnel files revealed that the files were not properly
  and timely maintained. I noted that part of the staff files were maintained by the
  Department of Labour and Industrial Relations. Further, I noted that staff salary and
  wages declaration forms were not lodged with the Internal Revenue Commission and
  the history cards were not timely updated.

  In addition, I noted that the Council had not been remitting superannuation
  contributions and wages tax on behalf of the casuals and probationary officers
  employed in 2014 as stipulated by the Superannuation Act 2000 and General Order
  17, and Income Tax Act 1959 (as amended). I also noted breaches in General Order
  14.48 relating to the administration of recreational leave fares.

  I recommended Management to look into these areas and ensure corrective actions are
  taken.

  Management agreed with my comments and accepted my recommendations and
  ensured proper controls will be maintained.

  Expenditure Control Weaknesses

  During my review of the operational expenses in 2014, I noted that payments totalling
  K115,807 were made without proper supporting documentations. In addition,
  payments totalling K110,630 were made without obtaining the required three written
  quotations. As a result, I was unable to verify and confirm the above payments as to
  their validity and appropriateness.

  I brought these issues to the attention of Management and was advised that corrective
  actions will be taken.

  – 156 –

• Page 196 of 396

• 37. NATIONAL VOLUNTEER SERVICE

  37.1 INTRODUCTION

  37.1.1 Legislation

  The National Volunteer Service was established on 12 April 1990 under the National
  Volunteer Service Act 1990.

  37.1.2 Functions of the Service

  The principal functions of the National Volunteer Service are to promote a spirit of
  sacrifice and service to the people of PNG; to provide labour, skills, education and
  training to the community for development projects; to cooperate and assist National
  and Provincial Government agencies as well as other organisations whose goals
  include the development of the people of PNG, in achieving their plans and purposes;
  and to encourage and participate generally in the advancement of the development of
  PNG.

  37.2 AUDIT OBSERVATIONS

  37.2.2 Comments on the Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the National
  Volunteer Service financial statements for the years ended 31 December 2011, 2012
  and 2013 were all issued on 27 February 2015. These reports contained Qualified
  Opinions, hence only the 2013 report is reproduced as follows:

  “BASIS FOR QUALIFIED OPINION

  Cashbook

  The Service did not maintain proper books of accounts and records and cashbook to
  produce a trial balance and its financial statements. The financial statements were
  prepared from bank statements and schedules prepared manually on Excel spread
  sheet. The cashbook balances form the basis of a proper trial balance. In the absence
  of a proper and complete cashbook and trial balance, I was not able to perform
  sufficient audit procedures to satisfy myself as to the completeness and accuracy of
  the account balances presented in the financial statements for the year ended 31
  December 2013.

  Cash at Bank – K32,300

  My examination revealed that the Service did not perform any bank reconciliations
  during the year under review.

  – 157 –

• Page 197 of 396

• National Volunteer Service

  Bank reconciliation is a key control mechanism which helps to detect errors and
  instances of fraud and embezzlement and ensures the bank records are reconciled with
  the cashbook of the Service to report a correct ending bank balance. In the absence of
  the monthly bank reconciliations, I was not able to perform necessary audit
  procedures to satisfy myself as to the accuracy of the bank balance of K32,300 as
  disclosed at the year end.

  Fixed Assets – K235,118

  The Service presented its total Fixed Assets balance in Note 2 to the financial
  statements as K235,118 as at 31 December 2013. My review of the Fixed Assets
  Register revealed that the Service did not maintain a proper Fixed Asset Register of
  all the assets under its custody and control. The Register provided for my review was
  an incomplete asset inventory listing maintained in a spread sheet. The register
  recorded only assets acquired from 2010 onwards.

  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 Service for the year ended 31
  December 2013 and the results of its financial operations for the year then
  ended.”

  37.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act on the inspection and
  audit of the accounts and records for the years ended 31 December 2011, 2012 and
  2013 were issued on 27 February 2015 respectively. These reports contained similar
  observations, hence only the 2013 observations are reproduced below.

  Council Meeting Minutes

  I observed that a sum of K10,669 (for chq.940863, dated 7/2/2013) was paid by the
  Service for airfares for the Council members to attend a council meeting hosted in
  Manus province. There was no signed meeting minutes provided for my review to
  confirm that meeting was held on 7 February 2013. Apart from this meeting, no other
  Council meeting was held as the term of the Council expired on 6 May 2013. I drew
  this to the attention of the Management and they responded to my observations as
  follows:

  “The Council had the council meeting in February of 2013 in Kokopo before their
  term was expired on 6 May 2013.

  – 158 –

• Page 198 of 396

• National Volunteer Service

  However, the copy of the meeting is not available for your reference due to documents
  being misplaced during the movement of office from Waigani to Boroko.”

  Budget Control Analysis

  I noted that in the 2013 financial year the management of the Service did not
  implement proper budgetary control over some expenditure items. Actual
  expenditures significantly exceeded the budgeted amounts and some expenditure
  items were not budgeted for. I further observed that the management of the Service
  has not properly forecasted expenditures in light of changes in operational activities,
  price changes and manpower capacity. I drew this to Management attention and they
  responded to my observations as follows:

  “The Service has considered your recommendations and has taken on board the
  IFMS Government Budget Application for this year to prepare for its 2015 Budget to
  minimise over-expenditure and control the funds of the agency within its requirements
  to avoid such circumstances. However, the Service will still comply with your
  recommendations in the future.”

  Group Tax Liabilities – K155,878

  The Service reported Group Tax Liabilities totalling K155,878 as at 31 December
  2013. From this total, K41,402 payment was outstanding since 2011, K33,421
  payment was outstanding since 2012 and K81,055 was the amount for 2013 liabilities.
  I observed that the Service was not able to meet these obligations due to liquidity
  problems. Negotiations with the Internal Revenue Commission to have this liability
  written off were unsuccessful and the Service was required to fully meet this
  obligation. I brought this to the attention of the Management and the Management
  responded to my observations as follows:

  “The Service has included these liabilities in its 2015 Budget and hopes to settle these
  issues in the next financial year, however, the Service will abide and comply to your
  recommendations. The Service has taken a step further by being in the Government
  Alseco Payroll on the 7 June 2014 to eliminate similar issues and strives to improve
  its Financial and Administration practices. The Service wishes to advise that these
  liabilities will be settled this year due to funding being allocated by the Department of
  treasury and Finance.”

  Outstanding Superannuation Contribution – K73,957

  The Service failed to remit superannuation contributions totalling K73,957. This
  comprised Nambawan Super Limited contribution arrears of K38,789 for 2012 and
  K35,168 for 2013. The Service had been paying these arrears by instalments; however
  continuous financial constraints have not enabled it to fully settle this liability. I
  brought this to the attention of Management and they responded as follows:

  – 159 –

• Page 199 of 396

• National Volunteer Service

  “The Service has paid off a total of K38,789 to the Superannuation for the staff
  arrears. A balance of K59,712 is still outstanding which includes 2014 contributions.
  The Management has taken into consideration and has input figures in the 2015
  budget for funding to settle these liabilities. However, since the 7th June, 2014, all
  taxation of salaries and staff contributions is dealt with by the Department of
  Finance. The Service will settle all liabilities this financial year due to funding
  allocated by the Department of Finance. However, the Service will still comply with
  your recommendations.”

  Personnel Emoluments – K894,777

  During my review of Personnel Emoluments, I noted the following weaknesses:

  (i) The employee superannuation contribution component of 6% and the
  employer superannuation contribution component of 8.4% were both supposed
  to be calculated on the base salary only, instead the Service calculated
  superannuation on the total salary and allowances of employees; and
  (ii) The taxable salary of employees is the gross salary and not the balance after
  deducting the employee component of the superannuation contributions and
  housing allowances. The employee components to superannuation and
  housing allowances are part of the taxable income (if no housing variation was
  lodged with the Internal Revenue Commission for housing allowances). This
  resulted in a lower taxable income and consequently a lower tax paid by
  employees of the Service.

  I drew this to the Management‟s attention and they responded to my observation as
  follows:

  “The Service admits this error which was over sighted by the former Manager-
  Finance and Administration. Since the 7 June 2014 all payroll data and transaction is
  administered by the Department of Finance on Government Alesco Payroll System.
  This eliminates all irrelevant practices. The Service will comply with your
  recommendations.”

  Travel Acquittal Register

  My review of the travel expenses revealed that the Service has not maintained a
  proper Acquittals Register for duty travels taken by officers. Travel acquittals with
  supporting documents such as flight itineraries and ticket butts were not attached to
  the payment vouchers, but in most instances those travel acquittals attached were
  incomplete and without all acquittable documents.

  – 160 –

• Page 200 of 396

• National Volunteer Service

  The Management concurred with my observation and assured me of creating a proper
  travel acquittal register.

  Consultancy Agreement

  My examination on selected payments revealed that consultancy payment of K13,500
  had no signed contracts and terms of reference between National Volunteer Service
  and the Freelance consultant for consultancy services. I only sighted the work plan
  which forms the basis for the payment without proper references such as project
  schedule, basis of payment of fees. I drew this to the attention of the Management and
  they responded as follows:

  “The Service will surely avoid similar situations in the future.”

  37.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Service for the
  year ended 31 December 2014 was not submitted for my inspection and audit.

  – 161 –

• Page 201 of 396

• 38. NATIONAL YOUTH COMMISSION

  38.1 INTRODUCTION

  38.1.1 Legislation

  The National Youth Commission was established under the National Youth Service
  Act 1991. This Act came into operation on 3 July 1991.

  38.1.2 Functions of the Commission

  The functions of the National Youth Commission are to:
   Train youths in vocational and related livelihood skills and in self-discipline;
   Provide opportunities to enable youths to participate meaningfully in community
  activities;
   Promote self-reliance among youths and to discourage dependability on outside
  assistance;
   Provide the means to enable youths to contribute actively towards the
  maintenance of law and order, and establish better relationship between law
  enforcing agencies and the community;
   Assist and encourage youths to improve their education, and attain competency
  in numerical and communication skills;
   Provide the means for tertiary students to enter into the Service;
   Promote and maintain amongst youths acceptable social norms and values; and
   Generally do such supplementary, incidental or consequential acts and things as
  are necessary or convenient for carrying out its functions.

  38.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Commission for
  the years ended 31 December 2012 and 2013 had been submitted for my inspection
  and audit and the audit will commence shortly.

  The financial statements for the year ended 31 December 2014 had not been
  submitted by the Commission for my inspection and audit.

  – 162 –

• Page 202 of 396

• 39. OFFICE OF CLIMATE CHANGE AND DEVELOPMENT

  39.1 INTRODUCTION

  39.1.1 Legislation

  The Office of Climate Change and Development (OCC&D) was created on 22 March
  2010 through NEC Decision No. 54/2010. On the same date, the NEC in its Decision
  No. 53/2010 had noted and approved NEC Decision No. 181/2009 on the abolishment
  of formerly the Office of Climate Change and Environmental Sustainability
  (OCC&ES).

  The former OCC and ES was created in 2009 and was operating under the
  Department of Environment and Conservation.

  On 10 November 2011 the NEC through its Decision No. 96/2011 had approved to
  rescind and amend NEC Decision No. 53/2010, 54/2010 and 55/2010 and approved
  for the creation and establishment of the PNG Climate Change Authority (PNGCCA).
  However, SCMC in its meeting held on 22 May 2012 had withheld the submission of
  the organisational structure due to the certified governing Act not in place.

  Then on 27 November 2012 the NEC approved to rescind whole of NEC Decision No.
  96/2011 of 10 November 2011. As a result, establishment of the PNG Climate Change
  Authority was abandoned. However, Management of the OCC & D through dialogues
  with bureaucratic committees is currently pursing to submit the 3rd Draft Bill in July
  2014 to the NEC on the establishment of the PNG Climate Change Authority.

  39.1.2 Objective of the Office

  The objective of the OCC and D is to provide a coordination mechanism at the
  national level for research, analysis and development of the policy and legislative
  framework for the management of climate change within the Government‟s National
  Strategy on Climate-Compatible Development (CCD) as per NEC Decision No.
  55/2010.

  39.1.3 Functions of the Office

  Major functional responsibilities of the Office are:
   Policy development:
  ‒ Adopt and incorporate national strategies and plans on climate change
  compatible development into the national development strategies and
  plans;
  ‒ Coordinate and facilitate the implementation of the National‟s Strategy
  on Climate Compatible Development;

  – 163 –

• Page 203 of 396

• Office of Climate Change and Development

  ‒ Align national development policies and plans to ensure climate
  compatibility across different government departments;
  ‒ Commission research and development to support the development of
  a comprehensive greenhouse gas inventory and a more comprehensive
  understanding of the impacts of climate change in the country; and
  ‒ Formulate and refine the policy framework and legislation.
   Coordination of projects and programs:
  ‒ Coordinate with relevant government departments, NGOs, Private
  Sectors and indigenous landowners (or local forest custodians) to
  implement and manage pilot projects, demonstration projects and
  programs;
   Stakeholder management and consultation:
  ‒ Collaborate and coordinate with development partners to inform and
  improve upon the Government‟s preliminary policy initiatives;
  ‒ Coordinate the development of a robust Measurement, Reporting and
  Verification (MRV) system and a fair and equitable benefit sharing
  mechanism to protect rights and interest of resource owners; and
  ‒ Communicate to the people of PNG the benefits (economic, social and
  environmental) arising from the implementation of the National
  Strategy for Climate Compatible Development.
   Funding and international negotiations:
  ‒ Implement a national financial strategy in collaboration with
  development partners to build capacity for Reducing Emissions from
  Deforestation and Forest Degradation Plus Conservation, Sustainable
  Forest Management and Carbon Stocks Enhancement (REDD+) and
  other aspects of climate compatible development; and
  ‒ Support Government of PNG with the international climate change
  negotiations and climate change funding in order to provide consistent
  and reliable data and finances to improve and sustain forest governance
  and livelihoods of the forest communities.

  39.2 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 Office for the year ended
  31 December 2011 was in progress.

  The Office had not submitted its financial statements for the years ended 31
  December 2012, 2013 and 2014 for my inspection and audit.

  – 164 –

• Page 204 of 396

• 40. OIL PALM INDUSTRY CORPORATION

  40.1 INTRODUCTION

  40.1.1 Legislation

  The Oil Palm Industry Corporation was established by the Oil Palm Industry
  Corporation Act 1992 which came into operation on 1 June 1992. Under the Act, all
  assets (other than land held by the State) and liabilities previously held or occupied by
  the Division of the Department of Agriculture and Livestock responsible for the
  provision of extension services to oil palm industry, were transferred to the
  Corporation at commencement date.

  40.1.2 Functions of the Corporation

  The main functions of the Corporation are: to promote the development of the oil
  palm industry; to encourage the increase in productivity by efficient provision of
  extension services to smallholders; to provide advice and disseminate information and
  educate smallholders regarding oil palm production methods; and to consult, liaise
  and collaborate with the State and other agencies involved in the oil palm industry.

  40.2 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 Corporation for the year ended 31 December 2011 had been completed and
  Management responses were being awaited to finalise the audit reports.

  The financial statements for the years ended 31 December 2012, 2013 and 2014 had
  not been submitted by the Corporation for my inspection and audit, despite numerous
  reminders from my Office.

  – 165 –

• Page 205 of 396

• 41. OMBUDSMAN COMMISSION OF PAPUA NEW GUINEA

  41.1 INTRODUCTION

  41.1.1 Legislation

  The Ombudsman Commission was established under the provisions of the
  Constitution of the Independent State of PNG. The principal objectives of the
  Commission are: to ensure that all governmental bodies are responsive to the needs
  and aspirations of the people; to help in the improvement of the work of governmental
  bodies and the elimination of unfairness and discrimination by them; to help in the
  elimination of unfair or otherwise defective legislation and practices affecting or
  administered by governmental bodies; and to supervise the enforcement of the
  Leadership Code.

  41.1.2 Functions of the Commission

  The functions of the Commission are:
   To investigate on its own initiative or on complaint by a person affected, any
  conduct on the part of any State or provincial or local governmental, or other
  governmental body or a member or officer or employee of any such body, any
  member of the personal staff of the Governor-General, Minister or the Leader
  or Deputy Leader of the Opposition, or any other body or person as may be
  declared by an Organic Law or an Act of Parliament, to which the Leadership
  Code applies;
   To investigate any defects in any law or administrative practice appearing from
  any such investigation;
   To investigate any case of an alleged or suspected discriminatory practice
  within the meaning of a law prohibiting such practices; and
   Any functions conferred upon it by Part III Division 2 (Leadership Code) of
  the National Constitution.

  41.2 AUDIT OBSERVATIONS

  41.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Commission for the year ended 31 December 2013 was issued on 27
  March 2015. The report did not contain any qualification.

  41.2.2 Audit Observation Reported to the Ministers

  My report to the Ministers under Section 8(2) of the Audit Act on inspection and audit
  of the accounts and records of the Commission for the year ended 31 December 2013
  was issued on 27 March 2015. The report contained the following matters:

  – 166 –

• Page 206 of 396

• Ombudsman Commission of Papua New Guinea

  Bank Reconciliation

  Audit noted that the Commission‟s Operating Bank Account bank reconciliations
  were not done on a monthly basis and the bank reconciliations for 2013 were only
  prepared in 2014. Further, the bank reconciliations were not properly prepared and
  checked by an independent person. As a result, posting errors in the cashbook and few
  deposits and withdrawals in the bank statements that remained unposted were not
  detected and rectified in a timely manner. I noted that the Operating Account balance
  of K2,851,177 disclosed in the financial statements as at 31 December 2013 did not
  agree to the bank reconciliation balance of K479,241 resulting in a variance of
  K2,371,936. In the absence of proper reconciliation, I was unable to place reliance on
  the bank reconciliation process of the Commission and was unable to confirm the
  accuracy and completeness of the Operating Bank Account balance at the year end.

  Rental Lease Agreements

  The Commission paid K725,691 to Ray White Trust, Huon Gulf Estate, Arthur
  Strachan, Pilgrim Village and Highlands Products Limited for regional officers‟
  rental accommodation during 2013. However, I was not provided with the current
  tenancy lease agreements to verify the rental payments. As a result, I was unable to
  substantiate whether the rental amounts paid were based on the rates stipulated in the
  agreements.

  The Commission acknowledged my finding and stated that they will ensure that all
  current and future lease agreements are properly executed and filed.

  Missing Payment Vouchers

  I was unable to verify payments amounting to K164,437 from the commitment ledger
  accounts to the supporting documents as nine payment vouchers were not sighted
  during the course of my audit. It must be noted that the Commission is obliged to
  keep proper accounts and records of its transactions and affairs as required under
  Section 62 (1) of the PFMA. However, due to lack of source documents and proper
  record keeping, I was unable to perform the necessary audit procedures to determine
  the authenticity of payments made for K164,437. The absence of source documents
  limits the scope of my audit.

  The above observation was brought to the attention of the Commission and they
  responded to my query as follows:

  “The Commission acknowledges the finding and will ensure that there exists proper
  and effective filing system to avoid missing payments vouchers in the future.”

  – 167 –

• Page 207 of 396

• Ombudsman Commission of Papua New Guinea

  External Parties Grants and Other Assistance

  The Commission had received benefits totalling K560,533 from the Australian
  Development Assistance (AusAid) for the year in respect of the Law and Justices
  Sector Project and dispensed K531,287 within the set guidelines of the Annual
  Program Plan (APP) which is outside the Commission‟s normal business operations
  and is not subject to audit by me. The Commission is under an obligation to ensure
  full accountability of the funds expended and the Program is subject to annual audit
  by the Program auditors.

  41.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Commission had not submitted its financial
  statements for the year ended 31 December 2014 for my inspection and audit, despite
  reminders.

  – 168 –

• Page 208 of 396

• 42. PACIFIC GAMES (2015) AUTHORITY

  42.1 INTRODUCTION

  42.1.1 Legislation

  The Pacific Games (2015) Authority was established by the National Parliament
  under the Pacific Games (2015) Authority (as amended) Act 2011. This Act came into
  operation on 24 October 2011.

  42.1.2 Functions of the Authority

  The principal functions of the Authority are to:
   Consult with the Pacific Games Association (PGA) and the Games Organising
  Committee (GOC) to ensure the effective implementation of the Host
  Contract;
   Authorise and direct collection and disbursement of funds to the Venue,
  Infrastructure and Equipment Committee (VIEC) and the GOC or other
  appropriate bodies or organisations for the holding of the Games and the
  construction or rehabilitation of the Games venues;
   Enter into and perform contracts for the construction and rehabilitation of the
  Games venues and ancillary works and services;
   Exercise critical oversight over, and to ensure that transparent, efficient and
  economical expenditure of moneys so authorised or disbursed, or otherwise
  under its control;
   Liaise and consult with the GOC to ensure the efficient and successful running
  of the Games;
   Co-operate with and assist sporting and other bodies in stimulating interest in
  the preparation for the Games;
   Oversee the work of the VIEC to ensure the efficient and successful
  construction and rehabilitation of the Games venues; and
   Do all things ancillary to the foregoing.

  42.2 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 years ended 31 December 2012 and 2013 had been completed
  and the results were being evaluated.

  The Authority had not submitted its financial statements for the year ended 31
  December 2014 for my inspection and audit.

  – 169 –

• Page 209 of 396

• 43. PNG ACCIDENT INVESTIGATION COMMISSION

  43.1 INTRODUCTION

  43.1.1 Legislation

  The PNG Accident Investigation Commission was established under Section 218 of
  the Civil Aviation Act 2000 (as amended) and came into operation in January 2011.

  43.1.2 Objectives of the Commission

  The principal purpose of the Commission is to determine the circumstances and
  causes of accidents and incidents with a view to avoiding similar occurrences in the
  future, rather than to ascribe blame to any person.

  43.1.3 Functions of the Commission

   The principal function of the Commission is the Investigation of aviation
  accidents and incidents;
   The Minister may, by notice in the National Gazette, direct the Commission to
  investigate any serious land or marine transport accident or incident;
   Where a direction is given under Subsection (2) all references to an “aircraft”
  shall be read as a reference to the vehicle or vessel or other form of transport
  involved in the accident or incident to be investigated;
   Without limiting the principal function under Subsection (1) the Commission
  shall also have the following functions:
  ‒ Make such inquiries and investigations as it considers appropriate in
  order to ascertain the cause or causes of accidents or incidents;
  ‒ Co-ordinate and direct all such inquiries and investigations and to
  determine which other parties, if any, should be involved in the
  investigation;
  ‒ Prepare and publish findings and recommendations, if any, in respect
  of any such inquiries and investigation;
  ‒ Where requested by the Minister, to deliver a written report on each
  investigation to the Minister, including any recommendations for
  changes or improvements that it considers will ensure avoidance of
  accidents and incidents in the future;
  ‒ Co-ordinate and co-operate with other accident investigation
  organisations of Contracting States, including taking or collecting
  evidence on their behalf;
  ‒ Request from the Authority or PNG Air Traffic Services (PNGATS) or
  any other person such information as it considers appropriate regarding
  any accident or incident that the Commission believes that it is
  required to investigate under this Act;

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• Papua New Guinea Accident Investigation Commission

  ‒ Perform any other function or duty conferred on the Commission under
  any Act or prescribed by regulations; and
  ‒ With the consent of the Minister, to provide consulting services,
  training and management services relating to any of its functions,
  whether in PNG or overseas.

  43.2 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 Commission for the
  years ended 31 December 2011 and 2012 was in progress.

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

  – 171 –

• Page 211 of 396

• 44. PNG IMMIGRATION AND CITISENSHIP SERVICE
  AUTHORITY

  44.1 INTRODUCTION

  44.1.1 Legislation

  The PNG Immigration and Citizsnship Services Authority was established under the
  Immigration and Citisenship 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 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.

  44.1.2 Objectives of the Authority

  The objectives of the Authority are the following:
   The management, development and protection of the nation‟s interest in so far
  as the security of the nation is protected;
   Elimination of corruption and increase in accountability;
   Provision of a more flexible operational working environment;
   Increased operational and management efficiency in financial management,
  accountability and performance management;
   Provision of a mechanism for the achievement of best practice;
   Provision of financial and administrative autonomy;
   Increased levels of client service delivery;
   Encouragement of study and research in areas which will contribute to the
  protection and security of the nation;
   Increased acquisition and dissemination of skill, knowledge and information in
  immigration and citisenship through education and training;
   Pursuit of effective strategies including improved administrative and legal
  machinery for managing immigration, citisenship and passport matters; and
   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 PNG.

  44.1.3 Functions of the Authority

  The functions of the Authority are to:

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• Papua New Guinea Immigration and Citizenship Service Authority

   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);
   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;
   Assist the Minister responsible for citisenship in the performance of his/her
  functions under Part IV of the Constitution and the Citisenship Act (Chapter
  12);
   Collect fees, penalties and other revenue authorised under the Migration Act
  (Chapter 16), Passport Act ( Chapter 17) and Citisenship Act (Chapter 12);
   Administer the APEC Business Travel Card Scheme under the Migration Act
  (Chapter 16);
   Collect, monitor, secure and maintain information and technological systems
  to enable fully integrated and supported immigration, citisenship and passport
  operations;
   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 Citisenship Act (Chapter 12);
   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 Citisenship Act (Chapter 12);
   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 Act or any other law; and
   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.

  44.2 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 years ended 31 December 2012 and 2013 were completed and
  results were being evaluated.

  The financial statements for the year ended 31 December 2014 had not been
  submitted by the Authority for my inspection and audit.

  – 173 –

• Page 213 of 396

• 45. PNG FOREST AUTHORITY

  45.1 INTRODUCTION

  45.1.1 Legislation

  The PNG Forest Authority was established under the Forestry Act 1991 which came
  into operation on 25 June 1992.

  The prime objective of the Authority is to provide for and to give effect to the
  National goals and the directive principles regarding:
   Management, development and protection of the Nation‟s forest resources and
  environment in such a way as to conserve and renew them as an asset for
  succeeding generations;
   Maximisation of PNG‟s participation in the wise use and development of the
  forest resources as a renewable asset;
   Utilisation of the Nation‟s forest resources to achieve economic growth,
  employment creation and increased “downstream” processing of the forest
  resources;
   Encouragement of scientific study and research into forest resources so as to
  contribute towards a sound ecological balance, consistent with the national
  development objectives;
   Increased acquisition and dissemination of skills, knowledge and information
  in forestry through education and training; and
   Pursuit of effective strategies, including improved administrative and legal
  machinery, for managing forest resources and the management of National,
  Provincial and Local interests.

  The Authority was formed by the amalgamation of the Department of Forests, the
  Forest Industries Council, the Provincial Divisions of Forestry, the Forestry College
  in Bulolo, the Timber Industry Training College and the Research Institute in Lae.

  With the establishment of the Authority the following Acts were repealed: the Forest
  Industries Council Act (Chapter 215); the Forestry Act (Chapter 216); and the
  Forestry (Private Dealings) Act (Chapter 217).

  45.1.2 Functions of the Authority

  The principal functions of the Authority are to:
   Provide advice to the Minister on forest policies and legislation pertaining to
  forestry matters;
   Prepare and review the National Forest Plan and recommend it to the NEC for
  approval;

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• Papua New Guinea Forest Authority

   Through the Managing Director, to direct and supervise the National Forest
  Service;
   Negotiate Forest Management Agreements;
   Select operators and negotiate conditions on which timber permits, timber
  authorities and licences may be granted in accordance with the provisions of
  the Forestry Act;
   Appoint and supervise the State Marketing Agency;
   Subject to the Customs Act Customs Tariff Act and Exports (Control and
  Valuation) Act to control and regulate the export of forest produce;
   Oversee the administration and enforcement of the Forestry Act and any other
  legislation pertaining to forestry matters, and of such forestry policy as is
  approved by the NEC;
   Undertake the evaluation and registration of persons desiring to participate in
  any aspect of the forestry industry;
   Act as agent for the State, as required, in relation to any international
  agreement relating to forestry matters; and
   Carry out such other functions necessary to achieve its objectives or given to it
  under the Act or other relevant law.

  45.2 AUDIT OBSERVATIONS AND RECOMMENDATION

  45.2.1 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 2009 was issued on 23 October
  2014. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  General Ledger

  Proper accounting records were not maintained by PNG Forest Authority for the year
  ended 31 December 2009. As a result, an external accounting firm was engaged to
  perform the reconciliation of the accounts and preparation of the financial statements.
  Numerous journal entries were made while compiling the financial statements of
  PNGFA. I was unable to obtain a complete list of the journals processed during the
  year, or supporting documents for journal entries made. As a result, I was unable to
  obtain sufficient appropriate audit evidence over a number of transactions recorded in
  the general ledger. Due to this limitation, I was unable to obtain sufficient appropriate
  audit evidence over the existence and accuracy of a significant number of amounts
  recorded in the financial statements or determine whether adjustments might be
  necessary to the results of operations and cash flows for the year ended 31 December
  2009 and financial position for the year then ended of the Authority.

  – 175 –

• Page 215 of 396

• Papua New Guinea Forest Authority

  Opening Balances

  My report on the financial statements of PNG Forest Authority for the year ended 31
  December 2008 was a disclaimer of opinion, identifying issues in respect to royalty
  trust fund, reforestation levy fund, production development levies, property plant and
  equipment, suspense accounts, deferred expenses and other liabilities. I was unable to
  satisfy myself as to the accuracy or completeness of the opening balances for the year
  ended 31 December 2009.

  Since the opening balances entered into the determination of the results of operations
  and cash flows of the Authority for the year ended 31 December 2009, any
  adjustments that are found to be necessary on such opening balances would have a
  consequential effect on the profit and loss and cash flows for the year ended 31
  December 2009. I was unable to determine whether any such adjustments to the
  results of operations and cash flows of the Authority might be necessary for the year
  ended 31 December 2009.

  Royalty Trust Fund, Plantation Royalties, Reforestation Levies Fund and Project
  Development Levies

  The records over timber royalties, plantation royalties, reforestation levies and project
  development levies for the period ended 31 December 2009 have not been properly
  maintained by the Authority. As at 31 December 2009, the royalty trust fund had a
  balance of K14,426,015 as disclosed in Note 3, the PNGFA plantation royalty had a
  balance of K8,527,856 as disclosed in Note 4 and the project development levies had
  a net balance of K3,467,502 as disclosed in Note 6 of the financial statements. I was
  unable to obtain sufficient appropriate audit evidence over the completeness and
  accuracy of royalties and levies due and received. Due to the inability to reconcile
  royalties and levies to the production of the respective timber permits or logging
  operations, it was not possible to obtain persuasive evidence regarding the
  computation and recording of royalties and levies including that these were recorded
  for and paid to the legitimate beneficiaries. As a consequence of these, I was not able
  to ascertain the completeness and accuracy of the various royalties and levy accounts
  and the validity of the payments arising thereon during the year.

  Property, Plant and Equipment

  The property, plant and equipment register provided for audit was reconstructed
  backwards from the 2010 assets register to determine the carrying value of Property,
  Plant and Equipment of K36,569,043 as disclosed in Note 9 of the financial
  statements. No physical verification was performed as at 31 December 2009 to
  confirm the existence of the assets. I therefore, could not obtain sufficient appropriate
  audit evidence over the existence of Property, Plant and Equipment as at 31 December
  2009.

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• Page 216 of 396

• Papua New Guinea Forest Authority

  In addition, the Authority owns five plantations within Papua New Guinea. All
  plantation lands were stated at cost and additional costs incurred on land
  improvements were not capitalised in accordance with IAS 16 “Property, Plant and
  Equipment”. The Management had not estimated the uncapitalised land
  improvements to determine any impact to the carrying amounts of land in the
  financial position and related income and expenditure as at 31 December 2009. I
  therefore, could not obtain sufficient appropriate audit evidence over the accuracy of
  the depreciation charged for the year ended 31 December 2009.

  Biological Assets

  Plantation trees (biological asset) were not accounted for in the financial statements of
  the Authority. Instead, cost incurred in the tree seedlings and planting activities were
  expensed in the profit and loss, which is not in compliance with IAS 41 “Biological
  Assets” which requires these biological assets to be recorded at fair value less cost to
  sell. The Management had not estimated the fair value to determine any impact to the
  carrying amounts of biological assets in the 31 December 2009 financial position and
  related income and expenditure.

  Suspense Account

  As disclosed in Note 15 of the financial statements, the Authority had changed their
  accounting software from Accpacc to Attaché in 2001. Lack of proper migration of
  account from the old system to the new system resulted in an unknown balancing
  difference of K7,458,716 carried forward from that date and recorded as an asset in
  the balance sheet of the Authority from 2001 through to 31 December 2009. I was not
  able to ascertain appropriate audit evidence over the nature or basis of this suspense
  account balance which is increasing assets in the balance sheet by these amounts or
  whether adjustments might be necessary to the results of operations and cash flows
  for the year ended 31 December 2009 and financial position at 31 December 2009 of
  the Authority.

  Deferred Expenses

  Included in Note 7 of the financial statements was deferred expenses of K600,000
  related to the Bulolo/Wau National Forest Plantation. I have not been able to obtain
  sufficient appropriate audit evidence regarding the basis for recognising this deferred
  expense as an asset with future benefit or whether adjustments might be necessary to
  the results of operations and cash flows for the year ended 31 December 2009 and
  financial position at 31 December 2009 of the Authority.

  Plantation Income

  Included in Note 14(a) of the financial statements for the year ended 31 December
  2009 was Bulolo/Wau plantation income of K3,950,907.

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• Papua New Guinea Forest Authority

  I was not provided with invoices and supporting documents to obtain persuasive
  evidence over the existence and accuracy of the plantation income reported in the
  statement of income and expenditure. Further, I was not provided with a
  reconciliation of the plantation income recorded for the year to the volume of timbers
  extracted. As a result, I was not able to obtain sufficient appropriate audit evidence
  over the completeness, existence and accuracy of the plantation income reported in
  the financial statements, or whether adjustments might be necessary to the results of
  operations and cash flows and the financial position as at 31 December 2009 of the
  Authority.

  Other Liabilities

  Included in Note 6 of the financial statements in the other liabilities were a number of
  accounts totalling K6,238,451. I was not provided with appropriate evidence, nor was
  I able to perform alternative procedures to evaluate the accuracy and completeness of
  these accounts that were categorised as other liabilities. Accordingly, I was unable to
  obtain sufficient appropriate audit evidence over the accuracy, completeness and
  existence of other liabilities at the year ended 31 December 2009 or determine
  whether adjustments might be necessary to the results of operations and cash flows
  and the financial position for the year ended 31 December 2009.

  Compliance with International Financial Reporting Standards (IFRS)

  The financial statements of the PNG Forest Authority for the year ended 31 December
  2009 do not contain all the presentation and disclosure required by IFRS.

  Litigation and Claim Liabilities

  I have not been provided with the records of legal cases or claims currently afoot at 31
  December 2009. Neither have I received any independent confirmation of current
  legal cases from the solicitors of the Authority. Therefore, I was not able to obtain
  sufficient appropriate audit evidence over the completeness of legal liabilities that
  may exist as at balance date or whether adjustment might be necessary to the results
  of operations and cash flows for the year ended 31 December 2009 and financial
  position at 31 December 2009 of the Authority.

  Going Concern

  I was unable to assess the financial position of the Authority as at 31 December 2009
  due to significant matters described in paragraphs above. Consequently, I was unable
  to determine whether the Authority will continue as a going concern. Should the
  Authority be unable to continue as a going concern, it is unlikely they will be able to
  realise their assets and extinguish their liabilities in the normal course of business and
  at amount stated in the financial statements.

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• Papua New Guinea Forest Authority

  DISCLAIMER OF OPINION

  Because of the significance of the matters discussed in the Basis for Disclaimer of
  Opinion paragraphs;
  (i) I am unable to and do not express an opinion on the financial statements as to
  whether the financial statements give a true and fair view of the state of
  Authority‟s affairs as at 31 December 2009 and the results of its operations
  and cash flows for the year then ended; and
  (ii) I have not obtained all the information and explanation that I considered
  necessary for the purpose of the audit.

  EMPHASIS OF MATTERS

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

  Compliance with Public Finances (Management) Act 1995

  The audit of the 2009 statutory financial statements commenced in August 2013
  which was after the deadline of 30 June 2010. 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.

  Reporting Requirements under Forestry Act 1991

  Section 20 of the Forestry Act 1991 request the Board of PNGFA to furnish to the
  Minister of Forest an annual report on the progress and performance of the finances of
  PNGFA before the end of March of the next year. The Authority had not complied
  with this requirement.”

  45.2.2 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
  2009 was issued on 23 October 2014. The report contained the following
  observations:

  Property, Plant and Equipment

  The Authority did not progressively maintain a fixed asset register as at 31 December
  2009. The current fixed asset register was only constructed in 2010. The physical
  verification exercise to confirm existence of property, plant and equipment was not
  conducted during the year under audit.

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• Papua New Guinea Forest Authority

  I recommended Management to conduct a physical verification exercise and the fixed
  assets register be adjusted in accordance with the result of the physical verification.
  The management responded as follows:

  “We agree fully with the recommendation. A consultant was engaged for the
  revaluation of all fixed assets of the PNGFA after physical verification of the assets in
  2010. They visited most of the site in the country where most of the assets were
  located, verify physical existence of assets and furnish a report to Management. The
  report is awaiting management and Board approval before the assets values can be
  adjusted in the fixed assets register and the books of accounts of the PNGFA.”

  Trade Creditors

  I noted that the Authority adopted the cash receipts and payments basis of accounting.
  Therefore, there was no creditor listing maintained throughout the year. The creditors
  recorded in the accounts as at 31 December 2009 were based on invoices
  subsequently paid but related to debts outstanding at the end of the year.

  I recommended Management that the Authority recognise creditors on an accrual
  basis throughout the year. I appreciate that as a statutory Authority, PNGFA is
  required to maintain its books under the cash basis but there should be a monthly
  process implemented to ensure that all creditors are properly accrued throughout the
  year.

  The Management responded as follows:

  “We concur with the recommendations. However, we operate a cash basis accounting
  throughout the year based on the fact that we are funded fully by the Government
  through the National Budget. We have no other sources of funds to meet our
  operational expenses. Hence, we are required to report to the Management and to the
  Department of Treasury and Finance on how the cash grants are spent. Therefore, we
  find it more convenient to report monthly on a cash basis throughout the year. Then
  we accrue accounts only at year end when it comes to preparing final year accounts.
  Secondly the fact that our accounts are still behind by some years and still not up to
  date makes it hard to report on an accrual on a monthly basis.”

  Interest Bearing Deposits (IBD)

  The Authority did not maintain a register of IBD‟s during the year. The IBD balance
  as at 31 December 2009 was established based on the bank certificates and
  statements.

  A register of IBD is an important control mechanism to monitor the withdrawal and
  placement of funds on IBD and also to correctly calculate and record the interest
  earned.

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• Papua New Guinea Forest Authority

  I recommended Management that IBD register be maintained which records all new
  investments, reinvestment or withdrawals of funds on IBDs. The Management
  responded as follows:

  “We concur with the recommendation and we will take necessary action to establish
  an IBD register which can be reconciled to the GL accounts. In retrospect we have
  done that already for the 2011, 2012 and 2013 accounts.”

  45.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the fieldwork associated with the inspection and
  audit of the Authority‟s financial statements for the year ended 31 December 2010
  was 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 Authority for the years ended
  31 December 2011 and 2012 were in progress.

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

  – 181 –

• Page 221 of 396

• 46. PNG INSTITUTE OF MEDICAL RESEARCH

  46.1 INTRODUCTION

  46.1.1 Legislation

  The PNG Institute of Medical Research was established by the Institute of Medical
  Research Act (Chapter 166) on 1 January 1980.

  46.1.2 Functions of the Institute

  The primary functions of the Institute are to conduct and foster research into any
  branch of medical science or biology, anthropological and sociological aspects of
  health, and matters relating to public health generally, that are of relevance to PNG.

  46.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  46.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the Institute‟s
  financial statements for the years ended 31 December 2012 and 2013 were issued on
  23 April 2015. The reports contained Disclaimer of Opinion, hence only the 2013
  report is reproduced as follows:

  “BASIS FOR DISCLAIMER OF OPINION

  LIMITATION OF SCOPE

  Opening Balance – K14,602,774

  I was unable to confirm the correctness of the opening balance as at 1 January 2013
  due to errors and a material difference noted between the closing balance of the
  Statement of Receipts and Payments and the aggregate bank balance in my prior year
  audit. As a result of this material variance, I was unable to perform the necessary
  audit tests to verify the completeness and accuracy of the opening balance for the year
  ended 31 December 2013.

  Bank Accounts – K8,928,586

  During 2013, the Institute maintained thirty-eight bank accounts and three fixed term
  deposits. My examination of the bank reconciliations and related records revealed
  that six bank accounts with closing balances totalling K557,930.81 were not properly
  and timely reconciled and provided for my verification. In addition, I noted that
  cheques totalling K3,775,588.26 have become stale but were not investigated and
  written back or corrected as at 31 December 2013.

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• PNG Institute of Medical Research

  I noted that some of the cheques made payable to service providers were not
  disbursed to the respective payees but still kept by the Institute. As such, I was unable
  to determine the accuracy of the bank balances and their aggregate closing balance of
  K8,928,586 as at 31 December 2013.

  Statement of Receipts and Payments and the Ending Bank Balance

  I noted that the Institute‟s accounts are prepared using the cash basis of accounting.
  This accounting method recognises cash transactions and does not take into account
  those are payable and receivable on an accrual basis. The difference between total
  receipts and payments should agree to the bank balance. However, I noted a material
  difference of K5,049,820 between the reconciled bank balance and the Statement of
  Receipts and Payments balance. I was not provided any explanations for this variance.
  As such, I was unable to conclude on the accuracy of the closing balance of the
  receipts and payments and the aggregate bank balance at year end.

  Fixed Assets – K35,593,736

  My review of the Fixed Assets Register and capital expenditures revealed that the
  Register was not properly maintained and updated on a timely basis. I was not
  provided with the updated Register for the year. As a result, I could not perform all
  my planned audit procedures to satisfy myself on the amount stated in the accounts.
  As such, I was unable to conclude on the accuracy, valuation and existence of the
  fixed assets balance of K35,593,736 disclosed in the financial statements.

  Gratuity Payments – K629,917

  My review of the gratuity payments for the year ended 31 December 2013 revealed
  that the Institute recognises transfers of gratuity earnings (accrued) from various
  project accounts to gratuity savings account as gratuity expense instead of the actual
  gratuity payments to comply with the cash basis of accounting adopted by the
  Institute. As such, I was unable to determine the valuation and accuracy of the closing
  balance disclosed in the financial statements at year end.

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis for Disclaimer of
  Opinion 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 Papua New Guinea Institute of Medical
  Research for the year ended 31 December 2013.”

  – 183 –

• Page 223 of 396

• PNG Institute of Medical Research

  46.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act, on the inspection and
  audit of the accounts and records of the Institute for the years ended 31 December
  2012 and 2013 were issued on 23 April 2015. The reports contained similar
  observations, hence only the 2013 observations are reproduced.

  Fixed Assets Register

  My review of the Fixed Assets Register and capital expenditures for the year ended 31
  December 2013 revealed that PNG Institute of Medical Research did not properly
  maintain an updated Fixed Assets Register (FAR) on a timely basis.

  The Institute‟s accounts are prepared using cash basis of accounting therefore FAR is
  a vital record of its assets. I noted that the purchase dates, location, asset numbers,
  value and condition of assets listed were not properly updated in the Register to
  reflect the assets owned by the Institute in 2013. No stocktake exercises were carried
  out in the last eight years to confirm their existence and condition of assets owned by
  the Institute. I also noted that capital expenditures relating to building and
  construction were not properly stated in the work-in-progress schedules to capture and
  fairly measure the value of the Projects in progress.

  I drew Management‟s attention to Section 62 of the PFMA that requires all Public
  Bodies to maintain adequate controls over their assets or assets in their custody. I
  recommended management to employ a qualified and dedicated officer to manage the
  assets of the Institute. The Management acknowledged my findings and took note of
  my recommendation.

  Non-Acquittal of Travel Advances

  My review of the travel expenses totalling K2,605,787 by staff on duty travel
  (domestic and overseas) revealed that the Institute did not maintain a travel advances
  register to ensure that the advances were properly recorded and timely acquitted. As a
  result, a total advance of K918,302 remained outstanding or not acquitted at the year
  end.

  I drew Management‟s attention to the PFMA and paragraph 12.10 Part 20 of the
  Financial Management Manual which states that all travel advances must be
  acquitted within a specified time limit of seven days for domestic travel and fourteen
  days for overseas travel. Management responded that appropriate action would be
  taken.

  – 184 –

• Page 224 of 396

• PNG Institute of Medical Research

  46.3 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 2014 for my inspection and audit.

  – 185 –

• Page 225 of 396

• 47. PNG INSTITUTE OF PUBLIC ADMINISTRATION

  47.1 INTRODUCTION

  47.1.1 Legislation

  The PNG Institute of Public Administration was established in 1993 under the PNG
  Institute of Public Administration Act 1993.

  47.1.2 Functions of the Institute

  The functions of the Institute are to plan, organise, conduct and assess a wide range of
  practices and relevant training programmes and, if applicable, in the South Pacific
  Region and to undertake relevant research and consultancies on issues and problems
  of management and administration and to act as a centre for collection, storage,
  retrieval and dissemination of information.

  47.2 AUDIT OBSERVATIONS

  47.2.1 Comments on Financial Statements

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

  “BASIS FOR QUALIFIED OPINION

  Cash at Bank – K162,407

  During my review, I noted a difference of K214,508 between the bank reconciliation
  statement balances of K52,101 and the financial statements balance of K162,407. The
  Institute did not perform the bank reconciliation on a timely basis to identify any
  errors and correct them promptly. The bank reconciliations were done only up to July
  2011. Further, the Institute was unable to explain the above difference. As a result, I
  was unable to establish the correctness and completeness of Cash at Bank balance as
  reported in the financial statements at the year end.

  Fixed Assets

  The Institute has not maintained a proper Fixed Assets Register for the assets under its
  custody to record the movements of assets including additions and disposals of assets
  made during the year. As such additions totalling K1,539,552 were not recorded in the
  Asset Register. As a result, I was unable to comment on the existence, accuracy and
  completeness of the fixed asset balance at the year end.

  – 186 –

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  Facility Hire Debtors – K877,400

  The Facility Hire Debtors balance related to hire of PNGIPA facilities used by various
  business houses including the University of Papua New Guinea (K729,220), Legal
  Training Institute (K87,550) and Public Sector Workforce Development Program
  (K20,630). During my review, I noted that there were no movements in some debtors
  accounts since 2009 and no aged debtors balance was available to ascertain the
  collectability of the debts. As a result, I was not able to verify the validity and the
  accuracy of the debtors balance of K877,400 as disclosed in the financial statements.

  Student Creditors (Refunds) – K18,900

  The Institute disclosed student creditors as K18,900 at 31 December 2011. However,
  my review of the student ledgers revealed that student creditors balance outstanding at
  year-end was K60,796 which resulted in an understatement of K41,896 in the
  accounts balance. Due to lack of co-ordination between the Registry Office and the
  Finance office, student fee accounts have not been reconciled on a timely basis
  resulting in the above variance. Further, the Institute had not taken these unreconciled
  liabilities into account. As a result, I was unable to comment on the validity and the
  accuracy of the Student Creditors balance as stated in the financial statements at the
  year end.

  QUALIFIED OPINION

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

  (a) the financial statements of the Institute 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 Papua New Guinea Institute of Public
  Administration in accordance with the Financial Instructions under the PFMA
  as at 31 December 2011, and the results of its financial operations for the year
  then ended.”

  47.2.2 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 Institute for the year ended 31 December
  2011 was issued on 31 October 2014. The report contained the following significant
  matters:

  – 187 –

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  General Fund Account Cheque Payment Process

  My observation on the payment processes for the General Fund Account revealed that
  cheques were drawn and paid before Financial Forms FF3 and FF4 forms were
  authorised and approved by a responsible Officer. Further tests showed that on three
  occasions cheques totalling K319,612 were paid without completing FF3 and/or FF4
  by financial delegates.

  Bypassing of the proper procurement process without complying with the Financial
  Instructions under the PFMA may lead to illegitimate payments to suppliers of goods
  and services providers, creating an environment where fraudulent activities may
  easily occur.

  I brought the matter to the attention of Management and they concurred with my
  findings and advised that it would appropriately address the issue.

  Bank Reconciliations

  The bank reconciliation statements for the Institute were not done on a regular basis.
  During the audit, I noted that the bank reconciliations were done only up to July 2011.
  The reconciliations of bank accounts for the remaining months up to December 2011
  had not been done. The failure by the management in not performing these bank
  reconciliations on a timely basis contravene the Public Finances Management Manual
  Part 3, Section 4.7 “Bank Reconciliations” which requires all Heads of Government
  Departments and Statutory Authorities to ensure that their bank accounts are
  reconciled on a monthly basis.

  I brought the matter to the attention of the Management and the Institute agreed with
  my observation and stated that it was making attempts to resolve this issue by
  recruiting and training its staff.

  47.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements for the years ended 31
  December 2012, 2013 and 2014 had not been submitted by the Institute for my
  inspection and audit.

  – 188 –

• Page 228 of 396

• 48. PNG MARITIME COLLEGE

  48.1 INTRODUCTION

  48.1.1 Legislation

  The PNG Maritime College was established under the PNG Maritime College Act
  (Chapter 355). It was previously known as the Nautical Training Institute. However,
  by virtue of the Nautical Training Institute (Change of Name) Act 1985 which became
  effective on 25 July 1985, the names of Nautical Training Institute and Nautical
  Training Institute Act were changed to PNG Maritime College and PNG Maritime
  College Act respectively.

  48.1.2 Functions of the College

  The principal functions of the College are to provide training and other instructional
  facilities for the theoretical and practical training of persons in maritime skills and any
  other objects incidental or ancillary thereto.

  48.2 AUDIT OBSERVATIONS

  48.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the College for the years ended 31 December 2011 and 2012 were
  issued on 22 September 2014 and 31 October 2014 respectively. The reports
  contained Qualified Opinions, hence only the 2012 report is reproduced.

  “BASIS FOR QUALIFIED OPINION

  Student Tuition Fee Deposits – K943,102

  My review of the Student Tuition Deposit account as at 31 December 2012 revealed
  that the account did not have proper listing, reconciliations and other supporting
  documents in respect of the account balance to enable me to verify the amounts as
  reported in the financial statements. My review also revealed that the beginning
  balance of K517,608 which represents the advance payment from sponsors and
  students for school fees were not fully reversed and adjusted in the revenue account.
  As a result, I was unable to confirm the accuracy and completeness of the 2012 tuition
  fee deposit closing balance and the corresponding tuition fees (income) reported in the
  financial statements.

  Long Service and Annual Leave Provisions – K103,500

  The leave provisions disclosed was K103,500 as at 31 December 2012.

  – 189 –

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• Papua New Guinea Maritime College

  The College did not maintain proper accounts and records for the provisions of long
  service and annual leave for its employees. Further, the closing balance had been
  brought forward from prior years balance without proper supporting documents to
  substantiate the amount.

  In the absence of proper accounting records and source documents such as individual
  employee control ledgers detailing leave credits available and utilised, it would be
  difficult for the College to determine the leave accruals for each employee. As such, I
  was unable to verify the long service and annual leave provisions balances as
  disclosed in the financial statements.

  Trade Debtors – K665,061

  The College‟s disclosed trade debtors‟ account balance of K665,061 as at 31
  December 2012. This account balance mainly comprised of long outstanding
  students‟ tuition fees receivables and it was not properly monitored and followed up. I
  noted that substantive portion of the trade debtors were long outstanding debts. This
  indicates that College did not thoroughly check and update its trade debtors to reflect
  the correct balance. As a result, I was unable to satisfy myself over the accuracy and
  completeness of the trade debtors account balance as disclosed in the financial
  statements.

  Goods and Services Tax (GST) Receivable

  The financial statements disclosed GST receivable account balance of K225,475 at
  year-end. I noted that the College did not remit its GST Returns to Internal Revenue
  Commission (IRC) on a regular basis. In the absence of monthly GST reconciliation
  and lodgment of returns to IRC, I was unable to confirm whether the GST receivable
  amount was fairly stated in the financial statements.

  Inventory – Uniforms and Safety Boots – K241,047

  My review on the uniforms & safety boots inventory account included under other
  debtors account at year-end revealed that no stock-take was carried out. Further, I
  noted the accounts and records of the uniforms and safety boots were not properly
  maintained by the College. Consequently, I was unable to confirm the accuracy and
  completeness of the above account balance.

  Inventory – Fuel – K165,506

  My review of fuel inventory account included under other debtors account revealed
  that there were no fuel readings taken during December 2012 to provide an accurate
  fuel inventory balance as at 31 December 2012. Consequently, I was unable to verify
  the fuel inventory balance as disclosed in the financial statements at year-end.

  – 190 –

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• Papua New Guinea Maritime College

  QUALIFIED OPINION

  In my opinion, except for the effects of the matters referred to in the Basis for
  Qualified Opinion paragraph above:
  (a) The financial statements are based on proper accounts and records; and
  (b) The financial statements are in agreement with those accounts and records,
  and show fairly the state of affairs of the College for the year ended 31
  December 2012 and the results of its financial operations and cash flows for
  the year then ended.”

  48.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act, on the inspection and
  audit of the accounts and records for the years ended 31 December 2011 and 2012
  were issued on 22 September 2014 and 31 October 2014 respectively. The reports
  contained similar observations, hence, only the 2012 report is reproduced as follows:

  Non-Compliance with the Public Finances (Management) Act 1995

  The College did not prepare and submit its financial statements to my Office on a
  timely basis to enable me to complete the audit on time for tabling the report in the
  Parliament before 30 June, 2012. Consequently, the College breached Section 63(2)
  and 63(4) of the PFMA.

  Withholding Taxes (Salary Taxes) – K232,040

  During my examination of the Withholding Tax (Salary Tax) Account, I noted that
  monthly group taxes were not remitted to Internal Revenue Commission (IRC) on
  time as required by the Income Tax Act (under Section 299G of the Income Tax Act
  1959). The group employer is required to remit salary and wages taxes to IRC within
  7 days after month-end. Failure to remit salary and wages taxes on time will result in
  penalty of 20% for outstanding tax payable and an additional interest of 20% per
  annum on the amount that remains unpaid. I noted that, the College has been carrying
  forward balances without remitting them in the year salary and wages were paid to
  employees. Thus, at the year-end College has a substantial amount of payroll taxes to
  settle with the Internal Revenue Commission.

  I brought the matter to the attention of the management and it has accepted the
  responsibility of the withholding tax (Salary Taxes) liabilities and advised me that it
  would ensure that this liability would be cleared.

  Title Deeds of College Properties

  The College claimed that it had title deeds to seventeen properties.

  – 191 –

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• Papua New Guinea Maritime College

  However, College only provided title deeds of four properties for my confirmation
  due to difficulty in locating the other thirteen titles. I noted that title deeds were not
  properly filed and kept for easy access to the documents. In the absence of title deeds,
  I was unable to verify the College‟s ownership and rights over the 13 properties.

  I brought the above issue to the attention of the Management and I was advised that:

  “College is still pursing with both Lands Department and the National Housing
  Commission for transfer of titles of the said properties.”

  Fixed Assets Register (FAR)

  During my audit review of the Fixed Assets Register, I noted that 2012 FAR was
  incomplete due to adjustments made to 2011 FAR and General Ledger (GL) has not
  being updated and captured in 2012 Fixed Assets Register.

  Further, the Fixed Assets Register were never been counted and tagged with number
  for easy reference and identification. As a result, I was unable to confirm the Fixed
  Assets Register closing balance as stated in the GL accounts at the year end.

  Management responded to my observation as follows:

  “The College now employs an asset officer devoted to tracking and managing state of
  affairs of assets of the College.”

  Filing and Record Keeping

  The College is obliged to keep proper accounts and records of its transactions and
  affairs as required under Section 62(1) of the PFMA. However, I noted that the
  College did not maintain a proper filing and record keeping system for easy access to
  records and source documents. As a result, the following documents were not on file:

   Property title deeds;
   Signed employment contract documents;
   Signed employment offer acceptance letters; and
   Copies of invoices were not attached to copies of receipts issued for payments.

  Management responded to the above weakness as follows:

  “There is now a continuous discussion and awareness on keeping proper files and
  records and efforts have been made to improve on areas lacking appropriate
  attention.”

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• Papua New Guinea Maritime College

  48.3 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 College for the year ended 31 December 2013 had been completed and awaiting
  Management responses to finalise the audit reports.

  The College had not submitted the financial statements for the year ended 31
  December 2014 for my inspection and audit.

  – 193 –

• Page 233 of 396

• 49. PNG NATIONAL INSTITUTE OF STANDARDS AND
  INDUSTRIAL TECHNOLOGY
  49.1 INTRODUCTION

  49.1.1 Legislation and Objectives of the Institute

  The PNG National Institute of Standards and Industrial Technology was established
  by the National Institute of Standards and Industrial Technology Act 1993 and this
  came into operation on 3 January 1994. The objectives of the Institute are: to carry
  out scientific and technological research and to develop a National Standards
  system; to co-operate with international organisations of measurement and technical
  standards; to promote and undertake industrial integrated standardisation and quality
  assurance; and to enter into any agreement both within and outside PNG to further
  the objectives and functions of the Institute.

  The National Standards Act (Chapter 378) and the National Technical Standards
  Act (Chapter 379) were repealed, and all funds standing to the credit of and on
  accounts operated under the authority of the repealed Acts and all assets and
  liabilities owned or held by the bodies established under the repealed Acts were
  transferred to and became the assets and liabilities of the Institute on the
  commencement of the new Act.

  49.1.2 Functions of the Institute

  The main functions of the Institute are to:

   Safeguard PNG against the dumping and supply of unsafe, unhealthy and
  inferior or substandard products;
   Establish and co-ordinate the National Standardisation system;
   Provide education, training and industrial extension and consultative services
  to assist industries;
   Promote public and industrial welfare, health and safety;
   Recognise as testing authorities, bodies and institutions;
   Establish a National Certification System of conformity;
   Assist industries overcome technical barriers on its products and services to
  international trade; and
   Assist industries to produce quality products and services.

  – 194 –

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• Papua New Guinea Institute of Standards and Industrial Technology

  49.2 AUDIT OBSERVATIONS

  49.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the Institute‟s
  financial statements for the year ended 31 December 2010 was issued on 23 October
  2014. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Short Term Investment – K2,814,358

  I was unable to verify or confirm the Short Term Investment of K2,814,358 as
  disclosed in the financial statements as the bank confirmation in respect of the above
  balance was not furnished to me during the audit. As such, I was not able to confirm
  the amount as disclosed in the financial statements.

  Staff Advance – K9,530

  My review of the staff advances revealed that an amount of K9,530 was not disclosed
  by way of notes in the financial statements. Consequently, the staff debtor‟s account
  has been understated by the same amount.

  Fixed Assets – K2,247,744

  The Fixed Assets Register provided to me for my review was not properly maintained
  and updated. During my examination, I was not provided documentation to
  substantiate the purchase of fixed assets of K421,317 for my verification. As a result,
  I was not able to verify the amount disclosed in the financial statements.

  Payments – K996,302

  During my review of the payments, I noted that a substantial amount of payment
  vouchers/cheque requisitions amounting to K996,302 could not be located or were
  missing from their respective files. As a result, I was not able to verify the expense
  incurred in respect of the above 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

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• Papua New Guinea Institute of Standards and Industrial Technology

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

  49.2.2 Audit Observations Reported to the Ministers

  My report to the Ministers under Section 8(2) of the Audit Act on the audit and
  inspection of the accounts and records of the Institute for the year ended 31 December
  2010 was issued on 23 October 2014. The report contained the following comments:

  Non-Submission of Financial Statements

  The Institute has not prepared and submitted its financial statements to my Office
  before 31 March 2011 to enable me to conduct the audit within the timeframe
  stipulated by the Audit Act 1989 (as amended). Consequently, the Institute had
  breached Sections 63 (2) and 63 (4) of the PFMA.

  NISIT Council and Director General

  As per the NISIT Act 1993, Section 7, “there shall be a National Institute of
  Standards and Industrial Technology Council which shall carry out the functions and
  objectives, manage the affairs and exercise the powers of the Institute.” At the time of
  audit NISIT did not have a Council in place to perform its responsibilities conferred
  upon it by the Minister; and NISIT has been without a Director General since the
  appointee passed away in July 2008. An officer in charge of the Institute was
  overseeing the operations of the Institute although his appointment period had already
  lapsed.

  Fixed Assets Register

  During my review of the Fixed Assets Register, I noted that the Institute did not
  maintain a proper Fixed Assets Register for all the assets under its custody and
  control. The Fixed Assets Register provided for my review was incomplete and did
  not contain sufficient information to enable me to determine the value of individual
  assets. In addition, there was no year-end stock take of these assets. As a result, I was
  unable to determine the fair value, condition and location of the fixed assets held
  under the custody of the Institute as at 31 December 2010.

  Financial Statements Presentation

  During my examination, I noted that the Financial Statements of the Institute were
  presented on a cash basis, reporting only the receipts, payments and cash balance at
  year end.

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• Papua New Guinea Institute of Standards and Industrial Technology

  However, the Attaché system recorded the transactions on an accrual basis and the
  nature of business of the Institute demands that the accounts be maintained on an
  accrual basis to properly account for the trade debtors and creditors to present a fair
  financial position of the Institute. Currently, the accounts are maintained on an accrual
  basis on the system but the financial statements are prepared on a cash basis. I
  recommended the Institute to consistently adopt one basis of accounting system.

  Internal Control Weaknesses

  Other internal controls breakdown and weaknesses noted during my audit are
  summarised as follows:

  (i) The Prepaid Insurance balance of K51,362 as at 31 December 2010 was not
  disclosed by way of notes in the financial statements. The remaining balance
  was recognised as an asset of the Institute and should be disclosed until
  expensed in the subsequent year;

  (ii) Work in progress balance of K455,236 referred to machinery bought by the
  Institute for future use and this amount was not disclosed in the financial
  statements as at 31 December 2010. This amount must be taken up in the
  Fixed Assets Register by the Institute and disclose as fixed assets in the
  financial statements;

  (iii) During my examination of the payments, I noted that three quotations were
  not sought for payments of K5,000 and above amounting to K135,421. It is in
  breach of the Financial Management Manual, Division 3, Paragraph 14,
  which states that „three (3) written quotes should be obtained for purchases
  valued between K5,000 and under K100,000‟;

  (iv) I was not provided with the contract between the Institute and National
  Association of Testing Authorities, Australia (NATA) signed on 20 of July
  2010. As a result, I was unable to verify the validity, accuracy and authenticity
  of payment made as per cheque: 496312 dated 09/03/2010 for K39,999 (AUS$
  14,740) for Assessment of Biological Testing Laboratory equipments; and

  (v) I observed that there were irregularities in the payment vouchers and
  supporting documents of some payments made to a Construction Company
  amounting to K37,500 (49.5%). Total payments made during the year was
  K75,800.

  The irregularities noted in the above payments are as follows:

   Correction fluid (white out) was used over a written quotation of
  K30,000 (cheque: 496777 dated 07/12/2010.

  – 197 –

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• Papua New Guinea Institute of Standards and Industrial Technology

  The quotation was altered to reduce the cost lower than the other two
  quotes so that contract was awarded to a preferred Construction
  Company. This practice indicates that proper procedures were not
  followed by NISIT staff in awarding the Contract to this particular
  Construction Company; and

   A payment of K7,500 was made on 12/11/10 per chq number 4996727.
  I noted that quotations of the competing companies were altered or
  tampered with to inflate the amount quoted by these companies to
  secure a preferred Company.

  Response to Management Letter

  Management of the Institute, despite numerous reminders, had not submitted its
  responses to my Management Letter, dated 26 June 2014 to enable me to include their
  views as part of this report.

  49.3 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 years ended 31 December 2011, 2012 and 2013 had been completed and the
  results were being evaluated.

  The financial statements for the year ended 31 December 2014 had not been
  submitted by the Institute for my inspection and audit.

  – 198 –

• Page 238 of 396

• 50. PNG SPORTS FOUNDATION

  50.1 INTRODUCTION

  50.1.1 Legislation

  The PNG Sports Foundation was established by the PNG Sports Foundation Act
  2005. This Act was certified on 8 August 2006 and became operational on the same
  date and replaced the PNG Sports Commission Act 1992.

  Under this Act, all assets held or occupied by and all liabilities and obligations of the
  PNG Sports Commission prior to the operation of this Act were transferred to and
  became assets and liabilities and obligations of the Foundation at commencement.

  50.1.2 Objectives of the Foundation

  The principal objectives of the Foundation are: to encourage the private sector to
  contribute to the funding of sports to supplement assistance by the government of
  PNG; to provide leadership in the development of PNG‟s performance in sports; and
  to encourage increased participation and „Sport for All‟ by Papua New Guineans in
  sports.

  50.1.3 Functions of the Foundation

  The principal functions of the Foundation are to:
   Advise the Minister in relation to the development of sports;
   Co-ordinate activities in PNG for the development of sports and to develop
  and implement programs to promote equality of access to and participation in
  sports by all PNG and;
   Develop and implement programs for the recognition and development of
  persons who excel it, or who have the potential to achieve standards of
  excellence as sports coaches, umpires, referees or officials essential to the
  conduct of sports;
   Undertake research development related to sports science and sports medicine
  and to provide sports medicine services and sports science services to persons
  participating in programs of the Foundation;
   Establish, manage, develop and maintain facilities for the purposes of the
  Foundation;
   Collect and distribute information and provide advice on matters related to the
  activities of the Foundation;
   Fostering co-operation in sports between PNG and other countries and to
  provide access to persons from other countries to the resources, services and
  facilities of the Foundation;

  – 199 –

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• Papua New Guinea Sport Foundation

   Raise money through the National Sports Trust or by other means for the
  purposes of the Foundation and to administer and expand money appropriated
  by the Parliament or raised in accordance with and for the purpose of the
  Foundation;
   Consult and co-operate with appropriate authorities of the National
  Government or the Provinces and Local-level Governments and with other
  persons, associations and organisations on matters related to the activities of
  the Foundation;
   Provide advice on matters related to sports to the PNG National Olympic
  Committee or other persons, bodies or associations; and
   Co-operate with districts, provincial, national and international sporting
  organisations in aiming to foster a sporting environment that is free from the
  unsanctioned use of performance enhancing drugs and doping methods.

  50.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  50.2.1 Audit Observations Reported to the Ministers

  The Foundation failed to submit its financial statements for the years ended 31
  December 2005 to 31 December 2013 despite my repeated reminders and follow up. I
  performed a Special Internal Control Review during 2014 on the Foundation.

  My Internal Control Review Report to the Ministers under Section 8(2) of the Audit
  Act on the inspection and audit of the accounts and records was issued on 31 October
  2014. The report contained the following comments:

  1. Control Environment

  The control environment includes the governance and management functions
  and sets out the foundation for effective control activities and monitoring to
  provide reasonable assurance regarding the achievement of objectives in the
  following:

   Effectiveness and efficiency of operation;
   Reliability of financial reporting; and
   Compliance with applicable laws and regulations.

  The following control weaknesses were identified during the course of my
  audit:

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• Papua New Guinea Sport Foundation

  a) Strategic Plan

  The Papua New Guinea Sports Foundation has in place a three years
  Strategic Plan from 2013-2015 to coordinate and direct the Foundation
  and to facilitate the formulation of an annual budget. The Strategic
  Plan identifies seven Strategic Result Areas of the Foundation
  activities and a set of objectives and corresponding strategies as well as
  key performance indicators. These are:

   Organisational Capacity;
   Private Sector Engagement;
   Grass Roots Participation and Provincial and District
  Engagement;
   Sporting Excellence;
   Education and Training;
   Sport for Development; and
   Facilities.

  However, there were no detailed Operational Plans/Work Plans to link to the
  budget and Strategic Plan in order to identify targets and indicators and to
  enable the management to determine whether objectives are being met. The
  Management therefore was not in a position to:

   Asses the effectiveness and efficiency of operation;
   Asses the reliability of financial reporting;
   Ensure compliance with applicable laws and regulation;
   Monitor the achievements of the Foundation‟s objectives or programs;
   Effect necessary changes;
   Determine areas where change is required; and
   Amend the objectives and strategies.

  I recommended that priority be given to develop Operational/Work Plans. Also
  performance indicators should be clearly specified and quantified/precisely defined.
  These plans will also assist the management and other interested parties in monitoring
  whether the objectives set have been achieved and the outcomes measured and
  assessed accordingly. Management has since responded to my observations as
  follows:

  “The PNG Sports Foundation has recently completed the organisation‟s Strategic
  Plan. The organisation is now working on several policies and procedures to help it
  properly manage and administer its operations. The PNG Sports Foundation accepts
  the concerns raised in your management report and will do all it can to improve
  management and operational policies and procedures.”

  – 201 –

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• Papua New Guinea Sport Foundation

  b) Policies and Procedures

  It is imperative for the Foundation to ensure that correct procedures are
  applied on a consistent basis and officers are aware of their responsibility and
  more detailed policies and procedures are issued by the management. The
  AGO was not provided with copies of the policies although requested. The
  only reports furnished were:

   Financial Procedures Manual (Draft Form);
   PNG Games Charter;
   Introduction to Youth Sports Learner‟s Guide Version 2010.10.01;
   Introduction to Pikinini Sports Learner‟s Guide Version 2010.10.01;
   Event Management Course Manual;
   Netball Skills and Drills Handbook; and
   Sports Administration Manual.

  In the absence of policies and procedures, it was considered that they either
  did not exist or they were not up to date.

  Policies and procedures provide a structure by which a consistent approach to
  matters can be implemented. Lack of procedures manuals could result in the
  Foundation not working within a standardised operating framework thus
  causing confusion and conflict in the resolution of internal matters.

  I recommended the Foundation to ensure that policies and procedures exist for all the
  major business areas and they are updated on a regular basis and the Foundation
  concurred with my findings and responded as follows:

  “The Foundation is now working on several policies and procedures to help it
  properly manage and administer its operations. The PNG Sports Foundation accepts
  the concerns raised in your management report and will do all it can to improve
  management and operational policies and procedures.”

  c) Internal Audit

  Internal audit is a key source of independent and objective assurance advice on
  an organisation‟s internal control and risk framework. Because of similarities
  in the nature and scope of activities performed by internal and external
  auditors, there are significant efficiencies to be gained if external auditors are
  able to rely on the work of internal auditors and vice versa. An effective
  internal program should facilitate external audit to place greater reliance on
  the work of internal audit, thereby making better use of overall audit
  resources.

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  During my review, I noted that the Foundation hasn‟t established an Internal
  Audit Unit as per the re-structure approval in 2012. I recommended that an
  effective internal audit unit should be established to strengthen the system of
  controls.

  Management agreed to my recommendation and stated that:

  “The position of Internal Auditor is part of the current recruitment process
  and will be filled anytime soon when the process is completed and selections
  done. The Internal Audit Unit will then be established.”

  2. Reporting Requirements – Annual Financial Statements

  The Foundation had not prepared any financial statements for auditing and/or
  to the Minister since 2005 resulting in significant non-compliance with the
  PFMA.

  Section 63(2) and Section 63(4) of the PFMA requires all public bodies to
  prepare and submit their audited financial statements to the Minister along
  with the audit report and Performance Management report prior to 30 June
  each year.

  Management responded to my concern as follows:

  “The Foundation accepts the concerns raised and will do all it can to improve
  from the weaknesses in preparing annual financial statements. The
  Foundation has engaged a private accounting firm to work on the outstanding
  financial statements from year 2005 to 2013 and will be forwarded to your
  office soon.”

  3. Bank Account

  The Papua New Guinea Sports Foundation operates eight bank accounts with
  the Bank of South Pacific. Out of the total, four are operated at the Head
  Office, two at National Sports Institute, Goroka, one at Lae Office, while one
  at Rabaul Office. During the conduct of the Internal Control Review on the
  Bank Reconciliation Statements, I noted that:

  a) Bank Reconciliation

  All Regional Bank Accounts reconciliations are normally prepared
  and sent with the monthly reports but neither the a/Accountant nor
  a/Corporate Service Director reviewed and certified the bank
  reconciliation statements produced as there was no evidence to indicate
  any review on the bank reconciliation statements.

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  b) No Regular Monthly Bank Reconciliations Prepared and Reviewed

  The finance officers at the Head Office and the Regional Offices
  including National Sport Institute have not prepared and reviewed
  regular monthly bank accounts reconciliation statements. The Bank
  Reconciliations prepared for both Head Office and Regional Offices
  were incomplete at the time of my reviews but were completed at the
  time of this Report. I recommended the Foundation that:

   The preparation of bank reconciliation on a timely basis is a
  mandatory requirement as stated in the Public Finances
  Management Act Manual and serves as a tool for cash flow
  management;
   Bank account reconciliations need to be prepared within a
  reasonable period to ensure anomalies or errors have been
  identified and appropriate action undertaken; and
   Foundation should undertake a review of its current setting and
  direct all the regional bank accounts to be reviewed by the
  Acting Accountant at the Head Office or appoint a qualified
  and experienced officer on a fulltime basis to perform this vital
  exercise.

  The Foundation responded to my concern as follows:

  “The PNG Sports Foundation agrees that for almost six months in 2013 the
  bank accounts reconciliations were not done on a timely manner and that was
  due to manpower shortage after some officers within the accounts resigned.
  These bank reconciliation statements in arrears have now been completed and
  they are up to date. The PNG Sports Foundation takes note of your comments
  and will take appropriate actions.”

  4. Revenue Collection and Banking

  The efficiency of revenue administration largely depends on timeliness and
  accuracy of records. It ensures fair treatment to taxpayers and facilitates
  internal control system.

  Some revenue records such as entrance fee receipt, bookings and facility hire
  fees receipts from various regions, office rental payment receipts from various
  regions, accommodation and catering service fee, and others were not properly
  maintained.

  During my review on the collections, receipts and banking controls, I
  identified the following weaknesses at the Southern Regional Office:

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   Tenancy lease agreements for all the tenants renting the Sports
  Foundation‟s office space at the Sir John Guise Stadium in Port
  Moresby were unsigned and cannot be relied upon. The signed lease
  agreements were misplaced and the Southern Region Manager
  prepared new ones during the audit;
   I noted that the past tenants lease agreements were misplaced and those
  tenants still have outstanding rental to pay;
   On one instance there was no banking summary sheet attached to a list
  of receipts for submission to the Southern Region Manager‟s counter
  check and certification before reaching the Finance and Administration
  Officer for banking. That had resulted in a delay in banking the cash
  collection of K1,028.00 for receipt (29447) which was together with a
  couple of cheques collected. However, the cheques were banked one
  week earlier than the cash collection;
   I noted that entrance fee – cash collection of K4,990.00 on receipt
  (29423) was banked after two weeks;
   The reasons for amending the initial amounts on the receipts of two
  entrance fees – cash collection and the collections and summary sheets
  for receipt #s (0029461) and (0029075) were not written on both the
  receipt and the collection and summary sheets. Also there was no
  footnote from the Southern Region Manager or the Finance and Admin
  Officer for the amendments made before banking the cash amounts;
   Further, I was unable to trace a list of receipts that were on the same
  collections and summary sheet that were signed off on the 10 July
  2013 for banking amounting to K18,746; and
   No evidence to show that the cash collections were banked.

  I recommended that the Foundation should ensure that all the cash and cheques
  collected are promptly deposited on the same day or most probably the next working
  day and ensure that before banking, the collections and banking summary sheets are
  completed properly. Further, an independent senior officer who is not involved in the
  collections, receipting and banking section should be tasked to check the quarterly
  revenue reports produced against actual receipt books, collections & banking
  summary sheets, deposits books, deposit slip and bank statements to ensure all the
  revenue receipted are banked on time.

  Management agreed to my recommendation and responded as follows:

  “The PNG Sports Foundation accepts the concerns highlighted and will do all it can
  to improve from the weaknesses identified.”

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  5. Management of Advances

  My review of the Advance Register in accordance with Part 20 of the
  Financial Management Manual identified breakdowns at the three Regional
  Offices, namely:
   Momase Region – Lae Office;
   National Sports Institute (NSI) – Goroka Office; and
   New Guinea Islands Region – Rabaul Office.

  During my review of the internal control system of acquittals of the travel
  advances, accommodation and airfares, I noted that:

   Separate travel acquittal register and acquittal files were not
  maintained to record travel expenses and travel advances;
   No reports were sighted for officers returning from field trips nor
  supporting documents like ticket butts, accommodation receipts and
  the completed acquittal forms attached to the paid vouchers;
   The officers continue to obtain travel advances without acquitting
  previous travel advances; and
   The Foundation did not exercise prudence in ensuring that all Regional
  Offices travel expenses were acquitted within the required timeframe
  with seven days for domestic travel and fourteen days for overseas
  travel.

  The deficiencies in the maintenance of the advance register exposes the
  Foundation to risk and the financial delegate would not be able to accurately
  follow up on outstanding advances and report cases of non-compliance in
  respect to acquittal of both overseas and domestic travels.

  I recommended that the Head Office staff and officers responsible at the
  Regional Offices should ensure that, they maintain travel acquittal register and
  a travel acquittal file where, the acquittal forms and the supporting documents
  (such as ticket butts, accommodation receipts and invoices, hire car receipts,
  etc.) are filed. Further, the financial delegate should be reviewing the advance
  register regularly to ensure that all advances are being acquitted as required for
  overseas and domestic travels respectively.

  Management responded to my concern as follows:

  “PNG Sports Foundation accepts the concerns raised and will do all it can to
  improve from weaknesses identified. Staff advances register is maintained in
  salary section and officers are now updating advances paid to the travelling
  officers. AGO‟s suggestions and recommendations will be attended.”

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  6. Salaries and Payroll

  My review on the salaries and allowances of the Foundation revealed that this
  cost represents one of the single largest items of expenditure in the accounts.

  This represents a significant area of risk and management should ensure that
  these costs are carefully controlled and monitored and that those responsible
  for the payroll function have the necessary skills and knowledge to effectively
  execute their functions. During my review, I noted the following weaknesses:

   The Foundation is an on-line agency to the concept payroll from the
  Alesco Human Resource Management System with Finance
  Department and there was no evidence to indicate that payrolls are
  reconciled to standard payroll and certified by two senior officers;
   No Manual time sheets or attendance registers were used for recording
  worked time;
   No proper systems to ensure workers are paid for hours worked;
   There was no control to ensure changes to pay rates are checked;
   Manual history cards are used to record employee standing data in
  relation to salary matters, all sick leave, recreational leave and long
  service leave. These cards are not always updated;
   Not all changes to employee standing data are supported by authorised
  notifications from the Personnel or Human Resource Section;
   Leave records were not updated as and when leave was taken and
  senior personnel do not review these records;
   Calculation of gratuity not reviewed by Director Corporate Service
  after being prepared by the Accountant; and
   Calculations for shift and overtime allowances were done manually by
  the Finance and Administration Officer on an excel spreadsheet when
  appropriate details are input.

  I recommended that:

   The Foundation is an on-line agency to the concept payroll from the
  Alesco Human Resource Management System with Finance
  Department and therefore, payrolls must be reconciled to standard
  payroll and certified by two senior officers namely the Accountant and
  Director Corporate Service;
   The Manual history cards be used to record employee standing data in
  relation to salary matters, all sick leave, recreational leave and long
  service leave should always be updated in terms of job performance
  appraisal assessment effecting promotion, increments and any leaves
  taken should be updated by the Personnel and Establishing Officer
  from the Head Office in Port Moresby;

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   The Personnel or Human Resource Section should authorise changes to
  employees standing data;
   Leave records should be updated as and when leave is taken by Senior
  Personnel and Establishing Officer to review these leave records;
   Calculation of gratuity should be reviewed by Director Corporate
  Service after being prepared by the Accountant;
   The Human Resource Manager should ensure that employee contract
  conditions are complied with; and
   Reports are submitted to responsible division who assess and monitors
  in respect to contract payments through the Performance Appraisal
  System from the Human Resource Section.

  Management of the Foundation responded to my observation as follows:

  “The organisation accepts the concerns raised and will do all it can to
  improve its management of staff working for overtime and records of time
  worked for.

  The personnel files are kept in lockable drawers and only accessible by
  Authorised officers. The Organisation will take note of your comments and
  improve on where improvements are required.

  AGO‟s suggestions and recommendations will be attended.”

  7. Human Resource Management

  My examination of the human resources management function revealed the
  following:

   A personnel strategy was not evidenced to ensure that the right people
  are employed with the appropriate skills to ensure that Foundation‟s
  operations are conducted efficiently and effectively at all times;
   The selection processes for promotion and appointment to vacant
  positions are sound except that there was no provision for qualified
  members of the Human Resource Section for the Foundation to fast
  track the recruitment process of the 85 funded positions from the 120
  positions approved establishment by Salaries & Conditions Monitoring
  Committee on the 25 October 2012. Also, the staff strength of 65 filled
  positions including the Executive Director were made on acting basis
  in September 2013. This had resulted in breach of General Order 3.11
  and 3.12;
   Training was provided to staff on an adhoc basis. However, training
  was not linked to the staff appraisal where staff development matters
  should be recorded.

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  This could cause staff to miss out on proper career development
  resulting in a skills shortfall within the Foundation;
   There were approximately 17 fulltime casual employees during my
  review with no policies in place in relation to their employment.
  Generally, they were employed for specific period of time only
  however, have continued working and their performance were yet to be
  reviewed. This practice has:

  i) Created a situation where a significant number of staff is not
  the right people with the right skills to undertake the task; and
  ii) Facilitates improper selection.

   There were number of senior staff whose contracts had not been
  renewed however, in the absence of a valid contract of employment,
  the officers were paid gratuity;
   Job descriptions were not sufficiently defined in terms of reporting
  lines; and
   There was no policy and commitment from management in support of
  performance appraisal procedures; and as a result, no employee
  performance appraisals were done.

  I recommended that for the benefit of the Foundation all staff within the
  organisation should have the necessary knowledge, skills and tools to support
  the achievement of the Foundation‟s objectives. The reported inefficiencies in
  the work force need to be addressed to enable the Foundation to improve its
  objectives. The Foundation responded to my observation as follows:

  “The Foundation‟s Strategic Objective Plan 2015 – 2019 is about to be
  completed. Once it is completed it will guide in management‟s decision
  making and implementing policies for better improvement in both services
  delivery and management responsibilities.

  The strategic objective plans also cover operations of Human Resources
  Management to empower personnel strategies and other areas for its conduct
  efficiently and effectively.”

  8. Procurement and Payments

  I reviewed the adequacy of controls over the accounts payable
  system/function. In particular, whether such control was sufficient and
  necessary and complies with legislative requirements, government policy,
  local policy/procedures, contractual requirements and good management
  practice/ industry standards. The following issues were noted:

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   My examination revealed that the Board of Directors have not
  formulated the financial policies and delegation of financial powers
  through financial policies to the Executive Director who then should
  delegate to the Director Corporate Service and other divisional
  directors of the Foundation. In the absence of the financial policies,
  the Executive Director is using his/her powers to authorise the
  procurement processes of all the payments processes of the goods and
  services that are provided to the Foundation;
   My examination of the Operational Account payment registers for year
  2012 and 2013 revealed that out of the total of the selected payments,
  some payments were authorised by the Minister for Sports and the
  Executive Director were without three written quotes, consultancy
  agreement and reports acquittals;
   The positions of the Corporate Services Division including the Finance
  & Administration were vacant for one year with staff on substantive
  positions acting on the positions namely; Director – Accountant,
  Expenditure Clerk, Senior Budget Officer and Fixed Assets Clerk. We
  also noted that the Accountant (substantive position) is acting on
  Director – the Accountant, Expenditure Clerk, Senior Budget Officer
  and Fixed Assets Clerk are also vacant and are occupied by casuals for
  more than three years. Consequently, there are no employees with
  appropriate skills and qualification in the Finance and Administration
  Division employed by the Foundation;
   During my examination, I noted that project costs for contractors and
  construction companies were incurred from the Operational Account
  was not considered as proper as it was allocated only for operational
  costs and not for projects; and
   It was noted that the Sport Minister‟s Enhancement Project Allocation
  Fund were handed out to sporting associations and clubs without
  proper documentation attached to the payment voucher as per the
  process for raising payment for Sport Enhancement by the Sports
  Minister as indicated in the letter to PNG Sports Foundation Executive
  Director dated 12 December 2013.

  Revenue Account

   The Revenue Account was maintained for revenue collection from the
  Foundation‟s facilities to run its operational activities.

  Therefore, it should be closed and funds must be transferred to the
  Operational Account of the Foundation.

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   Most of the payments incurred from Revenue Account were for repair
  and maintenance works which should have been in the recurrent
  budget of the Foundation under the Operational Account.

  Trust Account

   I noted that project costs for contractors and construction companies
  were incurred from the Trust Account. It was also revealed during my
  review that this Trust Account had no Trust Instrument that was signed
  and approved by the Minister for Finance and Treasury.
   I noted that the Sport Minister‟s Enhancement Project Allocation Fund
  were handed out to sporting associations and clubs are without proper
  documentation attached to the payment voucher as a requirement for
  raising payment for Sport Enhancement Projects.
   The Foundation also lack segregation of duties in relation to placing
  orders, raising of cheque requisition, cheque payment of goods and
  services, book keeping and maintaining of records.

  Project Account

   I noted that the Former Project Manager designed the agreement
  between the approved contractors and Construction Company on
  behalf of the Project Management Committee (PMC). However, no
  proper monitoring and evaluation was undertaken for projects before
  making payments.
   A Construction Company was awarded the contract by CSTB 2371 in
  2012 to construct the Stadium Hall for the National Sport Institute in
  Goroka which is yet to be completed. Three quarter of the payment
  totaled K4,588,682.42 has already been made against the agreed
  contract sum of K4,934,067.52. According to the letter from CSTB
  dated 24 November 2011, the Project commenced in September 2012
  and expected to be completed within the timeframe of nine (9) months
  in May 2013. The Project was not been completed at the time of audit.
   My review on National Sport Institute and Regional Office – Momase
  Account payments selected for verification revealed that some
  payments were made without written quotations attached to the
  payment vouchers. Details are as follows:
   The Foundation has not implemented segregation of duties in relation
  to ordering, raising of cheque requisition, payment of goods and
  services, book keeping and maintaining of records both the soft and
  hard copy at National Sport Institute (Regional Office).

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  I recommend that:

   The Foundation Management and Board should review and approve its
  drafted Financial Procedure Manual to be implemented and officially
  used by the Foundation;
   The Foundation to adopt accounting system software to produce
  accurate, reliable and timely financial information to produce the
  financial statements;
   The Foundation Management and the Board to fast track the review
  and approve the draft financial procedure to adopt as an office
  procurement procedure for payments which are below K100,000;
   All payment vouchers have supporting documents attached such as
  Inter-Office Memo for request, Cheque Requisition Form, Valid
  invoice, three written quotation for payments for purchases above
  K5,000 and less than K100,000, contract agreements, reports,
  acquittals and a copy of the cheque paid;
   Fast track the recruitment process to fill the vacant positions;
   The Sports Minister‟s Enhancement Project Allocation Fund that is
  allocated to the sport association and clubs should have proper
  supporting documentation attached to the payment vouchers as per the
  process for raising payments for Sport Enhancement by the Sports
  Minister as per the letter dated 12 December 2013 to the PNG Sports
  Foundation Executive Director;
   Revenue Account serve the same purpose as the Operational Account.
  Therefore, it should be closed and all funds must be transferred to the
  Operational Account;
   The Trust Account that is kept and maintained without a Trust
  Instrument being signed and approved by the Minister for Finance and
  Treasury must be closed and the funds be transferred to the
  Operational Account with Foundation‟s Board approval;
   There should be proper monitoring and evaluation of projects in
  accordance with the terms and conditions for the payments by the
  Project Manager. Further, the copies of the Contract Agreement be
  forwarded to Director Corporate Services for safe keeping;
   Foundation should recruit a well-qualified and competent project
  manager to manage the Projects undertaken by the Foundation;
   There should be segregation of duties for placing orders, raising of
  cheque requisitions, cheque payment of goods and services, book
  keeping and maintaining of records both the soft and hard copy at
  National Sport Institute and Regional Offices; and

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   There should be a proper filing system of payment vouchers in the arch
  lever files with labels in cheque sequence and dates by the Accounts
  Clerk/Finance and Administration Officer both at the Head Office and
  the Regional Offices.

  Management responded to my concerns as follows:

  “The Foundation is reviewing and editing its Financial Procedure
  Plans and soon it will be submitted to the Board for approval. The
  PNG Sports Foundation takes note of the comments and taking steps to
  improve on the weaknesses by complying with the procurement
  processes. The Foundation takes note of the comments and will take
  necessary action.”

  9. Asset Management

  The Foundation is responsible for safeguarding property, plant and equipment
  directly under its control.

  a) Assets Register

  During my review, I noted that no proper fixed asset registers were
  maintained by the Head Office and the Regional Offices.

  The Foundation had been using a draft financial procedure manual in
  terms of purchasing and recording assets more than K1,000.00 in its
  Fixed Assets Register. However, that manual was only used by the
  Head Office and not by other Regional Offices.

  The current officer responsible for fixed assets at the Head Office has
  put tremendous effort to compose everything together to come up with
  a Master Asset Register for 2013. Though the Head Office was using
  the manual, the register was still not properly done. Likewise, all the
  Regional Offices‟ Fixed Assets Registers are not updated.

  b) Stocktakes

  The Foundation had not carried out any physical verification of its
  assets at Head Office and Regional Offices in the past years.

  c) Capital Asset Tracking and Monitoring

  I noted that all assets purchased in 2013 and prior years were not
  tagged with asset numbers. This made it difficult for me to select
  sample of assets to trace to Fixed Assets Register for completeness.

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  I recommended to the Foundation that an Assets Register be
  maintained to record all assets purchased for Headquarters/Regional
  Offices and the registers should be updated regularly. An annual stock
  take should also be conducted to verify the existence of all assets.

  Management responded to my observation as follows:

  “The Asset Clerk is collecting all the information related to acquisition
  of fixed assets from Regional Offices including NSI and updating the
  Assets Register. The PNG Sports Foundation take note of the
  comments and is taking steps to improve on keeping records and
  updating Fixed Assets Register. AGO‟s suggestions and
  recommendations will be attended.”

  10. Development Budget

  The capital budget (sometimes referred to as public investment project)
  represents investments in capital development and infrastructure designed to
  support the provision of service and the benefits of which are to span over
  several years. The capital budget is meant for new buildings, major
  improvements to existing buildings, acquisition of land, plant and equipment
  and vehicles.

  In the budget submission of 2013, four key projects totalling K80,965,000
  were identified but the Foundation was not funded by the government for
  these capital works in its development budget. However, only K5 million was
  appropriated for sports enhancement and was administered by the Minister‟s
  Office.

  The development funds that were sourced from the government in the year
  2012 for infrastructure improvements and talent identification programs are as
  follows:

  Infrastructure Improvement – K30,000,000
  National Sports Institute PIP – K 2,000,000
  Talent Identification Program – K 1,500,000
  Total K33,500,000

  It was noted that most of the minor works/projects were not brought to the
  attention of the Board for endorsement and approval;

   I was not furnished with minor works contracts for the selected
  contractors;
   I was not provided with the agreement between the Foundation and the
  Defence Force for the design and construction of Murray Barracks
  pool, gymnasium and the Taurama swimming pool;
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   I recommended that any work that is of a significant value should be
  reviewed by appropriate authorities so as to meet the minimum
  requirements and quality standards. This should be evidenced by the
  completion certificate upon completion of the Projects;
   All major projects should be endorsed and approved by the Board or
  Tender Committee;
   Contracts should be executed for both major and minor projects; and
   An agreement should be in place when the Foundation is designing,
  constructing and improving other Departments‟ facilities.

  Management Response:

  “In relation to disbursement of project funds, all funds are managed and
  accounting records are maintained in Head Office. Every records were
  available but officers assigned to assist on that request may have been not at
  work at the time of audit review.”

  I revisited the Foundation to collect the above documents and found out that
  the contracts were awarded without Minor Works Contracts. The contracts
  were awarded to contractors based on quotations only.

  11.0 Finance and Accounting Section Review

  This division is responsible for maintaining all accounting records relating to
  procurement, payments and prepares the budget for the Foundation.

  During my review of Finance and Administration Section, the following weaknesses
  were noted:

   The Foundation lacks skilled and qualified officers to perform Finance and
  Admin tasks at the Head Office and the Regional Offices including National
  Sport Institute;
   The Foundation‟s financial statements were not prepared internally. They were
  outsourced to an Accounting Firm;
   There was no accounting software or system used by the Foundation for
  recording their financial information. Initially, they used CBA system from
  Able Computing and then migrated to Sun system in 2011 but it only lasted
  for three months. Currently, the Foundation is manually recording its financial
  transactions in an excel spreadsheet;

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   There was no proper filing system used at the Head Office and the Southern
  Region Office to file away the accounting records. Most of the documents are
  lying on the chairs, tables, packed in boxes in their offices. As a result,
  documents requested during audit took quite a long time to retrieve;
   There was absence of proper coordination and guidance from the Head Office
  finance team to the Finance and Admin officer or responsible officers at the
  Regional Offices;
   All the processes and procedures used at the Head Office were not
  communicated to the Regional Offices to use. Head Office and the Regional
  centres operate in isolation without Head Office reviewing the work of the
  Regional Offices; and
   Due to absence of proper guidance and coordination from the Head Office, all
  the payment vouchers and revenue documents were kept at the Regional
  Offices and were not delivered to the Head Office for record purposes. Head
  Office do not send copies of the items they purchase for the Regional Offices
  to update their records.

  I recommended the Foundation to recruit skilled and experience workforce to fill the
  vacancy of key positions. Further, proper coordination be established within the
  Foundation‟s Head Office and Regional Offices for smooth operation. Foundation
  must consider purchasing a suitable accounting package to automate its financial
  transactions. The Foundation should:

   Check duty statements of all the officers and the required qualifications
  needed and compare it against the officers‟ current qualifications;
   If additional training is needed, the Foundation should organise it with the
  trainer or course providers;
   Take lead in training need assessments and plan for training of personnel;
   Encourage the Regional Officers to send payment vouchers and revenue
  documents via carrier each month or fortnightly for Head Office;
   Closely communicate with the Regional Office to keep intact;
   Have the accounting documents locked and stored in a safe place;
   All accounting records and vouchers should be properly filed;
   Accounting records must be kept in the custody of a competent officer;
   Recruit an IT Officer to oversee all IT requirements of the Foundation; and
   Install an accounting software system (MYOB) so that the Foundation can
  prepare its own financial statements.

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  Management accepted my recommendation and responded as follows:

  “Due to some senior officers within the Finance and Accounts section resigned
  recently there is currently manpower shortage within the section. Recruitment and
  selection is soon to be completed and the section will have the positions filled.

  The PNG Sports Foundation accepts the concerns raised concerning operations of
  Accounts and Finance Division. The recommendations on putting people against
  current jobs on merit and making arrangement for staff training are taken note of and
  will make sure these issues are resolve when the recruitment is completed.

  Installing of accounting software has delayed due to relocation of office space and the
  organisation is preparing to install MYOB accounting software.”

  50.2 STATUS OF FINANCIAL STATEMENTS

  The Foundation, after receiving my Special Report had submitted its financial
  statements for the years ended 31 December 2005 to 2013 for my inspection and audit
  and arrangements were being made to commence the audits shortly.

  The financial statements for the year ended 31 December 2014 had not been
  submitted for my inspection and audit.

  – 217 –

• Page 257 of 396

• 51. PNG UNIVERSITY OF TECHNOLOGY

  51.1 INTRODUCTION

  51.1.1 Legislation and Objectives of the University

  The PNG University of Technology was established under the University of
  Technology Act (Chapter 170). The University‟s aims are to provide tertiary
  educational facilities and to produce qualified men and women to play an important
  part in the development of PNG.

  51.1.2 Functions of the University

  The University‟s principal functions are to encourage and provide facilities for study,
  education and training of technological subjects and branches of learning at tertiary
  level, and to assist in research and the practical application of technological branches
  of learning.

  51.1.3 Subsidiary of the University

  The University has two wholly owned subsidiary companies, National Analysis and
  Testing Services Limited and Unitech Development and Consultancy Company
  Limited, which were incorporated under the Companies Act.

  Comments in relation to the subsidiary Companies are contained in paragraphs 51A
  and 51B of this Report respectively.

  51.2 AUDIT OBSERVATIONS

  51.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the University‟s
  financial statements for the year ended 31 December 2010 was issued on 13 April
  2015. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Opening Balances

  The opening balances of the financial year 2010 taken up in the books of the
  University were the closing balances as at 31 December 2009. My report for the prior
  year (2009) on the accounts of the University was an Adverse Opinion due to serious
  deficiencies in accounting and record keeping. Due to limitation of scope expressed in
  the previous year audit report, I was unable to confirm on the correctness of the
  opening balances recorded in 2010.

  – 218 –

• Page 258 of 396

• PNG University of Technology

  Un-Appropriated Surplus – K26,273,911

  The Un-appropriated Surplus reported in the financial statements as at 31 December
  2010 was K26,273,911. Note 5 to the financial statements showed that the
  Unappropriated Surplus was derived after posting the prior period adjustments
  totalling K67,455,787. I was not provided with necessary supporting documentations
  in respect of the adjustments. As a result, I was not able to perform further audit
  procedures to confirm the appropriateness of the adjustments. Consequently, I am
  unable to comment on the correctness of the balance of the Un-appropriated Surplus
  as reported in the financial statements.

  Fixed Assets – K34,932,011

  The University did not maintain proper Fixed Assets Register during the year under
  review. The details in respect of fixed asset additions, disposals, locations and
  conditions at year-end were not made available for my review and inspection. As a
  result, I was unable to perform my audit procedures to ensure the validity,
  completeness and accuracy of the fixed assets of K34,932,011 reported as at 31
  December 2010.

  Investments – K144,575

  The financial statements reported Investment totalling K144,575 as at 31 December
  2010. I was not provided with all required supporting details including explanations
  on the movement in the account during the year. As a result, I was unable to extend
  my audit procedures to ensure the validity, completeness and accuracy of the
  investment balance.

  Debtors and Prepayments – K6,136,639

  The Debtors and Prepayments reported in the financial statements totalled K6,136,639
  as at 31 December 2010. Note 6 to the financial statements provided the details of this
  account as follows:

   Debtors (Student Fees) – K3,811,007

  Included in the Debtors and Prepayment balance was an amount of
  K3,811,007 relating to Taraka Campus tuition fees receivable. During the year
  under review, the Taraka Campus tuition fees were recorded in MYOB
  accounting software. However, the MYOB accounting system crashed during
  the same period and the data was unavailable in order for me to confirm the
  correctness of the student fees receivable. Hence, I was unable to comment on
  the validity and completeness of the student fees receivable balance reported
  in the financial statements as at 31 December 2010.

  – 219 –

• Page 259 of 396

• PNG University of Technology

   GST Refundable – K1,367,168

  Note 6 to the financial statements reported a GST refundable balance of
  K1,367,168 as at 31 December 2010. This amount was taken directly from the
  IRC records and not from the University records then reconciled against the
  IRC records. The University did not prepare and provide GST reconciliations
  during the period under review. As a result, I was unable to ascertain the
  completeness and accuracy of the balance reported as GST refundable.

   Letter of Credit – K413,332, Others – K9,567 and Staff Debtors – K535,565

  Included in the Debtors and Prepayments were accounts related to staff
  debtors of K535,565, outstanding letters of credit of K413,332 and others of
  K9,567. I was not provided with details and supporting documents in regards
  to these accounts. Therefore, I was unable to ascertain the completeness and
  accuracy of these accounts as reported in the financial statements as at 31
  December 2010.

  Cash on Hand – K185,004

  The financial statements reported Cash on Hand of K185,004 as at 31 December
  2010. This balance comprised of Petty Cash of K59,696 and Undeposited Funds of
  K125,308. Management did not prepare proper reconciliations to enable me to verify
  the funds on hand. As a result, I was unable to extend my audit test to verify the
  existence and accuracy of the Cash on Hand as reported in the financial statements.

  Cash at Bank – K656,685 and Bank Overdraft – (K4,815,394)

  The Cash at Bank balance of K656,685 and Bank Overdraft of K4,815,394 reported in
  the financial statements as at 31 December 2010 were from the eleven bank accounts
  operated by the University in 2010. Proper bank reconciliations were not carried out
  and the balances were taken directly from the bank statements. In regards to the bank
  overdraft, outstanding cheques were identified by determining the subsequently
  presented cheques. This procedure is considered improper. Further, I was not
  provided with the term of arrangement for the bank overdraft. As a result, I was
  unable to comment on the accuracy and correctness of the Cash at Bank reported in
  the financial statements.

  Employee Provisions – K3,570,141 and Gratuity (K956,515) Credit

  Employee Provisions of K3,570,141 and Gratuity expense of K956,515 credit were
  reported in the financial statements as at 31 December 2010. I noted that there were
  inaccuracies in the calculation of the long service leave and annual leave. I also noted
  that a gratuity was reported as credit balance in the financial statements.

  – 220 –

• Page 260 of 396

• PNG University of Technology

  In the absence of proper calculations and explanations I was unable to satisfy myself
  with the correctness and completeness of the balances reported in the financial
  statements.

  Creditors – K2,459,583

  Included in the above Creditors account was an amount of K803,990 relating to
  refundable student fees. The system used to record the student fees was MYOB
  accounting system, however, the MYOB system crashed during the period under
  review and the data was unable to retrieve. As a result, I was unable to establish the
  correctness of the refundable student fees.

  Group Tax Payable – K4,730,910

  Group Tax Payable of K4,730,910 reported in the financial statements was taken from
  the print out from Tax Office without proper reconciliations. I also noted that group
  tax returns were not lodged with the Internal Revenue Commission during the period
  under review and up to the present. As a result, I was unable to ascertain the
  correctness and accuracy of the group tax liability reported.

  Consolidation of Subsidiary Accounts

  The University has subsidiary Companies namely, Unitech Development and
  Consultancy Limited and National Analysis and Testing Services Limited. The
  financial transactions of these two accounts were not consolidated which deviated
  from the requirement of the International Accounting Standards, IAS 27 –
  Consolidated and Separate Financial Statement.

  DISCLAIMER OF OPINION

  Because of the significance of matters described in the Basis for Disclaimer of
  Opinion, I have not been able to obtain sufficient appropriate audit evidence and
  accordingly, I was unable to express an opinion on the financial statements of Papua
  New Guinea University of Technology for the year ended 31 December 2010.

  OTHER MATTER

  Compliance with Public Finances (Management) Act 1995

  The Papua New Guinea University of Technology has not prepared and submitted the
  financial statements to the Minister and the Auditor-General prior to 30 June for the
  year ending December proceeding, resulting in breaches of Section 63(2) and Section
  63(4) of the PFMA. The financial statement was submitted on July 2013.”

  – 221 –

• Page 261 of 396

• PNG University of Technology

  51.2.2 Audit Observations Reported to the Ministers

  My report to the Ministers under Section 8(2) of the Audit Act on the audit and
  inspection of the accounts and records of the University for the year ended 31
  December 2010 was issued on 13 April 2015. The report contained the following
  comments:

  Compliance with the PNG University of Technology Act 1986

  Section 10(1) subsection (a) of the PNG University of Technology Act 1986 spells out
  the functions of the Council to be among others, to have charge over the management
  and administration of the income, property and personnel of the University and the
  conduct of the matters relating to the University. In view of the appalling state of
  affairs in respect of the financial management function of the University as
  highlighted means the Council during the period did not perform their functions as
  stipulated. The matter was brought to the attention of the Management and they
  responded as follows:

  “The current Council and management are well aware of this anomaly and have
  recruited an experienced Internal Auditor who is taking charge in checking
  compliance with standards and the processes in place. The current Council has
  approved Audit Committee in compliance with the Public Finance Management Act
  1995 that will be presented and launched on the 1st week of February 2015. The
  position of the internal auditor was not in existence since 2005 until 2014.”

  Compliance with the Income Tax Act 1959

  The provisions of the Income Tax Act 1959 apply to the University. My review of the
  operations of the University revealed that it is not compliant with the requirements of
  the Act. The University is yet to comply with requirements which mainly relate to
  submission of income tax and GST returns on time.

  Control Environments and Internal Controls

   Council Oversight

  My review of the council minutes indicated that adequate deliberation of
  financial information was not done at Council meetings. This means that
  issues affecting the University in respect of financial management were not
  adequately covered at the Council meetings in 2010. I brought this issue to
  management and they responded that the Council took for granted that
  management at that time was doing what was right.

  – 222 –

• Page 262 of 396

• PNG University of Technology

   Policies and Procedures

  The University does not have tailor made policies and procedures in place
  over its financial management function. Policies and procedures describe the
  parameters within which the University would like to operate and the risks that
  it would like to assume. I brought this to the attention of the management and
  they responded that the management is currently looking for a reputable entity
  that can do this taking into account the PFMA directives and General Orders.

   Information System

  During my review of the University‟s information system, I noted that that the
  University is using PGAS system at the Taraka Campus to maintain its
  accounts and printing of cheques. However, outside campuses and service
  departments have been maintaining their accounting records through MYOB
  accounting software or through Microsoft Excel program. There is no
  consistency in the manner in which the information is channeled to the top
  management. The information system is not conducive to ensure complete and
  reliable information for Management or Council‟s decision making.

   Internal Control

  As a whole, the University‟s internal control systems are not adequate to
  ensure assets of the University are protected, complying with the laws and
  regulations and the University‟s operations are effective and efficient.
  Specifically:
   Records
  Important register such as cashbook, fixed assets register, student fees
  register, etc are not properly kept.
   Account Reconciliations
  Accounts reconciliations are not done on a timely basis to detect errors
  going through the accounts such as Cash at Bank and Fixed Assets.
   Payments
  Payment control systems are not in place to ensure that the payments
  are for valid purpose and within budget limits.
   Receipts
  Receipts are not banked intact.
   Source Documents
  Records are not properly maintained evidencing the transactions. All
  accounting records should be kept away in safe place where it cannot
  be tampered with.

  – 223 –

• Page 263 of 396

• PNG University of Technology

   Monitoring
  Monitoring systems in place are not effective.
   Disaster Recovery Procedure
  Disaster recovery plan must be in place to ensure that in the event of
  fire or natural disaster, the University can be able to retrieve its records
  to function properly.

  Management responded as follows:

  “Pursuant to the management‟s Financial Regulatory framework elaborated earlier,
  the processes and procedures on how to go about doing daily transactions will be
  specifically spelled out.

  The current management is placing a lot of emphasis on bank reconciliations,
  safekeeping of accountable source documents that transpires on every transaction
  both for receipting and payments in compliance with our internal audit
  recommendations.”

  51.3 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 University for the year ended 31 December 2011 had been completed and 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 University for the year ended
  31 December 2012 was in progress.

  The financial statements of the University for the years ended 31 December 2013 and
  2014 had not been submitted for my inspection and audit.

  – 224 –

• Page 264 of 396

• 51A. NATIONAL ANALYTICAL AND TESTING SERVICES
  LIMITED (Subsidiary of University of Technology)

  51A.1 INTRODUCTION

  The National Analytical and Testing Services Limited was initially incorporated as
  Champion No: 67 Limited on 10 March 2011. However, on 24 March 2011 the
  former Company name (Champion No: 67 Limited) was changed to what is now the
  National Analytical and Testing Services Limited.

  The shareholders of the Company are Unitech Development and Consultancy
  Limited and Star Mountains Institute of Technology Limited, each holding 61% and
  39% of the total issued shares respectively.

  51A.1.1 Functions of the Company

  The functions of the Company are to provide analytical, pathological and mineral
  testing services:

   Analytical testing including tests for food, water, soil, mining or industrial
  waste;
   Pathology testing relating to test for human diseases; and
   Mineral (geo) testing involving testing for mineral compositions.

  51A.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 year ended 31 December 2011 was substantially
  complete 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 Company for the years ended
  31 December 2012 and 2013 were in progress.

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

  – 225 –

• Page 265 of 396

• 51B. UNITECH DEVELOPMENT AND CONSULTANCY COMPANY
  LIMITED (Subsidiary of University of Technology)

  51B.1 INTRODUCTION

  Unitech Development and Consultancy Company Limited is a Company
  incorporated under the Companies Act.

  51B.1.1 Functions of the Company

  The primary function of the Company is to carry on the business and activities of
  consultants, and to render management, industrial, commercial, financial,
  secretarial, public relations, industrial relations and other related services to any
  person, firm or corporation engaged in any business, trade or activity. The Company
  also carries on a business of insect farming.

  51B.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 year ended 31 December 2013 was complete and
  the results were being evaluated.

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

  – 226 –

• Page 266 of 396

• 52. PARLIAMENTARY MEMBERS’ RETIREMENT BENEFITS
  FUND

  52.1 INTRODUCTION

  52.1.1 Legislation

  The Parliamentary Members‟ Retirement Benefits Fund was established under the
  Parliamentary Members‟ Retirement Benefits Fund Act 1997 which came into
  operation on 16 July 1997.

  52.1.2 Objectives of the Fund

  The objective of the Fund was to provide pensions and retirement benefits for
  Members and former Members of Parliament and the former House of Assembly and
  to provide benefits to dependant spouses and juvenile dependants. This Act repealed
  the Parliamentary Members‟ Retirement Benefits Act which came into operation in
  1982.

  52.2 AUDIT OBSERVATIONS

  52.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the Fund‟s financial
  statements for the year ended 31 December 2013 was issued on 20 January 2015. The
  report did not contain any qualification.

  52.2.2 Audit Observations Reported to the Ministers

  My examination in accordance with Section 8(2) of the Audit Act, generally revealed
  satisfactory results.

  52.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Fund had not submitted its financial
  statements for the year ended 31 December 2014 for my inspection and audit.

  – 227 –

• Page 267 of 396

• 53. PUBLIC CURATOR OF PNG

  53.1 INTRODUCTION

  53.1.1 Legislation

  The Office of the Public Curator of PNG was established under the Public Curator
  Act (Chapter 81).

  53.1.2 Functions of the Public Curator

  The main functions of the Public Curator are to act as an administrator of estates; an
  executor appointed under a will by a member of the public; and/or an official trustee.

  53.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  53.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the Public Curator‟s
  Office financial statements for the year ended 31 December 2011 was issued on 30
  September 2014. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Limitation of Scope – Opening Balances

  My reports for the years ended 31 December 2009 and 2010 were disclaimed due to
  limitation on the scope of audit on opening balances. I was unable to confirm the
  opening balances resulting from non-submission of financial statements for the years
  ended 31 December 2004 to 2008. I was therefore, unable to satisfy myself as to the
  accuracy and completeness of the opening balances of term deposits, estate accounts,
  minor and insolvency accounts and suspense accounts of Port Moresby, Lae and
  Rabaul.

  Since these opening balances entered into the determination of the results of
  operations and cash flows of the Public Curator‟s Office in 2011, I was unable to
  determine whether adjustments to the results of operations, receipts and payments
  might have been necessary for the year ended 31 December 2011.

  Limitation of Scope – Accounting Records

  The Public Curator‟s Office did not maintain proper books of accounts in 2011 and in
  prior years. The financial statements were prepared from manually maintained records
  on Excel spreadsheet.

  – 228 –

• Page 268 of 396

• Public Curator of Papua New Guinea

  The statements were prepared from incomplete and insufficient records without proper
  supporting reconciliations and documentations resulting in the limitation on the scope of
  my audit. As a result, it was impracticable for me to carry out all my planned audit
  procedures to determine the accuracy of the year end balances as disclosed in the
  financial statements.

  Suspense Account – K17,975,564

  My examination of this account revealed that the account is a clearing account
  maintained to keep track of proceeds from deceased individuals and transfers between
  various estate accounts pending reconciliation, proper identification and allocation to
  their respective estate accounts. However, I noted that accurate and timely
  reconciliations were not done in prior years to allocate these funds to their respective
  estate accounts. As a result, the balance in the suspense account has increased over the
  years to K17,975,564 as at 31 December 2011. Consequently the beneficiaries to
  these estate accounts may have been denied of their rights to have access to these
  funds.

  Unidentified Deposit – K227,244

  The Corporate Trust Bank Account of the Public Curator was credited with an
  unidentified deposit of K227,244 in May 2010. In my last report, the Management
  was advised to identify where the deposit was made from and if the money was not
  intended for this account, I recommended that the money be transferred back to where
  it originated from. However, per the bank reconciliations of this account, I noted an
  overdraft of K58,746 at year-end, showing the money had been depleted/used.

  Estate Properties

  I noted a list of nine hundred and eighty five unrealised and personal properties that
  were identified or in possession of and administered by the Public Curator‟s Office. I
  noted that these properties were not valued and disclosed by way of notes to the
  financial statements as the proceeds from the disposal of these assets would be
  properly identified and credited to their respective estate accounts or transferred
  (non-liquid form) to the beneficiaries at a later date. As a result, I was unable to
  satisfy myself as to the completeness or accuracy of receipts of K11,568,091 and the
  amounts due to the estates and trusts of K3,599,615 as disclosed in the financial
  statements.

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis for Disclaimer of
  Opinion paragraphs, I have not been able to obtain sufficient appropriate audit
  evidence to provide a basis for an audit opinion.

  – 229 –

• Page 269 of 396

• Public Curator of Papua New Guinea

  Accordingly, I do not express an opinion on the financial statements of Public
  Curator‟s Office for the year ended 31 December 2011.”

  53.2.2 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 Public Curator‟s Office for the year ended 31
  December 2011 was issued on 30 September 2014. The report contained the
  following comments:

  No Proper Accounting System and Lack of Audit Trail

  The Public Curator‟s Office did not have a properly integrated Management
  Accounting System incorporating estate data from the regional centres together with
  Head Office. The records had been kept and prepared manually from the cashbook and
  bank statements. I recommended Management to have integrated accounting package
  that would capture and keep track of all information including estate data from the
  regional centres.

  Management concurred with my comments and identified this as a important
  requirement and recommended staff for training. Management further stated that they
  were in consultation with an IT Company to secure an affordable accounting software
  for the Public Curator‟s Office.

  Segregation of Duties

  The internal control environment was very weak in terms of segregation of duties over
  the accounting process of receipting, depositing cheques, recording and posting of
  transactions to the cashbook, raising of requisition forms, cheque payments and bank
  reconciliations. I brought this issue to the attention of the Management.

  The Management concurred with my comments and stated that this was due to under
  staffing within the accounts section.

  Bank and Account Reconciliations

  The Public Curator‟s Office over the years had not properly performed its bank and
  estate account reconciliations. As a result, the balance in the suspense account had
  been accumulating over the years.

  I recommended Management to ensure that bank and estate accounts reconciliations be
  done on a monthly basis to correctly identify individual estate receipts/proceeds and
  post them to their respective individual estate accounts.

  – 230 –

• Page 270 of 396

• Public Curator of Papua New Guinea

  Minor and Insolvency Trust Account – Port Moresby

  The monies held in this Minor and Insolvency Trust Account are basically for the
  purpose of maintenance, education and advancement of the minors. The disbursements
  would be done in accordance with Section 22(a) and Section 7(2) of the Public
  Curator‟s Act 1951. However, I noted that monies had been disbursed to relatives of
  the minors for other purposes.

  Management concurred with my comments and directed staff to strictly comply with
  the requirements.

  Management Structure, Staff Strength and Funding

  The Public Curator‟s Office did not have the staff capacity with adequate skills to
  effectively carry out its mandated functions. The Office had a total of forty seven
  approved positions with only thirty nine funded and eight unfunded positions. Further,
  of the thirty nine funded positions, ten positions were vacant.

  At the time of audit, there were a total of one thousand one hundred registered
  deceased estate properties and three thousand deceased estate oil palm blocks. Audit
  noted with concern that with the current staff strength, the Office would not be in a
  position to effectively discharge all its mandated functions, as most of the property
  matters registered with the Office involve complex legal issues.

  In addition, the accumulating balance of the suspense account over the years was the
  evidence of not enough skilled staff to properly identify and allocate proceeds and
  transfers to their respective estate accounts.

  53.3 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 Public Curator‟s Office for the year ended 31 December 2012 was complete and
  the results were being evaluated.

  The Public Curator‟s Office had not submitted its financial statements for the years
  ended 31 December 2013 and 2014 for my inspection and audit, despite my
  reminders.

  – 231 –

• Page 271 of 396

• 54. SECURITY INDUSTRIES AUTHORITY

  54.1 INTRODUCTION

  54.1.1 Legislation

  The Security Industries Authority was established under the Security (Protection)
  Industry Act 2004. This Act came into operation on 1 March 2005. The Authority
  commenced its operations in April 2005.

  54.1.2 Functions of the Authority

  The principal functions of the Authority are to:
   Grant licenses and permits under the Act;
   Fix minimum standards of training applicable to holders of licenses and permits
  respectively;
   Establish, provide or approve training institutions and facilities or permit such
  training institutions or facilities as it may approve, to conduct training or to be
  used for training for the purpose of training of persons who intend to perform
  security officers duties or security guard duties;
   Approve any equipment other than firearms used by a holder of a license or
  permit or required by a customer to be installed on his premises or property;
   Ensure that the holder of a license or permit operates or carries out his duties or
  performs his functions in accordance with the terms and conditions of the
  license or permit and subject to the provisions of this Act;
   Formulate a Code of Conduct governing the disciplinary matters and work
  ethics within the Industry; and
   Undertake such other functions and exercise such powers as may be conferred
  on it by this Act or any other law.

  54.2 AUDIT OBSERVATIONS

  54.2.1 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 28 April
  2015. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Cash at Bank – K655,097

  My examination revealed that the bank reconciliations were not properly prepared,
  checked and verified on a timely basis by the Authority.

  – 232 –

• Page 272 of 396

• Security Industries Authority

  The reconciliations provided for my verification were prepared in 2015 four years
  later. I also noted stale cheques totalling K5,664 remained outstanding for over a year.
  Based on the findings, I was unable to place reliance on controls surrounding the bank
  reconciliation process. As a result, I was unable to comment on whether the bank
  balances have been fairly stated in the accounts.

  Fixed Assets – K165,566

  My review of the Fixed Assets Register (FAR) revealed that the register was not
  properly maintained and updated on a timely basis in 2011. No proper stock-take was
  done to confirm the existence and to determine the fair value of each asset held at year
  end. I also noted that assets were not numbered/tagged and no acquisition dates were
  provided for me to verify the depreciation calculated on assets listed in the register.
  Based on the findings, I was unable to place reliance on controls surrounding the
  management of fixed assets. As such, I was unable to conclude on the accuracy,
  valuation and existence of the fixed assets balance of K165,566 disclosed in the
  financial statements.

  Other Income – K913,594

  Other Income was disclosed as K913,594 for the year ended 31 December 2011.
  During my review I noted that proper records and supporting documents were not
  maintained by the Authority. This amount was taken directly from the bank
  statements and disclosed as Other Income in the financial statements. I was unable to
  obtain receipts amounting to K913,594 due to absence of invoices and receipts
  including bank deposit summaries. As a result, I was unable to conclude whether all
  monies received as other income were properly accounted for and reflected in the
  financial statements.

  Staff Leave Provision – K104,172

  My examination of the staff leave provision revealed that staff personnel files were
  not properly maintained. Due to the absence of personnel files, I could not verify the
  accuracy and measurement of the provisions disclosed as at 31 December 2011.
  Details such as commencement dates and employment history form the basis of
  calculating provisions which I was unable to verify. Consequently, I was unable to
  conclude whether the provision for the year has been fairly stated in the financial
  statements.

  Accounts Receivable – K28,347

  My examination of Accounts Receivable revealed that receivable balance comprises
  of dishonored cheques taken from the bank statements. The Authority has not
  maintained proper debtors‟ records detailing the debtors, invoices and other
  supporting documents to validate the actual existence of debtors.

  – 233 –

• Page 273 of 396

• Security Industries Authority

  As a result, I was unable to validate the existence of the debtors and the fair
  presentation of the Accounts Receivables amount in the financial statements.

  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 Authority as at 31 December 2011 and
  the results of its financial operations for the year then ended.”

  54.2.2 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
  2011 was issued on 28 April 2015. The report contained the following comments:

  Non Acquittals of Travel Advances

  My review of the travel expenses totalling K111,172 by staff on duty travel (domestic
  and overseas) again revealed that the Authority did not maintain a Travel Advances
  Register to ensure that the advances were properly recorded and timely acquitted. As
  a result, a total advance of K12,990 (from the sample) remained outstanding or
  unacquitted at year end. I drew this issue to the attention of Management and they
  responded as follows:

  “We take note of your comments and recommendation. Otherwise, we have already
  taken reasonable steps to acquit all travel expenses for record and audit purposes.”

  Maintenance of Staff Personnel Records

  My review of the Authority‟s Personnel Files revealed that Staff Personnel Files were
  not satisfactorily updated and maintained. Information such as commencement dates,
  qualifications, dependent declaration and other personnel information could not be
  sighted for my verification. I brought this to Management‟s attention and they took
  note of the concerns and responded that appropriate action would be taken.

  Expenditure Control Weaknesses

  During my inspection and review of the expenditure for the year ended 31 December
  2011, I noted that the controls surrounding the payment system were weak. As a
  result, there were payments without supporting documents, payments without three
  quotes and cheque encashment without proper supporting documents.

  – 234 –

• Page 274 of 396

• Security Industries Authority

  I drew this issue to Management and they took note of the concerns and responded
  that appropriate action would be taken.

  Licence and Permit Registers

  Pursuant to provisions of the Security (Protection) Industry Act 2004, Section 25, the
  Registrar of the Authority is required to establish and maintain a Register of Permits
  and Licenses and at reasonable times make available the Register for inspection. I
  requested for the Register of Permits and Licenses but it was not furnished to me for
  my review.

  In my view, the Authority had not complied with the Security (Protection) Industry
  Act 2004 and there might be a risk of licenses and permits being issued without proper
  procedures being followed. As fees is the main income source for the Authority, there
  is a possibility that security firms may not renew licenses and permits which may go
  undetected and may lead to irregularities resulting in loss of income for the Authority.

  Further, without the Register, I could not confirm if all security companies operating
  in PNG were properly licensed and registered as stipulated by the Act. I brought this
  matter to the attention of Management and they responded as follows:

  “Your comments are noted and will ensure to maintain a Register of permits and
  licences pursuant to Section 25 (1) (a) of the Security Act 2004.”

  Staff Advance

  I observed that the Authority disclosed its Staff Advances balance as K54,884 at 31
  December 2011. My review revealed that this advances balance comprised of advance
  balances carried forward from prior years. The Authority was granting cash advances
  to staff without fully recouping previous advances. The advances balance presented
  also included the balance of cash advanced to several staff members who had since
  ceased employment with the Authority.

  I drew this matter to the attention of Management and they responded as follows:

  “We take note of comments and recommendations and will ensure reasonable steps
  will be taken to address these advances in due time.”

  54.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Authority for the
  years ended 31 December 2012, 2013 and 2014 had not been submitted for my
  inspection and audit, despite reminders.

  – 235 –

• Page 275 of 396

• 55. SMALL BUSINESS DEVELOPMENT CORPORATION

  55.1 INTRODUCTION

  55.1.1 Legislation

  The Small Business Development Corporation was established under the Small
  Business Development Corporation Act 1990 which came into operation on 19 June
  1990.

  55.1.2 Functions of the Corporation

  The functions of the Corporation are: to formulate and recommend to the Minister the
  policies on the promotion of small business, incentive schemes and financial support;
  to provide advisory, management and administrative services; to arrange and co-
  ordinate training and skills development programs; to provide advice on financial
  assistance; to promote and co-ordinate business practice and provide venture capital;
  and to carry out research and disseminate information to small businesses for their
  development and expansion needs.

  55.2 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 Corporation for the year
  ended 31 December 2012 was completed and the Management Letter was issued on
  20 February 2015. However, the responses to the Management Letter and the signed
  financial statements were not provided by the Corporation to enable me to issue the
  report.

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

  – 236 –

• Page 276 of 396

• 56. TOURISM PROMOTION AUTHORITY

  56.1 INTRODUCTION

  56.1.1 Legislation

  The Tourism Promotion Authority was established under the Tourism Promotion
  Authority Act 1993. This Act came into operation on 3 June 1993 thereby repealing
  the Tourism Development Corporation Act 1990. The Authority commenced its
  operational activities on 1 April 1993.

  Under the Tourism Promotion Authority Act all assets held by and obligations and
  liabilities imposed on the Tourism Development Corporation which related to the
  functions of the Authority were transferred to it (the Authority), and the rest of the
  assets and liabilities were transferred to the National Cultural Committee on 3 June
  1993.

  56.1.2 Functions of the Authority

  The principal functions of the Authority are: to foster the development of tourism in
  PNG; to formulate a tourism policy for consideration by the NEC and to implement
  the tourism policy approved by the NEC; to promote PNG overseas as a tourist
  destination; to co-ordinate the overseas promotional efforts of the PNG tourism
  industry; to encourage the provision, development and expansion of tourism
  infrastructure, facilities and products in PNG; and to enhance awareness within PNG
  of the tourism industry and tourism opportunities.

  56.2 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 2014 had been completed and the
  Management Letter was issued to the Authority on 13 May 2015. The responses,
  together with the signed financial statements were awaited from the Authority to
  enable me to issue the audit report.

  – 237 –

• Page 277 of 396

• 57. UNIVERSITY OF GOROKA

  57.1 INTRODUCTION

  57.1.1 Legislation

  The University of Goroka was established under the University of Goroka Act 1997.
  This Act came into operation on 1 January 1997.

  Under this Act, the Goroka Campus of the University of PNG was transferred to the
  University of Goroka together with all staff and students, buildings and grounds,
  equipment, teaching and research facilities, and other assets and liabilities both within
  and outside the College Campus.

  57.1.2 Objectives of the University

  The objectives of the University are dedicated to the pursuit, advancement and
  dissemination of knowledge, understanding and wisdom; the paying of particular
  attention to the human resource development and other development needs of PNG;
  and endeavouring to achieve academic and professional excellence to meet those
  needs through teaching, research and community service.

  57.1.3 Powers of the University

  The University shall have the power to:
   Grant such degrees as are authorised by the Statutes and such diplomas,
  certificates or other academic awards as it determines;
   Provide instruction and facilities for study, education and research to persons
  registered as preparing for degrees, diplomas, certificates or other awards of the
  University;
   Provide facilities for extramural study and continuing education to persons,
  whether members of the University or not, in such fields and in such manner as
  the University may from time to time determine;
   Co-operate in pursuance of any of the objectives of the University with any
  other bodies or persons to enter into agreements authorised by Statute with
  institutions for their affiliation with or incorporation into the University;
   Subject to the SCMC Act to appoint academic, administrative and other staff on
  such terms and conditions of service as the University may determine;
   Provide for promoting the health and general welfare of the students of the
  University, including the establishment and supervision of residence;
   Regulate and enforce discipline among the employees and students of the
  University by such measures as the University may determine;

  – 238 –

• Page 278 of 396

• University of Goroka

   Cancel, annul or revoke any act done in the exercise of these powers; and
   Do all such other acts or things as may be done under the provisions of this Act
  or these powers or as may be conducive to the exercise of the attainment of any
  of the objectives of the University.

  57.1.4 Subsidiary of the University

  The University has a Subsidiary Company, Unigor Consultancy Limited. Comments
  in relation to this Company are contained in paragraph 57A of this Report.

  57.2 AUDIT OBSERVATIONS

  57.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the University‟s
  financial statements for the years ended 31 December 2011 and 2012 were issued on
  20 August 2014 and 13 April 2015 respectively. These reports contained Disclaimer
  of Opinions, hence only the 2012 audit report is reproduced as follows:

  “BASIS FOR DISCLAIMER OF OPINION

  Opening Balances

  The 2011 audit report was issued with a disclaimer of opinion due to limitation of
  scope arising from inability to obtain satisfactory accounting records, source
  documentations and reconciliations to satisfy myself as to the accuracy and
  completeness of opening balances of Fixed Assets and Cash at Bank. I was unable to
  perform sufficient audit procedures to satisfy myself as to the accuracy or
  completeness of the opening balances. Consequently, I was unable to quantify the
  effects of any material misstatements in the opening balances that might have
  consequential effects on the financial statements of the University for the year ended
  31 December 2012.

  Cash at Bank – K16,843,482

  The University maintained four Bank Accounts (General, Student Fees, Public
  Investment Program (PIP) and Special Purpose) with a Cash at Bank balance of
  K16,843,482 as disclosed in the 31 December 2012 financial statements. However, I
  was unable to ascertain the accuracy and completeness of the stated balance due to
  the following anomalies:

   Bank reconciliations of above accounts were not done on a monthly basis. I
  noted that the 2012 bank reconciliations were prepared only in 2013. There
  was no evidence to indicate that the reconciliations were reviewed by an
  independent person for accuracy;

  – 239 –

• Page 279 of 396

• University of Goroka

   The General Account was overdrawn by K393,509. However, the University
  did not take corrective action to reconcile and review the outstanding cheques
  at year-end. This situation was not improved since 2009;
   Cheques totalling K617,177 for the General Account were stated as un-
  presented in the December 2012 bank reconciliation. However, my review
  revealed that these outstanding cheques were not presented in the
  subsequent months‟ bank statements nor disclosed in the subsequent
  months‟ bank reconciliations as outstanding cheques.
  As a result, I was unable to place reliance over the University‟s bank
  reconciliation process and unable to confirm the General Account closing
  balance as reported in the financial statements at 31 December 2012; and
   2011 cheques amounting to K347,763 for the PIP Account were captured in
  the 31 December 2012 bank reconciliation as un-presented cheques. These
  cheques had become stale, but were never written back to PIP Account or
  cleared in a timely manner.

  Fixed Assets – K36,656,846

  My review of the University‟s fixed assets account revealed the following:

   The University did not maintain a proper, complete and accurate Fixed Assets
  Register (FAR) to record the details of assets owned by the University. Due to
  lack of proper FAR, I was unable to physically inspect certain assets against
  the records and confirm the existence and conditions of the assets;
   Fixed assets were never been counted and tagged with number for easy
  reference and identification. In the absence of fixed assets stock take and
  numbering, assets that are idle, misplaced or stolen cannot be identified by the
  University; and
   Depreciation for fixed assets was calculated based on aggregate balance of the
  entire asset category rather than calculating depreciation on individual fixed
  asset item. As a result, it would be difficult to ascertain the net book value of
  asset and the profit/loss on disposal, when an asset was earmarked for
  disposal.

  Due to above observations, I was unable to confirm the existence, valuation and
  completeness of the fixed assets balance reported in the financial statements as at 31
  December 2012.

  Account Balances Transferred to Equity Account

  As reported in prior years the University did not properly maintain the Sundry
  Debtors‟ and Trade Creditors‟ Accounts.

  – 240 –

• Page 280 of 396

• University of Goroka

  As a result, these accounts had opening balances of K305,172 and K624,410
  respectively without any supporting details and carried forward over the years. Since
  the University was unable to reconcile or provide evidence to support the above
  balances, the University has transferred the above balances to Equity Account during
  the year. The above transfer is not in line with the recommended accounting practice
  for which the Equity Account is maintained for.

  57.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act on the audit and
  inspection of the accounts and records of the University for the years ended 31
  December 2011 and 2012 were issued on 20 August 2014 and 13 April 2015
  respectively. For the purpose of this Report, only significant matters arising out of
  2012 report is reproduced below.

  Non-Compliance with the Public Finances (Management) Act 1995

  The PFMA Section 63 (2) and (4) requires the University to furnish to the Minister
  before 30 June in each year, a performance and management report of its operations
  for the year ending 31 December preceding, together with financial statements.
  Before furnishing financial statements to the Minister, the University shall submit
  them to the Auditor-General who shall report to the Minister. However, the
  University has not prepared and submitted its financial statements for the year ended
  31 December 2012 to my Office on a timely basis to enable me to complete the audit
  on time for tabling the report in the Parliament before 30 June 2013. The University
  submitted its 2012 financial statements only in September 2014 to my Office to
  conduct the audit. Accordingly, the University has breached Section 63(2) and 63(4)
  of the PFMA.

  The University Management responded to the above issue as follows:

  “We will improve and submit all outstanding financial statements to the Audit Office
  on timely manner in compliance with the PFMA.”

  Recurrent Budget Overspending

  My review of the recurrent budget revealed that the University had exceeded its
  general account budget by overspending certain vote items totalling K2,964,512
  which represents 113% overspending against the actual budget. The University may
  not be operating within its budget limits, thus resulting in overspending of certain vote
  items.

  Management responded to my observation as follows:

  – 241 –

• Page 281 of 396

• University of Goroka

  “There were certain vote items that have exceeded their general account budget and
  that occurred due to expenditure requirements for core sector were not budgeted as
  expected. Further, funding from the National Government was inadequate for
  University‟s operation over the years.”

  DISCLAIMER OF OPINION

  In my opinion, because of the existence of the limitation of scope on my work as
  described in the Basis for Disclaimer of Opinion paragraphs, and the effects of such
  adjustments, if any, that might have been determined to be necessary had the
  limitations not existed, I was unable to and do not express an opinion on the financial
  statements of the University for the year ended 31 December 2012.”

  Revaluation of Fixed Assets

  In 2003, Unitech Development and Consultancy Limited revalued the assets of the
  University at a value of K53,918,605. To date, the University had failed to
  incorporate the said values in its books. As a result, the University‟s Fixed Assets
  were undervalued by K53,918,605 and did not represent the fair value of the
  University‟s Assets. I further noted that to date, there was no revaluation conducted
  subsequent to the revaluation done in 2003. As such, the University failed to comply
  with the International Accounting Standards (IAS) 16 paragraph 34 which requires
  assets to be revalued at regular intervals.

  Management responded to the above observation as follows:

  “The revalued amount will be incorporated into the accounts and accounts will be
  amended where necessary and revaluation of assets will be considered. Currently it is
  a cost issue and less funding allocation has limited us to spend on priority areas.”

  Salary and Wages Tax and Dependents Declaration Forms

  My review of personnel files revealed that most of the University‟s employees did not
  have Salary and Wages Tax Declaration Forms and birth certificates of officers‟
  children in their personal files. A completed and signed salary and wages declaration
  forms and birth certificates are the basis for claiming dependent tax rebates and also
  for claiming dependents leave fares. In the absence of Salary and Wages Tax
  Declaration Forms, I was unable to state whether salary and wages tax were properly
  calculated without adjusting for dependent rebates. Further, the Public Services
  General Order # 41.41 specify that the officers can claim leave fares for their spouse
  and children under the age of 19 who are wholly dependent and maintained by the
  officer.

  – 242 –

• Page 282 of 396

• University of Goroka

  However, due to lack of dependents declaration and birth certificates of the children, I
  was unable to comment on the legitimacy of dependents leave fares expense of
  K587,800 claimed by the officers during the year.

  I recommended the University to ensure that all the staff members complete and sign
  a salary and wages declaration forms to declare their dependents which must be
  supported by birth certificates.

  Duty Travel Advance Register

  My examination of travel advances and the related travel and subsistence expenses
  revealed that the University did not maintain a Travel Advances Register to keep
  proper records of all the duty travel advances and expenses. I also noted that travel
  advances and expenses were never acquitted. It is a requirement under Financial
  Management Manual Part 20 paragraph 12.2 that a Financial Delegate/Authorising
  Officer shall maintain a register of advances to officers on duty travel. It is a
  requirement under the Financial Management Manual Part 20 paragraphs 11.2 and
  12.10 that cash advanced to officers travelling overseas on official duty must acquit
  travel advances within 14 days of return from duty travel and advances to officers for
  domestic duty travels to be acquitted within 7 days of return from duty travel by
  submitting an acquittal form. In the absence of Travel Advances Register and the
  corresponding travel advance and expense acquittal documents, I was unable to
  confirm that the travel and subsistence payments made during the year were for the
  intended purposes.

  The Management agreed with my findings and responded as follows:

  “A Travel Advance Register will be maintained and acquittal be done by the officers
  within the required timeframe in the future.”

  Non Remittance of Salaries and Wages Taxes to Internal Revenue Commission
  (IRC)

  Pursuant to Section 299G of the Income Tax Act 1959 the group employer (in this
  case the University) is required to remit salary and wages tax to IRC within 7 days
  after end of each month. Failure to remit salary and wages tax on time will result in
  penalty of 20% for outstanding tax payable and an additional interest of 20% per
  annum on the amount that remains unpaid. However, I noted that since 2008 to 2012
  the University did not remit salaries and wages tax to IRC and the salaries and wages
  tax payable to IRC accumulated to K4,473,829 as at 31 December 2012. As a result,
  the University had breached the above requirement.

  The above issue was brought to the attention of Management and they responded as
  follows:

  – 243 –

• Page 283 of 396

• University of Goroka

  “K600,000 is annually estimated in the budget to settle the outstanding group tax
  liability of K4,473,829. Besides, all salaries and wages tax liabilities for 2013 and
  2014 have been remitted to IRC.”

  Procurement Process

  My review of the payment process of the University revealed that payments totalling:

   K223,787 were made without obtaining three written quotations from three
  different suppliers. It is a breach of Financial Management Manual Part 12
  Division 3,which states that three written quotations must be obtained for
  purchases valued between K5,000 and under K100,000; and
   K1,038,587 were paid to suppliers based on quotations and not invoices. As a
  result, I was unable to ascertain as to whether the goods and services have
  been received by the University.

  Due to above discrepancies, I was unable to place reliance over the controls
  surrounding the functions of payment process.

  Management agreed with my findings and responded that in the future they will
  improve in the procurement procedures.

  Contract Document

  The University engaged Gold Bell Construction to construct two staff houses at a
  contract value of K514,933 and a 15% (or K77,240) of the contract amount was paid
  to Gold Bell Construction as mobilisation cost. However, I was not provided the
  signed contract document despite my request and numerous reminders. In the absence
  of the contract document, I was unable to verify payment made to Gold Bell
  Construction as valid and correct payment.

  Delegated Financial Authority

  The University had a Financial Manual specifying the delegated financial authority.
  However, on several instances I observed that some of the Deans of School and Head
  of Departments had approved payments above their limits. Accordingly, I was
  uncertain as to whether the University‟s Financial Manual was out of date or there had
  been amendments made to the delegated financial authority.

  I recommended the University to clearly specify the delegated financial authority of
  the University officers and comply with the limit set by the delegated financial
  authority.

  – 244 –

• Page 284 of 396

• University of Goroka

  Management of Tuition Fees General Ledger (GL) Account

  I noted that some tuition fees were deposited into General Bank Account instead of
  students and their sponsors depositing fees into Tuition Fees Bank Account. The fees
  deposited into General Bank Account amounting to K129,013 were subsequently
  posted to 4-2101 Tuition Fees GL Account. However, the amounts posted to Tuition
  Fees Account were not reconciled and confirmed to students‟ tuition fees deposit
  receipts. Consequently, I was unable to confirm that Tuition Fees GL Account was
  properly managed.

  Management agreed with my observation and stated that in 2013, tuition fees related
  receipts are reconciled and managed properly and the University advised all the
  students to deposit fees into School Fee Bank Account and not in the General Bank
  Account.

  57.3 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 University for the year ended 31 December 2013 was in progress.

  The University had not submitted its financial statements for the year ended 31
  December 2014 for my inspection and audit, despite reminders.

  – 245 –

• Page 285 of 396

• 57A. UNIGOR CONSULTANCY LIMITED (Subsidiary of the University of
  Goroka)

  57A.1 INTRODUCTION

  Unigor Consultancy Limited is 100% owned by the University of Goroka. It was
  incorporated in March 2000 as a consultancy company under the Companies Act.

  57A.1.1 Objectives of the Company

  The Company‟s objectives are to:
   Advance, promote, assist and encourage the educational purposes of the
  University through;
  ‒ Short term programs for and on behalf of the University tailored to the
  needs of clients; and
  ‒ Research, consultancy and publication of all educational materials for
  commercial purposes;
   Conduct or undertake any other business activity both within and outside of
  PNG; and
   Expand and diversify business activities to maximise profits and to promote
  the interest of the Shareholder from time to time.

  57A.1.2 Functions of the Company

  The core function of the Company is to provide services in four key areas:
  1. Professional consultancy services, teaching and dissemination of knowledge;
  2. Merchandising of text books, educational supplies and stationary;
  3. Printing and publication of educational materials, textbooks, business
  documents and all other forms of print material; and
  4. Catering and cafeteria services.

  57A.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 2010, 2011, 2012 and
  2013 had been completed and the results were being evaluated.

  The Company had not submitted its financial statements for the year ended 31
  December 2014 for my inspection and audit, despite reminders.

  – 246 –

• Page 286 of 396

• 58. UNIVERSITY OF NATURAL RESOURCES AND
  ENVIRONMENT

  58.1 INTRODUCTION

  58.1.1 Legislation

  The University of Vudal was established under the University of Vudal Act 1997. This
  Act came into operation on 1 January 1997. The University changed its name to
  University of Natural Resources and Environment in 2008 and became operative in
  the same year.

  Under this Act, the Vudal University College Campus of the PNG University of
  Technology was transferred to the University of Vudal with all staff and students,
  buildings and land, equipment, teaching and research facilities, and other assets and
  liabilities both within and outside the College Campus.

  Although the new entity was created by the Act in 1997, the finance and accounting
  function was transferred to the University of Vudal only on 1 January 1998.

  58.1.2 Objectives of the University

  The Act states the objectives of the University as: dedication to the pursuit,
  advancement and dissemination of knowledge, understanding and wisdom; the paying
  of particular attention to the human resource development and other development
  needs of PNG; and endeavouring to achieve academic and professional excellence to
  meet those needs through teaching, research and community service.

  58.1.3 Powers of the University

  Section 6 of the Act enshrines the University as having the power to:
   Grant such degrees as are authorised by the Statutes and such diplomas,
  certificates or other academic awards as it determines;
   Provide instruction and facilities for study, education and research to persons
  registered as preparing for degrees, diplomas, certificates or other awards of
  the University;
   Provide facilities for extramural study and continuing education to persons,
  whether members of the University or not, in such fields and in such manner
  as the University may from time to time determine;
   Co-operate in pursuance of any of the objectives of the University with any
  other bodies or persons to enter into agreements authorised by Statute with
  institutions for their affiliation with or incorporation into the University;

  – 247 –

• Page 287 of 396

• University of Natural Resources and Environment

   Subject to the SCMC Act appoint academic, administrative and other staff on
  such terms and conditions of service as the University may determine;
   Provide for promoting the health and general welfare of the students of the
  University, including the establishment and supervision of residences;
   Regulate and enforce discipline among the employees and students of the
  University by such measures as the University may determine;
   Cancel, annul or revoke any act done in the exercise of these powers; and
   Do all such other acts or things as may be done under the provisions of this
  Act or these powers or as may be conducive to the exercise of the attainment
  of any of the objectives of the University.

  58.2 AUDIT OBSERVATIONS

  58.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the University‟s
  financial statements for the year ended 31 December 2013 was issued on 26 March
  2015. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Fixed Assets – K66,346,495

  The University disclosed its Fixed Assets as K66,346,495 at the year end. I noted that
  the University had not acquired its Fixed Asset Management System software to
  maintain and update its large record of Fixed Assets data but these details were
  maintained on a spread sheet. Further, the University did not carry out a valuation
  exercise on all its property since its last valuation done in 1997. As a result, I was
  unable to determine the fair value, existence and completeness of the Fixed Assets
  stated at the year end.

  Capital Works In Progress – K4,358,442

  The University disclosed its Capital Works in Progress additions as K4,358,442 in its
  financial statements. During my examination, I was not provided with necessary
  project progress reports to ascertain the nature of work carried out and the stages of
  completion of various projects undertaken by the University. I also noted that each
  project with large volume of transactions were maintained on a spread sheet which are
  susceptible to loss or manipulation due to lack of audit trail. As a result, I was unable
  to confirm the amount incurred for project expenses classified under capital work in
  progress during the year.

  Farm Livestock – K7,105,384

  The University‟s Vudal and Oro Campuses Farms have several herds of livestock as
  disclosed in the financial statements.

  – 248 –

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• University of Natural Resources and Environment

  The year end physical stock count on livestock was not witnessed by me to confirm
  the actual number of livestock and its valuation.

  Further, I was not provided with necessary stock listing and supporting schedules to
  verify the stock balance disclosed in the financial statements. As a result, I was unable
  to comment on the accuracy and completeness of account balance as stated at the year
  end.

  QUALIFIED OPINION

  In my opinion, except for the effects of the matters referred to in the Basis for
  Qualification paragraphs above:
  a) The financial statements of the University 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 University as at 31 December 2013,
  and the results of its financial operations and the cash flows for the year then
  ended.”

  58.2.2 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 University for the year ended 31 December
  2013 was issued on 26 March 2015. The report contained the following observations:

  Opening Balances

  During my review, I noted that 2013 general ledger opening balances did not agree to
  2012 audited account balances. The reason being that the MYOB accounting system
  had not been configured to roll over the year end closing account balances to the new
  accounting period. These accounts include bank accounts, fixed assets, accumulated
  depreciations, debtors and creditors. These accounts begin with a new transaction
  entry with zero opening balance.

  I brought the matter to the attention of Management and they responded to my
  observation as follows:

  “Bursary has realised this problem and has engaged MYOB Technology Ltd from Lae
  to conduct training on the use of MYOB for the bursary staff. There was a training
  conducted in December 2013 and all staff are now fully trained and certificates were
  issued to them and they are now able to do year end roll over through the use of
  MYOB.

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• University of Natural Resources and Environment

  2014 Financial Reports will now have the rollover closing balances of 2013 as
  opening balances for the 2014 report. All the Financial Reports in the future will be
  done in the uniform way using the MYOB.”

  Consultancy Contract Fee Payments

  My review on consultancy contracts revealed that the University engaged consultants
  and project managers to manage the design and construction of new PNG University
  of Natural Resources and Environment library building. The design and supervision
  of the building construction cost K1.6 million and the payments were agreed to be
  paid by installments. I noted that a sum of K256,000 was paid in two installments
  (Claim 4 and 5) without any project status reports. Further, it was revealed that the
  contract clause did not stipulate the scope of work and kind of report that need to be
  attached to claim before the progress payments were made. The contractor was fully
  paid prior to the completion of the building project.

  I brought this issue to the attention of Management and I was advised as follows:

  “The Consultant and Project Managers were paid according to the initial contract
  between the Consultant and the University. The cost of keeping the Consultant would
  have gone up if the University was to hold the Consultant more than the contracted
  timing hence the consultant was paid off as per the initial contract. Some of the facts
  of the delay were because of the bad weather that delayed the construction and of
  course the change in the movement of the location and relocation of the sports field.
  However, the University accepts the fact that the consultants in future will be paid
  according to work schedules and based on the job completion within the contract
  deadlines.”

  Strategic Plan

  During my review of the University‟s strategic plan, I noted that its Departments,
  Units or Sections did not have Management Plans or Divisional Work Plans to link to
  the Annual Budgets in order for the Management to determine and measure whether
  its divisional objectives were being met. As a result, the Management could not be in
  a position to monitor the performance and achievements of the University‟s objectives
  or programs, or effect necessary changes and determine areas where change may be
  required.

  I brought the matter to the attention of Management and they responded to my
  observation as follows:

  “In 2013 Office of Higher Education has engaged an Academic Audit Team that also
  highlighted the same issue as one of the 26 recommendations that was made to the
  University.

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  The Senior Executive Management (SEM) of the University has seriously looked at
  this issue in particular and has engaged all the Sectional Heads to draw up individual
  sectional management plans to align to the University‟s overall
  Development/Strategic.

  So far three separate meetings have been conducted with the Sectional Heads and
  positive results have been seen. All Sectional Heads have developed positive plans
  with their staff to have come up with constructive Management Plans in their
  respective sections.”

  Policies and Procedures

  I noted during my review of University‟s policies, guidelines and processes of the
  University‟s operations, that the University did not have appropriate policy manuals
  as part of the general framework policies that would support and enhance its
  operations. However, those policies that are in place and copies made available to us
  were either out-dated or in draft form. The Governing Council had not approved those
  draft policies nor had taken initiative in revising the out-dated policies.

  I recommended Management have proper approved policies and procedures in place
  to guide the University operations. The University responded to my observation as
  follows:

  “This was another area that the Office of Higher Education sanctioned Academic
  Audit Team has recommended and the Senior Executive Management (SEM) has
  tasked each sections to develop Legal, Policies and Procedures for their sections.
  Sections have taken that recommendation on board and as a result some of the
  policies and procedures are in their draft stages and others are yet to be reviewed
  and done.”

  Minutes of Meetings

  The frequency of meetings held by the University‟s Governing Council,
  subcommittees of the governing council, project management team, tender committee,
  academic committee and other meetings enhances and enforces effective operation of
  the University. I was unable to ascertain whether meetings were conducted at regular
  intervals as required by the University‟s internal policy guidelines, I was provided
  with only the Governing Council meeting minutes. However, I noted that the first
  meeting of 2013 and 2014 were not signed by the Chairperson in order to confirm the
  minutes to be true and correct record of the matters discussed at the meeting. In the
  absence of signed meeting minutes of the Governing Council and other meeting
  minutes, I was unable to ascertain the validity of the resolutions passed at those
  meetings.

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  The University in its responses stated as follows:

  “The committees are in place but unfortunately the meeting minutes were either
  misplaced or misfiled. However, the University will take on the Auditors
  recommendation of maintaining meeting minutes and have all of them signed to
  authenticate as valid meeting minutes.”

  University’s Governing Council

  In my review of the Council Members of the University, I noted that four Governing
  Council members positions were not filled for some time and this includes Pro-Vice
  Chancellor (Administration and Development); Pro-Vice Chancellor (Academic and
  Planning); A Community Representative (Private Sector) and one Female Graduate
  (Rep). I recommended that these appointments need to be filled with competent senior
  officers within the University or from outside within a reasonable time frame to
  effectively implement the University‟s policies.

  Management responded to my observation as follows:

  “The University Council has felt the effect of not having the full members and has
  already taken necessary steps to appoint the respective officers to fill the vacancies.
  In the next Internal Control Review all the vacancies will have been fully filled.”

  Internal Audit

  During my review of the University‟s internal audit, I noted that it was manned by
  only one officer. This unit was not adequately resourced to perform its functions
  effectively to address the roles and responsibilities of the Internal Audit Unit. Further,
  internal audit policies (manual) that were in draft form were not approved by the
  Council. As a result, Internal Audit Unit was unable to effectively perform its
  independent audit on the Council.

  The effectiveness of this unit depends on the manpower and funding to peform its
  tasks for the benefit of the University. Further, an audit committee must oversee the
  activities of the Internal Audit Function.

  I brought this observation to the attention of the Management and I was advised as
  follows:

  “The Senior Executive Management (SEM) of the University has tirelessly been trying
  to solve this problem by recruiting new Internal Audit Officers but unfortunately
  could not recruit because of the constraints in the Government‟s yearly funding. In
  2013 and 2014 there was not a single increment in the funding from the government
  but in 2015 with the funding increment, we should be able to recruit.”

  – 252 –

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  Fixed Assets

  During the review of the Fixed Assets Register, I noted that the Management did not
  acquire Fixed Asset Management System software to maintain and update its large
  record of fixed assets currently maintained by the University. The Planning
  Department of the University was responsible for all the properties and Fixed Assets
  and recorded additions over the years to date on a spreadsheet by way of transaction
  entries, but was unable to match these details to the detailed Accounting Depreciation
  schedule maintained by the Bursary.

  I recommended Management to maintain a proper Fixed Asset Management system to
  properly account for its huge investments in Fixed Assets. The University responded
  to my observation as follows:

  “The University has a Fixed Assets Register and it‟s all maintained in Excel as
  highlighted by the Auditors. The Senior Executive Management (SEM) has decided
  after the audit that a proper Fixed Asset Management System will be kept and this
  system will cost a lot of money. The University in its 2015 budget will include this as
  an item of priority so that the assets values will be properly managed.”

  Human Resources Management

  In my review of the Human Resources Management function revealed that the Human
  Resource Management and Training Policy Manual was not approved by the
  Governing Council. I also observed that the University‟s approved Pro-Vice
  Chancellor (administration) and Pro Vice Chancellor (academic) positions were
  vacant for some time due to the positions not being funded by the Government.

  I advised Management on this observation and it responded as follows:

  “The Human Resources Management and Training Policies Manual is still in the
  draft state and when completed and endorsed by the Governing Council, the Human
  Resources Department will fully utilise it. The vacant positions will be advertised
  once the funds for 2015 are released.”

  Procurement and Payments

  During my examination, I reviewed the adequacy of controls over the accounts
  payable function. I noted that the Sectional/Divisional Heads (except farm operations)
  were not furnishing their expenditure reports together with the paid vouchers on a
  regular basis to the Bursary Department for regular postings into the accounting
  system. Further, the payments were made on quotations; there were no delivery
  dockets to indicate the receipt of goods ordered and the back-orders for the goods in
  most cases were not received by the University.

  – 253 –

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  Public Investment Projects

  My review of the Public Investment Projects (PIP) of the University for the PIP funds
  received during the year 2013 up to September 2014 at the time of audit were as
  follows: (2013) K11,500,000 – (2014) K12,546,200 respectively. The following
  weaknesses were revealed:

  a) The University did not submit quarterly reports on the receipts and payments
  on PIP funds to the Planning and Monitoring Department and Department of
  Finance. Further, the Project Management Team did not produce any report on
  the progress of the projects undertaken and submitted to the Management and
  Governing Council. Regular project inspection progress reports were not
  provided by the University to ensure projects were properly controlled and
  monitored. The re-scoping project approved by National Planning was not
  furnished to the audit. Further, completion certificates or reports of the
  completed projects were not made available for my review.

  I advised Management on this observation and they responded as follows:

  “The quarterly reports are normally submitted to the Planning Department
  and unfortunately during the audit, the Planning Department did not give the
  University sighted copies on time thus was not able to give a copy. However,
  we will request the Planning Department to furnish us the sighted copies of
  the quarterly report. We will provide copies to the Auditor General‟s Office as
  soon as we get them.

  Some projects were completed especially buildings but the Certificate of
  Completion were not issued to the University as yet because the East New
  Britain Province‟s process is very slow with their Building Inspection and
  Certification thus we were not able to show the copies. However, as soon as
  we get the copies we will make copies available to the Auditor General‟s
  Office.”

  b) AP Engineering Limited was awarded the contract to construct the University
  Library at a cost of K17 million. According to the contract, the construction
  project was commenced in September 2012 and expected to be completed in
  March 2015. During my examination in September 2014, I noted that the
  project was still at the initial stage but in total K10.4 million (65%) was paid
  to the Contractor against the agreed sum of K16 million. I queried why such a
  huge amount was paid at the initial stage of the project and the University
  responded to my observation as follows:

  “The total amount of K10,400,000 pay out to AP Engineering includes the
  relocation of the old playing fields to new and after which the Library is now
  in progress.

  – 254 –

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  Some of the delays are caused by bad weather but slowly and gradually the
  construction is on course.”

  c) Audit noted that the staff duplex project at Kavieng was only 75% completed
  and not progressed well due to disagreements between the University and the
  National Fisheries College. I further noted that this building was slowly
  deteriorating without completion of the project due to dispute between the
  University Administration and the National Fisheries College.

  I brought this to the attention of the University and it responded as follows:

  “There were two staff complex built of which one was completed and another
  one was only 75% work in progress when the Memorandum of Agreement
  between the University and the Kavieng Fisheries College elapsed on the
  arrangement of teaching between them. When the time elapsed, for some
  unknown reason the Kavieng Fisheries College did not want to continue with
  the program with the University and this has caused the stop work.

  The Constructor was pulled out and the buildings remained as they were and
  the University has asked the National Fisheries Authority (NFA) which the
  College comes under to reimburse the funds spent on the two buildings to the
  University so that similar buildings will be erected at Vudal Campus and they
  can have the buildings. The National Fisheries Authority (NFA) to this stage
  has not got back to the University and things are pending as it is to this time.”

  58.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the University had not submitted its financial
  statements for the year ended 31 December 2014 for my inspection and audit.

  – 255 –

• Page 295 of 396

• 59. UNIVERSITY OF PAPUA NEW GUINEA

  59.1 INTRODUCTION

  59.1.1 Legislation

  The University of PNG was established under the University of PNG Act (Chapter
  169).

  59.1.2 Objectives of the University

  The objectives of the University include the:
   Provision of facilities for study and education;
   Giving of instruction and training in all such branches of learning as are
  provided for by the Statutes;
   Aiding by research and other means the advancement of knowledge and its
  practical application;
   Conferring, after examination, of the degrees of Bachelor, Master and Doctorate
  and such other degrees, diplomas, certificates and other academic honours as are
  authorised by the Statutes;
   Provision of facilities for university education throughout the country by the
  affiliation of educational institutions, and by the establishment of tutorial
  classes, correspondence classes, university extension classes, and vacation
  classes, and by such other means as the Council thinks appropriate; and
   Liaison, collaboration and reciprocation with other universities and institutions
  of learning, within or outside the country, in the provision of facilities, the
  recognition of degrees and other status, and the interchange of staff, students
  and information, and in any other way not inconsistent with its status as the
  University.

  59.1.3 Subsidiaries of the University

  The University has two subsidiaries, Unisave Limited and Univentures Limited,
  which were incorporated under the Companies Act 1997.

  Comments in relation to the subsidiaries are contained in paragraph 59A and 59B of
  this Report.

  59.2 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 University for the years ended 31 December 2009 to 2012 were complete and
  results were being evaluated.

  – 256 –

• Page 296 of 396

• The University had submitted its financial statements for the year ended 31 December
  2013 and arrangements were being made to commence the audit shorty.

  The financial statements for the year ended 31 December 2014 had not been
  submitted for my inspection and audit.

  – 257 –

• Page 297 of 396

• 59A. UNISAVE LIMITED (Subsidiary of University of Papua New Guinea)

  59A.1 INTRODUCTION

  59A.1.1 Legislation

  Unisave Limited was incorporated under the Companies Act on 18 October 2011.

  The incorporation of Unisave Limited was as a result of a Memorandum of
  Agreement (MOA) signed between the Univentures Limited, (a company 100%
  owned by University of PNG) and S.I.T Co. Limited of the Republic of South
  Korea.

  59A.1.2 Objective of the Company

  The parties to this MOA shall endeavor to create mutual commercial benefits
  through assembly and sales of Information Communication Technology (ICT)
  products and various projects which have price and quality competitiveness
  compared with other organisations in PNG. This will be achieved by combining of
  infrastructures and marketing power in PNG provided by Univentures and the
  technical know-how and successful long-term various experience in Korean ICT
  market provided by S.I.T.

  The main business of the Company is to assemble TVs, PCs, laptops, monitors and
  other items which can be included under mutual consent, such as systems
  integration, systems administration and maintenance in information technology.

  59A.2 AUDIT OBSERVATIONS

  59A.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies Act 1997 on the
  financial statements of the Company for the period 18 October 2011 to 31
  December 2011 was issued on 25 August 2014. The report contained a Disclaimer
  of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Limitation of Scope Regarding Accounting Records

  The Company did not maintain adequate and proper accounting records and
  registers to form the basis for a systematic preparation of the financial statements.
  There were no proper control ledgers and documentary evidence in support of the
  account balance reported in the financial statements.

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• Unisave Limited

  There was a serious breakdown in the accounting system as a whole which
  effectively meant that I was unable to place any reliance on the completeness and
  accuracy of the accounts.

  The financial statements were poorly prepared and had no proper supporting
  documentation and reconciliations. They were prepared from incomplete and
  insufficient records resulting in the limitation in my audit scope. As a result, it was
  impracticable to extend my audit procedures sufficiently to determine the accuracy
  of the information recorded in the financial statements.

  The following deficiencies are highlighted:

   The Unisave Limited was incorporated on 18 October 2011. However, the
  financial statements captured financial transactions for the full year, 2011. As
  a result, I was unable to comment on the accuracy and completeness of the
  financial information reported in the financial statements;
   Cash balance of the Company was stated as K137,125 as at 31 December
  2011. However, the consolidated financial statements of the parent company
  (Univentures Limited) showed nil cash balance in the bank account of Unisave
  Limited. I was not provided with bank statements and monthly bank
  reconciliation statements for my review and confirmation;
   I was unable to ascertain the valuation and measurement of the Stock Value of
  K200,082 as stated in the financial statements since no stock cards were
  maintained. Also, the stock count sheets used for the year-end stock-take were
  not made available for my review;
   The total Fixed Assets value of the Company was stated as K2,000 in Note 7
  to the financial statements. However, the Company did not maintain a proper,
  complete and accurate Fixed Assets Register to record the details and
  movements of assets under its custody and control. Physical inspection of
  certain assets against the records to confirm their occurrence and existence
  was not possible because of the absence of a proper register. As a result, I was
  unable to determine the completeness, existence, accuracy and valuation of the
  fixed assets valuing K2,000;
   Issued shares (initial equity contribution) was presented as K203,606.
  However, I was unable to verify the initial transfer of cash or capital asset by
  the shareholders (Univentures Limited and S.I.T as Joint Ventures) which
  forms basis of equity contribution due to lack of source documentation and
  appropriate accounting;
   Total revenue of the Company was stated as K457,193 as at 31 December
  2011. However, the consolidated financial statements of the parent company
  (Univentures Limited) presented the revenue of Unisave Limited at K99,734,
  giving an un-reconciled difference of K357,459.

  – 259 –

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• Unisave Limited

  Also, no adequate documentation on sales, receipting and banking was
  maintained by the Company. As a result, I was unable to verify the accuracy
  and completeness of the revenue balance of K457,193; and
   The correctness, occurrence and validity of the payments made for the period
  under review could not be verified since source documents were not made
  available for my review.

  DISCLAIMER OF 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 was
  unable to and do not express an opinion as to whether the accompanying financial
  statements give a true and fair view of the financial position of the Company‟s
  financial performance and its cash flows for the period 18 October 2011 to 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) I have not obtained all the information and explanations I have required.”

  59A.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements for the years ended 31
  December 2012, 2013 and 2014 had not been submitted for my inspection and audit,
  despite numerous reminders.

  – 260 –

• Page 300 of 396

• 59B. UNIVENTURES LIMITED (Subsidiary of University of Papua New
  Guinea)

  59B.1 INTRODUCTION

  59B.1.1 Legislation

  Univentures Limited was incorporated under the Companies Act, on 2 August 2007.
  The Company has a total issued capital of one ordinary share of K1.00 and is
  wholly owned by the University of Papua New Guinea.

  59B.1.2 Functions of the Company

  The activities of the Company are to sell and print books in the Bookshop and the
  Printery respectively, as a business arm of the University of Papua New Guinea.

  59B.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 2012, 2013 and 2014 for my inspection
  and audit despite numerous reminders from my Office.

  – 261 –

• Page 301 of 396

• 60. WATER PNG (Formerly PNG Water Board)

  60.1 INTRODUCTION

  60.1.1 Legislation

  PNG Waterboard was established by the National Water Supply and Sewerage Act
  1986, which came into operation on 1 January 1987. The 1986 Act repealed the
  National Water Supply and Sewerage Act (Chapter 393) and thereby abolished the
  National Water Supply and Sewerage Board. On 10 December 2010 PNG Water
  Board changed its name to Water PNG.

  60.1.2 Functions of Water PNG

  Water PNG is entrusted with co-ordinating, planning, designing, construction,
  management and charging for water supply and sewerage services throughout the
  country.

  60.2 AUDIT OBSERVATIONS

  60.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the inspection and
  audit of the accounts and records of the Board for the years ended 31 December 2011
  and 2012 were issued on 27 February 2015 and 30 March 2015 respectively. The
  reports contained Disclaimer of Opinions, hence only the 2012 report is reproduced.

  “BASIS FOR DISCLAIMER OF OPINION

  Limitation of Scope due to Opening Balances

  My audit report for the year ended 31 December 2011 was a Disclaimer of Opinion
  due to the limitation of scope on the opening balances. I was not able to satisfy as to
  the accuracy and completeness of the opening balances of fixed assets, trade debtors,
  other current assets, asset revaluation reserve, long term borrowings, trade payables
  and other payables for 2012 which is the closing balance for 2011.

  Since these opening balances entered into the determination of the results of
  operations and cash flows of Water PNG for the financial year 2012, I was unable to
  determine whether adjustments to the results of operations and cash flows might have
  been necessary for the year ended 31 December 2012.

  – 262 –

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• Water PNG

  Revaluation of Fixed Assets

  The fixed assets of Water PNG represent a significant proportion of its Balance Sheet;
  therefore, revaluations are to be performed on an ongoing basis at least once in every
  three years. In 2010, the Board did not incorporate the new valuations of Land and
  Buildings based on the valuation report performed by TOL Valuer Limited as well in
  preparing the Depreciation Schedule based on the report. As a result, the financial
  statements for 2010 were materially misstated, which had impact on the 2011 and the
  2012 financial statements.

  Further, the valuation performed in 2010 was limited in scope for only the
  organisations Land and Buildings; however, the rest of assets owned by Water PNG
  were not revalued for number of years. This is in non-compliance with the
  International Accounting Standards IAS-16 Property, Plant and Equipment.

  As a result, I was unable to ascertain the accuracy of the value of the total fixed assets
  disclosed in the financial statements as at 31 December 2012.

  Land & Buildings at Arawa – Bougainville

  The financial statements disclosed a total of K210,732,220 as fixed assets of Water
  PNG. This total amount includes assets held in Arawa, Bougainville, at a written
  down value of approximately K1.6 million. The assets held in Arawa, Bougainville
  include buildings and infrastructure and it has been impossible to visit the area since
  the crisis in 1989. Hence, it is likely that these assets are non-operational, obsolete,
  damaged, misplaced or stolen. Therefore, I was unable to ascertain the validity of
  these assets included in the financial statements as at 31 December 2012.

  Land Title Deeds

  Water PNG does not have complete records, title deeds or legal proof of ownership
  over the properties under Land & Buildings. Currently there is no comprehensive
  listing of the properties owned by the Water PNG. At the time of my audit, the
  organisation had title deeds for only 17 out of approximately 124 expected title deeds
  for the lands owned by Water PNG. As such, I was unable to confirm the legality of
  ownership over the pieces of Lands claimed to be owned by Water PNG as at 31
  December 2012.

  Work in Progress

  Notes 7 to the financial statements under fixed assets reported a WIP total of
  K14,694,982 included an opening balance of K13,421,656 as Work-In-Progress. In
  2012, Work-In-Progress valuing K1,413,516 was transferred to the other fixed assets
  groups and an additional of K2,804,356 was accounted during the year.

  – 263 –

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• Water PNG

  However, all the relevant source documentation, completion report and project audit
  report on these Work-In-Progress were not made available for my review to determine
  the validity and accuracy of the value of the projects capitalised or the current status
  of the Work-In-Progress. I was, therefore, unable to determine the accuracy of the
  value of the Work-In-Progress or the value of total fixed assets as disclosed in the
  financial statements at year end.

  Physical Stock-take of Water PNG Assets

  The physical stock-take on all the fixed assets of Water PNG, across the country, as
  reported in the financial statements has not been conducted for a number of years. As
  a result, no accurate information was available on the status of the assets in respect of
  disposed, obsolete, damaged or stolen assets.

  This fundamental failure indicates a lack of control over Water PNG‟s fixed assets
  that are currently recorded at a net book value of K210,732,220. Consequently, I was
  unable to ascertain the accuracy of the value of the fixed assets taken up as
  K210,732,220 in the financial statements for the year ended 31 December 2012.

  Financial Statements for Provincial Water Supply Projects

  Water PNG with the assistance of National Government and Asian Development
  Bank initiated number of Provincial Water Supply Projects (PWSP). However, the
  audited financial statements of these projects were not made available for my review
  to determine whether all the projects were completed by the Project Management Unit
  for capitalisation, so that they could be transferred to the fixed assets. Furthermore,
  the audit report of the projects for the 2008 financial year remained outstanding.
  Therefore, I was unable to verify the value of the transfers made and the
  consequential effects on the financial statements of Water PNG for the year ended 31
  December 2012 in respect of the Provincial Water Supply Projects.

  Trade Receivables – K15,303,270

  The Trade Receivables was disclosed at net of K15,303,270 as at 31 December 2012.
  Due to inadequate documentation made available for my review it was not possible
  for me to perform the audit procedure that the trade receivables were received in the
  subsequent period. Also, the policy of Water PNG in respect of provision for doubtful
  debts was not made available for my review to determine whether the provision was
  made as per the policy and whether it was adequate. As such, I was unable to
  determine the accuracy of the balance of K15,303,270 reported as Trade Receivables
  after allowing K18,718,701 as provision for doubtful debts as at 31 December 2012.

  Other Trade Debtors – K707,817

  Other Trade Debtors which amounts to K707,817 and consists of a number of
  material accounts that have been outstanding for more than ten years.

  – 264 –

• Page 304 of 396

• Water PNG

  The documentation or supporting schedules for these amounts were inadequate to
  confirm the existence and to determine its recoverability. Therefore, I was unable to
  ascertain the existence and accuracy of the balance of K707,817 included in the trade
  receivables as at 31 December 2012.

  Trade Creditors

  Trade Creditors was reported as K2,264,720 in the financial statements. However, this
  amount was not reconciled and supported by any source document or supplier
  statement for me to determine the accuracy of the balance as at 31 December 2012.
  The trade creditors listing produced from the Pronto System was incomplete.

  Other Payables and Accruals

  Note 5(b) reported other payables & accruals totaled K5,681,798. I was not provided
  with the detailed schedules, reconciliations or source documents amount to
  K5,681,798 for my verification. Therefore, I was unable to confirm the accuracy of
  the amount recorded for Other Payables and Accruals as at 31 December 2012.

  Asian Development Bank Loan

  A total of K87,301,163 was recorded under long term borrowings as amount due to
  the Asian Development Bank (ADB). This amount represents the costs of water
  projects completed and funded by the ADB. However, as per the Loan Agreement
  dated 16 January 2001 the loan is entered into between the Government of PNG
  (GoPNG) and the ADB. As per the Loan Agreement, GoPNG is the borrower and
  ADB the lender of funds for specific projects which were to be carried out by Water
  PNG (previously PNG Water Board) and on completion of the water projects
  ownership of the assets is transferred to Water PNG.

  As per the documentation on file, Water PNG is not a party in the repayment of the
  ADB loan but GoPNG as the primary borrower. I had been informed that there is a
  Sub-Loan Agreement between the GoPNG and Water PNG but I was not provided
  with a copy for my review to verify the claim.

  My review revealed that no repayments have been made towards the Asian
  Development Bank Loan of K87,301,167. Also, no interest appears to be accruing or
  is being accounted for in respect of this loan in the books of Water PNG.

  Due to the absence of complete accounting records and relevant supporting
  documentation, I was unable to confirm the existence or correctness of this liability to
  the ADB, whether the loan is being serviced and repaid in line with agreed terms of
  the agreement.

  – 265 –

• Page 305 of 396

• Water PNG

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis for Disclaimer
  Opinion paragraph, I have not been able to obtained sufficient appropriate audit
  evidence and accordingly, I was unable to express an opinion on the financial
  statements of the Water PNG for the year ended 31 December 2012. ”

  60.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Section 8(2) of the Audit Act on the inspection and
  audit of the accounts and records of the Board for the years ended 31 December 2011
  and 2012 were issued on 27 February 2015 and 30 March 2015 respectively. These
  reports contained similar observations, hence only the 2012 observations are
  reproduced below:

  Fixed Asset Register – General Observations

  A high proportion of fully depreciated assets were still recorded in the Fixed Asset
  Register (FAR). Most of these appear to be very old assets which may or may not
  exist. As noted, Water PNG has failed to account for obsolescence or theft of assets.
  Additionally, many assets recorded in the FAR have no specific identifying details.
  There were insufficient details in the FAR as purchase orders were not used in a
  number of cases and some additions had no supporting documents. Payments for
  assets were often based on a quote with no invoice filed or available for review.
  Accounting for Goods Services Tax (GST) on asset acquisition was incorrect on a
  number of purchases made. Number of assets purchased during the year was included
  in the FAR inclusive of GST, and not fully deducted when recording the assets.

  Inadequate Insurance Cover

  I have noted that Water PNG has insurance cover on its fixed assets, however, given
  the uncertainty regarding the valuation or existence of these assets there is a risk that
  claims may be undervalued and not cover actual replacement costs of assets which
  have been damaged or stolen, may not be identified and therefore cannot be claimed
  from Insurance.

  Without an accurate Fixed Asset Register and adequate insurance cover based on such
  a register, Water PNG is exposed to significant potential financial losses and legal
  risks from fire, theft and other destructive occurrences.

  General Accounting and Internal Control Environment

  The operation of the accounting system and the internal control environment at Water
  PNG appears to be deficient with the nature of its business.

  – 266 –

• Page 306 of 396

• Water PNG

  The organisation suffers due to an ineffective management information system as well
  as an inadequate financial reporting structure. The result of which is slow, ineffective
  and incomplete accounting as well as unreliable information for management. This
  increases the risk of suboptimal decision making, as well as incomplete financial
  records and delayed financial statements.

  The reports that were produced by the system were inaccurate and the Management
  was unable to substantiate many of the balances included in the general ledger. This
  effectively meant neither Management nor any third party could place reliance on the
  accounting system to give a complete and accurate information. Because of the
  failures in record keeping, internal control, segregation of duties and Management
  oversight, I am of the view that the Water PNG did not keep proper accounting
  records of its 2012 financial transactions.

  I also observed that the Water PNG lacked a proper documentation system which
  prevented me from testing the internal control system. Number of essential
  documentation either could not be retrieved or simply did not exist. This resulted in
  delays and even failures to provide the requested audit information which impacted
  me to complete the audit as planned.

  The lack of proper documentation and the non-adherence to standard procedures and
  processes is an example of an ineffective internal control system. The absence of
  documentary evidence of any control procedures restricted me from carrying out tests
  for compliance of control procedures and processes but in itself is evidence that the
  procedures were ineffective.

  Compliance with Public Finances (Management) Act 1995

  The audit of the 2012 statutory financial statements commenced in November 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.

  60.3 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 Water PNG for the year
  ended 31 December 2013 was in progress.

  The financial statements for the year ended 31 December 2014 had not been
  submitted for my inspection and audit.

  – 267 –

• Page 307 of 396

• – 268 –

• Page 308 of 396

• SECTION B

  NATIONAL GOVERNMENT

  OWNED COMPANIES

  – 269 –

• Page 309 of 396

• – 270 –

• Page 310 of 396

• 61. FOREWORD

  This Section of my Report deals with Companies in which the Government of PNG
  holds more than 50% of the Issued Share Capital. On 26 January 1983, the NEC‟s
  Decision No. 12/93 expanded my responsibilities to include the audit of National
  Government Owned Companies and subsidiaries thereof. The audit of Government
  Owned Companies is also conferred on to me through Section 3 of the Audit Act.

  The auditing and reporting requirements of these companies are stipulated in the
  Companies Act.

  Section 200 of the Act requires the auditor‟s report on the financial statements to
  include:

  (a) The work done by the auditor;
  (b) The scope and limitations of the audit;
  (c) The existence of any relationship the auditor has with the Company;
  (d) Whether all information and explanations required have been obtained;
  (e) Whether in the auditor‟s opinion, proper accounting records have been kept;
  (f) Whether in the auditor‟s opinion, the financial statements comply with generally
  accepted accounting practice and, where they do not, the respects in which they
  fail to comply; and
  (g) Whether in the auditor‟s opinion, the financial statements give a true and fair
  view of the matters to which they relate and, if not, the respects in which they
  fail to give such a view.

  My audit of Government Owned Companies is conducted in accordance with the
  requirements of the Companies Act. Under Section 8 (2) of the Audit Act, I am also
  expected to report to the Minister for Finance and Treasury, the matters of
  significance to do with the accounts and records, the financial transactions and the
  assets and liabilities. The members of the Company are also informed of the same.

  – 271 –

• Page 311 of 396

• – 272 –

• Page 312 of 396

• 62. AIR NIUGINI LIMITED

  62.1 INTRODUCTION

  62.1.1 Legislation

  Air Niugini Limited wa incorporated under the Companies Act. It was formed to be
  the successor company of National Airline Commission, following the NEC decision
  of 20 June 1996 to corporatise the National Airline Commission in accordance with
  Section 45 of the National Airline Commission Act.

  As a result of the NEC decision, all assets, liabilities, staff and operations of the
  National Airline Commission were to be transferred at the written down book value
  (as at 31 August 1996) to Air Niugini Limited. Air Niugini Limited is a 100% State
  Owned Company.

  62.1.2 Objectives of the Company

  The principal objectives of the Company are to:
   Carry on the business of airline operators, general carriers, freight forwarders
  and forwarding agents, warehouse operators, shippers and general agents, ship
  owners charterers, hospitality and general traders, stevedores, cool store
  operators, flight contractors, carriers by land, air and water, insurers and
  insurance brokers and other business which may be usefully carried on in
  connection with such business;
   Provide transport service, carrier freight transport, courier, taxi truck, light or
  heavy haulage and delivery services which involves the use of aircraft,
  railways, ship, road vehicle or any other means of conveyance by land, road,
  railway, sea, river, canal, water or air to carry and convey passengers, mails,
  containers, packages, parcels, bulk commodities, goods, merchandise,
  livestock and produce and property of every description;
   Carry, collect, receive, load, unload, store, consign, distribute, transfer and
  deliver property of every description by any mode of transportation; and
   Carry passengers by air, road, rail, land, sea or water and to operate any taxi
  service and to obtain any necessary licences for such purposes.

  62.2 AUDIT OBSERVATIONS

  62.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies Act on the financial
  statements of the Company for the year ended 31 December 2013 was issued on 12
  February 2015. The report contained a Qualified Opinion.

  – 273 –

• Page 313 of 396

• Air Niugini Limited

  “BASIS FOR QUALIFIED OPINION

  Valuation of Rotables and Engines

  Air Niugini (the Company) has a policy to revalue its rotables and engines once in
  every three years, with the last valuation being performed in 2010. In line with the
  policy, the Company hired an independent external valuer to perform the valuation of
  rotables and engines as at 31 December 2013. However, upon reviewing the draft
  valuation the Board of Directors and Management believed that the valuation which
  indicated a possible increase of K26.27 million in value of rotables and engines was
  excessive and did not reflect the true fair value of the assets. The Board has concluded
  that the present book value of the assets was more appropriate measure as at 31
  December 2013.

  The Company has not provided me with sufficient and appropriate audit evidence as
  to why the Board and Management rejected the independent external valuation and to
  conclude the present book value is more appropriate. It is impractical for me to
  determine a value for rotables and engines as at 31 December 2013. As such, I was
  unable to determine what adjustments might be necessary to the statement of
  comprehensive income, statement of cash flows and statement of changes in equity
  for the year ended 31 December 2013 and for the comparative year ended 31
  December 2012.

  Componentisation of Assets

  IAS 16 “Property, Plant and Equipment” requires that “for each part of an item of
  property, plant and equipment with a cost that is significant in relation to the total
  cost of the item shall be depreciated separately.” I noted that the Company does not
  depreciate the components of the aircrafts that it owns or finance leases in accordance
  with IAS 16, rather the aircrafts are depreciated as a whole. Due to the difficulty in
  identifying and separating the components (which are rotated) and calculating the
  estimated depreciation over their useful lives, I was unable to quantify the effect on
  the financial statements; however, I believe the accumulated effect would be material.

  Due to the fact that the Company records its aircrafts at fair value based on valuations
  completed as at 31 December each year, the error would not have any effect on the
  net assets of the Company and any difference in the statement of financial position as
  at year end would be a difference between the Revaluation Reserve and the
  Company‟s Profit/Retained Earnings.

  However, I was unable to determine what adjustments might be necessary to the
  statement of comprehensive income, statement of cash flows and statement of
  changes in equity for the year ended 31 December 2013, and for the comparative year
  ended 31 December 2012.

  – 274 –

• Page 314 of 396

• Air Niugini Limited

  Useful life of Aircraft

  I noted that when an aircraft is revalued each year subsequent to its year of purchase,
  the original useful life of the aircraft is used to depreciate the new value of the aircraft
  and not the remaining useful life based on the purchase date. I further noted that
  certain aircraft have been in service for periods exceeding their original useful lives
  used for depreciation purposes. As a result, the Company is not formally re-assessing
  the useful lives of the aircrafts at each balance date. This may result in a number of
  different errors in depreciation calculations, and also in the revaluation increments
  when aircrafts are subsequently revalued.

  As with componentisation of assets, due to the aircrafts being revalued every year,
  depreciation errors would not have an effect on the net assets of the Company at year
  end, however, I was unable to determine what adjustments might be necessary to the
  statement of comprehensive income, statement of cash flows and statement of
  changes in equity for the year ended 31 December 2013, and for the comparative year
  ended 31 December 2012.

  QUALIFIED OPINION

  In my opinion, except for the effects of the matters referred to in the qualification
  paragraphs above:
  (a) The financial statements of Air Niugini Limited for the year ended 31
  December 2013:
  (i) Give a true and fair view of the financial position and the results of its
  operation and cash flows for the year ended on that date; and
  (ii) The financial statements have been presented in accordance with the
  Companies Act 1997, International Financial Reporting Standards and
  other generally accepted accounting practice in Papua New Guinea;
  (b) Proper accounting records have been kept by the Company; and
  (c) I have obtained all the information and explanation as required except for the
  matter referred to in the qualification paragraphs.”

  62.2.2 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 Company for the year ended 31 December
  2013 was issued on 12 February 2015. The report contained the following
  observations:

  Inventory Aging Analysis

  During 2013, I have noted that aging of inventory has not been set up in WinAir
  system and this was carried over and raised from 2012 and 2011 audit findings.

  – 275 –

• Page 315 of 396

• Air Niugini Limited

  I have noted that an analysis of aged stock had not been completed as at year end
  which required adjustments to both Consumable and Commercial stock obsolescence
  during the audit and prior year. I also noted that that does not appear to be any formal
  process to identify obsolete stocks for consumable stock and commercial stock and is
  done on a manual adhoc basis by stores staff.

  There had been delays in obtaining required supporting documents in assessing the
  reasonableness of provision of obsolescence. No aging analysis being done by
  Management may result in the valuation of inventory not being fairly stated as at year
  end.

  Receipts and Issues of Rotables not properly Recorded

  During my audit, I have noted a number of receipts and issues of rotables not being
  accounted for. By not correctly recording the movement of rotables, this may lead to
  misstatement of value at each reporting date. It may also result in the
  misappropriation of the assets. Management has noted that this is an ongoing issue
  and I have been informed that the Company is looking at ways to address this. I
  recommend to Management that an appropriate system be put in place that can track
  the movement of rotables and that sufficient controls are put in place to ensure all
  movements are recorded.

  Accounting for Previously Unrecorded Land

  During the year, the Management identified twenty eight blocks of land for which the
  Company was paying rates and taxes but were not included in the Company‟s assets
  register or financial statements. On the basis that Management were unable to recover
  acquisition documentation, including the original purchase price, Management have
  obtained an independent valuation and included the fair value of K7 million as an
  increment to Property, Plant and Equipment and the Revaluation Reserve.

  I have not been provided with title deeds of the properties, nor any information in
  respect of the properties original acquisition. The Company has not been able to
  calculate the effect of this proposed error on prior year financial statements and no
  restatement of prior year financial statements has been made. I was unable to
  determine whether ownership of the land remains with the Company or whether any
  adjustments might be necessary to the statement of financial position, statement of
  comprehensive income, statement of cash flows and statement of equity for the year
  ended 31 December 2013, and for the comparative year ended 31 December 2012.

  Information Technology

  During the 2013 audit, I was unable to take a full controls approach to the audit as
  many of the Company‟s general IT controls are not effective.

  – 276 –

• Page 316 of 396

• Air Niugini Limited

  This results in a far more substantive audit approach including more intrusive and
  time consuming procedures. The lack of IT controls should also be a concern for the
  Company as it indicates there is a higher possibility of misstatement or fraud. A
  number of specific deficiencies found have been detailed in the Management Letter
  provided to the Company. It is important that a company of Air Niugini size and
  complexity should have a functioning internal control environment.

  I recommended to Management to review all IT controls (general and application) to
  find all deficiencies and rectify them effectively.

  Compliance with Public Finances (Management) Act 1995

  The Directors did not meet the deadline set by the Section 63 of the PFMA for the
  year 31 December 2013 audited financial statements of Public Bodies to be furnished
  to the Minister before 30 June of the subsequent year.

  62.3 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 Company for the year ended 31 December 2014 was in progress.

  – 277 –

• Page 317 of 396

• 63. LIVESTOCK DEVELOPMENT CORPORATION LIMITED

  63.1 INTRODUCTION

  63.1.1 Legislation

  The Livestock Development Corporation Limited was incorporated under the
  Companies Act. The share capital is wholly owned by the National Government.

  63.1.2 Functions of the Corporation

  The main activities of the Corporation are breeding and slaughtering cattle and pigs,
  purchasing and exporting insects, growing vegetables and fruits, and raising poultry.

  63.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Corporation had not submitted its financial
  statements for the years ended 31 December 2010, 2011, 2012, 2013 and 2014 for my
  inspection and audit.

  I expressed my concern to the Minister for Agriculture and Livestock through my
  letter dated 11 March 2015 for the long delay experienced by the Corporation in
  submitting the financial statements to enable me to perform the audit for the above
  years.

  – 278 –

• Page 318 of 396

• 64. MINERAL RESOURCES DEVELOPMENT COMPANY LIMITED

  64.1 INTRODUCTION

  64.1.1 Legislation

  The Mineral Resources Development Company Limited (MRDC) was incorporated
  under the Companies Act. The Company is wholly owned by the National
  Government. The authorised capital of the Company was increased from 10,000
  Ordinary Shares to 10,000,000 Ordinary Shares of K1 each, in June, 1992. An
  additional 4,906,015 shares were issued to the Independent State of PNG in June
  1992, converting the Government grant and the shareholders loan to equity. The
  Company also acquired the Government‟s 20% interest in Misima Mines Limited.

  64.1.2 Objective of the Company

  The principal objective of the Company is to hold the Government‟s equity in mineral
  and petroleum development ventures within PNG.

  64.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  64.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies Act on the financial
  statements of the Company for the year ended 31 December 2011 was issued on 27
  February 2015. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OPINION

  Compliance with International Financial Reporting Standards (IFRS)

  The 2011 financial statements as presented did not contain all the disclosures required
  by IFRS. Material disclosures were omitted from the financial statements related to
  the following accounting standards:

  – IFRS 7, Financial Instruments: Disclosures;
  – IAS 24, Related Party Disclosures;
  – IAS 27, Consolidated and Separate financial statements; and
  – IAS 32, Financial Instruments: Presentation.

  Related Party Receivables

  Note 9(b) of the financial statements disclosed K7,623,000 as receivables from related
  party as at 31 December 2011.

  – 279 –

• Page 319 of 396

• Mineral Resources Development Company Limited

  However, I was unable to obtain sufficient appropriate audit evidence regarding the
  existence and accuracy of certain related party receivables totalling K6,122,000.
  Accordingly, I was unable to determine whether any adjustments to amounts due from
  related parties recorded in the financial statements was necessary.

  Investments in Highlands Pacific Limited

  Of the total investment of K50,823,000 shown in the financial statements, K3,833,000
  (2010: K14,728,000) was invested in Highland Pacific Limited (HPL). As per Note 12
  to the financial statements, the Government of Papua New Guinea by National
  Gazette Number G125 dated 02 August 2002 issued a vesting notice which effectively
  transferred MRDC‟s shares in HPL to Independent Public Business Corporation
  (IPBC). Subsequently, a Gazette Notice Number G105 dated 8 August 2003 was
  issued reversing the transfer made in Gazette Number 125. Also, this notice required
  alterations to the effect from 20 June 2002. However, in 2007, the Independent
  Public Business Corporation (Amendment) Act 2007 included a clause under Section
  50(7) that any revocation notice issued by the Minister of any assets vested with the
  Corporation between the enactment of IPBC Act 2002 and the IPBC (amendment) Act
  2007 is void and of no effect.

  As such, I was unable to satisfactorily confirm MRDC‟s claim of ownership of
  Highland Pacific Limited shares valued at K3,833,000 included in the total
  investment of K50,823,000 as at 31 December 2011.

  Investments in Coleman Property

  As disclosed in Note 12(c) to the financial statements under investment, the Company
  invested in MRDC Pty Limited (Coleman Property), a foreign associate, totalled
  K2,637,000 (2010: K3,217,000) accounted under equity method. The Company‟s
  share of net loss of K580,000 (2010: Nil) is included in the Company‟s income for the
  year then ended. I was unable to obtain sufficient appropriate audit evidence over the
  carrying amount of the investments in MRDC Pty Limited as of 31 December 2011
  and 31 December 2010, as well as the net loss for the year ended 31 December 2011,
  since I have not been provided with the audited financial statements of MRDC Pty
  Ltd for the relevant financial years or alternate evidence as to the carrying amount of
  share of earnings for the period. Accordingly, I was unable to determine whether any
  adjustments to investment in associates or share of loss of investment in associate are
  necessary and the flow on impacts to the statement presented.

  Investments – Non Consolidation of Subsidiaries

  Note 12(d) discloses certain investments relating to costs of projects under
  development, describing Mineral Resources Ramu Limited (“MRR”) and Mineral
  Resources Madang Limited (“MRM”) as subsidiaries of the Company.

  – 280 –

• Page 320 of 396

• Mineral Resources Development Company Limited

  As these entities are 100% owned subsidiaries of the Company, consolidated financial
  statements including these subsidiaries are required to be prepared in accordance with
  IAS 27 Consolidated and Separate Financial Statements. No such consolidated
  financial statements have been prepared. The Company has accounted for these
  investments on a cost basis, and is not compliant with the accounting standards.

  Had MRR and MRM been consolidated, many elements in the accompanying
  financial statements may have been materially affected. I was unable to quantify or
  determine whether any adjustments, if any, are required to the financial statements of
  the Company to reflect the issue of not consolidating.

  Investment in Ramu Nickel

  As disclosed in Note 12(d), the Company has an investment in the Ramu Nickel
  Project carried at K15,072,000 as at 31 December, 2011 through its investments in
  MRR and MRM. I understand the investment as disclosed in Note 12(d), represents
  the capital injection into the Ramu Nickel Project on behalf of these investments,
  thus, in reality representing an investment by the Company into MRR and MRM
  instead. I have not been provided with financial statements of the Ramu Nickel
  Project nor MRR and MRM, nor have I been provided with any documentation
  supporting the direct or indirect investment into, or loans to these investments. I was
  therefore unable to obtain appropriate evidence as to the existence and accuracy of
  these investments. Accordingly, I was unable to determine whether any adjustments
  were necessary in respect of the Company‟s investment in Ramu Nickel Project,
  MRR and MRM as at 31 December 2011 and 31 December 2010.

  Tax on Employee Benefits and Entitlements

  A significant number of MRDC employees allocate a portion of their salary package
  to meet their housing, motor vehicle purchase, school fees and other expenses. I was
  not provided with all sufficient evidence to satisfy myself that the applicable taxes
  had been appropriately calculated in accordance with the PNG Income Tax Act, nor
  that appropriate documentation was lodged with the Internal Revenue Commission
  (IRC) to support the allocations and payments.

  I further was unable to determine whether this had been done in previous financial
  years. As such, I was unable to obtain sufficient appropriate evidence that employee
  group taxes payable as disclosed on Note 13 to the financial statements were complete
  and accurate. Accordingly, I was unable to determine whether any adjustment is
  necessary to the “Payable” balance in the statement of financial position or
  applicable payroll expenses in the statement of comprehensive income in the 2011 or
  2010 financial statements was necessary.

  – 281 –

• Page 321 of 396

• Mineral Resources Development Company Limited

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis for Disclaimer of
  Opinion paragraph, I have not been able to obtain sufficient appropriate audit
  evidence and accordingly, I was unable to express an opinion on the financial
  statements of Mineral Resources Development Company Limited for the year ended
  31 December 2011.”

  64.2.2 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 Company for the year ended 31 December
  2011 was issued on 27 February 2015. The report contained the following comments:

  Managing Director’s Contract

  I noted that a “Professional Services Agreement” was signed on 15 May 2008
  between MRDC and Augustine Mano as the “Incumbent Professional” of SMA
  Investment Limited “the company”.

  Section 4 of the contract states that MRDC will pay the Managing Director and SMA
  Investments Limited a monthly fee of K62,500 (K750,000 annually, GST excluded),
  based on an invoice provided by SMA Investment Limited.

  However, the Managing Director had written to the payroll division of MRDC
  advising that his package be structured into two components; where K150,000 was to
  be paid as salary to him through the MRDC payroll, and K600,000 be paid to SMA
  Investments Ltd at K50,000 per month. The K50,000 monthly payment to SMA is
  divided into Housing (K20,000), Vehicle (K20,000) and other allowances (K10,000).

  In my 2008 Management Letter to the Board and Management of MRDC, I have
  raised concern that this arrangement may be viewed as tax evasion. I have
  recommended in that letter, that the Management of MRDC should seek independent
  tax advice from reputable accounting firms immediately on the consequence of this
  arrangement and assessment of the under payment of tax. I also recommended that
  Management should withhold making the monthly payments to SMA until the tax
  advice had been sought.

  Management of MRDC had responded to my 2008 Management Letter points, stating
  that the restructure was not an attempt to evade tax, but was a normal practice applied
  by MRDC to cater for the Managing Directors current needs.

  Management also agreed to seek independent tax advice to confirm the above
  arrangement.

  – 282 –

• Page 322 of 396

• Mineral Resources Development Company Limited

  However, during the course of my audit of the year ended 31 December 2011, I have
  not been provided with any reports compiled by the independent tax advisors to
  confirm the above arrangement.

  A Managing Director or Director of a Company is always a natural person. The
  Managing Director of MRDC is an employee of MRDC. All benefits of any employee
  are classed as salary and wages and must be taxed according to the tax rules
  applicable. The current arrangement of the Managing Director can be viewed as a
  measure to reduce or evade tax.

  Should MRDC continue to allow this, the IRC can deem the payments as net of tax
  and demand MRDC to pay the tax. There are penalties for both the employer and
  employee pursuant to Section 361 of the Income Tax Act 1959. Such a scenario can
  lead to undesirable consequences for both parties.

  Due to the inaction by the MRDC management to seek further advice and clarification
  from IRC, I was of the view that the management is deliberately allowing this
  anomaly to continue.

  Directors Fees and Retirement Benefit

  Directors‟ fees payable is required to be approved by the Prime Minister responsible
  for MRDC, I was not provided with a copy of the approval in relation to the payments
  made to non-ex-officio directors totalling a gross of K345,000.

  I also noted that a general provision of K968,000 had been made in the books to cater
  for retirement benefits for retiring Directors, which is not warranted for non-executive
  directors. In addition, I was not provided with information confirming the Ministerial
  approval for the fees paid to non-ex-officio directors.

  Financial Reporting – Reconciliation and Supporting Documentation

  During the course of my audit, it was identified that certain balance sheet
  reconciliations and the preparation of appropriate supporting documentation for
  balances and transactions recorded in the general ledger were not performed
  effectively. I also identified that some reconciliations were not done timely, and some
  reconciliations did not appear to be reviewed effectively as errors were identified
  through the audit process.

  I recommended that a review of the control and review process, including available
  resources be conducted. Appropriate personnel should be engaged to ensure the
  review process is thorough and complete.

  – 283 –

• Page 323 of 396

• Mineral Resources Development Company Limited

  Credit-card Expenses Acquittal

  During my review of credit-card reconciliations, I noted that the reconciliations do not
  show the nature of the specific business for which the expenses were incurred. Hence,
  I was unable to identify expenses incurred for personal use and those used on
  business.

  Establishment of Audit Committee and Investment Committee

  I noted that the responsibilities of MRDC had increased significantly as the
  government issued more development licenses for Oil, Gas and Mining operations in
  the country. MRDC is set to manage more investment vehicles for landowners.
  Therefore, it is important that the increased investment and operating activities are
  managed within a framework that ensures transparency and diligence.

  As a result of MRDC‟s responsibility increased in managing the funds of the
  landowners its exposure to risk is very high. However, at present there is non-
  existence of an Investment Committee and an Audit Committee with appropriate
  specialist involvement. All investments must be approved by the Investment
  Committee before Board approval.

  Compliance with Public Finance (Management) Act 1995

  The financial statements for the year ended 31 December 2011 were approved and
  issued on 2 June 2014. 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.

  64.3 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 Company for the year ended 31 December 2012 was in progress.

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

  – 284 –

• Page 324 of 396

• 65. MOTOR VEHICLES INSURANCE LIMITED

  65.1 INTRODUCTION

  65.1.1 Legislation

  The Motor Vehicles Insurance (PNG) Trust Limited was incorporated under the
  Companies Act following the NEC Decision No. 4/98 of January 1998. It was formed
  to change the status of the then existing Motor Vehicles Insurance (PNG) Trust to
  conform to the intentions of the NEC for the then PNG Banking Corporation Holding
  Company No. 1 Limited to acquire the business of the Trust as part of the reform of
  the financial services sector.

  The Trust was incorporated under the Companies Act as Motor Vehicles Insurance
  (PNG) Trust Limited (MVITL). The shares of this entity which were held by the
  Independent State of PNG were subsequently sold to the then PNG Banking
  Corporation, an entity also owned and controlled by the State.

  On 31 December 1998, as part of the corporatisation and restructuring programme of
  the then PNG Banking Corporation Group, PNGBC Limited, PNGBC Holding Co.
  No. 1 Limited and Motor Vehicles Insurance (PNG) Trust Limited were amalgamated
  under the provisions of the Companies Act to form an amalgamated Company,
  PNGBC Limited. The ultimate parent Company of PNGBC Limited was Finance
  Pacific Limited, a Company wholly owned and controlled by the Independent State of
  PNG.

  With effect from 1 January 1999 Motor Vehicles Insurance Limited was incorporated
  under the Companies Act to underwrite the third party insurance under the Act in
  succession to the Trust and MVITL.

  The assets of MVITL immediately before the amalgamation with the then PNGBC
  Limited were transferred to MVIL when it took over the responsibility for providing
  third party insurance.

  65.2 AUDIT OBSERVATIONS

  65.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies Act on the Company‟s
  financial statements for the year ended 31 December 2011 was issued on 4 July 2014.
  The report contained a Qualified Opinion.

  – 285 –

• Page 325 of 396

• Motor Vehicles Insurance Limited

  “BASIS FOR QUALIFIED OPINION

  Loss on Equity Monetisation of BSP Shares

  As at 1 January 2009, MVIL owned 530,105,100 shares in Bank of South Pacific
  (BSP). These shares under Equity Monetisation Contract (EMC) were mortgaged to
  Nominees Niugini Limited on 22 July 2009 for a loan of K100 Million. The value of
  these shares mortgaged at the date of transfer was K439,987,233, K0.83/share as per
  POM Stock Exchange.

  On 6 June 2011 BSP reconstructed its shares by issuing one share for every ten shares
  held and 530,105,100 BSP shares owned by MVIL were converted into 53,010,510
  shares. On 22 June 2011, 21,766,774 mortgaged BSP shares were retained by
  Nominee Niugini Limited as a result of the termination of the Equity Monetisation
  Contract and 31,243,736 BSP shares were transferred back to MVIL.

  As a result of this Equity Monetisation Contract, MVIL incurred a loss of
  K45,837,385 as noted below:

  Value of 53,010,510 shares as at 22 June 2011 @ K6.70/ Share K355,170,417
  Value of 31,243,736 shares transferred back to MVIL @K6.70/Share
  K209,333,031
  Gross Loss Incurred on the transfer K145,837,385
  Less: EMC proceed K100,000,000
  Loss on transfer of BSP Shares as at 22 June 2011 K 45,837,385

  However, this loss was not provided in the accounts of MVIL for the year ended 31
  December 2011. Therefore, I was unable to determine the accuracy of the loss taken
  up as K85,546,306 in the financial statements as at 31 December 2011.

  Overseas Investments

  Note 7(a) of the financial statements disclosed a total amount of K376,232,000 as
  Non-Current Investments. Of this, K62,304,769 relates to overseas investment of
  K100 million (gross) in Woodlawn Capital, Australia. As a result of this investment a
  provision for loss of K38,257,971 was made in the accounts for the year. The Fund
  Manager‟s confirmation disclosed that equivalent amount held in foreign currency
  (Australian dollars) was AUD $27,536,040. However, the relevant certificates of
  these investments were not made available for my review to verify the claim made by
  the Fund Manager. Therefore, I was unable to verify the accuracy of the non-current
  investments taken up as K376,232,000 in the financial statements as at 31 December
  2011.

  – 286 –

• Page 326 of 396

• Motor Vehicles Insurance Limited

  Valuation of Unquoted Shares

  MVIL has not determined the fair value of Westpac and Pacific International Hospital
  shares as these shares are unquoted.

  Therefore, I was unable to determine the accuracy and valuation of the unquoted
  shares taken up in the financial statements as K2.9 million.

  QUALIFIED OPINION

  In my opinion, except for the effects of the matters referred to in the qualification
  paragraphs above:
  (a) The financial statements of Motor Vehicles Insurance Limited for the year
  ended 31 December 2011:
  (i) Give a true and fair view of the financial position and the results of its
  operation and cash flows for the year ended on that date; and
  (ii) The financial statements have been presented in accordance with the
  Companies Act, International Financial Reporting Standards and other
  generally accepted accounting practice in Papua New Guinea.
  (b) Except as noted under the Basis of Qualified Opinion and Emphasis of Matter
  paragraphs, proper accounting records have been kept by the Company; and
  (c) I have obtained all the information and explanation as required except for the
  matter referred to in qualification paragraphs and other matters.

  EMPHASIS OF MATTERS

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

  Non-Compliance of Companies Act

  Further to my qualification in respect of Monetisation of BSP shares of 530,150,100, I
  have noted that the MVIL Board has erred in law by convening an illegal meeting to
  obtain a “Special Resolution” of the Board for the Monetisation of BSP shares.
  According to Section 2 of the Companies Act 1997, “Special Resolution” means the
  “special resolution of shareholders” and in this case, Independent Public Business
  Corporation (IPBC). IPBC has not given the consent for this Monetisation Contract
  before the contract and even after the transaction had taken place.

  False declarations were made on the Finance Forms which form part of the Equity
  Monetisation Contract and Mortgage Contract.

  – 287 –

• Page 327 of 396

• Motor Vehicles Insurance Limited

  The MVIL Board had contravened Sections 110, 112, 114 and 115 of the Companies
  Act 1997. The respective provisions of the Companies Act referred to, requires that all
  the Company‟s major transactions entered into shall be approved by the shareholders
  of the Company which is the IPBC, by a Special Resolution. Further, the Directors of
  the Company shall act in good faith in the best interest of the Company, in that they
  shall not act or agree to the Company acting in a manner that contravenes the
  Companies Act and the Constitution of the Company.

  As a consequence of their failure, I am of the view that the MVIL Board Members
  could be penalised under Sections 112 (5), 114 (2) and 115 (2) of the Companies Act
  and other relevant provisions relating to offences and penalties. These Sections
  impose significant penalties, including financial penalties for failure to comply with
  the Act.

  In my 2009 and 2010 audit reports, I also reported the issue on the non-compliance of
  the Companies Act by Management of MVIL regarding the loan of K100 million from
  Nominees Niugini Limited by mortgaging 530,105,100 BSP shares. I mentioned too
  that the matter was subject to a Special Investigation by my Office.

  At the time of preparing this Report, the Special Investigation referred to had been
  completed and the results were still being evaluated.

  Non-Compliance of Independent Public Business Corporation Act 2002

  The K100,000,000 loan arrangement and the mortgaging of the 530,105,100 BSP
  shares breached Section 46B of the IPBC Act 2002 because the Section requires the
  Ministerial approval from the Minister of Finance and Treasury upon the
  recommendation of the Managing Director of IPBC.”

  65.3 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 Company for the years ended 31 December 2012, 2013 and 2014 were in
  progress.

  – 288 –

• Page 328 of 396

• 66. NATIONAL AIRPORTS CORPORATION LIMITED

  66.1 INTRODUCTION

  66.1.1 Legislation

  National Airports Corporation Limited was incorporated under the Companies Act.
  The Company had begun operations in October 2009 after its incorporation on 6
  October 2009. This Company was established in accordance with Section 132 of the
  Civil Aviation Act 2000 (as amended).

  National Airports Corporation Limited is regulated by the Civil Aviation Authority Act
  2000 (as amended) as a Company having its own operating certificates. Except for the
  governance requirements specified in the Civil Aviation Act, it operates
  independently. The two shares issued by the Company are equally held by the
  Minister for Civil Aviation and the Minister for Finance on behalf of the Independent
  State of Papua New Guinea.

  66.1.2 Functions of Corporation

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

  66.1.3 Subsidiaries of the Corporation

  The Corporation has a subsidiary company, Airport City Development Limited.
  Comments in relation to that company are contained in paragraph 66A of this Report.

  66.1.4 Project of the Corporation

  The National Airports Corporation Limited also manages the Civil Aviation
  Development Investment Program (CADIP) which is funded by Asian Development
  Bank and counter funded by the Government of PNG (GoPNG). Comments in
  relation to the Project is contained in the Special Project Audits Report to
  Parliament.

  66.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and
  records and the examination of the financial statements of the Company for the year
  ended 31 December 2011 was in progress.

  The Company had not submitted its financial statements for the years ended 31
  December 2012, 2013 and 2014 for my inspection and audit, despite repeated
  reminders.

  – 289 –

• Page 329 of 396

• 66A. AIRPORT CITY DEVELOPMENT LIMITED (Subsidiary of National
  Airports Corporation Limited)

  66A.1 INTRODUCTION

  The Airport City Development Limited was incorporated on 20 August 2009 and
  was deregistered on 20 April 2010. However, the Company was reinstated on 19
  September 2011 as a subsidiary company of the National Airports Corporation
  Limited. The Company came into operation on 19 September 2012.

  66A.2 CHARTER OF THE COMPANY

  The Company was incorporated to establish and manage the design, construction
  and operating stages of the Airport City Project to ensure economic, technically
  sound and expeditious completion of the Airport City Project.

  66A.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Company for the
  years ended 31 December 2012, 2013 and 2014 had not been submitted for my
  inspection and audit, despite reminders.

  – 290 –

• Page 330 of 396

• 67. NCD WATER AND SEWERAGE LIMITED (Trading as Eda
  Ranu)

  67.1 INTRODUCTION

  67.1.1 Legislation and Objectives of the Company

  The NCD Water and Sewerage Limited was incorporated on 23 February 1996 under
  the Companies Act. The NCDC (Transfer of Assets) Act 1996 provided for the vesting
  in the Company of the assets required for the supply of treated water and the
  treatment of sewerage from the NCDC.

  67.1.2 Functions of the Company

  The principal functions of the Company are to provide the supply of treated water,
  and the treatment and disposal of sewerage within the NCD.

  67.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  67.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies Act 1997 on the
  Company‟s financial statements for the year ended 31 December 2013 was issued on
  23 April 2015. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Fixed Assets – K48,935,809

  The Company has disclosed its Fixed Assets at a written down value of K48,935,809
  as at 31 December 2013. Of the total Fixed Assets, I was not able to verify
  K15,808,611 worth of assets classified under Water and Sewerage Assets categories.
  Further, the Company has not maintained a fixed assets register for all the fixed assets
  under the custody and control of the Company. As a result, I was not able to verify the
  accuracy, measurement, existence and completeness of the carrying amount of the
  fixed assets at the year end.

  Stock – K3,225,011

  During the review of the Company‟s stock valuation balance of K3,225,011 as at 31
  December 2013, I noted that the Company did not maintain a proper inventory system
  to enable me to verify the accuracy and completeness of the stock account. As a
  result, I was not able to verify the stock balance at year-end.

  – 291 –

• Page 331 of 396

• NCD Water & Sewerage Limited (Trading as Eda Ranu)

  QUALIFIED OPINION

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

  (a) The financial statements of NCD Water and Sewerage Limited for the year
  ended 31 December 2013:
  (i) Give a true and fair view of the financial position and the results of its
  operations and cash flows for the year ended on that date; and
  (ii) The financial statements have been presented in accordance with the
  Companies Act 1997 and International Financial Reporting Standards
  and other generally accepted accounting practice in Papua New
  Guinea;
  (b) Proper accounting records have been kept by the Company; and
  (c) I have obtained all the information and explanation required.

  OTHER MATTER

  Compliance with Public Finances (Management) Act 1995

  The financial statements for the year ended 31 December 2013 was approved and
  issued on 21 April 2015. The Directors did not meet the deadline set by Section 63 of
  the PFMA for audited financial statements of public bodies to furnish to the Minister
  before 30 June of the subsequent year.”

  67.2.2 Audit Observations Reported to the Ministers

  My report to the Ministers under Section 8(2) of the Audit Act on the audit and
  inspection of the accounts and records of the Company for the year ended 31
  December 2013 was issued on 23 April 2014. The report contained the following
  observations:

  Balance Sheet Reconciliations and Schedules

  To ensure that the accounts are complete and accurate, all balance sheet account items
  from the trial balance must be reconciled, differences identified, adjustments taken
  and copies made ready for audit examination as and when required. This has not been
  the case whereby staff attended to audit request on adhoc basis. Due to the delay in
  providing reconciliations, audit schedules and supporting documents, audit
  examinations have been affected and causing delays in completing the audit. I
  recommended to Management that reconciliation process should be on a regular basis
  and all supporting schedules should be made available during the audit.

  – 292 –

• Page 332 of 396

• NCD Water & Sewerage Limited (Trading as Eda Ranu)

  Budget Control

  Budget is a plan that guides the organisation on inflow of income and outflow of
  expenses at the same time. This means budgetary controls is very important for any
  money making organisation. In this case, several expenditure accounts were overspent
  by huge amounts when comparing the actual against the budget.
  Expense Account Actual Budget Variance % Variance
  Legal Cost 1,678,009 600,000 1,078,009 180
  Overtime 1,160,483 556,000 604,483 109
  Minor Works 3,696,752 2,260,000 1,436,752 64
  Equipment Hire 4,199,442 1,117,400 3,082,042 276
  MV Repairs 3,028,676 530,000 2,498,676 471
  Hire Cars 365,385 20,000 345,385 1,727
  Travel & Accommodation 890,853 710,000 180,853 25
  Security Cost 2,147,521 1,045,000 1,102,521 105

  I recommended Management ensure that budget control measures are in place and
  strictly monitored so that the organisation makes a profit as required by the
  shareholder. Management responded as follows:

  “Legal costs – the increase was due to legal options sought externally before and
  immediately after the BOT agreement was terminated.

  Overtime – due to so much of repair and maintenance work done during the period
  than expected.

  Minor Works – the new Board wanted refurbishment work on various installations.

  Hire of Heavy Equipment – this is hire of backhoes. The Board met and made a
  decision to double the hourly rate from K200 to K400 per hour and also allowed a
  K200 per hour for standby time.

  MV repairs – increase in the number of vehicles. The replaced vehicles were still in
  use with higher R&M costs.

  Hire Cars – this was for vehicles used by Police and the Board for security reason
  immediately after taking office as well as during the BOT termination period.

  Travel & Accommodation – overseas trips taken by the Board and senior
  management.

  Security Costs – security was paramount for the new Board and the CEO straight
  after taking office.”

  Payment Vouchers

  My examination of the payment vouchers showed the following weaknesses:

  – 293 –

• Page 333 of 396

• NCD Water & Sewerage Limited (Trading as Eda Ranu)

   18 cheques and payment requisitions were not signed by the authorised
  signatories;
   12 payment vouchers were not located in the files either missing or misplaced;
  and
   5 payment vouchers did not have complete documentations where copy of the
  Board Resolution was not attached to justify the payment.

  I recommended that Management should ensure that proper authorisation procedure is
  complete to validate the payment. In addition, proper filing of relevant records is
  required by law, therefore, all documents must be filed intact. Management concurred
  with my recommendation.

  67.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Company for the
  year ended 31 December 2014 had not been submitted for my inspection and audit.

  – 294 –

• Page 334 of 396

• 68. NPCP HOLDINGS LIMITED

  68.1 INTRODUCTION

  68.1.1 Legislation

  This Company was incorporated under the Companies Act on 4 March 2014 and was
  established in accordance with the NEC Decision No. 108/2011 dated 7 July 2011.
  IPBC is the sole shareholder of NPCP Holdings Limited and all the shares which were
  held by IPBC in National Petroleum Company PNG (Kroton) Limited (NPCP) were
  transferred to NPCP Holdings Limited as its sole shareholder.

  68.1.2 Objective of the Company

  NPCP Holdings Limited and its wholly owned subsidiaries are the only group of State
  Owned Companies from which the State would nominate one or more of them to
  participate in all future Petroleum Projects as State nominee for the purposes of
  Section 165 of the Oil and Gas Act 1998.

  68.2 AUDIT OBSERVATIONS

  68.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies Act on the Company‟s
  financial statement for the year ended 31 December 2014 was issued on 16 June 2015.
  The report did not contain any qualification.

  – 295 –

• Page 335 of 396

• 68A. NPCP INVESTMENTS LIMITED (Subsidiary of NPCP Holdings
  Limited)

  68A.1 INTRODUCTION

  68A.1.1 Legislation

  This Company was incorporated under the Companies Act on 15 October 2014.
  This Company was established in accordance with the NEC Decision No. 108/2011
  dated 7 July 2011. NPCP Holdings is the sole shareholder of NPCP Investments
  Limited.

  68A.1.2 Objective of the Company

  The Principal objective of the Company is to hold the State‟s shareholding interest
  in Oil Search Limited and other Investments by the State in oil and gas in Papua
  New Guinea. In this respect, on 4 March 2014, Independent State of PNG (ISPNG)
  acquired 10.01% shareholding (149,390,244 shares) in Oil Search Limited (OSH) at
  a price of AUD8.20 per share for a total consideration of AUD1,225 million. The
  funding for purchase of the ISPNG interest in OSH was provided by UBS Australia.
  On 23 December 2014, ISPNG transferred its 10.01% shareholding interest in OSH
  and the obligations arising from the loan facilities provide by UBS to NPCP
  Investments Limited and NPCP Holdings Limited.

  68A.2 AUDIT OBSERVATIONS

  68A.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies Act on the
  Company‟s financial statements for the year ended 31 December 2014 was issued
  on 16 June 2015. The report did not contain any qualification.

  – 296 –

• Page 336 of 396

• 68B. NATIONAL PETROLEUM COMPANY OF PNG (KROTON)
  LIMITED (Subsidiary of NPCP Holdings Limited)

  68B.1 INTRODUCTION

  68B.1.1 Legislation

  National Petroleum Company of PNG (Kroton) Limited was incorporated under the
  Companies Act and was acquired by IPBC on 24 November 2008.

  IPBC was approved as the State‟s nominee in the PNG Liquefied Natural Gas
  (PNGLNG) Project as resolved by NEC in its Meeting No. 36/2008 through
  Decision No. 223/2008. NPCP Holdings Limited is the 100% Shareholder of
  National Petroleum Company of PNG (Kroton) Limited as per NEC Decision No.
  108/2011 dated 7 July 2011, which came into effect in 2013. All the Company‟s
  shares held by IPBC were transferred to NPCP Holdings Limited in 2013.

  68B.1.2 Objective of the Company

  The objective of National Petroleum Company of PNG (Kroton) Limited is to invest
  in the PNG LNG Project as PNG State‟s nominee holding 16.57% Equity in the
  Project.

  68B.2 AUDIT OBSERVATIONS

  68B2.1 Comments on Financial Statements

  My reports in accordance with the provisions of the Companies Act on the
  Company‟s financial statements for the years ended 31 December 2011, 2012, 2013
  and 2014 were issued on separate dates. The 2011 and 2012 reports were issued on
  28 November 2014, 2013 and 2014 reports were issued on 27 January and 16 June
  2015 respectively. The reports did not contain any qualifications.

  – 297 –

• Page 337 of 396

• 68C. NPCP PIPELINE AND GAS SUPPLY LIMITED (Subsidiary of
  NPCP Holdings Limited)

  68C.1 INTRODUCTION

  68C.1.1 Legislation

  This Company was incorporated under the Companies Act on 19 September 2014.
  This Company was established in accordance with the NEC Decision No. 108/2011
  dated 7 July 2011. NPCP Holdings Limited is the sole shareholder of NPCP
  Pipeline and Gas Supply Limited.

  68C.1.2 Objective of the Company

  NPCP Pipeline and Gas Supply Limited objective is to provide pipeline facilities to
  the upcoming various Liquefied Natural Gas (LNG) projects. In 2014, the Company
  has purchased 100% shareholding in Cue PNG Limited at a cost of US$7 million
  and changed the name as NPCP Oil Company Limited registered in Melbourne,
  Australia.

  68C.2 AUDIT OBSERVATIONS

  68C.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies Act on the
  Company‟s financial statements for the year ended 31 December 2014 was issued
  on 16 June 2015. The report did not contain any qualification.

  – 298 –

• Page 338 of 396

• 69. PNG PORTS CORPORATION LIMITED (Formerly PNG Harbours
  Limited)

  69.1 INTRODUCTION

  69.1.1 Legislation

  PNG Harbours Limited was incorporated under the Companies Act on 19 June 2002.
  This initiative was in accordance with the privatisation policy approved by the NEC
  in 1999. The Company changed its name to PNG Ports Corporation Limited on 7
  March 2006.

  69.1.2 Functions of the Company

  The general functions of PNG Ports Corporation Limited include the regulation,
  management, control and operation of declared ports; the movement of shipping
  therein; and the maintenance of light ships, buoys, beacons, moorings, wharves,
  docks, piers, jetties, landing stages, slips, landing ramps, and platforms.

  69.2 AUDIT OBSERVATIONS

  69.2.1 Comments on Financial Statements

  My reports in accordance with the provisions of the Companies Act on the inspection
  and audit of the accounts and records of the Company for the years ended 31
  December 2012 and 2013 were issued on 25 August 2014 and 13 April 2015
  respectively. The reports contained Qualified Opinions, hence only the 2013 report is
  reproduced as follows:

  “BASIS FOR QUALIFIED OPINION

  Revaluation of Property, Plant and Equipment – Revaluation of Entire Class of
  Assets

  The Company carried out a revaluation in 2011 of land, building and wharf facilities
  resulting in an increase in the value of the property, plant and equipment by K568
  million. However, wharf facilities with a carrying value of K73 million were not
  considered for revaluation. This in my opinion is a departure from International
  Accounting Standards 16 – Property, Plant and Equipment (IAS 16) which requires
  that where an item of property, plant and equipment is revalued, the entire class of
  property, plant and equipment to which that asset belongs shall be revalued. Had the
  wharf facilities been completely revalued in their entirety, the carrying value of
  property, plant and equipment and revaluation reserve may have been materially
  different to that recorded in the attached financial report. The financial effect of this
  matter is unable to be quantified.

  – 299 –

• Page 339 of 396

• PNG Ports Corporation Limited

  Non-Consolidation of Subsidiaries

  In 2011, the Company incorporated Dylup Estate Holdings Ltd and North Coast Agri
  Services Ltd, which are fully owned subsidiaries. However, these subsidiaries were
  not consolidated by the Company on the basis that their business activities are
  dissimilar to the Company‟s operations and are expected to be sold in near future.
  This in my opinion is a departure from International Accounting Standards 27 (IAS
  27) “Consolidated and Separate Financial Statements” which requires these
  subsidiaries should be consolidated. Had these subsidiaries been consolidated, the
  non-current assets would have been increased and the current assets would have been
  decreased by K4.79 million at 31 December 2013 and the profit after tax for the year
  then ended would have been decreased by K1.16 million.

  Capital Work in Progress

  As at 31 December 2013, costs incurred in relation to delays amounting to K47
  million for the Lae Port Project No. 280 were recognised and capitalised as part of
  capital work in progress. The contractor has claimed there have been serious delays in
  the execution of works and made claims for costs relating to the delays on the basis
  that they result from error in the design of various aspects of the work amounting to
  K47 million. In accordance with IAS 16, the cost of abnormal amounts of wasted
  material, labour, or other resources is not included in the cost of the asset. Had the
  Company recognised the delay cost as expense, the carrying value of the capital work
  in progress and retained earnings and profit for the year in 2013 would have decreased
  by K47 million.

  QUALIFIED OPINION

  In my opinion, except for the effects of the matters described in the Basis for
  Qualified Opinion paragraphs above:
  (a) The financial statements of PNG Ports Corporation Limited for the year ended
  31 December 2013:
  (i) Give a true and fair view of the financial position and the results of its
  operations and cash flows for the year ended on that date; and
  (ii) The financial statements have been presented in accordance with the
  Companies Act 1997, International Financial Reporting Standards and
  other generally accepted accounting practice in Papua New Guinea;
  (b) Proper accounting records have been kept by the Company as far as it appears
  from my examination of those records; and
  (c) I have obtained all the information and explanations required.

  – 300 –

• Page 340 of 396

• PNG Ports Corporation Limited

  EMPHASIS OF MATTER

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

  Compliance with the Companies Act 1997

  The financial statements for the year ended 31 December 2013 have not been
  submitted to the Registrar within the required timeframe. This is in my opinion, a
  contravention to the Companies Act 1997, which requires the Directors of every
  Company to, within five months after the balance date of the Company, submit the
  duly signed financial statements to the Registrar unless the Registrar extended the
  period on the application of the Company.”

  69.3 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 Company for the year ended 31 December 2014 was in progress.

  – 301 –

• Page 341 of 396

• 70. PNG AIR SERVICES LIMITED

  70.1 INTRODUCTION

  70.1.1 Legislation

  PNG Air Services Limited was incorporated under the Companies Act 1997. The
  Company began its operation in January 2008 after its incorporation on 30 April
  2007. The Company was established in accordance with Section 143(6) of the Civil
  Aviation Act 2010 (amended) which envisaged the establishment of a Company to
  deliver “air traffic services, aeronautical navigation services and aeronautical
  communication services and all related services in Papuan New Guinea and the
  airspace for which it is responsible.”

  PNG Air Services Limited as a State Aviation Enterprise (SAE) and is an
  independent self-funding Company. The two shares issued by the Company are
  equally held by the Minister for Civil Aviation and the Minister for Finance on
  behalf of the State of Papua New Guinea. The Company has its own operating
  certificates and operates independently from other Aviation Entities established
  under the Civil Aviation Act 2010 (amended).

  70.1.2 Functions of the Company

  PNG Air Services Limited was established with a purpose of delivering safe and
  efficient air navigation services to the aviation industry and the travelling public. It
  ensures provision of quality Communication, Navigation, Surveillance (CNS) and
  Air Traffic Management (ATM) services to both domestic and international
  customers who operate within the PNG airspace, at a reasonable cost, hence to be a
  leader in providing world standard air navigation services. PNG Air Services
  Limited makes sure that the radio coverage in PNG both VHF and HF are improved
  and that efficient and effective air traffic services are maintained.

  70.2 AUDIT OBSERVATIONS

  70.2.1 Comments on Financial Statements

  My reports in accordance with the provisions of the Companies Act on the
  Company‟s financial statements for the years ended 31 December 2013 and 2014
  were issued on 4 August 2014 and 29 June 2015 respectively. The reports contained
  Qualified Opinions, hence only 2014 report is reproduced as follows:

  – 302 –

• Page 342 of 396

• “BASIS FOR QUALIFIED OPINION

  Fixed Assets – K39,520,744

  The financial statements and the Fixed Assets Register disclosed assets that were
  acquired since 2008 totalling K39,520,744 (net). However, assets that are presently
  used by the Company but previously held by the Civil Aviation Authority have yet
  to be transferred and accounted for in the Company books. These assets include the
  Control Tower Building, MES and HQ Building, HF Receiver Station, James Hill
  (DVOR/DME) and Rader Hill.

  Furthermore, the measurement of these assets is uncertain as neither costs nor
  valuation amounts have been made available for my review.

  No resolution had been made between the concerned parties in this regard.
  Therefore, I was unable to ascertain the accuracy of the completeness of the Fixed
  Assets taken up in the financial statements as K39,520,744 as at 31 December 2014.

  QUALIFIED OPINION

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

  (a) The financial statements of PNG Air Services Limited for the year ended 31
  December 2014:
  (i) Give a true and fair view of the financial position and the results of its
  operations and cash flows for the year ended on that date; and
  (ii) The financial statements have been presented in accordance with the
  Companies Act, International Financial Reporting Standards and other
  generally accepted accounting practice in PNG.
  (b) Proper accounting records have been kept by PNG Air Services Limited as far
  as appears from my examination of those records; and
  (c) I have obtained all other information and explanations required.”

  – 303 –

• Page 343 of 396

• 71. PNG DATACO LIMITED

  71.1 INTRODUCTION

  71.1.1 Legislation

  The PNG DataCo Limited came into existence on 2 December 2010 after the name
  changed from Whittlesea Limited. Whittlesea Limited was incorporated under the
  Companies Act 1997 on 21 April 2010.

  On 6 February 2014, the National Executive Council (NEC) in its Decision No:
  32/2014 approved for immediate operations of the PNG DataCo Limited as a 100%
  Majority State Owned Enterprises (SOE) to oversee and implement the National
  Transmission Network Impact Project (NTN) Strategy and Objectives as approved by
  the NEC Decision No: 268 of 2010, NEC Decision No: 107 of 2011 and NEC
  Decision No: 108 of 2012.

  PNG DataCo Limited is governed by the Companies Act, the IPBC Act, and the
  regulator – NICTA Act. The Company came into operations from February 2014.

  71.1.2 The Objectives of the Company

  The key objectives of the Company are to:

   Work towards the PNG Government‟s Policy on ICT to refurbish the existing
  transmission network, extend its availability across the country, allow new
  transmission networks to develop, and to increase technical capabilities to
  support high-speed broadband;
   Develop the National Transmission Network (NTN) as the efficient domestic
  and international telecommunication transmission network and that the NTN
  is available on a wholesale and non-discriminatory basis to all licensed
  operators of the telecommunication industry to stimulate and foster social and
  economic developments in Papua New Guinea using State Owned assets and
  new network investments;
   Provide internet gateway services at the international gateway;
   Improve the availability of broadband transmission telecommunication
  services within PNG and internationally;
   Improve performance of telecommunication services in terms of
  responsiveness;
   Lower the cost of telecommunications services to end users; and
   Ensure the current network operations are scalable, standardise network and
  IT, invest in required capabilities to build low-cost position, develop deal
  making capabilities, and best-in-class execution capabilities.

  – 304 –

• Page 344 of 396

• PNG DataCo Limited

  71.1.3 The function of the Company

  The main functions of the Company are to:

   Develop the National Transmission Network (NTN) as the efficient domestic and
  international transmission network; and
   Supply high value and market driven suite of data services on a wholesale and non-
  discriminatory basis to all licensed operators and ISPs (i.e. holders of a Network or
  applications licenses) leveraging its exclusive network asset base.

  71.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Company had submitted the financial
  statements for the year ended 31 December 2014 and arrangements were being made
  to commence the audit shortly.

  – 305 –

• Page 345 of 396

• 72. PNG POWER LIMITED

  72.1 INTRODUCTION

  72.1.1 Legislation

  PNG Power Limited (PPL) was incorporated by the Privatisation Commission under
  Section 3(1) of the Electricity Commission (Privatisation) Act 2002 as the successor
  company to the PNG Electricity Commission (ELCOM), a statutory corporation
  established under the Electricity Industry Act (Chapter 78).

   The Electricity Commission (Privatisation) Act transferred to PNG Power
  Limited:
  (i) All of ELCOM‟s right, title and interest to any and all assets other than
  those transferred to PNG Dams pursuant to item 1(a) and (c),
  including, without limitation, the electricity generation assets located
  in the areas of Sirinumu Dam and Yonki Dam;
  (ii) All of ELCOM‟s liabilities other than those transferred to PNG Dams
  pursuant to item 2(b); and
  (iii) All water use permits held by ELCOM and referred to in Section 7(1)
  of the Act.
   Transferred all of the employees of ELCOM to the employment of PNG
  Power Limited;
   Declared PNG Power Limited as a “Specified Entity” for the purposes of
  Section 8 of the Act;
   In accordance with the privatisation policy of the Privatisation Commission,
  all the issued shares of PNG Power were transferred to the Privatisation
  Commission (and deemed transferred to the successor to the Privatisation
  Commission, the Independent Public Business Corporation of Papua New
  Guinea (IPBC of PNG) as the trustee of the General Business Trust under the
  IPBC of PNG Act; and
   The consideration for the transfers referred to in items 1 and 2 was nil.

  72.1.2 Functions of the Company

  The functions of the Company are to plan and co-ordinate the supply of electricity
  throughout the country; to generate, transmit, distribute, reticulate and sell electricity;
  and to provide to the public bodies and the State, services related to sale, consumption
  and use of electricity.

  -306-

• Page 346 of 396

• PNG Power Limited

  72.2 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 year ended 31 December 2013 had been completed. The signed
  financial statements were not submitted by the Company despite reminders to enable
  me to issue the report.

  The financial statements for the year ended 31 December 2014 had been submitted
  and the audit will commence shortly.

  -307-

• Page 347 of 396

• 73. POST (PNG) LIMITED

  73.1 INTRODUCTION

  73.1.1 Legislation

  Post (PNG) Limited was incorporated on 24 December 1996 under the Companies
  Act. This Company was formed following the NEC Decision No. 18/96 of 17 April
  1996 to corporatise the Post and Telecommunications Corporation (PTC) and separate
  it into three entities, namely: Telikom PNG, Post PNG and PNG Telecommunication
  Authority (PANGTEL) now known as National Information and Communications
  Technology Authority (NICTA) as established by Section 8 of the National
  Information and Communications Act.

  As a result of the NEC Decision, all assets, rights, liabilities, staff and regulatory
  powers and business of the PTC relating to Postal Services were, as per the allocation
  statement approved by the Minister for Communications, transferred on 31 December
  1996 at net book value to Post (PNG) Limited. Post (PNG) Limited is a 100% state-
  owned Company and it commenced trading on 1 January 1997.

  73.1.2 Objectives of the Company

  The primary objectives of the Company are to:
   Provide domestic and international postal services to meet the reasonable
  needs of the people, Government, non-governmental organisations and
  business enterprises of PNG;
   Manufacture and market postage stamps, philatelic products and other
  products for use in connection with services provided by Post PNG;
   Provide money transfer services within the Independent State of PNG and
  between PNG and other places;
   Engage in research relating to postal products and activities;
   Provide packet and parcel carrying services;
   Provide courier and freight services;
   Provide mail house, documents exchange and contract mail management
  services;
   Carry on any business or activity that is related, incidental, ancillary or
  complementary to the provision of domestic and international postal services;
   Provide fund transfer services, act as agent on behalf of other entities, bodies
  and organisations in relation to banking arrangements and in the collection of
  premium rates, licence fees, other like services and operate a savings bank;
  and
   Perform functions relating to the provision of postal services in a manner
  consistent with PNG‟s obligations under any convention.

  -308-

• Page 348 of 396

• Post (PNG) Limited

  73.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  73.2.1 Comments on Financial Statements

  In accordance with the provisions of the Companies Act, my report for the year ended
  31 December 2014 was issued on 15 June 2015. The report did not contain any
  qualification.

  73.2.2 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 Company for the year ended 31 December
  2014 was issued on 15 June 2015. The report contained the following comments:

  Control of Retail Business (Post Offices)

  I noted that the Company continues to have management problems with some of its
  retail businesses (Post Offices). I have noted cash being stolen by employees. Further,
  I have noted from numerous internal audit reports of stock and cash discrepancies
  between what has been reported and what has been counted.

  I recommended Management that to continue to manage the retail business by
  employing appropriate staff to manage the business. Further, continue to increase the
  audits on the retail business on a regular basis to detect fraud and other irregularities.
  This should include implementation and follow up on internal audit
  recommendations.

  Management responded as follows:

  “Because of Financial Services, our retail sites need to keep cash in the safe
  overnight to allow for next day payouts based on an allocated limit. We have zero
  tolerance on staff who committed fraud/theft which resulted terminations at certain
  sites. Our plan is to increase the frequency of our Post Office audits given that we are
  increasing the capacity of our Internal Audit Team.”

  Fixed Assets Policy

  I noted that major direct acquisitions did not strictly undergo the tender process as in
  the case with project related acquisitions and engagements. The paper trails were
  loosely maintained for evidence of compliance with any established tender and
  approval process. In addition, assets were disposed after being fully depreciated but
  without a properly established disposal policy and process. I recommended
  Management that the Company should tighten up this aspect of the capital acquisition
  process through its additions policy.

  -309-

• Page 349 of 396

• Post (PNG) Limited

  I further recommended that the Company should seek to have a disposal policy in
  place to avoid any compromise or unforeseen issues in future when disposing
  Company assets. A proper and approved Tender Policy document will address this
  issue. The Management agreed to my recommendation and a policy will be done in
  2015.

  -310-

• Page 350 of 396

• 74. TELIKOM (PNG) LIMITED

  74.1 INTRODUCTION

  74.1.1 Legislation

  Telikom (PNG) Limited was incorporated under the Companies Act. This Company
  was formed following the NEC Decision No. 18/96 of 17 April, 1996 to corporatise
  the Post and Telecommunications Corporation (PTC) and to separate it into three
  entities namely: Telikom (PNG) Limited, Post PNG Limited and PNG
  Telecommunication Authority (PANGTEL).

  As a result of the NEC Decision, all assets, rights, liabilities, staff and regulatory
  powers and business of the PTC relating to Telecommunication Services were
  transferred on 31 December 1996 at the net book value to Telikom (PNG) Limited as
  per the allocation statement approved by the Minister for Communications. Telikom
  (PNG) Limited is a 100% state owned Company and it commenced trading on 1
  January 1997.

  74.1.2 Objectives of the Company

  The primary objectives of the Company are to:
   Be the successor Company to the Telikom Divisions of PTC within the
  meaning of and for the purposes of the Telikom (PNG) Limited Act;
   Supply telecommunication services within PNG and between PNG and other
  places;
   Carry on any business or activity relating to telecommunications either inside
  or outside PNG;
   Publish telecommunications directories, and to supply directory information
  service;
   Supply, install and maintain customer equipment and customer lines;
   Develop, manufacture, market and supply facilities and software;
   Supply value added services;
   Utilise its network, installations and facilities for purposes other than
  telecommunications, to the extent that such network installations and facilities
  are not fully utilised in the supply of telecommunications;
   Carry on any business incidental to telecommunication;
   Unless otherwise advised to the contrary by the Minister acting in accordance
  with a directive of the NEC to:
  ‒ Act as an adviser to the Government of PNG on matters relating to
  telecommunication activities in PNG;
  ‒ Represent PNG as a member of, and actively participate, in
  international bodies concerned with the administration of
  telecommunication services;
  -311-

• Page 351 of 396

• Telikom (PNG) Limited

  ‒ Enter into international agreement relating to telecommunication
  activities; and
  ‒ Perform functions relating to the provision of telecommunication
  services in a way consistent with PNG‟s obligations under any
  convention; and
   Exercise such powers to negotiate, prepare, execute and perform any contracts
  or management arrangements of the State as may be delegated to it or
  conferred on it.

  74.1.3 Subsidiaries of the Company

  The subsidiaries of Telikom (PNG) Limited are Kalang Advertising Limited and PNG
  Directories Limited. Comments in relation to these subsidiaries are contained in
  paragraphs 74A and 74B of this Report.

  74.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and
  records and the examination of the financial statements of the Company for the year
  ended 31 December 2013 was substantially 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 Company for the year ended 31
  December 2014 was in progress.

  -312-

• Page 352 of 396

• 74A. KALANG ADVERTISING LIMITED (Subsidiary of Telikom (PNG)
  Limited)

  74A.1 INTRODUCTION

  74A.1.1 Legislation

  Kalang Advertising Limited was incorporated under the Companies Act. The
  Company is wholly owned by Telikom (PNG) Limited.

  The ownership of the Company changed following the National Court Order of 9
  September 1997 which allowed Telikom (PNG) Limited to convert the debt due
  from Kalang Advertising Limited into shareholding. Subsequently, Kalang issued
  535,424 ordinary shares to Telikom (PNG) Limited on 31 October 1997.

  74A.1.2 Functions of the Company

  Kalang Advertising Limited was set up primarily to take over the activity of
  commercial radio broadcasting previously under the National Broadcasting
  Commission.

  The Company carries on the business of producers, consultants and promoters of
  Broadcast Television, Community Television, Video, Audio, Film, Visual,
  Cassettes Recordings, Productions and Recordings.

  74A.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and
  records and the examination of the financial statements of the Company for the
  years ended 31 December 2013 and 2014 were in progress.

  -313-

• Page 353 of 396

• 74B. PNG DIRECTORIES LIMITED (Formerly E. H. O’Brien Limited)
  (Subsidiary of Telikom (PNG) Limited)

  74B.1 INTRODUCTION

  Edward H.O‟Brien Limited is a Company incorporated under the Companies Act.
  The Company is jointly owned by Telikom (PNG) Limited (54%) and Edward
  H.O‟Brien Enterprise of Sydney, Australia (46%). During the year 2002, the
  Company changed its name to PNG Directories Limited.

  74B.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and
  records and the examination of the financial statements of the Company for the year
  ended 31 December 2013 was substantially 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 Company for the year ended
  31 December 2014 was in progress.

  -314-

• Page 354 of 396

• SECTION C

  NATIONAL GOVERNMENT

  SHAREHOLDINGS IN

  OTHER COMPANIES

  -315-

• Page 355 of 396

• -316-

• Page 356 of 396

• 75. FOREWORD

  This Section of my Report deals with Companies in which the Government owns 50%
  or less of the issued Share Capital of a Company.

  The auditing and reporting requirements of these Companies are stipulated under the
  Companies Act, and these have been elaborated in Paragraph 61 of this Report.

  As the Government of PNG does not hold majority interest in these Companies, the
  accounts of these Companies are audited by Private Auditors.

  However, because public monies are invested in these Companies, my responsibilities
  require the inclusion of the summaries of their accounts and the comments of the
  Private Auditors‟ Reports in this Section of my Report.

  -317-

• Page 357 of 396

• -318-

• Page 358 of 396

• 76. BOUGAINVILLE COPPER LIMITED

  76.1 INTRODUCTION

  Bougainville Copper Limited, formerly Bougainville Copper Pty Limited, was
  incorporated under the Companies Act. The main objectives of the Company are to
  prospect, explore, quarry, develop, excavate, dredge for, open, work, purchase or
  otherwise obtain copper and other various metals and minerals.

  From 1972 until 1989, the Company operated a large open pit mine and processing
  facility at Panguna on the island of Bougainville in the North Solomons Province of
  PNG. It produced concentrate containing copper, gold and silver which was sold
  primarily under long-term contracts to smelters in Asia and Europe. On 15 May 1989
  production was brought to a halt by militant activity and has not recommenced since.

  At 31 December 2012 the issued capital of the Company was 401,062,500 ordinary
  shares of K1 each, fully paid. Of these, the Government of PNG held 76,430,809
  ordinary shares of K1 each, or 19.06% of the total shares.

  76.2 REPORT OF THE COMPANY’S AUDITORS

  A Private Firm of Auditors conducted the audit of the Company‟s financial statements
  including the accounts and records for the year ended 31 December 2014 and the
  audit report was issued on 20 February 2015. This report contained a Disclaimer of
  Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  The financial statements of the Company for the year ended 31 December 2013
  included a Disclaimer of Opinion as we were unable to determine whether the
  impairment provision in relation to the mine assets was adequate and the carrying
  value of the mine assets was properly stated at that time. In addition, the mine assets
  had not been depreciated for the period from the closure of the mine, which was a
  departure from International Financial Reporting Standards.

  For the reasons set out in Notes 1 (c) and 7 of the financial statements, the mine assets
  were impaired to a nil value during the 2014 financial year. As the opening balances
  for mine assets enter into the determination of the financial performance for the year
  ended 31 December 2014, we were unable to determine whether any adjustments
  might have been necessary in respect of expenses for impairment recognised during
  the year and the loss for the year reported in the statement of comprehensive income.

  -319-

• Page 359 of 396

• Bougainville Copper Limited

  DISCLAIMER OF OPINION

  In our opinion, because of the significance of the matter described in the Basis for
  Disclaimer of Opinion on the financial performance paragraph above, we have not
  been able to obtain sufficient appropriate audit evidence to provide a basis for an audit
  opinion on the financial performance for the year ended 31 December 2014.
  Accordingly, we do not express an opinion on the financial statements.”

  -320-

• Page 360 of 396

• 77. GOGOL REFORESTATION COMPANY LIMITED

  77.1 INTRODUCTION

  Gogol Reforestation Company Limited was incorporated under the Companies Act.
  The objective of the Company is to be involved in reforestation.

  At 31 December 2009, the issued and fully paid up capital of the Company comprised
  102,001 „A‟ class ordinary shares of K1.00 each and 98,001 „B‟ class ordinary shares
  of K1.00 each. Of these, the Government of PNG held 98,001 „B‟ class ordinary
  shares of K1.00 each, representing 49% of the issued Capital at a cost of K98,001.

  77.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the audited financial statements and the audit
  report of the Company for the years ended 31 December 2010, 2011, 2012, 2013 and
  2014 had not been submitted for my inspection and verification.

  Further, I was informed by Management that the Company was no longer in operation
  since 2011 due to the winding down of the Company.

  In 2014, I communicated with IPBC requesting for the winding down documents and
  IPBC responded that they had not received any winding down application nor
  deregistration documents with regards to Gogol Reforestation Co. Limited. A
  Company search with Investment Promotion Authority (IPA) revealed that the
  Company was not deregistered.

  -321-

• Page 361 of 396

• 78. OK TEDI MINING LIMITED

  78.1 INTRODUCTION

  Ok Tedi Mining Limited, formerly Mt. Fubilan Development Company Limited, was
  incorporated under the Companies Act. The main function of the Company is mining.

  At 31 December 2011, the issued and fully paid up capital of the Company was
  K195,102,000 (192,700,000 Ordinary Shares with no par value). Of these, the
  Government of PNG held fully paid 47,000,000 Ordinary Shares valued at
  K47,000,000 representing 24.4% of the Ordinary Share capital. On 19 September
  2013, the Parliament passed the 10th Supplemental Agreement cancelling the
  122,200,000 shares of PNG Sustainable Development Program and issuing
  122,200,000 new shares to the State of PNG, making the Company a 100% State
  owned Enterprise.

  78.2 REPORT OF THE COMPANY’S AUDITORS

  A Private Firm of Auditors have conducted the audit of the Company‟s financial
  statements including the accounts and records for the year ended 31 December 2014
  and the audit report was issued on 26 February 2015. The report did not contain any
  qualification.

  -322-

• Page 362 of 396

• 79. PNG SUSTAINABLE DEVELOPMENT PROGRAM LIMITED

  79.1 INTRODUCTION

  79.1.1 Legislation

  The PNG Sustainable Development Program Limited was incorporated in Singapore
  under the Singapore Companies Act (Cop. 50) on 20 October 2001.

  As a Company limited by guarantee PNG Sustainable Development Program Limited
  has no share capital, debentures, share options and unissued shares.

  The principal activity of the Company is to promote sustainable development within,
  and advance the general welfare of the people of PNG, particularly those of Western
  Province through supporting programs and projects in the areas of capacity building,
  health, education, economic development, infrastructure, community self-reliance,
  local community leadership and institutional capacity and other social and
  environmental purposes for the benefit of those people.

  79.1.2 Objectives of the Company

  The objective of the Company is to promote and improve the quality of life of current
  and future generations of the people of PNG, especially of Western Province by:
   Investing and managing wisely the income and resources of the Company;
   Undertaking investments and supporting development programs and projects
  that are sustainable, providing significant benefits in the short and long-term to
  the people, local communities, provinces and the nation;
   Meeting the best international standards – financial, physical, cultural, social
  and environmental in our activities; and
   Working together with the people of PNG in partnership with the government,
  churches and other non-government and business partners.

  79.1.3 Functions of the Company

  The primary functions of the Company are to:
   Promote sustainable development in Western Province and PNG more
  generally; and
   Manage the Long Term Fund to support a high level of development
  expenditure in Western Province in particular and PNG in general for at least
  40 years after the closure of the Ok Tedi Mine.

  -323-

• Page 363 of 396

• PNG Sustainable Development Program Limited

  79.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Company had not submitted its audited
  financial statements and the audit reports for the years ended 31 December 2012,
  2013 and 2014 for my verification.

  -324-

• Page 364 of 396

• SECTION D

  PROBLEM AUDITS

  -325-

• Page 365 of 396

• -326-

• Page 366 of 396

• 80. FOREWORD

  This Section of my Report deals with problem audits. Problem audits denote audit of
  entities in respect of which I have not been able to carry out audits for circumstances
  detailed in the respective paragraphs.

  80.1 EXCLUSION OF ENTITIES FROM FUTURE REPORTS

  The following 2entities were transferred to Provincial Government Audit Division and
  as such these entities would be excluded (once all outstanding audits are cleared) in
  my future Part IV Reports to Parliament and would be reported in my Part III Report.

   Motu Koitabu Council and its Subsidiaries
   Tabudubu Limited (Subsidiary of Motu Koitabu Council)

  2
  At the time of preparing this Report inspection and audit of the accounts and records of the financial statements
  of Motu Koitabu Council (paragraph 17) and Tabudubu Limited (paragraph 17A) for the years ended 31
  December 2003 to 31 December 2007 have been completed however, management in its letter dated 12 August
  2001 informed me that the Council and its Subsidiary were unable to provide any of the financial records and
  informations requested by my Office due to difficulty locating the documents and records. In addition, the
  Council and its Subsidiary were unable to provide the signed financial statements to enable me to provide an
  opinion on its accounts and records. Due to the limitation of scope of this audit, I intend to exclude this entity
  from my future reports to Parliament. . From 2008 onwards the reports on the two entities will be reported under
  Part III of my Annual Report.

  -327-

• Page 367 of 396

• 81. AUDITS IN ARREARS

  81.1 GENERAL

  Audits in arrears are those in respect of which financial statements have not been
  submitted on time for audit to be undertaken, thus placing my Office in a position
  where audits are not able to be conducted on a current year basis consistent with the
  requirements of the Companies Act and the PFMA. Two serious consequences
  develop from this. Firstly, it results in a build-up of audits in arrears, and these are all
  audits other than the current year (2014) audits. The other serious consequence is that
  audit certificates issued more than a year or two in arrears serve only to meet the
  administrative or legislative requirements, but their validity from a decision making
  stand-point may be lost due to the time lag.

  81.2 RESPONSIBILITY FOR PREPARATION OF FINANCIAL STATEMENTS

  The responsibility for the preparation and presentation of financial statements is that
  of the management of the auditee organisation. That being the case, the audit of the
  financial statements by the Auditor-General does not in any way relieves management
  of its responsibility to have financial statements prepared on time.

  This responsibility also requires management to ensure that an adequate and effective
  internal control system is maintained so as to ensure, inter-alia, that complete and
  accurate financial statements are produced on a timely basis. To assist management in
  producing financial statements that meet the qualitative characteristics, the
  management‟s responsibility also extends to ensuring that professionally qualified and
  experienced accounting personnel are engaged.

  It is generally true that irrespective of their completeness, accuracy or reliability,
  financial statements that are unduly delayed, lose their relevance. Although there is no
  consensus regarding the length of time that ought to be allowed to elapse between the
  predetermined reporting date and the date when the financial statements lose their
  relevance, there is a need to weigh the relative merits of preparing them on a timely
  basis, let alone the legislative requirements.

  Relevant and reliable information therefore is useful for decision making when these
  are timely prepared and made available to concerned parties. Relevance here is
  relative to the value and usefulness of the audited financial information to
  management and the parties concerned for decision making. Current information is of
  more relevance in the fight against corrupt practices than information that is out of
  date.

  -328-

• Page 368 of 396

• 81.3 LEGISLATIVE REQUIREMENTS

  To ensure the timely preparation of financial statements, Section 63 (1) of the PFMA
  makes it mandatory for Public Bodies to prepare and furnish audited financial
  statements, to the Minister responsible, before 30 June each year (Section 63 (2)). The
  fact that audit of 27 entities as depicted in Schedule B(iv) had been in arrears due to
  non-submission of financial statements is a direct contravention of the requirements
  of Section 63 (1) referred to above.

  Strict adherence of this requirement, despite its mandatory nature, has not been
  enforced by the respective entities‟ managements and the authorities concerned. My
  strong contention is that, enforcement of the above requirements by the authorities
  concerned and the Minister responsible may have been lacking in the past. There may
  therefore be a need, whilst ensuring timely accountability of public resources, to take
  certain Public Bodies to task for non-compliance with mandatory statutory
  requirements. It is in this connection, that my Office welcomes the introduction of
  Section 63(6) of the PFMA. This Section imposes penalties on public bodies for non-
  submission of annual reports to the Minister responsible for financial management.

  By virtue of Section 63(5) of the PFMA, the Ministers responsible are required to
  table the reports of the respective Public Bodies in Parliament after they are received.
  The following arrears situation implies that a lot of Public Bodies reports may not
  have been tabled in Parliament as required, and thus, the accountability to Parliament
  in these respects has been far short of the desired.

  81.4 CURRENT YEAR AUDITS (2014 AUDITS)

  Entities totalling 100 subject to audit by the Auditor-General comprise 81 Public
  Bodies and their subsidiaries, 19 National Government owned companies, and 4
  companies in which the National Government has share holdings (referred to as
  Section „C‟ Companies). In addition, I also carried out audits of 11 Projects managed
  by Public entities as implementing agencies. Table 1 and Chart 1 below provide
  details of these.

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• TYPES OF ENTITIES SUBJECT TO AUDIT
  Table 1

  Section Types of Audit Number of Entities
  2014/2015 2013/2014
  (A) Public Bodies and their Subsidiaries 81 74
  (B) National Government Owned Companies 19 15
  (C) National Government Shareholdings in other Companies 4 6
  Projects 11 9
  115 104
  Table 1. Shows the total of Types of Entities subject to Audit

  Chart 1

  Types of Entities Subject to Audits
  National Government
  Shareholdings in other Projects
  Companies 10%
  3%
  National Government
  Owned Companies
  17%

  Public Bodies and their
  Subsidiaries
  70%

  Chart 1. Shows the percentages of Types of Entities subject to Audit during 2014/2015 Audit Cycle.

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• 81.5 STATUS OF CURRENT YEAR AUDITS

  Each of the 100 entities, including the 11 Projects except Section „C‟ Companies are
  subject to audit and required under Section 63(4) of the PFMA to submit annual
  financial statements for audit. Information available in my Office shows that only 33
  (30 entities and 4 projects) have submitted their financial statements for 2014
  (Schedule A) for audit up to the time of preparing this Report. A total of 66 (65
  entities and 1 project) have not submitted their 2014 financial statements (Schedule
  A) for audit in 2015. It could therefore be logically concluded that, about 65% of the
  public bodies might not have submitted their annual reports and financial statements
  for 2014 together with my reports on them, to the respective Ministers for tabling in
  the National Parliament on or before June 2015.

  Table 2 and Chart 2 shown below, and Schedule A attached show the status and the
  details of the current year audits planned for in 2014.

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• Page 371 of 396

• STATUS OF CURRENT YEAR AUDITS 2014

  Table 2

  No. Status of Current Year Audits Number of Entities
  2014/2015 2013/2014
  (A) Audits completed and reports issued thereon 18 14
  (B) Audits substantially completed 2 5
  (C) Audits in progress 8 5
  (D) Audits to commence shortly 5 10
  (E) Financial Statements not submitted 66 62
  (F) Audit Portfolios transferred to Provincial Government Audit Division 0 0
  (G) Ceased Companies 0 0
  Total 234 96
  Table 2. Shows the total of Status of Current Year (2014) Audits. (Schedule A)

  Chart 2

  Status of Current Year Audits 2014

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

  Audits in progress
  8%

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

  Chart 2. Shows the percentages of Audit Status for the Current Year (2014) during 2014/2015 Audit Cycle. (Schedule A)

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• 81.6 AUDITS IN ARREARS (2013 AND PRIOR YEARS)

  Records available in my Office show that a total of 86 entities (134 audits) were in the
  Audit in Arrears category due to non-submission of financial statements on time.
  Table 3 and Chart 3 shown below, and Schedule B attached provide more details of
  these.

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• Page 373 of 396

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

  Table 3A

  No. Status of Audits in Arrears by Number of Entities Number of Entities
  (2012 and Prior Years) 2014/2015 2013/2014
  (A) Audits substantially completed 24 30
  (B) Audits in progress 27 7
  (C) Audits to commence shortly 8 11
  (D) Financial Statements not submitted 27 30
  Total 86 78
  Table 3A. Shows the Status of Audits in Arrears by number of Entities for 2013 and Prior Years during 2014/2015 Audit
  Cycle. (Schedule B)
  Chart 3A

  Status of Audits in Arrears by Number of Entities
  (2013 and Prior Years)
  Financial Statements not Audits substantially
  submitted completed
  31% 28%

  Audits to commence
  shortly Audits in progress
  9% 32%

  Chart 3A. Shows the percentages of Audit Status for Audits in Arrears by number of Entities for 2013 and Prior Years during
  2014/2015 Audit Cycle. (Schedule B).

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• Page 374 of 396

• STATUS OF AUDITS IN ARREARS BY NUMBER OF AUDITS
  (2013 AND PRIOR YEARS)
  Table 3B

  No. Status of Audits in Arrears by Number Of Audits Number of Audits
  (2013 and Prior Years) 2014/2015 2013/2014
  (A) Audits substantially completed 44 52
  (B) Audits in progress 32 9
  (C) Audits to commence shortly 17 17
  (D) Financial Statements not submitted 41 54
  Total 134 132
  Table 3B. Shows the Status of Audits in Arrears by number of Audits for 2013 and Prior Years during 2014/2015 Audit
  Cycle. (Schedule B)
  Chart 3B

  Status of Audits in Arrears by Number of Audits
  (2013 and Prior Years) Audits substantially
  Financial Statements completed
  not submitted 33%
  30%

  Audits to commence
  shortly Audits in progress
  13% 24%

  Chart 3B. Shows the percentages of Audit Status for Audits in Arrears by number of Audits for 2013 and Prior Years during
  2014/2015 Audit Cycle. (Schedule B)

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• Page 375 of 396

• 81.7 LONG OUTSTANDING FINANCIAL STATEMENTS

  During this Audit Cycle (2014/2015) 27 audit entities were in the arrears category,
  decrease of three compared to prior year (2013). Of these 27 entities, 41 financial
  statements for periods ranging from one year to three years have still not been
  submitted. In other words, they still have financial statements outstanding for the
  years from 2011 to 2013. Details of these are shown below in Table 4, Chart 4 and
  also in Schedule C attached.

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• Page 376 of 396

• LONG OUTSTANDING FINANCIAL STATEMENTS
  BY NUMBER OF ENTITIES
  (2013 AND PRIOR YEARS)
  Table 4A

  No. Years Outstanding by Entities Number of Entities
  2014/2015 2013/2014
  (A) One Year 17 19
  (B) Two Years 8 7
  (C) Three Years 2 1
  (D) Four Years 0 0
  (E) Five Years 0 2
  (F) Six Years 0 0
  (G) Seven Years 0 0
  (I) Eight Years 0 1
  Total 27 30
  Table 4A. Shows the total of Long Outstanding Financial Statements by number of Entities during 2014/2015 Audit Cycle.
  (Schedule C)

  Chart 4A

  Long Outstanding Financial Statements by Number of
  Entities (2013 and Prior Years)
  Five Years Six Years
  0% 0% Seven Years
  Four Years 0%
  Three Years 0%
  Eight Years
  Two Years 7%
  0%
  30%

  One Year
  63%

  Chart 4A. Shows the percentages of Long Outstanding Financial Statements by number of Entities during 2014/2015 Audit
  Cycle. (Schedule C).

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• Page 377 of 396

• LONG OUTSTANDING FINANCIAL STATEMENTS
  BY NUMBER OF AUDITS
  (2013 AND PRIOR YEARS)

  Table 4B

  No. Years Outstanding by Audits Number of Audits
  2014/2015 2013/2014
  (A) One Year 17 19
  (B) Two Years 16 14
  (C) Three Years 8 3
  (D) Four Years 0 0
  (E) Five Years 0 10
  (F) Six Years 0 0
  (G) Seven Years 0 0
  (H) Eight Years 0 8
  Total 41 54
  Table 4B. Shows the total of Long Outstanding Financial Statements by number of Audits during 2014/2015 Audit Cycle.
  (Schedule C)

  Chart 4B
  Long Outstanding Financial Statements by Number of Audits
  (2013Five
  and Prior Years)
  Years Seven Years
  0% 0% Eight Years
  Three Years 0%
  20% Six Years
  0% Four Years One Year
  0% 41%

  Two Years
  39%

  Chart 4B. Shows the percentages of Long Outstanding Financial Statements by number of Audits during 2014/2015 Audit
  Cycle. (Schedule C).

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• Page 378 of 396

• 81.8 STATUS OF AUDITS AS AT 30 JUNE 2015

  As illustrated in Executive Summary Table 1, during July 2014 and June 2015 Audit
  Cycle a total of 200 audits were undertaken by the Audit Office. Out of 200 audits
  carried out, 114 audit reports were issued. Table 5 and Chart 5 shown below
  provide the details of the Status of Audits during the period July 2014 to June 2015.

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• Page 379 of 396

• STATUS OF AUDITS AS AT 30 JUNE 2015

  Table 5

  Number of Audits
  No. Status of Audits
  2014/2015 2013/2014
  1 Audits completed and reports issued thereon (Schedule A & E) 114 101
  2 Audits substantially completed (Schedule A & B) 46 57
  3 Audits in progress (Schedule A & B) 40 14
  4 Audits to commence shortly (Schedule A & B) 22 27
  5 Financial Statements not submitted (Schedule A & B) 107 116
  Total 329 315
  Table 5. Shows the Status of Audits as at 30 June 2015 for the 2014/2015 Audit Cycle. (Schedules A&E and A&B)

  Chart 5

  Status of Audits as at 30 June 2015

  Financial Statements
  not submitted
  37% Audits completed and
  reports issued thereon
  32%

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

  Chart 5. Shows the percentages of Audit Status as at 30 June 2015 for the 2014/2015 Audit Cycle (Schedules A&E and A&B)

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• Page 380 of 396

• ACKNOWLEDGEMENTS

  My audit staff worked conscientiously and successfully completed audits entrusted to them.
  Their devotion to duty, their integrity and loyalty are highly appreciated.

  I extend my appreciation and gratitude to the Government Printing Office staff, for their efforts
  in completing the printing of this Report within the limited time frame available. I also
  acknowledge the co-operation and the assistance of all Heads of Public Bodies and National
  Government Owned Companies, and Registered Company Auditors and their staff who
  assisted as my Authorised Auditors.

  I would also like to thank the Chairman and the members of the Permanent Parliamentary
  Committee on Public Accounts of PNG and the Secretary for the continuous interest shown in
  my work.

  SIGNED AT WAIGANI ON 24 OF JULY
  TWO THOUSAND AND FIFTEEN

  PHILIP NAUGA
  Auditor-General of Papua New Guinea

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• Page 381 of 396

• -342-

• Page 382 of 396

• SCHEDULES

  -343-

• Page 383 of 396

• Schedule ‘A’

  STATUS OF CURRENT YEAR (2014) AUDIT
  (i) AUDITS COMPLETED AND REPORTS ISSUED THEREON

  Para.
  No. Section No. Entity
  1 A 2 Bank of Papua New Guinea
  2 A 9 Independent Fellowship Trust
  3 A 10 Independent Consumer and Competition Commission
  4 A 14 Investment Promotion Authority
  5 A 15 Kokonas Indastri Koporesen
  6 A 15A Papua New Guinea Coconut Extension Fund
  7 A 15B Papua New Guinea Coconut Research Fund
  8 A 20 National Agricultural Research Institute
  9 A 25 National Economic and Fiscal Commission
  10 A 30 National Maritime Safety Authority
  11 A 33 National Research Institute
  12 A 36 National Training Council
  13 B 68 NPCP Holdings Limited
  14 B 68A NPCP Investment Limited
  15 B 68B National Petroleum Company PNG (Kroton) Limited
  16 B 68C NPCP Pipeline and Gas Supply Limited
  17 B 70 PNG Air Service Limited
  18 B 73 Post (PNG) Limited

  (ii) AUDITS SUBSTANTIALLY COMPLETED

  Para.
  No. Section No. Entity
  1 A 13 Internal Revenue Commission
  2 A 56 Tourism Promotion Authority

  (iii) AUDITS IN PROGRESS

  Para.
  No. Section No. Entity
  1 A 27 National Gaming Control Board
  2 A 27A National Gaming Control Board Community Benefit Fund Trust
  3 B 62 Air Niugini Limited
  4 B 65 Motor Vehicle Insurance Limited
  5 B 69 Papua New Guinea Ports Corporation Limited
  6 B 74 Telikom PNG Limited
  7 B 74A Kalang Advertising Limited
  8 B 74B PNG Directories Limited

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• Page 384 of 396

• (iv) AUDITS TO COMMENCE SHORTLY

  Para.
  No. Section No. Entity
  1 A 19 National Agriculture Quarantine and Inspection Authority
  2 A 21 National AIDS Council Secretariat
  3 A 35 National Roads Authority
  4 B 71 PNG DataCo Limited
  5 B 72 PNG Power Limited

  (v) FINANCIAL STATEMENTS NOT SUBMITTED

  Para. Last Report Date of
  No. Section No. Entity Issued Report
  1 A 3 Border Development Authority 2011 27.10.14
  2 A 3A Papua New Guinea Maritime Transport
  New Entity
  Limited
  3 A 4 Civil Aviation Safety Authority 2012 27.02.15
  4 A 5 Cocoa Board of PNG 2013 22.05.14
  5 A 5A Cocoa Stabilisation Fund 2013 23.05.14
  6 A 5B Cocoa Pod Borer Project Fund 2012 22.09.14
  7 A 6 Cocoa Coconut Institute Limited of PNG 2012 25.04.14
  8 A 7 Coffee Industry Corporation Limited 2012 17.02.14
  9 A 7A Coffee Industry Fund 2012 17.02.14
  10 A 7B Patana No. 61 Limited 2012 17.02.14
  11 A 8 Government Printing Office 2011 25.03.14
  12 A 11 Independent Public Business Corporation 2012 18.11.14
  13 A 11A Aquarius No 21 Limited 2012 15.08.14
  14 A 11B General Business Trust 2012 14.05.14
  15 A 11C PNG Dams Limited 2012 28.08.14
  16 A 11D Port Moresby Private Hospital Limited 2012 28.08.14
  17 A 12 Industrial Centers Development 2011 30.03.15
  Corporation
  18 A 16 Legal Training Institute 2012 24.05.14
  19 A 17 Mineral Resources Authority 2011 13.04.15
  21 A 22 National Broadcasting Commission 2012 25.04.14
  22 A 23 National Capital District Commission 2012 04.05.15
  23 A 23A National Capital District Botanical 2012 04.05.15
  Enterprises Limited
  24 A 23B Port Moresby City Development 2012 04.05.15
  Enterprises Limited
  25 A 23C Port Moresby Nature Park Limited New Entity
  26 A 24 National Cultural Commission 2011 09.11.13
  27 A 26 National Fisheries Authority 2011 26.03.13
  28 A 28 National Housing Corporation 2010 31.03.14
  29 A 28A National Housing Estate Limited New Entity
  30 A 29 National Information and Communication 2011 26.05.14
  Technology Authority

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• Page 385 of 396

• Para. Last Report Date of
  No. Section No. Entity Issued Report
  31 A 31 National Museum & Art Gallery 2012 22.09.14
  32 A 32 National Narcotics Bureau 2012 22.09.14
  33 A 34 National Road Safety Council 2013 26.01.15
  34 A 37 National Volunteer Service 2013 27.02.15
  35 A 38 National Youth Commission 2011 26.03.13
  36 A 39 Office of Climate Change and Development New Entity
  37 A 40 Oil Palm Industry Corporation 2010 28.06.13
  38 A 41 Ombudsman Commission 2013 27.03.15
  39 A 42 Pacific Games (2015) Authority New Entity
  40 A 43 Papua New Guinea Accident Investigation New Entity
  Commission
  41 A 44 PNG Immigration & Citisenship Service 2011 11.04.14
  Authority
  42 A 45 Papua New Guinea Forest Authority 2009 23.10.14
  43 A 46 PNG Institute of Medical Research 2013 23.04.15
  44 A 47 Papua New Guinea Institute of Public 2011 31.10.14
  Administration
  45 A 48 Papua New Guinea Maritime College 2012 31.10.14
  46 A 49 Papua New Guinea National Institute Standard 2010 23.10.14
  Industrial Technology
  47 A 50 Papua New Guinea Sports Foundation 2004 31.10.13
  48 A 51 Papua New Guinea University of Technology 2010 13.04.15
  49 A 51A National Analytical Testing Services Limited New Entity
  50 A 51B Unitech Development and Consultancy Limited 2012 25.10.13
  51 A 52 Parliamentary Members Retirement Benefit Fund 2013 20.01.15
  52 A 53 Public Curator of PNG 2011 30.09.14
  53 A 54 Security Industry Authority 2011 28.04.15
  54 A 55 Small Business Development Corporation 2011 28.04.15
  55 A 57 University of Goroka 2012 13.05.15
  56 A 57A Unigor Consultancy Limited 2009 19.03.13
  57 A 58 University of Natural Resources & Environment 2013 26.03.15
  58 A 59 University of Papua New Guinea 2008 17.10.12
  59 A 59A Unisave Limited 2011 25.08.14
  60 A 59B Univenture Limited 2011 24.06.14
  61 A 60 Water PNG 2012 30.03.15
  62 B 63 Livestock Development Corporation 2009 31.10.12
  63 B 64 Mineral Resources Development Corporation 2011 27.02.15
  64 B 66 National Airport Corporation Limited 2010 08.10.12
  65 B 66A Airport City Development Limited New Entity
  66 B 67 NCD Water and Sewerage Limited (Eda Ranu) 2013 23.04.15

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• Page 386 of 396

• (vi) AUDIT PORTFOLIOS TRANSFERRED TO PROVINCIAL GOVERNMENT AUDIT
  DIVISION

  No. Section Para. Entity Last Report Date of
  No. Issued Report
  1 A 18 Motu Koitabu Council No Report Issued
  2 A 18A Tabudubu Limited No Report Issued

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• Page 387 of 396

• Schedule ‘B’

  STATUS OF AUDITS IN ARREARS (2013 AND PRIOR YEARS)
  (i) AUDITS SUBSTANTIALLY COMPLETED

  Para. No. of
  No. Section No. Entity Year Audits
  1 A 3 Border Development Authority 2012 1
  2 A 3A Papua New Guinea Maritime Transport 2011 & 2012 2
  Authority
  3 A 8 Government Printing Office 2012 1
  4 A 12 Industrial Centres Development Corporation 2012 & 2013 2
  5 A 16 Legal Training Institute 2013 1
  6 A 18 Motu Koitabu Council 2013 – 2007 5
  7 A 18A Tabudubu Limited 2003 – 2007 5
  8 A 26 National Fisheries Authority 2012 1
  9 A 40 Oil Palm Industry Corporation 2011 1
  10 A 42 Pacific Games (2015) Authority 2012 & 2013 2
  11 A 44 PNG Immigration and Citisenship Service 2012 & 2013 2
  Authority
  12 A 45 Papua New Guinea Forest Authority 2010 1
  13 A 48 Papua New Guinea Maritime College 2013 1
  14 A 49 Papua New Guinea National Institute of 2011-2013 3
  Standards & Industrial Technology
  15 A 51 Papua New Guinea University of Technology 2011 1
  16 A 51A National Analytical Testing Services Limited 2011 1
  17 A 51B Unitech Development and Consultancy Limited 2013 1
  18 A 53 Public Curator of Papua New Guinea 2012 1
  19 A 55 Small Business Development Corporation 2012 1
  20 A 57A Unigor Consultancy Limited 2010 – 2013 4
  21 A 59 University of Papua New Guinea 2009 – 2012 4
  22 A 72 PNG Power Limited 2013 1
  23 A 74 Telikom (PNG) Limited 2013 1
  24 B 74B PNG Directories Limited 2013 1

  44

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• Page 388 of 396

• (ii) AUDITS IN PROGRESS

  Para. No. of
  No. Section No. Entity Year Audits
  1 A 4 Civil Aviation Safety Authority of Papua New Guinea 2013 1
  2 A 7 Coffee Industry Corporation Limited 2013 1
  3 A 7A Coffee Industry Fund 2013 1
  4 A 7B Patana No. 61 Limited 2013 1
  5 A 11 Independent Public Business Corporation 2013 1
  6 A 11A Aquarius No. 21 Limited 2013 1
  7 A 11B General Business Trust 2013 1
  8 A 11C PNG Dams Limited 2013 1
  9 A 11D Port Moresby Private Hospital Limited 2013 1
  10 A 17 Mineral Resources Authority 2012 1
  11 A 22 National Broadcasting Corporation 2013 1
  12 A 23C Port Moresby Nature Park Limited 2012 & 2013 2
  13 A 24 National Cultural Commission 2012 1
  14 A 26 National Fisheries Authority 2013 1
  15 A 28 National Housing Corporation 2011 1
  16 A 29 National Information and Communication Technology 2012 1
  Authority
  17 A 39 Office of Climate Change and Development 2011 1
  18 A 43 Papua New Guinea Accident Investigation Commission 2011 & 2012 2
  19 A 45 Papua New Guinea Forest Authority 2011 & 2012 2
  20 A 51 Papua New Guinea University of Technology 2012 1
  21 A 51A National Analytical and Testing Services Limited 2012 & 2013 2
  22 A 60 Water PNG 2013 1
  23 A 64 Mineral Resource Development Company Limited 2012 1
  24 A 65 Motor Vehicles Insurance Limited 2012 & 2013 2
  25 A 66 National Airports Corporation Limited 2011 1
  26 A 74A Kalang Advertising Limited 2013 1
  31
  (iii) AUDITS TO COMMENCE SHORTLY

  Para. No. of
  No. Section No. Entity Year Audits
  1 A 3 Border Development Authority 2013 1
  2 A 6 Cocoa Coconut Institute Limited of PNG 2013 1
  3 A 21 National AIDS Council Secretariat 2013 1
  4 A 24 National Cultural Commission 2013 1
  5 A 28 National Housing Corporation 2012 1
  6 A 38 National Youth Commission 2012 & 2013 2
  7 A 50 Papua New Guinea Sports Foundation 2005 – 2013 9
  8 A 59 University of Papua New Guinea 2013 1
  17

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• Page 389 of 396

• (iv) FINANCIAL STATEMENTS NOT SUBMITTED

  Para. No. of
  No. Section No. Entity Year Audits
  1 A 3A Papua New Guinea Maritime Transport Limited 2013 1
  2 A 5B Cocoa Pod Borer Project Fund 2013 1
  3 A 8 Government Printing Office 2013 1
  4 A 17 Mineral Resources Authority 2013 1
  5 A 23 National Capital District Commission 2013 1
  6 A 23A National Capital District Botanical Enterprises Limited 2013 1
  7 A 23B Port Moresby City Development Enterprises Limited 2013 1
  8 A 28 National Housing Corporation 2013 1
  9 A 28A National Housing Estate Limited 2010 – 2013 4
  10 A 29 National Information and Communication Technology 2013 1
  Authority
  11 A 31 National Museum and Art Gallery 2013 1
  12 A 32 National Narcotics Bureau 2013 1
  13 A 39 Office of Climate Change and Development 2012 & 2013 2
  14 A 40 Oil Palm Industry Corporation 2012 & 2013 2
  15 A 43 Papua New Guinea Accident Investigation Commission 2013 1
  16 A 45 Papua New Guinea Forest Authority 2013 1
  17 A 47 Papua New Guinea Institute of Public Administration 2012 & 2013 2
  18 A 51 Papua New Guinea University of Technology 2013 1
  19 A 53 Public Curator of PNG 2013 1
  20 A 54 Security Industries Authority 2012 & 2013 2
  21 A 55 Small Business Development Corporation 2013 1
  22 A 59A Unisave Limited 2012 & 2013 2
  23 A 59B Univenture Limited 2012 & 2013 2
  24 A 63 Livestock Development Corporation 2010 – 2013 4
  25 A 64 Mineral Resources Development Company Limited 2013 1
  26 B 66 National Airports Corporation Limited 2012 & 2013 2
  27 B 66A Airport City Development Limited 2012 & 2013 2
  41

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• Page 390 of 396

• Schedule ‘C’

  LONG OUTSTANDING FINANCIAL STATEMENTS (2013 & PRIOR
  YEARS)
  (i) FINANCIAL STATEMENTS OUTSTANDING FOR MORE THAN ONE YEAR

  Para. No. of
  No. Section No. Entity 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 Company Limited 1
  17

  (ii) FINANCIAL STATEMENTS OUTSTANDING FOR MORE THAN TWO YEARS

  Para. No. of
  No. Section No. Entity Audits
  1 A 39 Office of Climate Change and Development 2
  2 A 40 Oil Palm Industry Corporation 2
  3 A 47 Papua New Guinea Institute of Public Administration 2
  4 A 54 Security Industries Authority 2
  5 A 59A Unisave Limited 2
  6 A 59B Univenture Limited 2
  7 B 66 National Airports Corporation Limited 2
  8 B 66A Airport City Development Limited 2
  16

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• Page 391 of 396

• (iii) FINANCIAL STATEMENTS OUTSTANDING FOR MORE THAN FOUR YEARS

  Para. No. of
  No. Section No. Entity Audits
  1 A 28A National Housing Estate Limited 4
  2 A 63 Livestock Development Corporation 4
  8
  41

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• Page 392 of 396

• Schedule ‘D’

  NON OPERATIONAL ENTITIES AND OTHERS

  (i) AUDIT PORTFOLIOS TRANSFERRED TO PROVINCIAL GOVERNMENT AUDIT
  DIVISION

  Para.
  No. Section No. Entity Last Year of Audit
  1 A 18 Motu Koitabu Council 2007
  2 A 18A Tabudubu Limited 2007

  (ii) OTHERS – NATIONAL GOVERNMENT SHAREHOLDINGS IN OTHER COMPANIES

  Para.
  No. Section No. Entity Remarks
  1 C 76 Bougainville Copper Limited 2014 completed.
  2 C 77 Gogol Reforestation Company Limited Audited financial
  statements not submitted
  (2010 – 2014).
  3 C 78 Ok Tedi Mining Limited 2014 completed.
  4 C 79 PNG Sustainable Development Program Limited Audited financial
  statements not submitted
  (2012 – 2014).

  (iii) PROJECT AUDIT PORTFOLIOS

  Para.
  No. Section No. Entity Status of Audit
  1 N/A N/A Civil Aviation Development Investment Program 2013 substantially
  completed
  2 N/A N/A Cocoa Pod Borer Project 2010 – 2012 substantially
  completed and 2013 not
  submitted.
  3 N/A N/A Cocoa Quality Promotion Project 2011 substantially
  completed, 2012 and
  2013 not submitted.
  4 N/A N/A Japan Fund for Poverty Reduction Project 2011 and 2012 completed
  and 2013 not submitted.
  5 N/A N/A Lae Port Development Project 2012 substantially
  completed and 2013 not
  submitted
  6 N/A N/A National Agriculture Research Institute/PNG Completed for the whole
  Incentive Fund Project project.
  7 N/A N/A National Capital District Commission Urban Youth 2013 completed.
  Employment Project
  8 N/A N/A Port Moresby Sewerage System Upgrading Project 2010 – 2012 substantially
  (POMSSUP) completed and 2013 not
  submitted.
  9 N/A N/A Productive Partnership in Agriculture Project 2013 completed.

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• Page 393 of 396

• Schedule ‘E’

  AUDIT IN AREARS (2013 AND PRIOR YEARS) COMPLETED DURING
  2014/2015 AUDIT CYCLE
  2013 AUDITS – COMPLETED DURING 2014/2015

  No. Section Para. No. Entity
  1 A 9 Independence Fellowship Trust
  2 A 14 Investment Promotion Authority
  3 A 19 National Agriculture Quarantine and Inspection Authority
  4 A 27 National Gaming Control Board
  5 A 27A National Gaming Control Board Community Benefit Fund Trust
  6 A 30 National Maritime Safety Authority
  7 A 33 National Research Institute
  8 A 34 National Road Safety Council
  9 A 35 National Roads Authority
  10 A 36 National Training Council
  11 A 37 National Volunteer Service
  12 A 41 Ombudsman Commission of Papua New Guinea
  13 A 46 Papua New Guinea Institute of Medical Research
  14 A 52 Parliamentary Members Retirement Benefits Fund
  15 A 58 University of Natural Resources and Environment
  16 B 62 Air Niugini Limited
  17 B 67 NCD Water and Sewerage Limited (Eda Ranu)
  18 B 68B National Petroleum Company of PNG (Kroton) Limited
  19 B 69 Papua New Guinea Ports Corporation Limited
  20 B 70 PNG Air Services Limited
  21 N/A N/A Civil Aviation Development Investment Program (CADIP)
  22 N/A N/A Japanese Fund for Poverty Reduction Project
  23 N/A N/A Town Electrification Investment Program
  24 N/A N/A Wutung Pilot Border Trade and Investment Project

  2012 AUDITS – COMPLETED DURING 2014/2015

  No. Section Para. No. Entity
  1 A 4 Civil Aviation Safety Authority of Papua New Guinea
  2 A 5B Cocoa Pod Borer Project Fund
  3 A 9 Independence Fellowship Trust
  4 A 11 Independent Public Business Corporation
  5 A 11A Aquarius No.21 Limited
  6 A 11C PNG Dams Limited
  7 A 11D Port Moresby Private Hospital Limited
  8 A 21 National AIDS Council Secretariat

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• 9 A 23 National Capital District Commission
  10 A 23A National Capital District Botanical Enterprises Limited
  11 A 23B Port Moresby City Development Enterprises Limited
  12 A 31 National Museum and Art Gallery
  13 A 32 National Narcotics Bureau
  14 A 36 National Training Council
  15 A 37 National Volunteer Service
  16 A 46 Papua New Guinea Institute of Medical Research
  17 A 48 Papua New Guinea Maritime College
  18 A 57 University of Goroka
  19 A 60 Water PNG
  20 B 68B National Petroleum Company of PNG (Kroton) Limited
  21 B 69 Papua New Guinea Ports Corporation Limited
  22 N/A N/A Lae Port Development Project
  23 N/A N/A Port Moresby Sewerage System Upgrading Project
  24 N/A N/A Town Electrification Investment Program
  25 N/A N/A Wutung Pilot Border Trade and Investment Project

  2011 AUDITS – COMPLETED DURING 2014/2015

  No. Section Para. No. Entity
  1 A 3 Border Development Authority
  2 A 5B Cocoa Pod Borer Project Fund
  3 A 11A Aquarius No.21 Limited
  4 A 11D Port Moresby Private Hospital Limited
  5 A 12 Industrial Centers Development Corporation
  6 A 17 Mineral Resources Authority
  7 A 21 National AIDS Council Secretariat
  8 A 23 National Capital District Commission
  9 A 23A National Capital District Botanical Enterprises Limited
  10 A 23B Port Moresby City Development Enterprises Limited
  11 A 31 National Museum and Art Gallery
  12 A 32 National Narcotics Bureau
  13 A 36 National Training Council
  14 A 37 National Volunteer Service
  15 A 47 Papua New Guinea Institute of Public Administration
  16 A 48 Papua New Guinea Maritime College
  17 A 53 Public Curator of Papua New Guinea
  18 A 54 Security Industries Authority
  19 A 57 University of Goroka
  20 A 59A Unisave Limited
  21 A 60 Water PNG
  22 A 64 Mineral Resources Development Company Limited

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• Page 395 of 396

• No. Section Para. No. Entity
  23 A 65 Motor Vehicles Insurance Limited
  24 B 68B National Petroleum Company of PNG (Kroton) Limited
  25 N/A N/A Port Moresby Sewerage System Upgrading Project
  26 N/A N/A Town Electrification Investment Program
  27 N/A N/A Wutung Pilot Border Trade and Investment Project

  2010 AUDITS – COMPLETED DURING 2014/2015

  No. Section Para. No. Entity
  1 A 5B Cocoa Pod Borer Project Fund
  2 A 23 National Capital District Commission
  3 A 23A National Capital District Botanical Enterprises Limited
  4 A 23B Port Moresby City Development Enterprises Limited
  5 A 32 National Narcotics Bureau
  6 A 36 National Training Council
  7 A 49 Papua New Guinea National Institute of Standards and Industrial Technology
  8 A 51 Papua New Guinea University of Technology
  9 N/A N/A Port Moresby Sewerage System Upgrading Project

  2009 AUDITS – COMPLETED DURING 2014/2015

  No. Section Para. No. Entity
  1 A 23A National Capital District Botanical Enterprises Limited
  2 A 23B Port Moresby City Development Enterprises Limited
  3 A 45 Papua New Guinea Forest Authority
  4 N/A N/A Lae Port Development Project

  2008 AUDITS – COMPLETED DURING 2014/2015

  No. Section Para. No. Entity
  1 A 23A National Capital District Botanical Enterprises Limited
  2 A 23B Port Moresby City Development Enterprises Limited
  3 N/A NA Lae Port Development Project

  2007 AUDITS – COMPLETED DURING 2014/2015

  No. Section Para. No. Entity
  1 A 23A National Capital District Botanical Enterprises Limited
  2 A 23B Port Moresby City Development Enterprises Limited

  2006 AUDITS – COMPLETED DURING 2014/2015

  No. Section Para. No. Entity
  1 A 23B Port Moresby City Development Enterprises Limited

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• Page 396 of 396

• INTERNAL CONTROL REVIEW

  No. Section Para. No. Entity
  1 A 50 Papua New Guinea Sports Foundation

  -357-