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• Part IV
  Report of the Auditor-General
  2016

  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

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• Phone: (+675) 3012200 Fax: (+675) 325 2872 Email: [email protected] Website: www.ago.gov.pg

  11 August 2017

  The Honourable Job Pomat, 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 11th August 2017
  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 Report contains information on
  the status of certain entities whose audits have been in arrears.

  Yours sincerely,

  PHILIP NAUGA
  Auditor-General

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

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• 2016 AUDITOR-GENERAL’S REPORT – PART IV

  TABLE OF CONTENTS

  PARA SUBJECT PAGE
  NO. NO.

  General ……………………………………………………………………………………………………………………………… v
  A. Foreword …………………………………………………………………………………………………………………………… v
  B. Authority to Audit ………………………………………………………………………………………………………………….vi
  C. Audit of Public Bodies ………………………………………………………………………………………………………… viii
  D. Appointment and use of Authorised Auditors ……………………………………………………………………………ix
  E. Executive Summary …………………………………………………………………………………………………………….. x
  Attachments A – F ……………………………………………………………………………………………………………… xix

  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 and its Subsidiary …………………………………………………………………….. 5
  3A. Papua New Guinea Maritime Transport Limited ………………………………………………………… 12
  4. Civil Aviation Safety Authority of Papua New Guinea ………………………………………………………………. 13
  5. Climate Change and Development Authority … ………………………………………………………………………. 14
  6. Cocoa Board of Papua New Guinea and its Subsidiaries …………………………………………………………. 20
  6A. Cocoa Pod Borer Project Fund…………………………………………………………………………………. 28
  6B. Cocoa Stabilisation Fund ………………………………………………………………………………………… 31
  7. Cocoa Coconut Institute Limited of Papua New Guinea……………………………………………………………. 32
  8. Coffee Industry Corporation Limited and its Subsidiaries ……………………………………………………….. …39
  8A. Coffee Industry Fund………………………………………………………………………………………………. 46
  8B. Patana No. 61 Limited…………………………………………………………………………………………….. 48
  9. Government Printing Office ………………………………………………………………………………………………….. 51
  10. Independence Fellowship Trust …………………………………………………………………………………………. ..57
  11. Independent Consumer and Competition Commission …………………………………………………………….. 59
  12. Industrial Centres Development Corporation ………………………………………………………………………….. 62
  13. Internal Revenue Commission. …………………………………………………………………………………………….. 67
  14. Investment Promotion Authority …………………………………………………………………………………………… 72
  15. Kokonas Indastri Koporesen and its Subsidiaries ……………………………………………………………………. 73
  15A. Papua New Guinea Coconut Extension Fund …………………………………………………………….. 75
  15B. Papua New Guinea Coconut Research Fund …………………………………………………………….. 76
  16. Kumul Consolidated Holdings and its Subsidiaries …………………………………………………………………. 77
  16A. General Business Trust …………………………………………………………………………………………… 80
  16B. PNG Dams Limited ………………………………………………………………………………………………… 84
  16C. Port Moresby Private Hospital Limited ………………………………………………………………………. 86
  17. Legal Training Institute ………………………………………………………………………………………………………… 88
  18. Mineral Resources Authority ……………………………………………………………………………………………….. 89
  19. National Agriculture Quarantine and Inspection Authority …………………………………………………………. 96
  20. National Agricultural Research Institute ……………………………………………………………………………….. 104
  21. National AIDS Council Secretariat……………………………………………………………………………………….. 107
  22. National Broadcasting Corporation ……………………………………………………………………………………… 113
  23. National Capital District Commission and its Subsidiaries . …………………………………………………….. 125
  23A. National Capital District Botanical Enterprises Limited . ……………………………………………… 132
  23B. Port Moresby City Development Enterprises Limited . ……………………………………………….. 133
  23C. Port Moresby Nature Park Limited . ………………………………………………………………………… 134

  -i-

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• PARA SUBJECT PAGE
  NO. NO.

  24. National Cultural Commission …………………………………………………………………………………………….. 136
  25. National Economic and Fiscal Commission ………………………………………………………………………….. 139
  26. National Fisheries Authority ……………………………………………………………………………………………….. 143
  27. National Gaming Control Board and its Subsidiary ………………………………………………………………… 149
  27A. National Gaming Control Board Community Benefit Fund Trust. ……………………………….. 150
  28. National Housing Corporation …………………………………………………………………………………………….. 152
  29. National Information and Communication Technology Authority (NICTA) ………………………………….. 160
  30. National Maritime Safety Authority ………………………………………………………………………………………. 165
  31. National Museum and Art Gallery ……………………………………………………………………………………….. 169
  32. National Narcotics Bureau ………………………………………………………………………………………………….. 175
  33. National Research Institute ……………………………………………………………………………………………….. 176
  34. National Road Safety Council …………………………………………………………………………………………….. 182
  35. National Roads Authority……………………………………………………………………………………………………. 185
  36. National Training Council ………………………………………………………………………………………………….. 191
  37. National Volunteer Service …………………………………………………………………………………………………. 195
  38. National Youth Commission ……………………………………………………………………………………………….. 198
  39. Oil Palm Industry Corporation ……………………………………………………………………………………………. 199
  40. Ombudsman Commission of Papua New Guinea ………………………………………………………………….. 203
  41. Pacific Games (2015) Authority …………………………………………………………………………………………… 208
  42. Papua New Guinea Accident Investigation Commission …………………………………………………………. 210
  43. Papua New Guinea Customs Service ………………………………………………………………………………….. 212
  44. Papua New Guinea Forest Authority ……………………………………………………………………………………. 213
  45. Papua New Guinea Immigration and Citizenship Service Authority ………………………………………….. 215
  46. Papua New Guinea Institute of Medical Research …………………………………………………………………. 221
  47. Papua New Guinea Institute of Public Administration …………………………………………………………….. 225
  48. Papua New Guinea Maritime College …………………………………………………………………………………. 229
  49. Papua New Guinea National Institute of Standards and Industrial Technology …………………………. 235
  50. Papua New Guinea Sports Foundation ……………………………………………………………………………….. 240
  51. Papua New Guinea University of Technology and its Subsidiaries …………………………………………… 243
  51A. National Analytical and Testing Services Limited. ……………………………………………………… 248
  51B. Unitech Development and Consultancy Company Limited …………………………………………. 249
  52. Parliamentary Members’ Retirement Benefits Fund ………………………………………………………………. 250
  53. Public Curator of Papua New Guinea…………………………………………………………………………………… 251
  54. Security Industries Authority ……………………………………………………………………………………………….. 252
  55. Small Business Development Corporation …………………………………………………………………………… 257
  56. Tourism Promotion Authority ……………………………………………………………………………………………… 258
  57. University of Goroka and its Subsidiary………………………………………………………………………………… 260
  57A. Unigor Consultancy Limited …………………………………………………………………………………… 269
  58. University of Natural Resources and Environment (Vudal) ……………………………………………………… 270
  59. University of Papua New Guinea and its Subsidiaries ……………………………………………………………. 276
  59A. Unisave Limited …………………………………………………………………………………………………… 283
  59B. Univentures Limited ……………………………………………………………………………………………… 284
  60. Water PNG ………………………………………………………………………………………………………………………. 285

  SECTION B – NATIONAL GOVERNMENT OWNED COMPANIES

  PARA SUBJECT PAGE
  NO. NO.

  61. Foreword …………………………………………………………………………………………………………………………. 295
  62. Air Niugini Limited and its Subsidiary …………………………………………………………………………………… 297
  62A. Link-PNG Limited ………………………………………………………………………………………………… 305
  63. Kumul Petroleum Holdings Limited and its Subsidiaries …………………………………………………………. 306
  63A. Eda Oil Limited. ……………………………………………………………………………………………………. 307
  63B. Kumul LNG Limited. ……………………………………………………………………………………………… 308

  -ii-

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• PARA SUBJECT PAGE
  NO. NO.

  63C. Kumul Petroleum (Development) Limited. ………………………………………………………………… 309
  63D. Kumul Petroleum (Investments) Limited…………………………………………………………………… 310
  63E. Kumul Petroleum (Kroton) Limited. …………………………………………………………………………. 311
  63F. Kumul Petroleum (Pipeline) Limited ………………………………………………………………………… 312
  63G. Kumul Petroleum (Tech and Advisory) Limited. ………………………………………………………… 313
  64. Livestock Development Corporation Limited …………………………………………………………………………. 314
  65. Mineral Resources Development Company Limited ………………………………………………………………. 315
  66. Motor Vehicles Insurance Limited ……………………………………………………………………………………….. 320
  67. National Airports Corporation Limited and its Subsidiary ………………………………………………………… 326
  67A. Airport City Development Limited …………………………………………………………………………… 330
  68. NCD Water and Sewerage Limited (Eda Ranu) …………………………………………………………………….. 331
  69. Papua New Guinea Ports Corporation Limited ………………………………………………………………………. 332
  70. PNG Air Services Limited ………………………………………………………………………………………………….. 339
  71. PNG DataCo Limited ………………………………………………………………………………………………………… 342
  72. PNG Power Limited …………………………………………………………………………………………………………… 344
  73. Post (PNG) Limited ………………………………………………………………………………………………………….. 360
  74. Telikom (PNG) Limited and its Subsidiaries ………………………………………………………………………….. 362
  74A. DATEC (PNG) Limited …………………………………………………………………………………………. 368
  74B. Kalang Advertising Limited …………………………………………………………………………………….. 369
  74C. Media Niugini Limited (EMTV)………………………………………………………………………………… 370
  74D. PNG Directories Limited ………………………………………………………………………………………… 371

  SECTION C – NATIONAL GOVERNMENT SHAREHOLDINGS IN OTHER COMPANIES

  PARA SUBJECT PAGE
  NO. NO.

  75. Foreword …………………………………………………………………………………………………………………………. 375
  76. Bougainville Copper Limited ……………………………………………………………………………………………….. 377
  77. Gogol Reforestation Company Limited…………………………………………………………………………………. 379
  78. Ok Tedi Mining Limited………………………………………………………………………………………………………. 380
  79. PNG Sustainable Development Program Limited ………………………………………………………………….. 381

  SECTION D – PROBLEM AUDITS (AUDITS IN ARREARS)

  PARA SUBJECT PAGE
  NO. NO.

  80. Foreword………………………………………………………………………………………………………………………… 385
  81. Audits in Arrears ……………………………………………………………………………………………………………… 387
  81.1 General ……………………………………………………………………………………………………………… 387
  81.2 Responsibility for preparation of Financial Statements ……………………………………………… 387
  81.3 Legislative Requirements …………………………………………………………………………………….. 388
  81.4 Current Year Audits (2016 Audits) …………………………………………………………………………. 388
  81.5 Status of Current Year Audits ……………………………………………………………………………….. 390
  81.6 Audits in Arrears (2015 and prior years) …………………………………………………………………. 392
  81.7 Long Outstanding Financial Statements …………………………………………………………………. 395
  81.8 Status of Audits as at 30 June 2017 ………………………………………………………………………. 398
  Acknowledgements ………………………………………………………………………………………………………….. 401
  Schedule A – Current Year Audits ………………………………………………………………………………………. 404
  Schedule B – Status of Audits in Arrears ……………………………………………………………………………… 407
  Schedule C – Long Outstanding Financial Statements ………………………………………………………….. 409
  Schedule D – Non-Operational Entities and Others ………………………………………………………………. 411
  Schedule E – Prior year Audits completed during 2016/2017………………………………………………….. 412

  -iii-

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• -iv-

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• GENERAL

  A. FOREWORD

  My Annual Report to the National Parliament for the 2016 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
  audits 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 Nation building through recovery, development and service delivery
  objectives of the Medium Term Development Strategies (MTDS) including:

  Welfare
  Health
  Economic Development and Growth

  -v-

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• General

  Contribution to Nation Building
  Good Governance
  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.

  -vi-

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• General

  This Act was amended in 1995 and the relevant provisions of the amended Act are
  explained below.

  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 31 December preceding, together with financial statements in respect
  of that year duly audited by me.

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

  -vii-

• Page 12 of 450

• General

  B.7 Companies Act

  I am required to audit National Government owned companies and subsidiary
  companies under the provisions of the Companies Act. 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 me 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 Financial Reporting Standards (IFRS) and statutory requirements.

  -viii-

• Page 13 of 450

• 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 14 of 450

• 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 2016 to
  June 2017 (2016/2017 Audit Cycle). The Report covers the audits of these entities’
  financial statements for a number of years, not just 2016.

  In 2016 there were 104 public entities subject to audit by my Office, consisting of
  78 Public Bodies and their Subsidiaries and 26 National Government Owned
  Companies.

  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 private
  company auditors. These are reported under Section C of this Report.

  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.

  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, organising, directing, monitoring and controlling the monetary
  resources of an organisation. Unfortunately, many organisations continue to indicate
  they are incapable of managing their financial affairs.

  -x-

• Page 15 of 450

• Executive Summary

  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
  citizens 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, 60 entities had not submitted their 2016
  financial statements to be audited and overall some 70 financial statements for
  2015 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 2016 (END OF 2016/2017 CYCLE)

  Financial
  Year Audits Audits Audits in Audits to Statements Total Total
  Completed Substantially Progress Commence not 2016/2017 2015/2016
  Completed Shortly Submitted
  2016 20 4 15 5 60 104 –
  2015 21 11 15 6 31 84 99
  2014 25 6 4 3 22 60 79
  2013 20 3 3 1 10 37 60
  2012 8 1 2 5 16 34
  2011 5 1 6 14
  2010 1 1 2 5
  2009 1 1 2
  2008 1 1 1
  2007 1 1 1
  2006 1 1 1
  2005 1 1 1

  Total 105 25 39 15 130 314 297

  -xi-

• Page 16 of 450

• Executive Summary

  Table A also shows that 169 audits were either completed, substantially completed or
  still in progress as at 30 June 2017.

  The details are graphically depicted in Attachment ‘C’, which also included the
  arrears of prior years. Table A also shows that of the 105 audits completed, only 20
  were for the current year (2016), with 19 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 2016 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, 105 audit reports were issued. Of the 105 audit
  reports issued, 30 were unqualified, 32 were qualified, 43 were Disclaimer
  Opinions. The details are captured in Attachment ‘D’.

  Of the 30 unqualified opinions issued, 13 related to prior years and only 17 were for
  2016 as follows:

  1. Bank of Papua New Guinea;
  2. Independence Fellowship Trust;
  3. Independent Consumer and Competition Commission;
  4. Investment Promotion Authority;
  5. Kokonas Indastri Koporesen;
  6. Papua New Guinea Coconut Extension Fund;
  7. Papua New Guinea Coconut Research Fund;
  8. National Agricultural Research Institute;
  9. National Maritime Safety Authority;
  10. Pacific Games (2015) Authority;
  11. Kumul Petroleum Holdings Limited;
  12. Eda Oil Limited;
  13. Kumul LNG Limited;
  14. Kumul Petroleum (Development) Limited;
  15. Kumul Petroleum (Investments) Limited;
  16. Kumul Petroleum (Kroton) Limited; and
  17. Kumul Petroleum (Pipeline) 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 17 of 450

• Executive Summary

  Three of the qualified opinions related to 2016 and others were for prior years. The
  high number of Disclaimer of 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 2016 to
  June 2017 are provided in Attachment ‘D’.

  Types of Audit Opinions issued for each entity over the period of five years from
  2012 to 2016 are detailed in 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 most 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 104 public entities only 44 entities have submitted
  their financial statements for 2016 (Refer Schedule A (i), (ii), (iii) & (iv) for my
  audit and inspection up to the time of preparing this Report. A total of 60 entities have
  failed to comply with these provisions (Refer Schedule A (v)). The public entities
  referred to above exclude the 4 Companies with minority Government shareholdings.

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

  -xiii-

• Page 18 of 450

• Executive Summary

  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.

  During the cycle, 30 entities have audits in arrears totally up to 70. Details of audits
  that have gone into arrears due to non-submission of financial statements from 2015
  or earlier are given below in Table B and Schedule ‘C’.

  Table B
  Financial Statements Not Submitted
  Para. No. of
  No. Section Entity Year
  No. Audits
  1 A 3A Papua New Guinea Maritime Transport Limited 2013 – 2015 3
  2 A 5 Climate Change and Development Authority 2013 – 2015 3
  3 A 8 Coffee Industry Corporation Limited 2014 & 2015 2
  4 A 8A Coffee Industry Fund 2014 & 2015 2
  5 A 8B Patana No.61 Limited 2014 & 2015 2
  6 A 21 National AIDS Council Secretariat 2015 1
  7 A 22 National Broadcasting Corporation 2015 1
  8 A 23A National Capital District Botanical Enterprises Limited 2013 – 2015 3
  9 A 23B Port Moresby City Development Enterprises Limited 2013 – 2015 3
  10 A 24 National Cultural Commission 2014 & 2015 2
  11 A 28 National Housing Corporation 2014 & 2015 2
  12 A 31 National Museum and Art Gallery 2015 1
  13 A 32 National Narcotics Bureau 2013 – 2015 3
  14 A 39 Oil Palm Industry Corporation 2012 – 2015 4
  15 A 43 Papua New Guinea Customs Service 2014 & 2015 2
  16 A 44 Papua New Guinea Forest Authority 2015 1
  17 A 47 Papua New Guinea Institute of Public Administration 2014 & 2015 2
  18 A 48 Papua New Guinea Maritime College 2015 1
  19 A 50 Papua New Guinea Sports Foundation 2014 & 2015 2
  20 A 51A National Analytical and Testing Services Limited 2014 & 2015 2
  21 A 51B Unitech Development and Consultancy Company Limited 2014 & 2015 2
  22 A 53 Public Curator of Papua New Guinea 2014 & 2015 2
  23 A 54 Security Industries Authority 2015 1
  24 A 57A Unigor Consultancy Limited 2014 & 2015 2
  25 A 58 University of Natural Resources and Environment (Vudal) 2015 1

  -xiv-

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• Executive Summary

  No. of
  No. Section Para. Entity Year
  Audits
  26 A 59 University of Papua New Guinea 2015 1
  27 A 59A Unisave Limited 2012 – 2015 4
  28 A 59B Univentures Limited 2012 – 2015 4
  29 B 67A Airport City Development Limited 2012 – 2015 4
  30 B 64 Livestock Development Corporation Limited 2010 – 2015 6
  70

  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:

  Issuance of 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 visited various entities and held meetings 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
  that Act; and
  Senior officers of the Division attended various audit committee meetings
  during the cycle and emphasised the importance of bringing 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;
  ‒ University of Goroka;
  ‒ Internal Revenue Commission; and
  ‒ PNG Customs.

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

  -xv-

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• Executive Summary

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

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

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

  E.8 Non-Compliance with the Audit Act 1989

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

  Kumul Minerals Holding Limited (formerly Petromin Limited);
  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 manner or not
  being prepared at all;
  Transactions not having supporting documentation;
  Fixed asset registers not being properly kept or maintained;
  No consistent and proper valuation of assets;
  Physical asset stock-takes not being carried out;
  Property being acquired or disposed of without proper procedures being
  followed;
  Failure to comply with International Financial Reporting Standards in the
  preparation of the financial statements;
  Travel and other allowances not being fully acquitted;
  -xvi-

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• Executive Summary

  Internal Revenue Commission (IRC) regulations on payment of taxes not being
  followed;
  Entities paying housing allowances and Board members allowances without 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 of Opinion in respect of many of the reports
  issued during the year, as shown in Attachment ‘D(iii)’.

  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 performed by many Chief Executive Officers.

  E.11 Recommendations for Improvement

  Consistent with comments in previous years’ Reports, I will report to the Parliament
  in future that proper accounting records and adequate internal control systems must
  exist in all public entities subject to my audit.

  For that to be achieved, I believe that Chief Executive Officers are required to
  exercise proper leadership that provides an environment where there is:

  Timely submission of financial statements;
  Improved record keeping and documentation;
  Maintenance and provision of quality information;
  Effective implementation of internal control systems;
  Sound financial management implemented and adopted by qualified and
  experienced accountants; and
  Implementation of all my audit recommendations.

  -xvii-

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• Executive Summary

  E.12 Improvement Strategies

  In my view, for improvement to occur:

  Chief Executive Officers must employ well trained and professionally qualified
  accounting staff to manage the financial affairs of the organisation;
  Chief Executive Officers must understand the value of and how to implement a
  strong governance framework and their performance should be regularly
  assessed against implementation of the framework; and
  Parliament must increase its reviews of the management of public entities and
  provide Chief Executive Officers with incentives to improve their management
  structures; and the Department of Finance must exercise its discretion to invoke
  Section 63(8) of the PFMA by withholding funds for those entities that have not
  submitted their financial statements until the financial statements are submitted
  and/or completion of the audit.

  E.13 Structure of the Report

  This Report is structured as follows:

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

  -xviii-

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• Executive Summary

  ATTACHMENT ‘A’

  STATUS OF CURRENT YEAR AUDITS 2016

  No. Status of Current Year Audits Number of Entities
  2016/2017 2015/2016
  1 Audits completed and reports issued thereon (Schedule A) 20 16
  2 Audits substantially completed (Schedule A) 4 5
  3 Audits in progress (Schedule A) 15 18
  4 Audits to commence shortly (Schedule A) 5 2
  5 Financial Statements not submitted (Schedule A) 60 58
  6 Ceased Entities (Schedule D) 1 0
  105 99

  Status of Current Year Audits 2016

  Ceased Entities Audits completed
  (Schedule D) and reports issued
  1% thereon (Schedule A)
  19%

  Audits substantially
  completed
  (Schedule A)
  4%

  Audits to commence Audits in progress
  Financial Statements shortly (Schedule A) (Schedule A)
  not submitted 5% 14%
  (Schedule A)
  57%

  Please refer to details in Schedule ‘A’ on Pages 404 to 406.

  -xix-

• Page 24 of 450

• Executive Summary

  ATTACHMENT ‘B’

  STATUS OF AUDITS IN ARREARS BY NUMBER OF AUDITS
  (2015 AND PRIOR YEARS)

  No. Status of Audits in Arrears by No. of Audits (2015 & prior years) Number of Audits
  2016/2017 2015/2016
  1 Audits substantially completed (Schedule B) 21 32
  2 Audits in progress (Schedule B) 24 31
  3 Audits to commence shortly (Schedule B) 10 5
  4 Financial Statements not submitted (Schedule B) 70 58
  125 126

  Status of Audits in Arrears by number of Audits
  (2015 and prior years)

  Audits substantially
  completed
  (Schedule B) Audits in progress
  17% (Schedule B)
  19%

  Financial Statements
  not submitted
  (Schedule B)
  56% Audits to commence
  shortly (Schedule B)
  8%

  Please refer to details in Schedule ‘B’ on Pages 407 to 408.

  -xx-

• Page 25 of 450

• Executive Summary

  ATTACHMENT ‘C’

  STATUS OF AUDITS AS AT 30 JUNE 2017

  Number of Audits
  Status of Audits
  No. 2016/2017 2015/2016
  1 Audits completed and reports issued thereon (Schedules A & E) 105 88
  2 Audits substantially completed (Schedules A & B) 25 37
  3 Audits in progress (Schedules A & B) 39 49
  4 Audits to commence shortly (Schedules A & B) 15 7
  5 Financial Statements not submitted (Schedules A & B) 130 116
  314 297

  Status of Audits as at 30 June 2017
  Financial Statements Audits completed
  not submitted and reports issued
  (Schedules A & B) thereon
  41% (Schedules A & E)
  33%

  Audits to commence
  shortly Audits substantially
  (Schedules A & B) Audits in progress completed
  5% (Schedules A & B) (Schedules A & B)
  12% 8%
  Please refer to details in Schedules ‘A’, ‘B’ and ‘E’ on Pages 404 to 408 and 412 to 414
  respectively.

  -xxi-

• Page 26 of 450

• 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 2015 & 2016 2
  2 A 6A Cocoa Pod Borer Project Fund 2015 1
  3 A 6B Cocoa Stabilisation Fund 2015 1
  4 A 10 Independence Fellowship Trust 2016 1
  5 A 11 Independent Consumer and Competition Commission 2016 1
  6 A 14 Investment Promotion Authority 2016 1
  7 A 15 Kokonas Indastri Koporesen 2016 1
  8 A 15A Papua New Guinea Coconut Extension Fund 2016 1
  9 A 15B Papua New Guinea Coconut Research Fund 2016 1
  10 A 20 National Agricultural Research Institute 2016 1
  11 A 30 National Maritime Safety Authority 2015 & 2016 2
  12 A 34 National Road Safety Council 2015 1
  13 A 35 National Roads Authority 2015 1
  14 A 40 Ombudsman Commission of Papua New Guinea 2015 1
  15 A 41 Pacific Games (2015) Authority 2016 1
  16 A 42 Papua New Guinea Accident Investigation Commission 2011 & 2012 2
  17 A 52 Parliamentary Members’ Retirement Benefits Fund 2015 1
  18 A 56 Tourism Promotion Authority 2015 1
  19 B 63 Kumul Petroleum Holdings Limited 2016 1
  20 B 63A Eda Oil Limited 2016 1
  21 B 63B Kumul LNG Limited 2016 1
  22 B 63C Kumul Petroleum (Development) Limited 2016 1
  23 B 63D Kumul Petroleum (Investments) Limited 2016 1
  24 B 63E Kumul Petroleum (Kroton) Limited 2016 1
  25 B 63F Kumul Petroleum (Pipeline) Limited 2016 1
  26 B 69 Papua New Guinea Ports Corporation Limited 2015 1
  27 B 71 PNG DataCo Limited 2014 1
  30

  -xxii-

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• Executive Summary

  (ii) QUALIFIED OPINION

  Para. No. of
  No. Section No. Entity Year Audits
  1 A 6 Cocoa Board of Papua New Guinea 2015 1
  2 A 10 Independence Fellowship Trust 2015 1
  3 A 12 Industrial Centres Development Corporation 2014 & 2015 2
  4 A 16A General Business Trust 2014 1
  5 A 18 Mineral Resources Authority 2012 & 2013 2
  6 A 19 National Agriculture Quarantine and Inspection Authority 2015 1
  7 A 25 National Economic and Fiscal Commission 2016 1
  8 A 26 National Fisheries Authority 2014 1
  9 A 33 National Research Institute 2016 1
  10 A 36 National Training Council 2015 1
  11 A 37 National Volunteer Service 2016 1
  12 A 39 Oil Palm Industry Corporation 2011 1
  13 A 40 Ombudsman Commission of Papua New Guinea 2014 1
  14 A 41 Pacific Games (2015) Authority 2014 & 2015 2
  15 A 47 Papua New Guinea Institute of Public Administration 2012 & 2013 2
  Papua New Guinea National Institute of Standards and
  16 A 49 Industrial Technology 2014 & 2015 2
  17 A 51 Papua New Guinea University of Technology 2013 & 2014 2
  18 A 54 Security Industries Authority 2012 – 2014 3
  19 A 59 University of Papua New Guinea 2013 1
  20 B 62 Air Niugini Limited 2014 1
  21 B 66 Motor Vehicles Insurance Limited 2015 1
  22 B 67 National Airports Corporation Limited 2011 1
  23 B 70 PNG Air Services Limited 2015 1
  24 B 74 Telikom (PNG) Limited 2014 1
  32
  (iii) DISCLAIMED OPINION

  Para. No. of
  No. Section No. Entity Year Audits
  1 A 3 Border Development Authority 2013 1
  2 A 5 Climate Change and Development Authority 2012 1
  3 A 7 Cocoa Coconut Institute Limited of Papua New Guinea 2013 1
  4 A 8 Coffee Industry Corporation Limited 2013 1
  5 A 8A Coffee Industry Fund 2013 1
  6 A 8B Patana No.61 Limited 2013 1
  7 A 9 Government Printing Office 2013 & 2014 2
  8 A 16B PNG Dams Limited 2013 & 2014 2
  9 A 16C Port Moresby Private Hospital Limited 2013 & 2014 2
  10 A 21 National AIDS Council Secretariat 2013 & 2014 2
  11 A 22 National Broadcasting Corporation 2014 1
  12 A 23 National Capital District Commission 2013 1

  -xxiii-

• Page 28 of 450

• Executive Summary

  Para. No. of
  No. Section No. Entity Year Audits
  13 A 24 National Cultural Commission 2013 1
  14 A 28 National Housing Corporation 2011 – 2013 3
  National Information and Communication Technology
  15 A 29 Authority (NICTA) 2013 & 2014 2
  16 A 31 National Museum and Art Gallery 2014 1
  Papua New Guinea Immigration and Citizenship Service
  17 A 45 Authority 2014 & 2015 2
  18 A 46 Papua New Guinea Institute of Medical Research 2014 1
  19 A 48 Papua New Guinea Maritime College 2014 1
  20 A 50 Papua New Guinea Sports Foundation 2005 – 2013 9
  21 A 57 University of Goroka 2014 1
  22 A 58 University of Natural Resources and Environment (Vudal) 2014 1
  23 A 60 Water PNG 2014 1
  24 B 65 Mineral Resources Development Company Limited 2012 – 2014 3
  25 B 72 PNG Power Limited 2015 1
  43

  105

  (iv) INTERNAL CONTROL REVIEW

  Para. No. of
  No. Section No. Entity Year Audits
  1 A 13 Internal Revenue Commission 2014 1

  106

  -xxiv-

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• Executive Summary

  ATTACHMENT ‘E’

  COMPARATIVE AUDIT OPINIONS ISSUED (2012–2016)
  Para. Comparative Years
  No. Section Entity
  No. 2016 2015 2014 2013 2012
  1 A 2 Bank of Papua New Guinea Unqualified Unqualified Unqualified Unqualified Unqualified
  2 A 3 Border Development Authority Disclaimer Qualified
  3 A 3A Papua New Guinea Maritime Transport Limited Qualified
  Civil Aviation Safety Authority of Papua New
  4 A 4 Guinea Qualified Qualified Qualified Qualified
  5 A 5 Climate Change and Development Authority Disclaimer
  6 A 6 Cocoa Board of Papua New Guinea Qualified Qualified Qualified Qualified
  8 A 6A Cocoa Pod Borer Project Fund Unqualified Unqualified Unqualified Unqualified
  7 A 6B Cocoa Stabilisation Fund Unqualified Unqualified Unqualified Qualified
  Cocoa Coconut Institute Limited of Papua New
  9 A 7 Guinea Disclaimer Disclaimer
  10 A 8 Coffee Industry Corporation Limited Disclaimer Qualified
  11 A 8A Coffee Industry Fund Disclaimer Qualified
  12 A 8B Patana No.61 Limited Disclaimer Qualified
  13 A 9 Government Printing Office Disclaimer Disclaimer Disclaimer
  14 A 10 Independence Fellowship Trust Unqualified Qualified Qualified Unqualified Unqualified
  Independent Consumer and Competition
  15 A 11 Commission Unqualified Qualified Qualified Unqualified Qualified
  16 A 12 Industrial Centres Development Corporation Qualified Qualified Qualified Qualified
  17 A 13 Internal Revenue Commission New Inclusion
  18 A 14 Investment Promotion Authority Unqualified Unqualified Unqualified Unqualified Unqualified
  19 A 15 Kokonas Indastri Koporesen Unqualified Unqualified Unqualified Unqualified Unqualified
  20 A 15A Papua New Guinea Coconut Extension Fund Unqualified Unqualified Unqualified Unqualified Unqualified
  21 A 15B Papua New Guinea Coconut Research Fund Unqualified Unqualified Unqualified Unqualified Unqualified
  22 A 16 Kumul Consolidated Holdings Unqualified Unqualified Qualified
  23 A 16A General Business Trust Qualified Disclaimer Qualified
  24 A 16B PNG Dams Limited Disclaimer Disclaimer Disclaimer
  25 A 16C Port Moresby Private Hospital Limited Disclaimer Disclaimer Qualified
  26 A 17 Legal Training Institute Qualified Qualified
  27 A 18 Mineral Resources Authority Qualified Qualified
  National Agriculture Quarantine and Inspection
  28 A 19 Authority Qualified Qualified Qualified Qualified
  29 A 20 National Agricultural Research Institute Unqualified Unqualified Unqualified Unqualified Unqualified
  30 A 21 National AIDS Council Secretariat Disclaimer Disclaimer Disclaimer
  31 A 22 National Broadcasting Corporation Disclaimer Disclaimer Disclaimer
  32 A 23 National Capital District Commission Disclaimer Disclaimer
  National Capital District Botanical Enterprises
  33 A 23A Limited Disclaimer
  34 A 23B Port Moresby City Development Enterprises Ltd Disclaimer
  35 A 23C Port Moresby Nature Park Limited Qualified Qualified
  36 A 24 National Cultural Commission Disclaimer Disclaimer
  37 A 25 National Economic and Fiscal Commission Qualified Qualified Qualified Qualified Qualified
  38 A 26 National Fisheries Authority Qualified Qualified Qualified
  39 A 27 National Gaming Control Board Qualified Qualified Qualified
  National Gaming Control Board Community
  40 A 27A Benefit Fund Trust Qualified Qualified
  41 A 28 National Housing Corporation Disclaimer Disclaimer
  National Information and Communication
  42 A 29 Technology Authority (NICTA) Disclaimer Disclaimer Disclaimer
  43 A 30 National Maritime Safety Authority Unqualified Unqualified Qualified Qualified Qualified

  -xxv-

• Page 30 of 450

• Executive Summary

  Para. Comparative Years
  No. Section Entity
  No. 2016 2015 2014 2013 2012
  44 A 31 National Museum and Art Gallery Disclaimer Disclaimer Disclaimer
  45 A 32 National Narcotics Bureau Disclaimer
  46 A 33 National Research Institute Qualified Unqualified Unqualified Unqualified Unqualified
  47 A 34 National Road Safety Council Unqualified Unqualified Unqualified Qualified
  48 A 35 National Roads Authority Unqualified Qualified Qualified Qualified
  49 A 36 National Training Council Qualified Qualified Qualified Qualified
  50 A 37 National Volunteer Service Qualified Qualified Qualified Qualified Qualified
  51 A 38 National Youth Commission
  52 A 39 Oil Palm Industry Corporation
  53 A 40 Ombudsman Commission of Papua New Guinea Unqualified Qualified Unqualified Unqualified
  54 A 41 Pacific Games (2015) Authority Qualified Qualified Qualified Qualified
  Papua New Guinea Accident Investigation
  55 A 42 Commission Unqualified
  56 A 43 Papua New Guinea Customs Service New Inclusion
  57 A 44 Papua New Guinea Forest Authority Disclaimer
  Papua New Guinea Immigration and Citizenship
  58 A 45 Service Authority Disclaimer Disclaimer Qualified Qualified
  Papua New Guinea Institute of Medical
  59 A 46 Research Disclaimer Disclaimer Disclaimer
  Papua New Guinea Institute of Public
  60 A 47 Administration Qualified Qualified
  61 A 48 Papua New Guinea Maritime College Disclaimer Disclaimer Qualified
  Papua New Guinea National Institute of
  62 A 49 Standards and Industrial Technology Qualified Qualified Qualified Qualified
  63 A 50 Papua New Guinea Sports Foundation Disclaimer Disclaimer
  64 A 51 Papua New Guinea University of Technology Qualified Qualified Disclaimer
  National Analytical and Testing Services
  65 A 51A Limited
  Unitech Development and Consultancy
  66 A 51B Company Limited Adverse Qualified
  Parliamentary Members’ Retirement Benefits
  67 A 52 Fund Unqualified Unqualified Unqualified Unqualified
  68 A 53 Public Curator of Papua New Guinea Disclaimer
  69 A 54 Security Industries Authority Qualified Qualified Qualified
  70 A 55 Small Business Development Corporation Qualified
  71 A 56 Tourism Promotion Authority Unqualified Unqualified Unqualified Unqualified
  72 A 57 University of Goroka Disclaimer Disclaimer Disclaimer
  73 A 57A Unigor Consultancy Limited Disclaimer Disclaimer
  University of Natural Resources and
  74 A 58 Environment (Vudal) Disclaimer Qualified Qualified
  75 A 59 University of Papua New Guinea Qualified Disclaimer
  76 A 59A Unisave Limited
  77 A 59B Univentures Limited
  78 A 60 Water PNG Disclaimer Disclaimer Disclaimer
  79 B 62 Air Niugini Limited Qualified Qualified Qualified
  80 B 62A Link-PNG Limited New Inclusion
  81 B 63 Kumul Petroleum Holdings Limited Unqualified Unqualified Unqualified
  82 B 63A Eda Oil Limited Unqualified
  83 B 63B Kumul LNG Limited Unqualified Unqualified Unqualified
  84 B 63C Kumul Petroleum (Development) Limited Unqualified Unqualified Unqualified
  85 B 63D Kumul Petroleum (Investments) Limited Unqualified Unqualified Unqualified
  86 B 63E Kumul Petroleum (Kroton) Limited Unqualified
  87 B 63F Kumul Petroleum (Pipeline) Limited Unqualified
  88 B 63G Kumul Petroleum (Tech and Advisory) Limited Unqualified
  89 B 64 Livestock Development Corporation Limited

  -xxvi-

• Page 31 of 450

• Executive Summary

  Para. Comparative Years
  No. Section Entity
  No. 2016 2015 2014 2013 2012
  Mineral Resources Development Company
  90 B 65 Limited Disclaimer Disclaimer Disclaimer
  91 B 66 Motor Vehicles Insurance Limited Qualified Qualified Qualified Qualified
  92 B 67 National Airports Corporation Limited
  93 B 67A Airport City Development Limited
  NCD Water and Sewerage Limited
  94 B 68 (Eda Ranu) Qualified Qualified Qualified
  95 B 69 Papua New Guinea Ports Corporation Limited Unqualified Qualified Qualified Qualified
  96 B 70 PNG Air Services Limited Qualified Qualified Qualified Qualified
  97 B 71 PNG DataCo Limited Unqualified
  98 B 72 PNG Power Limited Disclaimer Disclaimer Disclaimer Disclaimer
  99 B 73 Post (PNG) Limited Unqualified Unqualified Unqualified Unqualified
  100 B 74 Telikom (PNG) Limited Qualified Qualified Qualified
  101 B 74A Datec (PNG) Limited Unqualified
  102 B 74B Kalang Advertising Limited Unqualified Qualified
  103 B 74C Media Niugini Limited (EMTV) New Inclusion
  104 B 74D PNG Directories Limited Unqualified Unqualified Unqualified

  -xxvii-

• Page 32 of 450

• Executive Summary

  ATTACHMENT ‘F’

  AUDITS IN ARREARS (2015 AND PRIOR YEARS) COMPLETED
  DURING 2016/2017 AUDIT CYCLE
  Audits
  Audits
  Para. Completed Total Total
  No. Section Entity Substantially
  No. and Reports Units Units
  Completed
  Issued
  1 A 2 Bank of Papua New Guinea 2015 1
  2 A 3 Border Development Authority 2013 1 2014 1
  Climate Change and Development
  3 A 5 Authority 2012 1
  4 A 6 Cocoa Board of Papua New Guinea 2015 1
  5 A 6A Cocoa Pod Borer Project Fund 2015 1
  6 A 6B Cocoa Stabilisation Fund 2015 1
  Cocoa Coconut Institute Limited of Papua
  7 A 7 New Guinea 2013 1
  8 A 8 Coffee Industry Corporation Limited 2013 1
  9 A 8A Coffee Industry Fund 2013 1
  10 A 8B Patana No.61 Limited 2013 1
  11 A 9 Government Printing Office 2013 & 2014 2
  12 A 10 Independence Fellowship Trust 2015 1
  Industrial Centres Development
  13 A 12 Corporation 2014 & 2015 2
  14 A 16 Kumul Consolidated Holdings 2015 1
  15 A 16A General Business Trust 2014 1
  16 A 16B PNG Dams Limited 2013 & 2014 2 2015 1
  17 A 16C Port Moresby Private Hospital Limited 2013 & 2014 2 2015 1
  18 A 17 Legal Training Institute 2014 – 2016 3
  19 A 18 Mineral Resources Authority 2012 & 2013 2 2014 1
  National Agriculture Quarantine and
  20 A 19 Inspection Authority 2015 1
  21 A 21 National AIDS Council Secretariat 2013 & 2014 2
  22 A 22 National Broadcasting Corporation 2014 1
  23 A 23 National Capital District Commission 2013 1 2014 1
  24 A 24 National Cultural Commission 2013 1
  25 A 26 National Fisheries Authority 2014 1
  26 A 27 National Gaming Control Board 2015 1
  National Gaming Control Board
  27 A 27A Community Benefit Fund Trust 2015 1
  28 A 28 National Housing Corporation 2011 – 2013 3
  National Information and Communication
  29 A 29 Technology Authority (NICTA) 2013 & 2014 2
  30 A 30 National Maritime Safety Authority 2015 1
  31 A 31 National Museum and Art Gallery 2014 1
  32 A 34 National Road Safety Council 2015 1
  33 A 35 National Roads Authority 2015 1
  34 A 36 National Training Council 2015 1
  35 A 38 National Youth Commission 2012 & 2013 2
  36 A 39 Oil Palm Industry Corporation 2011 1
  Ombudsman Commission of Papua New
  37 A 40 Guinea 2014 & 2015 2
  38 A 41 Pacific Games (2015) Authority 2014 & 2015 2

  -xxviii-

• Page 33 of 450

• Executive Summary

  Audits
  Audits
  Para. Completed Total Total
  No. Section Entity Substantially
  No. and Reports Units Units
  Completed
  Issued
  Papua New Guinea Accident Investigation
  39 A 42 Commission 2011 & 2012 2
  Papua New Guinea Immigration and
  40 A 45 Citizenship Service Authority 2014 & 2015 2
  Papua New Guinea Institute of Medical
  41 A 46 Research 2014 1
  Papua New Guinea Institute of Public
  42 A 47 Administration 2012 & 2013 2
  43 A 48 Papua New Guinea Maritime College 2014 1
  Papua New Guinea National Institute of
  44 A 49 Standards and Industrial Technology 2014 & 2015 2
  45 A 50 Papua New Guinea Sports Foundation 2005 – 2013 9
  Papua New Guinea University of
  46 A 51 Technology 2013 & 2014 2
  Parliamentary Members’ Retirement
  47 A 52 Benefits Fund 2015 1
  48 A 53 Public Curator of Papua New Guinea 2013 1
  49 A 54 Security Industries Authority 2012 – 2014 3
  50 A 55 Small Business Development Corporation 2013 – 2015 3
  51 A 56 Tourism Promotion Authority 2015 1 2016 1
  52 A 57 University of Goroka 2014 1 2015 1
  University of Natural Resources and
  53 A 58 Environment (Vudal) 2014 1
  54 A 59 University of Papua New Guinea 2013 1
  55 A 60 Water PNG 2014 1
  56 B 62 Air Niugini Limited 2014 1
  Kumul Petroleum (Tech and Advisory)
  57 B 63G Limited 2016 1
  Mineral Resources Development Company
  58 B 65 Limited 2012 – 2014 3
  59 B 66 Motor Vehicles Insurance Limited 2015 1
  60 B 67 National Airports Corporation Limited 2011 1
  Papua New Guinea Ports Corporation
  61 B 69 Limited 2015 1
  62 B 70 PNG Air Services Limited 2015 1
  63 B 71 PNG DataCo Limited 2014 1 2015 1
  64 B 72 PNG Power Limited 2015 1
  65 B 73 Post (PNG) Limited 2016 1
  66 B 74 Telikom (PNG) Limited 2014 1
  67 B 74A DATEC (PNG) Limited 2015 1
  68 B 74B Kalang Advertising Limited 2014 1
  85 24

  -xxix-

• Page 34 of 450

• -xxx-

• Page 35 of 450

• SECTION A

  PUBLIC BODIES AND

  THEIR SUBSIDIARIES

  -xxxi-

• Page 36 of 450

• -xxxii-

• Page 37 of 450

• 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-

• Page 38 of 450

• -2-

• Page 39 of 450

• 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 reports to the Ministers under Section 8(4) of the Audit Act, on the financial
  statements of the Bank for the years ended 31 December 2015 and 2016 were issued
  on 30 June 2016 and 30 June 2017 respectively. The reports did not contain any
  qualification.

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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 2013 was issued on 28
  November 2016. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Cash at Bank – K457,257

  I noted that during 2013, the Authority maintained four (4) bank accounts and a fixed
  term deposit account. My review of the accounts’ bank reconciliations and their
  related records revealed the following;

  ● My review of the general ledgers, cash book and their reconciliations revealed a
  total cash balance of K2,308,311.85. This balance was reduced by K1,842,839
  for its subsidiary (PNG MTL) to K465,472.85 whilst the financial statement
  showed a balance of K457,257 resulting in a difference of K8,315.85.

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• Border Development Authority

  ● Bank reconciliations for three (3) bank accounts were not timely prepared and
  checked by senior competent officers of the Authority. In addition, the Staff
  Welfare bank account reconciliations were not provided for audit verification.

  ● The Project and Operational bank accounts’ reconciliations contained stale
  cheques dating back to 2010 totaling K314,408.11 and K122,339.19
  respectively. Furthermore, outstanding deposits totaling K398,126.57 were not
  timely cleared in the respective bank reconciliations.

  As such, I was unable to determine the accuracy of the bank balances and their
  aggregate closing balance of K457,257 disclosed as at 31 December 2013.

  Term Deposits – K7,905,286

  During my review, I noted that the Authority had invested surplus project funds in an
  Interest Bearing Deposit (IBD) account. My review of the related records revealed
  that relevant ledger accounts and an investment register were not maintained and
  updated accordingly for investments, at maturity, roll over and cut-off periods.
  Further, the IBD Certificates from Kina Finance showed two (2) investments with a
  total principal value of K6,019,000 at balance date that were matured in 2014 while
  its related ledger disclosed K7,905,000. I was not provided with any valid explanation
  for this variance. As such, I was unable to satisfy myself on the accuracy and
  existence of the investment balance disclosed in the financial statements totaling
  K7,905,286 at year end.

  Fixed Assets – K20,243,684

  I noted that the Authority disclosed K20,243,684 as its fixed assets balance as at 31
  December 2013. My examination of the available related records revealed that
  K13,512,435 (67 percent) of this total comprised of the seven (7) ships owned by the
  Authority. Of this seven (7) ships, I noted that only two (2) were operating and
  engaged in coastal trade during the year while the remaining five (5) on most
  occasions were on slipways around the country awaiting maintenance and National
  Maritime Safety Authority clearance for sea worthiness due to ships being built using
  substandard materials resulting in high maintenance and operational costs.
  Consequently, these conditions necessitated the requirement for the ships to be
  revalued by an independent marine valuer to determine their fair values against their
  written down values, but the valuations of these ships had not been carried out by the
  Authority during the year. As such, I was unable to determine the completeness,
  accuracy and valuation of the fixed assets balance disclosed at year end.

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• Border Development Authority

  Sundry Debtors and Prepayments – K8,778,169

  I noted that the Authority’s year-end balance for Sundry Debtors and Prepayments
  disclosed in the financial statements was K8,778,169. My review of the related
  records revealed that this total comprised of eight (8) different accounts with varying
  balances in their respective general ledgers as compared to the financial statement
  balances.

  Of the total, about K6,000,000 was owed by its subsidiary company (PNGMTL)
  which was not financially sound. As such, a provision needs to be made against this
  debt. In addition, the movements or transactions during the year in each account were
  not clearly recorded in the general ledger resulting in an ending balance of
  K8,778,169. As such, I was unable to conclude on the accuracy and existence of the
  above closing balance disclosed as at 31 December 2013.

  Creditors and Accruals – K4,284,738

  The Authority had disclosed K4,284,738 for Creditors and Accruals in the financial
  statements at year end. My review of the account revealed that the balance comprised
  of the following accounts;

  ● Other Creditors – K2,389,130

  Other Creditors’ balance of K2,389,130 was more than fifty percent (50%) of
  the total balance of K4,284,738. I noted that the balance was a carry-over
  figure from 2012 accounts without any movements during the year. I was not
  provided with any valid explanation supported by documents.

  ● Other Provisions – K1,010,000

  My review of the other provisions account revealed that the amount related to
  a provision made for audit fees as well as other special relocation projects in
  2009. I was not provided with the summary of other provision costs along with
  their project status. As a result of limitation of scope, I was unable to perform
  the necessary audit procedures to verify the account balance. As such, I was
  unable to establish whether the other provision of K1,010,000 had been fairly
  stated in the accounts.

  ● Other Payables – K746,640

  My review of Other Payables revealed that K746,640 had been carried
  forward as opening balance from the 2012 financial year. There were no
  transactions posted in 2013. As such, I could not establish whether the
  Authority maintained adequate control over the payable and perform regular
  reconciliations to update its records.
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• Border Development Authority

  Cashflow Statement

  My examination of the Authority’s Cashflow Statement revealed that the Cashflow
  Statement agreed to the cash at bank at year end. My review of the Cashflow
  Statement noted variances in the cashflows generated from operating activities. I was
  not provided with the workings of the Cashflow Statement by the Authority. As such,
  I was unable to state as to the accuracy of the movements in each account and the
  aggregate year end cash balance stated in the Cashflow Statement.

  DISCLAIMER OF OPINION

  Because of the significance of the matters referred to 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 Border Development Authority for the year
  ended 31 December 2013.”

  3.2.2 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 28 November 2016. The report contained the following
  comments:

  1. Bank Reconciliation

  My review of the Authority’s bank reconciliations revealed that
  reconciliations were not prepared and independently reviewed by a
  responsible officer of the Authority on a timely basis. In my successive audit
  reports I highlighted this issue, but management failed to address this issue.

  2. Granting of Approval Limits

  As reported in my previous audit reports, 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 Public Finances (Management) Act. I
  emphasised that these higher approval limits up to K10 million was not
  consistent with the approval limits set by the Public Finances (Management)
  Act 1995 (as amended).

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• Border Development Authority

  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 Public Finances
  (Management) Act 1995 and may open avenues for malpractices.

  3. Condition of Ships

  I noted that at the end of 2010, the Authority had taken delivery of all the
  seven (7) ships built and acquired from a ship builder in Indonesia. However, I
  noted with concern that the ships on most occasions were not operating as
  expected due to poor quality materials being used to build these ships.

  I observed that in most occasions the ships were docked for maintenance at
  various ports and as a result, the Authority was incurring huge port docking
  charges.

  4. Non-Acquittal of Travel Advances

  My review of the travel expenses totaling K669,123 by staff on duty travel
  (domestic and overseas) 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, advances amounting to K109,414 remained
  outstanding or not acquitted at the year end.

  I drew management’s attention to the Public Finances (Management) Act
  1995 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 (7) days for domestic travel and fourteen (14) days for overseas
  travel.

  5. Non Compliance with the Public Finances (Management) Act

  The Authority had not submitted its financial statements for the year ended 31
  December 2013 before 31 March 2014 to enable me to conduct the audit and
  submit the audit report within the time frame prescribed by the Public Finance
  (Management) Act 1995 (as amended). Consequently, the Authority had
  breached Sections 63(2) and 63(4) of the Public Finance (Management) Act
  1995.

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• Border Development Authority

  3.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and
  records and examination of the financial statements of the Authority for the year
  ended 31 December 2014 had been completed and the results were being evaluated.

  The Authority had not submitted its financial statements for the years ended 31
  December 2015 and 2016 for my inspection and audit.

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• 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 Company, despite numerous reminders, had
  not submitted its financial statements for the years ended 31 December 2013, 2014,
  2015 and 2016 for my inspection and audit.

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• Page 49 of 450

• 4. CIVIL AVIATION SAFETY AUTHORITY OF PAPUA NEW
  GUINEA

  4.1 INTRODUCTION

  4.1.1 Legislation

  The Civil Aviation Safety Authority of Papua New Guinea was established on 1
  January 2010 after the enactment of the Civil Aviation Act 2000 (as amended).

  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 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 examination of the financial statements of the
  Authority for the year ended 31 December 2016 was in progress.

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• Page 50 of 450

• 5. CLIMATE CHANGE AND DEVELOPMENT AUTHORITY
  (formerly Office of Climate Change and Development)

  5.1 INTRODUCTION

  5.1.1 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 which abolished
  the former Office of Climate Change and Environmental Sustainability (OCC&ES).
  The former OCC & ES was created in 2009 and operated 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 creation and establishment of PNG Climate Change Authority (PNGCCA).
  However, SCMC in its meeting held on 22 May 2012 had withheld the submission of
  the organisational structure as the certified governing Act was 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, on 28 July 2015, the National
  Parliament passed the Climate Change (Management) Act 2015 (No. 19 of 2015) and
  certified by the Acting Speaker of the National Parliament on 20 November 2015.
  Finally, the Climate Change and Development Authority came into existence on that
  date.

  5.1.2 Objectives of the Authority

  The objectives of the Authority are 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.

  5.1.3 Functions of the Authority

  Major functional responsibilities of the Authority are:

  Policy development:
  ‒ Adopt and incorporate national strategies and plans on climate change
  compatible development into the national development strategies and
  plans;

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• Climate Change and Development Authority

  ‒ Coordinate and facilitate the implementation of the National Strategy on
  Climate Compatible 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.

  5.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  5.2.1 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 2012 was issued on 25 July
  2016. This report contained a Disclaimer of Opinion.

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• Climate Change and Development Authority

  “BASIS FOR DISCLAIMER OF OPINION

  Limitation on the Scope of my Audit

  The Climate Change & Development Authority (CCDA) did not maintain proper,
  complete and accurate records of transactions for the year ended 31 December 2012.
  There were serious deficiencies in accounting and record keeping. As a result, I could
  not complete my planned audit procedures to satisfy myself with most of the
  expenditure account balances reported in the financial statements.

  The Presentation of Financial Statements

  Note 2(a) of the financial statements reported that the Authority’s financial statements
  were prepared in accordance with accrual basis, whereas the income and expenditure
  was recognised on cash basis. Therefore, the financial statements was prepared in
  hybrid basis, which is not appropriate. As a result, the presentation of the financial
  statements was not complying with the Public Finances (Management) Act 1995.

  Expenditure – K7,812,799

  The Authority did not maintain proper record of payments totalled K4,557,402 which
  represented 60% of the total payments for the period under review. Consequently, I
  was unable to complete my audit procedures to determine the validity, completeness
  and accuracy of the payments totalled K7,812,799 as reported in the financial
  statements. Further, travel allowances valued K1,163,868 were not acquitted during
  the year.

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis for Disclaimer of
  Opinion paragraphs, I was not able to obtain sufficient and appropriate audit evidence
  and accordingly, I am unable to and do not express an opinion on the financial
  statements of the Authority for the year ended 31 December 2012.”

  5.2.2 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 25 July 2016. The report contained the following observations:

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• Climate Change and Development Authority

  Management Information System (MIS)

  The Authority had no effective Management Information System (MIS) to capture
  accounting data. When there were no effective MIS, accounting and management data
  could not be captured adequately. Currently, MYOB system had been used to produce
  the reports and stand-alone PC systems software had been used for recording
  management data and records. Proper and current version of the MYOB needed to be
  purchased and personnel need training to operate the system.

  I brought this to the attention of the management and they responded that they would
  do it when their finance capacity increases.

  Accounting Manual & Procedures

  The Authority currently has no Accounting Manual & Procedures to assist accounting
  staff in the preparation of accounts. Having no accounting manual and procedures
  may lead accounting personnel to prepare and produce incorrect accounts.

  I brought this to the attention of the management and they responded that they would
  do it in 2016 when their finance capacity increases.

  Organization Policy

  I noted that the Authority did not have an Organizational Policy. I informed
  management that in the absence of organizational policy, it is difficult to operate and
  manage the operations of the organization. The management advised that they would
  work on it in 2016.

  Salary & Wages

  The Salaries & wages of the personnel of the Authority were paid by the Department
  of Personnel Management (DPM) while gratuities were paid by the organization. I
  brought to the attention of the management the risk that salaries & wages payments
  could lead to duplication in either of the organizations. The management responded
  that they would liaise with the DPM on this issue starting in 2016.

  Engagement of Consultants

  I noted that consultants were engaged to review the Authority’s organizational
  structure and review terms and conditions of employees. However, I could not
  confirm the outcome of the engagement. I recommended to management that the
  Authority must engage consultants who are qualified for the job and management
  responded that new management had done away with that and engaged only on need
  basis for very short terms.

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• Climate Change and Development Authority

  Internal Audit Unit/Internal Auditor

  The Authority had no Internal Audit Unit or Internal Auditor for the organisation. I
  recommended that internal controls including organizational policy and accounting
  manual and procedures must be established, and internal audit unit must exist to
  ensure operational processes comply with applicable rules, policies and laws. The
  management advised that they would consider this under the new CCDA restructures.

  Meeting Minutes

  During my review, the Authority could not provide me with the Minutes of the
  Management and Board Meetings for the year 2012. This implied that significant
  issues affecting the organization were not reviewed and this could lead to misconduct
  in public office. I brought this to the attention of the management and they advised
  that the new management had already put in controls for keeping records of meeting
  minutes.

  Acquittal Systems – Travel Allowances and Advances

  During my review, I noted that travel allowances and advances were not properly
  acquitted. I recommended to management that proper acquittal system and policy
  must be established to ensure public funds are not misused. I also suggested that an
  officer should be assigned with a duty to coordinate the acquittals for travel
  allowances and other advances including salary advances. The management
  responded that under the new management they already had the acquittal measures in
  place. The management also advised that they had put a stop to all cash advances and
  issue instructions for acquittals.

  Excessive Hire Car

  I noted that control was lacking on hiring of cars. In 2012 a total of K1,148,713 was
  spent on hire cars alone. I advised management that lacking control may lead to
  misuse of public funds. The management responded that the new management said no
  to hire cars and new measures were already in place.

  Filing System – Record Keeping

  There were no evidences of proper filing system in place to ensure documents were
  well kept for management record and audit purposes.

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• Climate Change and Development Authority

  Budget & Management of Capital & Donor Funded Projects

  I was not made available with the Budget estimates for Capital or Donor Funded
  Projects. Also, there was no proper management for capital project expenditures. I
  advised management that there must be a budget document to ensure that the capital
  projects or donor funded projects are controlled and managed within the budget. The
  management responded that the new management would do that starting in 2016.

  Fixed Assets Register

  The Authority did not maintain Fixed Assets Register (FAR) for the year under
  review. Fixed asset additions were not updated and the controls were lacking to
  monitor and safeguard their existence. I recommended the management to
  immediately maintain the FAR to ensure the assets are recorded. I advised that
  guidelines must be established to safeguard the assets and to ensure that the assets are
  properly managed and controlled.

  I further recommended that fixed asset register must be properly reconciled to assets
  control ledger account to ensure accuracy of fixed assets valuation. The management
  responded that they would act on my recommendations.

  Payment Register & Payment Vouchers

  The Authority had not maintained payment register to record all the cheques issued to
  suppliers. I further noted that most of the payment vouchers examined were not
  supported by proper suppliers supporting documents as evidence of payment and
  service received. I brought this to the attention of the management and they responded
  that they would improve on this starting in 2016.

  Compliance with Public Finances (Management) Act 1995

  The audit of the 2012 statutory financial statements commenced in April 2016 which
  was after the deadline of 30 June 2013. As such, the Directors did not meet the
  deadline set by Section 63 of the Public Finances (Management) Act 1995 for audited
  financial statements of public bodies to be furnished to the Minister before 30 June of
  the subsequent year.

  5.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Authority had not submitted its financial
  statements for the years ended 31 December 2013, 2014, 2015 and 2016 for my
  inspection and audit despite my numerous reminders.

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• Page 56 of 450

• 6. COCOA BOARD OF PAPUA NEW GUINEA

  6.1 INTRODUCTION

  6.1.1 Legislation

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

  6.1.2 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.

  6.1.3 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 7 of this Report.

  6.1.4 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
  paragraphs 6A and 6B 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.

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• Cocoa Board of Papua New Guinea

  6.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  6.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Board for the year ended 30 September 2015 was issued on 15 June
  2017. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Going Concern

  I reported in my prior years’ reports that the National Court in its ruling of 19 March
  2010 awarded Agmark Pacific Limited K4,885,260 plus 8% interest and costs
  allegedly for collections of Stabilization Bounty illegally without the Minister’s
  approval. Further, the Board’s current Net Liability stands at K7,679,950. Should the
  appeal made in 2010 fail, the Board will not be able to pay the K4,885,260 based on
  its current financial position unless an agreement is reached with Agmark Pacific
  Limited to pay the award over a period of time, or the State agrees to bail out the
  Board by paying the award, otherwise the Board may be considered as insolvent and
  may be placed under receivership. I also noted that this contingent liability was not
  disclosed by way of notes to the financial statements for the year ended 30 September
  2015. As a result, the Board has not complied with the requirements of International
  Accounting Standards 37 (IAS 37).

  Revaluation of Land and Buildings – K2,279,825

  My review revealed that there was no proper valuation done on the Land and
  Buildings owned by the Board for a prolonged period to reflect the current market
  rates and values. As a result, the value of the fixed assets as at balance date was not
  fairly stated. Consequently, the Board has not complied with IAS 16 (Measurement
  and Recognition) which states that the valuation of property, plant and equipment
  should be done on a regular basis. As a result, the disclosed amount of K2,279,825
  representing Land and Buildings was not fairly stated in the financial statements as at
  30 September 2015.

  QUALIFIED OPINION

  In my opinion, except for the effects on the financial statements of the matters
  referred to in the Basis for Qualified Opinion paragraphs;

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

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• Cocoa Board of Papua New Guinea

  b) the financial statements are in agreement with those accounts and records, and
  show fairly the state of affairs of the Board as at 30 September 2015 and the
  results of its financial operations and cash flows for the year then ended.”

  6.2.2 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 30 September 2015
  was issued on 15 June 2017. The report contained the following comments:

  Non-Compliance with the Public Finances (Management) Act

  The Board had not submitted its financial statements for the year ended 30 September
  2015 on a timely basis to enable me to conduct the audit and submit the audit report
  within the time frame prescribed by the Public Finances (Management) Act 1995 (as
  amended). Consequently, the Board had breached Sections 63(2) and 63(4) of the
  Public Finances (Management) Act. I brought this issue to the attention of the
  management and they responded as follows;

  “We noted your comments and we’ll ensure that in future the financial statements are
  prepared and submitted on a timely basis to comply with Sections 63(2) and 63(4) of
  the Public Finances (Management) Act.”

  Budget Review

  My review and comparison of the 2015 budget figures against the actuals revealed
  non-compliance and deviations of material amounts. I highlighted to the Board that
  annual budgets were passed through the Appropriation Act and any deviations and
  overspending was direct breach of the concerned Act. A budget was one of the
  management tools that guide the entity in managing its resources for its maximum
  benefits. Therefore, deviations from budget were an indication of the inability of the
  management to manage its limited resources wisely. I recommended the Board to
  ensure proper compliance to the budget and any deviations be properly justified and
  approved by those in authority. I drew this to the management attention and the
  management responded as follows;

  “We noted your comments on non-compliance and deviations in our budget against
  the actuals for the year under review. We also noted that any deviation and over
  spending is a direct breach of the Appropriation Act. We will ensure that proper
  compliance to budget is maintained and any deviation should be properly justified
  and approved by appropriate committees and authorities.”

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• Cocoa Board of Papua New Guinea

  Cash at Bank

  My review and the examination of the cash at bank and bank reconciliations revealed
  that the bank reconciliations were not prepared, reviewed and verified by concerned
  officers of the Board in 2015 on a timely basis. I also noted that stale cheques
  amounting to K21,756 were outstanding over 12 months.

  I was not provided with subsequent months’ bank reconciliations for my verification
  and further testing of unpresented cheques. As a result, I was not able to place
  reliance on the effectiveness of the controls maintained by the Board. I brought this
  issue to the attention of the management and they responded as follows;

  “We take note of your comments in relation to bank reconciliations and stale cheques.
  We will ensure to prepare timely bank reconciliations including segregation of duties
  and the stale cheques should be investigated and written back to our book of
  accounts.”

  Fixed Assets

  My review of the fixed assets of the Board revealed the following weaknesses:

  Fixed Assets Register (FAR)

  The Fixed Assets Register (FAR) was incomplete as it was not properly updated
  and had not fully captured all the assets owned by the Board. Two portions of
  land located within the township of Rabaul (Section 61 lot 31 and Section 37 lot
  102) were recorded without proper valuation. In addition, the vehicle list
  provided for audit verification had twenty-one (21) vehicles while the FAR
  showed only sixteen (16). I further noted that additions and disposals of motor
  vehicle used in other Centres were not properly registered in the FAR. I
  recommended the management of the Board to do a full stock-take update and
  maintain the Fixed Assets Register. I drew this matter to the attention of the
  management of the Board and they responded as follows;

  “Management acknowledges the weaknesses highlighted in our Fixed Assets
  Register and advice that the FAR has now been updated.”

  Stock-Take

  The Board had not conducted regular stock-take on its fixed assets for a number
  of years. Assets were not counted and tagged with asset numbers for verification
  and control. In the absence of regular fixed assets stock-take and numbering,
  assets that were idle, misplaced or stolen cannot be identified by the Board.

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• Cocoa Board of Papua New Guinea

  As a result, I was unable to place reliance on the effectiveness of the controls
  surrounding the management of fixed assets. Consequently, I was not able to
  comment on the condition, valuation and existence of the fixed assets disclosed.
  I brought this issue to the attention of the management and the management
  responded as follows;

  “We take note of your recommendations and as stated above, the fixed assets
  update and maintenance has now been initiated by management to address this
  issue.”

  Cocoa Fermentary Central Database

  During my review of income generated by the Board, I noted that the Board did not
  have a complete and central database of all the registered cocoa fermentaries in the
  country apart from the Registered Exporters, which was provided for my review.
  About eighteen percent (18%) of the total income disclosed during the year were
  generated from fermentary registrations and other related licenses. As a result, I was
  unable to ascertain the total number of registered fermentaries in the country, their
  status, location and other statistics and, whether all fermentaries were registered and
  fees collected accordingly in 2015. I recommended that a complete central database of
  all fermentaries and other related licenses are created and maintained by the Board. I
  drew this matter to the management and they responded to my query as follows;

  “We take note of your comments and recommendations to establish a central
  fermentary database of all fermentaries and other related licenses. The management
  will ensure that these vital information are separately maintained and are
  consolidated into a central database for records, reporting and audit purposes.”

  Personnel Files

  During my review, I noted poor maintenance of staff personnel files by the Board.
  There were no IRC tax declarations, birth certificates or statutory declarations to
  verify the dependents and no issuance of Pay Variation Advise to keep track of
  movement in the salaries and allowances. No history cards were also maintained by
  the Board for each staff. As a result, I was unable to confirm the salary and
  allowances and the leave records from their personnel files. I brought this issue to the
  attention of the management and they responded as follows;

  “Your recommendations have been noted and Human Resources and Administration
  Section have taken necessary actions to ensure compliance with requirements that are
  in place to maintain and update staff personnel files.”

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• Cocoa Board of Papua New Guinea

  Payments without three (3) Quotations and Public Tender

  During my review, I noted that the Board had not complied with the requirements of
  the Public Finances (Management) Act 1995 (PFMA), Section 61 and Financial
  Instruction 2-2013 in relation to the following;

  The Board did not obtain three (3) written quotations for purchases valued
  between K5,000 and under K500,000. As a result, payments totaling K251,648
  were made without obtaining three (3) written quotations.

  The Board during the financial period ended 30 September 2015 engaged a
  company for supply and installation of water projects for a total value of
  K585,200 without observing the Public Tendering processes.

  I brought this issue to the management and received the following responses;

  “We acknowledged your findings and recommendations will ensure to comply with
  the procurement processes by obtaining three quotations for payments of K5,000 and
  above. The Company was engaged to carry out the water projects in six (6) different
  locations without tender for it has already delivered quality work for PNGCCIL under
  cocoa nurseries program. With these back ground and quality of work and to
  maintain consistency and continuity with the scope of work required under the Cocoa
  Board through cocoa nursery projects plus company’s efficiency in mobilizing to
  different work sites.”

  Building Maintenance

  During my review, I observed that the Board continuously engaged a supplier on
  various occasions for the provision of building maintenance and renovations both in
  Cocoa Board residential area in Kina Bot and Head Office totalling K539,045. The
  engagement was based on a certificate of In-expediency signed by the CEO and the
  interim chairman of the Board (Secretary of Department of Live Stock and
  Agriculture). However, I was unable to comment on whether a proper procurement or
  tendering process was followed before the supplier was selected and engaged. I drew
  this matter to the management for their comments and they responded to my query as
  follows;

  “We engaged the supplier through Certificate of inexpediency to work on
  maintenance and renovation of all properties of the Board which are centralised in
  one location at Kenebot.”

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• Cocoa Board of Papua New Guinea

  Vehicle Hire and Other Payments

  I observed that the Board had continuously engaged a particular supplier for the
  provision of vehicle hire cars and other services during the year under review. During
  my review, I noted the following discrepancies:

  No Contract documents were sighted nor provided for car rentals or hire;

  An advance payment of K20,000 was made based on written letter was paid for
  provision of hire cars;

  Authenticity of payments for continuous use of same vehicle RAG 237 by the
  same officer in Port Moresby for more than six months totalling K110,086 is
  questionable.

  Further, Invoices 065 and 067 were paid with cheque# 217417 totalling K49,045
  for 31 days and 44 days respectively. However, the nature of such long use of
  hired vehicles in Port Moresby was unknown; and

  A payment of K80,000 for cheque # 216990 dated 19/12/2014 stated as for
  “Mobilization cost for cocoa board residence at Kubu AROB.” However, I was
  unable to verify this payment as proper documents such as scope of work had
  not been sighted nor provided for my review for this payment. Further, there
  was no property owned by the Board in Arawa to carry out this renovation work.
  This payment was dubious and suspicious in nature.

  Due to the above observation, I was unable to ascertain the occurrence, completeness,
  accuracy and validity of these transactions and the payments made thereof. Further,
  continue to engage the same supplier with payment above K50,000 without minor
  contract agreement was a breach of Public Finance Instruction 2/2013 Section 5 (5.2).

  I recommended the Board to adhere to Public Finances Management Act and
  Financial Instructions and to strictly comply with the Act. I brought this issue to the
  attention of the management and they responded to my query as follows;

  “The engagement of hire car in Port Moresby was for official purposes and used by
  various officers at later stages, but billed under the same officer as per the initial
  hire. Further, the use was official in nature as stated and covered duty travels to Port
  Moresby. However, management takes note of the audit observations and has assured
  to adhere to the Public Finances (Management) Act 1995.

  Regarding the mobilization cost for Kubu, ARoB, the property was allocated to and
  occupied by PNGCCIL. This property was to be renovated by Cocoa Board following
  arrangements between Cocoa Board office and PNGCCIL to further allocate the
  residence to the Cocoa Board office in Buka for residency purposes.

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• Cocoa Board of Papua New Guinea

  However, as the maintenance preparations were to be initiated following the release
  of the mobilization cost, ARoB government authorities intervened and repossessed the
  property thus restricting and discontinuing works on this property. Therefore, all the
  intended works on the property was not continued due to the intervention and
  repossession by ARoB government authorities.”

  Travel Advance Register

  My review of travel and subsistence expenses amounting to K1,261,528 for the period
  ended 30 September 2015 revealed lack of travel acquittals by concerned staff of the
  Board. There was no Travel Advances Register maintained by the Board in 2015. It is
  a requirement as per the Financial Management Manual Part 20 paragraph 11.2 that
  cash advanced to officers travelling overseas on official duty must acquit travel
  advances within 14 days of return from duty travel. At the same time Part 20
  paragraph 12.10 of the Manual stipulates that advances to officers for domestic duty
  travels to be acquitted within 7 days of return from duty travel by submitting an
  acquittal form. This issue was also raised in my prior year audit report.

  Management responded that the Board will comply with the requirements per the
  Financial Management Manual and advised that pay deductions will commence
  immediately once a circular is sent out to all officers concerned.

  6.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements for the year ended 30
  September 2016 had not been submitted for my inspection and audit.

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• 6A. COCOA POD BORER PROJECT FUND

  6A.1 INTRODUCTION

  6A.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.

  6A.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.

  6A.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  6A.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the Project Fund’s
  financial statements for the period ended 30 September 2015 was issued on 15 June
  2017. The report did not contain any qualification.

  6A.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 Project Fund for the period ended 30
  September 2015 was issued on 15 June 2017. The report contained the following
  comments:

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• Cocoa Pod Borer Project Fund

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

  The Public Finances (Management) Act 1995 Section 63(2) and 63(4) requires the
  Project to furnish to the Minister before 30 June in each year, a performance and
  management report of its operations for the preceding financial year, together with
  financial statements. Before furnishing financial statements to the Minister, the Project
  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 period ended
  30 September 2015 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 Public
  Finances (Management) Act 1995.

  Preparation of Bank Reconciliations

  My review and examination on the cash at bank and bank reconciliations of the Project
  revealed that the bank reconciliations were not prepared, reviewed and verified by
  concerned officers of the Project in 2015 on a timely basis. As a result, I was not able
  to place reliance on the effectiveness of the controls surrounding the management of
  cash and the bank reconciliation process. I brought this to the attention of the
  management and the management responded as follows:

  “We take note of the weaknesses highlighted and will ensure to maintain timely
  preparation of bank reconciliations including segregation of duties.”

  Fixed Assets Register

  My review of the Project’s Fixed Assets Register (FAR) revealed that the Register was
  not properly maintained during the period under review. I noted that the FAR was
  incomplete as it did not include asset numbers, model and serial numbers of the
  different types of assets listed. Registration numbers for the motor vehicles were not
  provided in the FAR as well. Furthermore, these assets were not tagged for
  verification. As a result, I was unable to place reliance on the controls surrounding the
  management of the fixed assets acquired and used by the Project at year end. The
  management responded to my comments as follows:

  “We take note of your findings and recommendations and have now taken steps to
  ensure the Fixed Assets Register is updated and maintained in a manner most suitable
  and acceptable for assets tracking, accounting, reporting and audit purposes.”

  Debtors and Prepayments – K22,155

  During my examination of debtors and prepayments, I was not provided with
  schedules and supporting documents to confirm the account balance of staff debtors
  and investigation of cheque payments totalling K15,404 and K5,988 respectively.

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• Cocoa Pod Borer Project Fund

  As a result, I was unable to verify the balances disclosed in the financial statements as
  at 30 September 2015. I drew this matter to the attention of the Project Management
  and they responded to my query as follows:

  “We acknowledge and take note of your findings and advices that a proper
  investigation will be conducted to establish the nature of these transactions which have
  been brought from prior years.”

  Acquittal of Travel Advances

  My review of the travel expenses for the period revealed payments amounting to
  K7,913 were not properly acquitted as required by the Public Finances (Management)
  Act (PFMA). It must be noted that 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 be acquitted within fourteen (14) days of return from
  duty travel and advances to officers for domestic duty travels to be acquitted within
  seven (7) days. As a result, I was unable to determine whether all the advances were
  properly accounted for during the year under review. I drew this matter to the attention
  of the management and they responded to my query as follows:

  “We acknowledged your comments and recommendations and advice that on a
  general note, measures are already in place to penalize officers who do not comply
  with the requirements of the PFMA and FMM Part 20 paragraph 11.2 and 12.10.
  Officers who breach the requirements will be subjected to salary deductions to recoup
  monies not acquitted.”

  Lack of Proper Supporting Documentation – No Cheque Copies

  During my examination of the expenditures for the financial period ended 30
  September 2015, I noted that some payments did not have cheque copies attached with
  the vouchers. As a result, I was unable to ascertain the effectiveness of the controls
  surrounding the procurement process. Further, I was unable to confirm whether there
  was segregation of duties in procurement processes by the Project. I drew this matter
  to the attention of the Project Management and they responded to my query as follows:

  “We already put in place the control mechanism surrounding the procurement
  processes including segregation of duties. We will ensure weaknesses highlighted are
  noted and will ensure all cheque payments must be duplicated before realized.”

  6A.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Project Fund had not submitted its financial
  statements for the period ended 30 September 2016 for my inspection and audit.

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• 6B. COCOA STABILISATION FUND (Subsidiary of Cocoa Board of PNG)

  6B.1 INTRODUCTION

  6B.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.

  6B.2 AUDIT OBSERVATION

  6B.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 Fund for the year ended 30 September 2015 was issued on 15 June
  2017. The report did not contain any qualification.

  6B.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 Fund for the year ended 30 September 2015
  was issued on 15 June 2017. The report contained the following matter:

  Non-Compliance with the Public Finances (Management) Act

  The Board had not submitted the Fund’s financial statements for the year ended 30
  September 2015 on a timely basis to enable me to conduct the audit and submit the
  audit report within the time frame prescribed by the Public Finances (Management)
  Act. Consequently, the Fund had breached Section 63(2) and 63(4) of the Public
  Finances (Management) Act. I brought this to the attention of the management and
  they responded as follows:

  “We noted your comments on delay in furnishing the financial statements for your
  audit on a timely manner. We therefore will ensure that in future the financial
  statements are submitted on time to comply with section 63 (2) and 63(4) of the Public
  Finance Management Act.”

  6B.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Fund for the
  period ended 30 September 2016 had not been submitted for my inspection and audit.

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• 7. COCOA COCONUT INSTITUTE LIMITED OF PAPUA NEW
  GUINEA

  7.1 INTRODUCTION

  7.1.1 Legislation

  The Cocoa Coconut Institute Limited of Papua New Guinea (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 by the
  Cocoa Board of PNG and the Kokonas Indastri Koporesen (KIK) of PNG.

  7.1.2 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.

  7.2 AUDIT OBSERVATIONS

  7.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Company for the year ended 31 December 2013 was issued on 9
  August 2016. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Cash Balance – K512,813

  In 2013, the Company maintained more than fifty (50) bank accounts and seven (7)
  petty cash ledgers. During my review and examination, the following were noted:

  there was a variance of K48,230 between the financial statement balance of
  K507,813 and the aggregate reconciled amount of K464,581;
  bank reconciliations were not prepared and reviewed on a timely basis resulting
  in time lapses ranging from one to more than six months;
  nine (9) bank accounts were not reconciled in 2013;

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• Cocoa Coconut Institute Limited of Papua New Guinea

  my review revealed severe break-down in internal controls surrounding the
  reconciliations and general record maintenance of the bank accounts of the
  Company at Outstations and Provincial Centres. Bank statements and other
  supporting documents do not reach the Head Office on time or not at all. The
  East Sepik Imprest Account did not have proper reconciliations and supporting
  documents to confirm the amount of K145,000 disclosed at year-end;
  during the period under review, eight (8) bank accounts with carrying amount of
  K20,392 were closed. However, these account balances were still captured in
  the general ledgers but not properly reconciled, adjusted and balance transferred
  to other existing accounts as at 31 December 2013; and
  there were serious internal control breakdown in the management of petty cash.
  I noted that seven (7) ledger accounts were maintained in the accounting system
  however, the Company maintained only three (3) in 2013. In addition, Head
  Office petty cash float was K1,500 while the ledger shows only K500.
  Plantation petty cash float of K3,000 could not be substantiated due to lack of
  supporting schedules and documentations.

  As a result of the above, I was unable to place reliance on the effectiveness of the
  controls surrounding the management of the cash during the year, nor validate the
  existence, accuracy and correctness of the cash balance disclosed as at 31 December
  2013.

  Fixed Assets – K7,184,067

  The Company did not maintain a proper, complete and accurate Fixed Assets Register
  (FAR) to record necessary details of assets such as date of purchase, assets serial
  numbers, and depreciation of assets under its custody. I was unable to physically
  inspect certain assets against the records to confirm the existence and condition of
  these assets due to the absence of a proper register. I further noted that the Company
  did not conduct annual stock take of its assets to verify the existence, ownership and
  valuation of assets. As a result of these discrepancies, I was unable to verify and
  confirm the fixed assets balance of K7,184,067 disclosed as at 31 December 2013.

  GST Clearing Account – K492,153

  My review of the GST Clearing Account revealed that the balance of K492,153
  disclosed in the financial statement was carried forward from prior years. I cannot
  substantiate this balance due to lack of proper explanation and supporting documents.
  As a result, I was not able to confirm the existence and accuracy of the balance as at
  31 December 2013.

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• Cocoa Coconut Institute Limited of Papua New Guinea

  Inter Company Accounts – K333,748

  Inter-company account relates to amounts owed by the parent entities to CCIL in this
  case, Kokonas Industri Koporesen. This balance was increased by K60,000 in 2013
  from payments made to staff social club account.

  However, I was not provided with proper explanations to verify those transactions
  during the course of my audit. Therefore, I was unable to confirm the treatment and
  accuracy of the balance of K333,748 disclosed as at 31 December 2013.

  Provision for Long Service Leave – K977,309

  My review of the provision for long service leave revealed that there were no
  schedules and supporting documents maintained by the Company to confirm the
  amount disclosed. I also noted that trial balance figure was the same for prior year and
  no adjustments were taken up in the general ledgers to capture the movements noted
  in the financial statements. As a result, I was unable to confirm the accuracy of the
  balance representing provision for long service leave at year end.

  PIP Project Funds – K3,000,000

  My review of the PIP funds received during the year revealed that the Company
  recognized and disclosed the grant as income totaling K3,000,000. However, IAS 20
  (Accounting for Government Grants and Disclosure of Government Assistance)
  requires that grants are recognized in the profit and loss account on a systematic basis
  over the period in which the entity recognizes expenses for the related costs for which
  the grants are intended to compensate. As a result, the Company did not correctly
  record and disclose the PIP grants to match the expenses incurred during the year in
  relation to project. Consequently, a liability account (deferred income) was not
  created to reflect the unused portion of the grant at year end resulting in the incorrect
  treatment and disclosure of the PIP grants.

  Plantation/Other Income – K2,293,987

  The Company’s major revenue source was Government Grants (82%). The Company
  also earns income through the sale of produce from the plantations, sundry income
  and other donor and shareholder assistance constituting about eighteen percent (18%)
  in total. My review of the income from the sale of produce and other miscellaneous
  activities totaling K2,293,987 revealed the following:

  receipting of income from the Plantations sites and Provincial Centres lack
  proper control and monitoring. Records of sales and income generated outside
  of the Head Office were not always submitted on a timely basis;

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• Cocoa Coconut Institute Limited of Papua New Guinea

  there was no Receipt Register which the Company keeps records of all receipt
  books to be used throughout the business segments resulting in lack of audit
  trail;
  there was no segregation of duties in the receipting and banking of sales income.
  I noted that the same person issuing the receipt was also doing the banking. I
  also noted that banking in most cases takes more than three days; and

  supporting and source documents not provided for my verification amounted to
  K1,525,464.97.

  As a result of the above issues, I was unable to place reliance on the effectiveness of
  the controls surrounding the process of receipting, banking and posting of sales
  income. Consequently, I was unable to determine whether all income generated were
  received and correctly recorded in the books of the Company for the year ended 31
  December 2013.

  Payroll Costs

  My review of the personnel costs revealed that there were no payroll summary sheets
  maintained by the Company. Payroll summary sheets captures fortnightly or monthly
  salaries and wages totals for the different types of allowances and entitlements. These
  summaries should always be in agreement with individual ledger balances in the
  accounting system. I was unable to confirm, without a separate record whether the
  balance disclosed in the financial statements was correctly and accurately presented.
  Consequently, I was unable to state whether there was proper checks and balances
  pertaining to the payroll functions of the Company.

  Payment Vouchers

  During my review of the expenses, I noted that on several instances payment vouchers
  totaling K395,757 were missing and could not be located. In the absence of payment
  vouchers, I was unable to perform substantive tests to gather sufficient and
  appropriate audit evidence to verify the correctness and validity of these payments.

  DISCLAIMER OF OPINION

  Because of the significance of the matters referred to 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 Cocoa Coconut Institute
  Limited for the year ended 31 December 2013.”

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• Cocoa Coconut Institute Limited of Papua New Guinea

  7.2.2 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 Company for the year ended 31 December
  2013 was issued on 9 August 2016. The report contained the following matters:

  1. The Board Meeting Minutes

  My review revealed that no proper Board Meeting Minutes were maintained
  by the Company in 2013. Out of the three (3) meeting minutes provided only
  one (1) was duly signed confirming the proceedings. As a result, I was unable
  to comment and conclude on whether there were proper proceedings held and
  whether all major transactions and decisions made and transpired were in the
  best interest of the Company, the Cocoa and Coconut Industry and the State.

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

  The Company had not submitted its financial statements for the year ended 31
  December 2013 on a timely basis to enable me to conduct the audit and submit
  the audit report within the time frame prescribed by the Public Finances
  (Management) Act 1995 (as amended). Consequently, the Board has breached
  Sections 63(2) and 63(4) of the Public Finances (Management) Act 1995.

  3. Liquidation

  At the time of the review of the accounts and records of the Company for the
  year ended 31 December 2013, I noted that the Company was in the process of
  being liquidated. However, I was not provided with liquidation documents and
  substantive Ministerial and Board deliberations on the issue. Further, I noted
  that no independent liquidator was appointed to date.

  4. GST Receivable – K1,861,446

  During my review, I noted that the Institute did not prepare and remit to the
  Internal Revenue Commission (IRC) GST returns on a timely basis. It is a
  requirement under Section 63-66 of the GST Act 2003 to remit monthly GST
  returns to IRC by the 21st day after month-end. Failure to remit GST returns
  on time will result in penalties of additional tax payable at the rate of ten
  percent (10%) on the amount owing and twenty percent (20%) calculated on
  an annual basis under Section 85(1) of the GST Act 2003.

  Management upon my finding, responded that it would ensure remittances are
  made to IRC to clear the balance.

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• Cocoa Coconut Institute Limited of Papua New Guinea

  5. Tax Liability – K5,629,622

  During my review, I noted that the Company did not remit Group Tax (Salary
  and Wages Tax) to IRC on a timely basis. As a result, tax liability had
  accumulated causing constraints to cashflows and budget. I made reference to
  the Income Tax Act 1959 (as amended), that all Group Tax should be remitted
  to IRC within seven (7) days after month end.

  An employer who fails to remit salaries or wages tax in relation to its
  employees is liable to pay the amount of unpaid tax together with any
  additional penalties that may be imposed. I further noted that the tax liability
  disclosed by the Company as at 31 December 2013 was K5,629,622. This
  balance did not reconcile with K5,594,000 as per the general ledger.

  I brought this to the attention of the management and was informed that
  PNGCCIL had been in liaison with IRC and a fortnightly repayment plan was
  arranged.

  6. Motor Vehicles

  During my review of motor vehicles, I was not provided with a motor vehicle
  policy and the register of motor vehicles. A vehicle policy established the
  controls over the use of the Company’s vehicles to prevent misuse and abuse.
  In the absence of vehicle register and policy, I was unable to determine the
  exact number of vehicles under the control and custody of the Company.
  Further, I was unable to determine existence of the vehicles during the period
  under review.

  7. Lack of Travel Acquittals

  My review of the travel and subsistence expenses amounting to K117,581 for
  the year ended 31 December 2013 revealed lack of travel acquittals by
  concerned staff of the Company during the year under review. It is a
  requirement under Financial Management Manual Part 20, paragraph 11.2
  that cash advanced to officers travelling overseas on official duty must acquit
  travel advances within fourteen (14) days of return from duty travel. Part 20
  paragraph 12.10 of the Manual stipulates that advances to officers for
  domestic duty travels to be acquitted within seven (7) days of return from duty
  travel by submitting an acquittal form. As a result, I was unable to verify the
  validity of travel expenses disclosed in the financial statements.

  – 37 –

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• Cocoa Coconut Institute Limited of Papua New Guinea

  8. Lease Agreement not Sighted

  I was not provided with the lease agreement in relation to a payment of
  K34,530 (cheque number 0002119) made to Sianery Holdings Limited for
  rental charges. As a result, I was unable to verify whether a valid contract
  agreement existed between the Company and the lessor.

  7.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Company for the
  years ended 31 December 2014 and 2015 were submitted and arrangements were
  being made to commence the audit shortly.

  The Company had not submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit.

  – 38 –

• Page 75 of 450

• 8. COFFEE INDUSTRY CORPORATION LIMITED

  8.1 INTRODUCTION

  8.1.1 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.

  8.1.2 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.

  8.1.3 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 8A and 8B respectively of this Report.

  8.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  8.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Company for the year ended 31 December 2013 was issued on 26
  October 2016. The report contained a Disclaimer of Opinion.

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• Coffee Industry Corporation Limited

  “BASIS FOR DISCLAIMER OF OPINION

  1. Cash and Bank – K4,271,275 (Group: K10,122,697)

  The financial statements reported a cash and bank balance totalled
  K10,122,697 (Group) as at 31 December 2013. Of this amount, K35,577 was
  for the stabilization Fund and K5,815,846 was for the Interest Bearing Deposit
  (IBD) of the Fund. However, I was not provided with the relevant
  documentation for my review to verify the accuracy and completeness of the
  balances. Therefore, I was unable to determine the completeness and accuracy
  of the cash balance taken up in the financial statements as K10,122,697
  (Group) as at 31 December 2013.

  2. Trade & Other Debtors – K1,174,710 (Group: K3,955,381)

  The financial statements disclosed trade and other receivables totalled
  K3,955,381 (Group). Included in this amount were K231,468 as rental
  debtors, an amount of K316,566 representing impasse costs and Coffee
  Industry Fund trade debtors totalled K2,780,671. I was not provided with a
  listing of trade debtors balances or other appropriate records to conduct my
  audit review and their subsequent receipts. As a result, I was unable to satisfy
  myself as to the correctness, completeness and accuracy of these debtors
  balances of K3,955,381 reported in the financial statements for the year ended
  31 December 2013.

  3. Inventories – K873,984

  The value of the inventories reported in the financial statements as at 31
  December 2013 was K873,984. The management did not perform physical
  stock take of all inventories at the end of the year. Considering the nature of
  the Corporation’s records and not performing the physical stock count, I was
  unable to satisfy myself as to the correctness of the quantities and the
  inventory value reported in the financial statements at K873,984 for the year
  ended 31 December 2013.

  4. Fixed Assets – K11,608,450 (Group: K12,191,469)

  4.1 The Corporation did not maintain proper fixed assets register during the year
  under review. There was no physical verification carried out to verify the
  existence of the same. Further, the value of the fixed assets, the general ledger
  balances, accumulated depreciation or depreciation expense for the year could
  not be verified since the revised fixed assets register was not made available.
  Therefore, I could not obtain sufficient appropriate audit evidence over the
  existence and correctness of the Corporation’s Properties, Plants and
  Equipment as at 31 December 2013.

  – 40 –

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• Coffee Industry Corporation Limited

  4.2 The Corporation did not revalue its land and buildings reported in the financial
  statements totalled K7,214,247. The company has no policy in place for the
  valuation of their land and building. As a result, I was unable to determine
  whether any such adjustments might be necessary to the financial position of
  the Corporation as at 31 December 2013.

  5. Creditors and Accruals – K6,749,511 (Group: K6,781,649)

  5.1 Group Tax – K1,503,326

  Included in the Creditors and Accruals is a Group tax payable to Internal
  Revenue Commission (IRC) amounting to K1,503,326 which was outstanding
  and accumulated over the years. I was informed that this liability had now
  formed part of debt servicing plan with IRC. However, no documentation was
  made available for my review to verify the arrangements entered into with
  IRC.

  In addition, the payroll calculation did not include all the allowances of motor
  vehicle, telephone, entertainment and housing for the contract officers in
  determining the respective employee’s taxable income. Therefore, the salary
  and wages tax deducted and paid to IRC was considerably less. This practice
  is in violation of Income Tax Act 1959 (as amended).

  As such, I am unable to determine the appropriateness and completeness of the
  balance of K1,503,326 as group tax payable disclosed in the financial
  statements as at 31 December 2013.

  5.2 Business Withholding Tax (BWHT) – K208,598

  An amount of K208,598 was disclosed as business withholding tax (BWHT)
  outstanding as at 31 December 2013. I was not provided with adequate
  documentation to determine when this tax was deducted from contractors and
  when it became due to Internal Revenue Commission (IRC). Also, I was
  unable to verify whether business withholding had been deducted from all the
  contractors and consultants providing service to the Corporation due to lack of
  documentation.

  5.3 Goods and Service Tax Payable (GST) – K165,605

  Included in the Creditors & Accruals is the GST payable of K165,605. This
  amount was the net of GST receivables and GST payables of Coffee Industry
  Corporation (CIC) and Coffee Industry Fund (CIF) which were accumulated
  from 1999 to 2012. During the 2012 audit, the Corporation made a number of
  adjustments and journals were provided for my review.

  – 41 –

• Page 78 of 450

• Coffee Industry Corporation Limited

  However, no proper reconciliation had been done between the Internal
  Revenue Commission (IRC) statements and the Corporation’s GST returns
  filed with IRC to support and determine the accuracy of the balance taken up
  as GST payable.

  Further, the documentation provided by the IRC didn’t include the GST
  returns filed by CIC for the period October 2006 to December 2010 in
  deriving the above GST balance. Therefore, I was unable to ascertain the
  accuracy of the GST payables taken up as K165,605 in the financial
  statements as at 31 December 2013.

  Consequently, I am unable to determine the appropriateness and completeness
  of the balance of K6,781,649 (Group) taken up as creditors and accruals
  reported in the consolidated statement of financial position as at 31 December
  2013.

  6. Employee Provisions (current) – K106,810 and (non-current) – K593,595

  I was not provided with the detailed listing or proper schedules of the accrued
  long service leave and annual leave as at 31 December 2013 to enable me to
  verify the accuracy and appropriateness of the balance disclosed in the
  financial statements. Further, these leave provisions were the same amount
  reported from 2010 until 2012 financial years as no movement was noted in
  these accounts. Therefore, the employee’s provisions may be understated or
  overstated in the financial statements for the year ended 31 December 2013.

  7. Accumulated Fund K19,661,478

  The total accumulated fund balance of K19,661,478 stated in the consolidated
  statement of changes in accumulated funds was obtained after processing an
  adjustment of K594,570 in the revenue reserve account. This adjustment was
  processed as a balancing adjustment to tie up with prior year revenue reserve
  balance to that of current year. However, the Corporation was unable to
  provide explanation and necessary documentation for my verification.
  Therefore, I was unable to verify the validity and accuracy of the balancing
  adjustment amount taken up in the consolidated statement of changes in
  accumulated funds as at 31 December 2013.

  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 consolidated financial
  statements of Coffee Industry Corporation Limited as at 31 December 2013, and of its
  financial performance and its cash flows for the year then ended.

  – 42 –

• Page 79 of 450

• Coffee Industry Corporation Limited

  EMPHASIS OF MATTER

  Status of the Coffee Industry Corporation Limited

  I was provided with the copy of the Coffee Industry Corporation (Statutory Functions
  and Powers) Act 1991 and according to this Act, Coffee Industry Corporation was a
  Corporation and not a “Limited Company”. Unless Parliament by an Act or amends
  the existing Act to corporatize the Coffee Industry Corporation the word “Limited”
  used by the Corporation is not appropriate. My request to provide the amended Act
  was not made available for review to determine the appropriateness of incorporating
  this Corporation under Companies Act 1997.”

  8.2.2 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 Corporation for the year ended 31 December
  2013 was issued on 26 October 2016. The report contained the following significant
  matters:

  Salaries and Allowances

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

  I was informed that an accounting firm advised the Corporation to pay the allowances
  in full and the respective officers to lodge their annual returns with Internal Revenue
  Commission (IRC).

  My review of the advice revealed that unless a variation had been obtained from the
  IRC by the respective officers, both housing and motor vehicle allowances must be
  fully taxed. Management advised in 2012 audit that a tax consultant was assisting
  management in this area and would improve this aspect of compliance going forward.

  However, no documentation was made available for my review to determine whether
  the Income Tax provisions were complied in 2013. My view continues to be that
  without evidence of tax variations approved by the IRC, officers receiving such
  allowances must be fully taxed.

  Salary & Wages Tax (Group Tax)

  Group Tax owing to Internal Revenue Commission (IRC) by the Corporation as at 31
  December 2013 was stated at K1,503,326. This amount was included along with trade
  and other creditors of K6,151,994 recorded under Note 14 to the consolidated
  financial statements.
  – 43 –

• Page 80 of 450

• Coffee Industry Corporation Limited

  I noticed that the Corporation was not remitting group tax to IRC as required under
  Section 65 of the Income Tax Act 1959. IRC now charges penalty and interest on the
  outstanding balances. I brought this to the attention of management and it responded
  that “our tax files are being updated with assistance of the tax specialist. Moreover,
  CICL outstanding tax liabilities ascertained are being paid with current period taxes
  as and when funds are available.”

  Inventories

  The internal control procedure over inventories was inadequate. Adequate records
  including GL reconciliations and schedules of inventory were not maintained. There
  was no review for obsolete and damaged stock. In addition, there was no periodic
  stock take procedure adopted by the Corporation. I brought this to the attention of
  management and it responded that “appropriate measures are taken to ensure
  inventories are properly recorded and stock-take documentations and records
  maintained.”

  Coffee Export Levy – K4,432,160

  The Corporation collects levy from the coffee exports as empowered by the Coffee
  Industry Corporation Act 1991. However, the act of determining the levy amount
  receivable by the Coffee Industry Corporation Board was not Gazetted as required by
  Section 7(2) of the Act. As such, the appropriateness of charging the levy could not be
  verified. I brought this to the attention of management and it responded that “have
  taken this matter to the Board for endorsement for gazettal of levy and registration
  fees for the purpose of legal validity.”

  Goods and Services Tax

  The GST applied on the coffee export levy was below the approved 10% as per GST
  Act 2003. The Corporation has to ensure that it complied with the relevant legislation.
  Further, I was not provided with copies of GST returns that were filed with Internal
  Revenue Commission (IRC). Therefore, I was unable to establish whether the
  prescribed returns were prepared and lodged as required under Section 63 of the
  Goods and Service Tax Act 2003. I brought this to the attention of management and it
  responded that “a tax specialist has been engaged by CICL to assist with preparation
  and lodgment of GST tax returns with IRC.”

  Personnel Records of Staff

  The personnel files of the Corporation were not maintained adequately to determine
  their liability at a given point of time. Also, the leave records and other important
  correspondences like salary increment, appraisals were not available in the files.

  – 44 –

• Page 81 of 450

• Coffee Industry Corporation Limited

  Further, most of the contract officer’s contracts were not current or not located in their
  personnel files. I brought this to the attention of management and it responded that
  “the HR/ Personnel and administration department maintains all personnel files at
  CIC. For contract officers their contracts are under review for signing and copies will
  be filed in personnel files. We will improve on the management and upkeep of
  personnel files for future audit observation and review and have tasked the personnel
  section to improve on this area”.

  Non-Compliance of Companies Act

  a) The Company was not able to prepare an annual report with signed financial
  statements five months after the balance sheet dated on 31 December 2013 as
  required under Sections 179 and 209 of the Companies Act. I brought this to
  the attention of management and it responded that “as recommended CICL
  will prepare all its annual financial statements and other statutory reports in
  accordance with PNG Companies Act requirements.”

  b) I was not provided with the copies of annual returns lodged with Registrar of
  Companies. As per the Companies extract dated 28 June 2016, the last annual
  returns lodged was up to the 23rd August 2007. I was unable to establish
  whether annual returns for 2008 to 2015 were prepared and lodged as required
  under Section 215 of the Companies Act. I brought this to the attention of
  management and it responded that “the office of the Company Secretary of
  CICL is currently updating in relation to lodgments of annual returns with the
  Registrar of Companies.”

  8.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Corporation for
  the years ended 31 December 2014, 2015 and 2016 had not been submitted for my
  inspection and audit.

  – 45 –

• Page 82 of 450

• 8A. COFFEE INDUSTRY FUND

  8A.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.

  8A.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  8A.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 Fund for the year ended 31 December 2013 was issued on 29
  November 2016. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  1. Cash and Bank – K35,578 (2012:620,786)

  The financial statements disclosed K35,578 as cash and cash equivalent as at
  31 December 2013. However, I was not provided with the bank reconciliation
  statement for my review to verify the accuracy and completeness of the
  balances. Therefore, I was unable to determine the completeness and accuracy
  of the cash balance taken up in the financial statements as K35,578 as at 31
  December 2013.

  2. Trade Debtors

  The financial statements reported a trade debtors balance of K2,780,671 for
  the year ended 31 December 2013. The management did not provide any
  listings/schedule and all relevant documentation for my review. Consequently,
  I was unable to satisfy myself as to the completeness and accuracy of the trade
  debtors balance reported in the financial statements at K2,780,671 as at 31
  December 2013.

  3. Investments – K5,815,844 (2012:K7,757,548)

  Note 3 to the financial statements disclosed K5,815,844 as Interest Bearing
  Deposit (IBD). However, I was not provided with IBD reconciliation
  statements or certificates for my verification. As such, I was unable to
  determine the ownership, completeness and accuracy of the Investment (IBD)
  balance taken up in the financial statements as K5,815,844 as at 31 December
  2013.
  – 46 –

• Page 83 of 450

• Coffee Industry Fund

  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 Coffee
  Industry Fund as at 31 December, 2013, and of its financial performance, financial
  position and its cash flows for the year then ended.”

  8A.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 Fund for the year ended 31 December 2013
  was issued on 29 November 2016. The report contained the following observations:

  1.0 Revenue – Interest Income – K68,284

  Interest Bearing Deposit Certificate was not made available for my review. I
  was therefore unable to verify the accuracy, correctness and completeness of
  the interest received by the Fund.

  I highlighted in my 2012 audit that unless adequate and appropriate source
  documents are maintained for all investments, the exact amount of investment
  and the interest earned on the IBD’s could not be accurately determined and
  accounted for in the books.

  I also pointed out that the Corporation may lose the interest income earned if
  the management was not making sound investment decisions as to ensure
  more return on capital. I brought this to the attention of the management and
  they responded that “audit issue rectified and corrected in the 2014 financial
  statements where IBD reconciliations and schedules have been reconciled and
  updated”.

  2.0 Records and Documentation

  The Corporation had failed to maintain all source documents and necessary
  schedules and proper reconciliations for the transaction of the year. The Fund
  had disclosed K2,780,671 as trade debtors; however, no documents were
  maintained for my verification as such the Corporation did not comply with
  Section 62 (1) of the Public Finances (Management) Act, 1995.

  8A.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Fund for the years
  ended 31 December 2014, 2015 and 2016 had not been submitted for my inspection
  and audit.

  – 47 –

• Page 84 of 450

• 8B. PATANA NO.61 LIMITED (Subsidiary of Coffee Industry Corporation
  Limited)

  8B.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.

  8B.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  8B.2.1 Comments on Financial Statements

  My report to the members of Patana No. 61 Limited in accordance with the provisions
  of the Companies Act on the financial statements for the year ended 31 December
  2013 was issued on 5 December 2016. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Opening Balance

  My report for the year ended 31 December 2012 was a disclaimer of opinion. I was
  not able to satisfy myself as to the accuracy and completeness of the opening balances
  of fixed assets, inter-company loan, and going concern of the Company. Since these
  opening balances entered into the determination of the results of operations and cash
  flows of the Company in 2013, I was unable to determine whether adjustments to the
  financial position, results of operations, cash flows and changes in equity might have
  been necessary for the year ended 31 December 2013.

  Fixed Assets – K583,020

  The Company has not maintained a fixed assets register to enable me to verify the
  measurement and completeness of the assets, their present status and the accuracy of
  the depreciation claimed on these assets for the year ended 31 December 2013.
  Further, the assets purchased over the years by the parent company (Coffee Industry
  Corporation) for use by the company (Patana No. 61 Limited) were accounted for in
  the parent company’s fixed assets register, which is not a proper accounting treatment.

  Due to the above circumstances, I was unable to determine the measurement of the
  assets and the accuracy of the depreciation claimed on these assets and the net value
  of the fixed assets stated as K583,019 in the financial statements as at 31 December
  2013.

  – 48 –

• Page 85 of 450

• Patana No. 61 Limited

  Inter-Company Loan – K806,393

  I was not provided with the loan agreement entered into between the Company and its
  parent company (Coffee Industry Corporation) to verify the terms and conditions of
  the loan and the repayment schedule. There was no movement in the loan amount
  since the loan was obtained from the parent company.

  I was therefore, unable to ascertain the validity and accuracy of the loan liability
  totalled K806,393 as disclosed in the financial statements as at 31 December 2013.

  Going Concern

  The attached financial statements are prepared on a going concern basis. However, the
  Company has not generated any income since being incorporated except claiming
  only depreciation on the fixed assets and disclosed a negative balance of K223,375 as
  a deficit. I was also not provided with any documentary evidence that the parent
  company will provide all the necessary financial support for its continued operation.

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

  Non-Compliance of International Financial Reporting Standards

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

  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 Patana
  No.61 Limited as at 31 December 2013, and of its financial performance and its cash
  flows for the year then ended.”

  8B.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 Company for the year ended 31 December
  2013 was issued on 5 December 2016. The report contained the following
  observation:

  – 49 –

• Page 86 of 450

• Patana No. 61 Limited

  1.0 Non-Compliance of Companies Act

  a) The Company had not maintained sufficient records in respect of fixed
  assets loan documents therefore it failed to comply with Section 188 of
  the Companies Act.

  b) The Company did not prepare an annual report with signed financial
  statements five months after the balance sheet date on 31 December
  2013 as required under Section 179 and 209 of the Companies Act. I
  brought this to the attention of management and it responded that “as
  recommended CICL will prepare all its annual financial statements
  and other statutory reports in accordance with PNG Companies Act
  requirements.”

  c) I was not provided with the copies of annual returns lodged with the
  Registrar of Companies, therefore, I was unable to establish whether
  annual returns were prepared and lodged as required under Section 215
  of the Companies Act. I brought this to the attention of management
  and it responded that “the office of the Company Secretary of CICL is
  currently updating in relation to lodgments of annual returns with the
  Registrar of Companies.”

  8B.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Company had not submitted the financial
  statements for the years ended 31 December 2014, 2015 and 2016 for my inspection
  and audit.

  – 50 –

• Page 87 of 450

• 9. GOVERNMENT PRINTING OFFICE

  9.1 INTRODUCTION

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

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

  9.1.1 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.

  9.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  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 Printing Office for the years ended 31 December 2013 and 2014
  were issued on 5 June 2017. The reports contained similar Disclaimer of Opinions,
  hence, only the 2014 report is reproduced.

  “BASIS FOR DISCLAIMER OF OPINION

  Limitation on the Scope of my Audit

  Opening Balances

  I issued a disclaimer of opinion in respect of the year ended 31 December 2013 and
  prior years as I was unable to satisfy myself as to the accuracy of the opening
  balances. I was also unable to quantify the effects of misstatements, if any, which
  might have a bearing on the results of the operations of the Office. Since the opening
  balances of 2013 enter into the determination of the results of the Office for 2014, I
  was unable to form an opinion regarding the reliability of the financial records
  maintained by the Office and the closing balances stated in the financial statements.

  – 51 –

• Page 88 of 450

• Government Printing Office

  Cash at Bank – K953,351

  My examination of the Cash at Bank balance and its related records revealed that the
  preparations of the Office’s final accounts including monthly bank reconciliations
  were outsourced to an accounting firm. My review of the bank reconciliations and
  related records revealed that bank reconciliations were not timely done and reviewed
  by independent officers of the Office. The main operating account of the Office has
  not been properly reconciled on a monthly basis for the year under review. I noted
  that the monthly cash book balances from January to November stated in the
  reconciliation did not agree to its General Ledger balances at the month end. Further, I
  was unable to confirm the basis on which the December cash book balance reconciled
  to its General Ledger. Consequently, I was unable to confirm the accuracy of the cash
  at bank balance of the Main Operating Account disclosed at year end.

  Trade Debtors – K5,846,115

  My review of the Trade Debtors balance revealed that the Office did not have a properly
  maintained Debtors Control Account and a debtors listing during the year. I noted that
  there were inconsistencies between the Debtors Control Account and the original source
  documents (invoices). I further noted that there was no periodic reconciliation done
  between these records. In addition, due to incorrect postings, payments received from
  the debtors have not been adjusted in the ledgers to reflect the correct balance which has
  overstated the ending balance. As such, I was unable to satisfy myself as to the accuracy
  and completeness of the trade debtors balance disclosed at year end.

  Property, Plant and Equipment – K5,184,663

  I noted that the Office disclosed K5,184,663 as its Fixed Assets balance at year end.
  My review of the Fixed Assets Register (FAR) and other supporting documents
  showed that the Register was not properly maintained and updated showing additions
  of assets made during the year totalled K63,200. I was not provided with supporting
  documentations for the purchase of assets totalled K293,741. Further, there was no
  stock-take done to confirm the existence and valuation of the assets held at year end.
  As such, I was unable to conclude on the accuracy, valuation and existence of the
  fixed assets balance of K5,184,663 at year end.

  Revenue – K11,232,051

  My review of the revenue account and its related supporting documents revealed that
  there were no timely reconciliations done between the general ledgers and the Inward
  Cashbook Register (ICR) for proper recording and disclosure at year end. Consequently,
  I noted a variance of K1,032,907 between the general ledger and financial statements
  balance of K11,232,051 and the Inward Cashbook Register balance of K10,199,144. As
  such, I was unable to conclude on the accuracy and completeness of the revenue of
  K11,232,051 disclosed in the financial statements.

  – 52 –

• Page 89 of 450

• Government Printing Office

  Provision for Long Service and Recreation Leave

  The Government Printing Office did not disclose long service and recreation leave
  provisions for the permanent staff in its financial statements. There were no records
  in relation to personnel leave credits that was maintained by the Printing Office.
  Without such records, I was unable to ascertain whether payments in relation to leave
  credits were properly accounted for in the financial statements.

  DISCLAIMER OF OPINION

  Because of the significance of the matters referred to 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 Government Printing Office for the year ended
  31 December 2014.”

  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 Printing Office for the years ended 31
  December 2013 and 2014 were issued on 5 June 2017. The reports contained similar
  observations, hence, only the 2014 report is reproduced.

  1.0 Land Acquisition – K2,595,424

  My examination and review of land acquisition and related records revealed
  that the Printing Office had failed to resort to proper approval procedures per
  the Public Finances (Management) Act 1995. I noted that a total of
  K2,595,424 was expended on land acquisition alone (excluding other costs).

  I was subsequently provided with the draft Housing Policy Guideline for the
  roposed Housing Scheme which was pending approval. I was also provided
  with copies of brief to Former Chief Secretary who further directed the
  Printing Office to furnish a brief to the Central Supplies and Tenders Board
  (CSTB) on the acquisition and concurrently seek the Tenders Board’s
  approval prior to any further progress or developments on these allotments.

  The Tenders Board recommended the Printing Office to seek legal opinion
  from the State Solicitors’ Office to advise the Printing Office on the best
  action possible to facilitate this matter, as the CSTB would be advised
  accordingly and collectively by the State Solicitors’ Office on this matter to
  finalize due process.

  – 53 –

• Page 90 of 450

• Government Printing Office

  This matter was reported to the management in my previous report as well and
  they had responded that all necessary corrective measures had been
  undertaken and implemented except the final process which was awaiting a
  response from the State Solicitor’s Office to finalize due process.

  2.0 Revenue – Segregation of Duties

  My review of the revenue generated by the Printing Office revealed that
  internal controls surrounding the revenue cycle were weak and inadequate. I
  further noted that there was no segregation of duties implemented by the
  Office as the same officer was responsible for invoicing, receipting, banking
  and record keeping. Since there was only one officer responsible, this may
  open avenues for malpractice to take place in the absence of proper controls. I
  recommended to the management to ensure separation of duties amongst
  different officers for better control purpose.

  3.0 Personnel Emoluments

  ● Government Printer’s Contract Allowances

  My review of the Government Printer’s contract and its related records
  revealed that the Government Printer’s salary and allowances were at
  the level equivalent to that of Contract Category for Deputy Secretaries
  in the Central Agencies on salary Grade 20.2 per his Contract of
  Employment for three (3) years starting 1 April 2011. But I noted that
  the contract was signed on 8 May 2014, only after his contract period
  (three years) had expired due to administrative delays as advised by the
  Government Printing Office.

  Total salary, allowances and benefits per annum for old and new
  contracts were K226,636 and K231,316 respectively. The allowances
  for housing and motor vehicle of K26,000 each annually were also
  included as part of this package, administered by the Department of
  PM & NEC and paid through the Government’s Alesco payroll system.

  During my review, I noted that in addition to the above allowances,
  following additional payments were made to the Government Printer
  for rentals and motor vehicle expenses.

  ● Rental Accommodation

  My review and examination of the staff accommodation revealed that
  the Government Printer had his rental accommodation totaling
  K246,375 paid for in 2014 by the Printing Office.

  – 54 –

• Page 91 of 450

• Government Printing Office

  However, I noted that the Government Printer’s contractual agreement
  with the State under Department of Prime Minister and National
  Executive Council revealed that he was entitled to housing allowances
  stipulated under his contract of K26,000 per annum and paid through
  his salary.

  In my view, the Government Printer was in breach of his Employment
  Contract with the State by double dipping from housing allowances as
  well as accommodation rental paid for by the Printing Office. The
  management concurred with my comments and stated that corrective
  actions had been taken in 2015 by ceasing fortnightly housing
  allowances payable to the Government Printer. Upon his resignation in
  February 2015, the existing tenancy agreement was terminated
  between the Printing Office and Advance Printing (Landlord) for the
  property being rented for the Government Printer.

  ● Motor Vehicle Expenses

  I noted that a total of K187,200 was paid for hire cars from two (2)
  different firms despite being paid the full motor vehicle allowance of
  K26,000 per annum under his employment contract. These vehicles
  were hired based on the Government Printer’s hire arrangements which
  were approved only by him. Further, I noted that one (1) motor vehicle
  purchased and owned by the Printing Office was under his custody for
  24 hours use with fuel. Consequently, the Government Printer had
  breached Part II, Section 5 of the PFMA which states among other
  duties, the departmental head (Senior Officers) as an accountable
  officer must ensure that expenditure was incurred with due regard to
  economy, efficiency, and avoidance of waste. The Government Printer
  also breached his own Employment Contract with the State by
  benefitting himself excessively in relation to his housing and motor
  vehicle allowances. The management concurred with my comments
  and stated that corrective actions had been taken in 2015 by ceasing
  fortnightly motor vehicle allowances payable to the Government
  Printer.

  4.0 Expenditure

  My review of the expenditure revealed that there had been a number of
  payments made without proper supporting documents. I noted that a total of
  K305,027 had been done without proper contractual agreements. I further
  noted payments totalled K346,275 had been done without proper delivery
  dockets.

  – 55 –

• Page 92 of 450

• Government Printing Office

  I recommended management to ensure that proper procurement processes are
  followed as per the Public Finances (Management) Act 1995 (as amended)
  when procuring goods and services. Management concurred with my
  recommendation and agreed to take corrective action for improvement with
  some improvements had already been made.

  9.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Printing Office for
  the year ended 31 December 2015 had been submitted and arrangements were being
  made to commence the audit shortly.

  The financial statements for the year ended 31 December 2016 had not been
  submitted by the Printing Office for my inspection and audit.

  – 56 –

• Page 93 of 450

• 10. INDEPENDENCE FELLOWSHIP TRUST

  10.1 INTRODUCTION

  10.1.1 Legislation

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

  10.1.2 Objective of the Trust

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

  10.1.3 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.

  10.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  10.2.1 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 2015 and 2016 were issued
  on 11 November 2016 and 15 May 2017 respectively. The 2015 report contained a
  Qualified Opinion while the 2016 report did not contain any qualification.

  10.2.2 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 2015
  and 2016 were issued on 11 November 2016 and 15 May 2017 respectively. The
  reports contained similar comments, hence only the 2016 report is reproduced as
  follows:

  – 57 –

• Page 94 of 450

• Independence Fellowship Trust

  Budget Review

  My examination on travel and accommodation revealed that the Trust had incurred
  K356,271 in relation to travel and accommodation during the year. I noted that the
  Trust employees visited various provinces during the year to assess the students’
  performance, pay their allowances and other related expenses. However, the amount
  budgeted for travel expenses in 2016 was K200,000. As a result, the Trust had
  exceeded its budget by K156,271.

  I brought this issue to the attention of the management and it responded as follows;

  “The budget appropriation of K200,000 was an estimate at the beginning of the year
  as per the work plan. However, some of the Key Priority Areas (KPA) activities were
  incorporated during the year, such as orientation, signing of students’ scholarship
  agreements, configuring and issuing of Identification Cards and issuing of Pocket
  Allowances. All these activities were conducted in the respective training institutions
  of each province.

  Other major activities such as Projects Inspection, Monitoring and Evaluation,
  Overseas Feasibility Studies and Board Meeting outside of Port Moresby were also
  included during the year.”

  Fixed Assets

  As reported in my previous reports, the Independent Fellowship Trust did not maintain
  any Fixed Asset Register to record the purchase of its assets and disposals. The
  Department of Labour and Industrial Relations was responsible for accounting of all
  IFT fixed assets. The Trust in its response stated that they will comply accordingly to
  keep proper Register of all assets.

  Travel and Subsistence

  My review of the expenditures revealed that the Trust did not properly maintained the
  Travel Advance/Acquittal Register. During my review, I noted internal control
  weaknesses in relation to incomplete acquittals and lack of supporting documents for
  duty travels. I recommended the Trust to maintain a Travel Advance/Acquittal
  Register to record all duty travels taken and the register be maintained and updated
  regularly with all travel documents. I drew this matter to the attention of the
  management and the management responded as follows;

  “We will comply and improve on this weakness as stated to avoid future implications
  mainly on acquittals, attachments and cash payments.”

  – 58 –

• Page 95 of 450

• 11. INDEPENDENT CONSUMER AND COMPETITION
  COMMISSION

  11.1 INTRODUCTION

  11.1.1 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.

  11.1.2 Functions of the Commission

  The main functions of the Commission are:

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

  – 59 –

• Page 96 of 450

• Independent Consumer and Competition Commission

  11.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  11.2.1 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 2016 was issued on 12
  May 2017. The report did not contain any qualification.

  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 Commission for the year ended 31 December
  2016 was issued on 12 May 2017. The report contained the following matters:

  Budget Review

  My review on the budget against actual expenditure on selected expenses revealed
  that the Commission had exceeded its approved budget ceiling by K1,760,995 in
  2016. I reminded the Commission that lack of proper budgetary control provide
  avenues for unauthorized spending which may affect the other mandated
  responsibilities due to lack of funding. As a result, the Commission should review its
  budget on a regular basis.

  In response to my observation, the Commission responded as follows:

  “In 2016, we received a total government appropriation of K9.587m and K2.280m
  was generated internally to fund our expenses. The Government appropriation
  received was not sufficient to fully meet our expenses under the 2016 budget. We
  therefore resorted to our internal revenue to supplement the budget shortfall to
  sustain our operations between January and December 2016.”

  Cash at Bank – K2,741,971

  During my review of the Cash at Bank and bank reconciliations for the year, I noted
  the following:

  Cheques totaling K45,228 remained unpresented for more than five (5)
  months and over. These cheques were never investigated on a timely manner
  and accounts adjusted/corrected accordingly.

  Deposit in transit of K4,056 was noted in the bank reconciliation as at 31
  December 2016. Of this, K4,016 relating to two separate transactions which
  were not deposited on a timely basis. My review revealed that cash was held
  in the client’s premises for more than five (5) days; and

  – 60 –

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• Independent Consumer and Competition Commission

  At 31 December 2016, a total of K15,904.65 was cancelled and reversed in the
  cashbook (cash ledger). However, I was not provided with source documents
  to confirm and verify the cancelled cheques. Further, I noted an amount of
  K44,216 had been classified under Other reconciling items without
  explanation and supporting documents.

  I brought this to the attention of the management by emphasizing that lack of timely
  investigation and prompt adjustments/corrections can lead to bank balance incorrectly
  reconciled and disclosed at year end. I further stressed that deposits and unreconciled
  amounts with no explanation can create avenues for fraudulent activities without
  being detected on a timely manner.

  Management noted my finding and assured me that commitment was made since 2015
  to improve record keeping, strengthening of the internal controls and to comply with
  key government policies and legislations to deliver effective, transparent and prudent
  management.

  ICCC Staff Clearing (Salary Sacrifice) – K243,261

  The Commission, for years had been applying salary packaging or sacrifice to
  contract officers’ annual salaries. The packaging was done to cater for motor vehicle
  purchase, housing/rentals, medical and life insurance and school fees. During my
  review, I noted that there were negative (credit) balances against individual staff
  accounts indicating over deductions. The over deductions and negative balances had
  resulted due to lack of proper reconciliation in prior years. As a result, I was not able
  to comment whether the Commission was properly maintaining salary sacrifice
  records and that correct deductions had been effected.

  Leave Fares

  A total of K176,609 was incurred by the Commission as leave fare expense in 2016.
  During my review, I noted three (3) payments totaling K69,288.80 with discrepancies.
  One (1) did not have proper supporting documentation while the other two (2) were
  applied without complying with General Orders 14.41 by claiming leave fares for
  children over the age of nineteen (19).

  Management responded to my finding as follows:

  “We note your observation and its related implication as a result of not complying
  with General Orders (GO 14.41). In view of your recommendation, we will ensure to
  comply with the General Order quoted and that supporting documents will be kept
  and maintained for records and audit purposes.”

  – 61 –

• Page 98 of 450

• 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 AND RECOMMENDATIONS

  12.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the Corporation’s
  financial statements for the years ended 31 December 2014 and 2015 were both
  issued on 28 February 2017. The reports contained similar Qualified Opinions, hence
  only the 2015 report is reproduced as follows:

  “BASIS FOR QUALIFIED OPINION

  Trade Debtors – Malahang & Ulaveo Industrial Centres (MIC & UIC)

  The Corporation disclosed its trade debtors balance as K2,127,000 (included as part of
  total debtors of K2,633,447) at the year-end. I noted that of the K2,127,000
  receivable, K1,846,277 still remained outstanding for a long period of time, therefore
  the collectability of this amount was in doubt. Further, I was unable to establish
  whether the Corporation had made adequate provision against these debts. As such, I
  was unable to satisfy myself as to the accuracy and collectability of the trade debtors
  as reported at the year end.

  – 62 –

• Page 99 of 450

• Industrial Centres Development Corporation

  Land Sales Debtors – K385,173

  Included in the total debtors of K2,633,447 were Land sales debtors totaling
  K385,173. I observed that land sales were outstanding since 2008. The Corporation
  had not provided adequate provision for doubtful debts in its accounts. Consequently,
  I was unable to ascertain the accuracy, correctness and collectability of the sundry
  debtors as reported in the financial statements at 31 December 2015.

  Cash at Bank – K4,610,902

  The independent bank confirmation certificates for the Business Growth Centre
  (BGC), Ulaveo Industrial Centre (UIC) and Lands accounts for the year ended 31
  December 2015 were not provided 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 2015 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 reports 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 years ended 31 December
  2014 and 2015 were issued on 28 February 2017. The reports contained similar
  comments, hence only the 2015 report is reproduced as follows:

  1. Advance/Acquittal Register

  The Corporation had not maintained Advance/Acquittal Registers for Head
  Office and Malahang Industrial Centre despite my recommendation in my
  previous audits. 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 stated that it would take
  necessary remedial action to rectify the issue.

  – 63 –

• Page 100 of 450

• Industrial Centres Development Corporation

  2. Staff Advance

  My review of the Corporation’s staff debtors revealed that there was no proper
  control, monitoring and recovery of the staff advances. As a result, recouping
  staff advances was slow and ineffective. I also noted that the Corporation had
  no policy on staff advances to control, monitor, recover and deal with those
  who don’t comply with it. As such, staff advances amounting to K110,293
  were outstanding (without movement) for a considerable period of time. The
  management responded to my query as follows;

  “All advances have been minimized; those requesting advance assistance from
  ICDC have been given against their entitlements. As for the list of outstanding
  debtors as per the audit report, action has been taken to recoup these
  amounts. Effort is being made to enforce full repayment by management with
  fortnightly compulsory deductions. Advances without movements are for the
  officers who left ICDC without appropriate notices. Hence, management has
  decided to give notices of termination so that their entitlements will be used to
  offset their debts.”

  3. Fixed Assets Register

  During my review, I observed that the Corporation’s Fixed Assets Register
  contained many of its old assets and was not properly updated. As a result, I
  was unable to ascertain the correctness and appropriateness of the amount
  reported in the financial statements. I drew this issue to the attention of the
  management and they responded as follows:

  “Management is now in the process of carrying out a full stock-take and
  update the Fixed Assets Register to reflect a proper and accurate record of all
  its assets”.

  4. 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 were supposed to offset each other showing a zero (0) balance. I
  noted that there was an outstanding balance of K328,591 that needed to be
  reconciled and cleared. I drew this to the management’s attention and the
  management responded to my concern as follows:

  – 64 –

• Page 101 of 450

• Industrial Centres Development Corporation

  “We agree with your comment that the intercompany balances should offset or
  contra each other. The above difference will be further investigated and
  rectified in the accounts. In cases where the funds are paid to specific
  projects, the accounts have been classified as advances mainly because no
  funds were appropriated for these projects under ICDC budget from the
  National Government.

  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.”

  5. Non-Compliance with the Public Finances (Management) Act

  The Corporation had not prepared and submitted its financial statements to my
  Office before 31 March 2015 to enable me to conduct the audit and issue the
  audit report within the time frame stipulated in the Public Finances
  (Management) Act 1995. Consequently, the Corporation had breached
  Sections 63(2) and 63(4) of the above Act.

  6. Expired Employment Contracts

  During my review, I noted that eight (8) officers’ employment contracts were
  expired and were not renewed at the time of audit. The same observation was
  noted during my audit in 2014. I sought explanation from the ICDC
  management and they responded to me as follows:

  “These contracts have been prepared and submitted to the A/Managing
  Director for his approval but have been held back pending the approval of the
  Managing Director’s position.”

  7. 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;
  The Corporation did not submit the GST Returns for the year as
  stipulated by GST Act 2003 (S.63 – 66);
  Salary Sacrifice Approval from IRC was not sought for two (2) officers;
  Inadequate control over cash encashment and payment to suppliers;

  – 65 –

• Page 102 of 450

• Industrial Centres Development Corporation

  Reconciliations of general ledger accounts were not prepared on a
  periodic basis and the expenditure general ledgers for Business Growth
  Centre were not made available for my audit and inspection;
  There was no Internal Audit Unit established as per Section 9 of the
  Public Finances (Management) (Amendment) Act;
  Minister’s approval of the Land sale was not provided for 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 Corporation had not submitted the financial
  statements for the year ended 31 December 2016 for my inspection and audit.

  – 66 –

• Page 103 of 450

• 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 (IRC) be transformed
  into an Independent Statutory Authority through a separate Act of Parliament.

  In accordance with the NEC Decision, the Internal Revenue Commission Act 2014
  was 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.

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• Internal Revenue Commission

  13.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  13.2.1 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 period ended 1 October
  to 31 December 2014 was issued on 5 October 2016. The report contained the
  following observations:

  1.0 Financial Statement

  The Commission’s financial statements (Statement of Cash Receipts and
  Payments) submitted for my review were not prepared based on the cash book
  (except for the Government Grant). The figures reported in the financial
  statements were not coming from the Commission’s cash book instead taken
  from the bank statements balances. Consequently, the amounts reported in the
  financial statements did not indicate the accurate cash position of the
  Commission.

  During the period of review, I observed that the Commission was still in the
  process of transformation since becoming an Authority in 2014. I suggest the
  Commission should take measures to prepare proper financial statements
  (Statement of Cash Receipts and Payments) and submit them for my review
  and verification.

  2.0 Administration Bank Account, National GST Trust Bank Account,
  Provincial GST/Inland Trust Bank Account, GST Refunds Drawing Bank
  Account; And National Government Drawing Bank Account

  The above accounts were the major bank accounts kept by the Commission.
  The following weaknesses were noted during my review:

  There was no proper accounting system to record the daily tax revenue
  collection and transfers. Revenue collections and transfer were manually
  recorded in excel spreadsheets.
  The bank reconciliation reports were reconstructed from the bank
  statements.
  The Cash at bank balances at the end of the year reported were not the
  same amounts coming from the cash book. Instead the Commission
  reported the bank statements ending balances.
  Cash book and summary schedules were not in agreement with the
  financial report figures. As a result, it was difficult to identify whether
  all receipts received were deposited on a timely manner.

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• Internal Revenue Commission

  The preparations/processes of the bank reconciliations were not correct
  and proper.
  Lack of audit trail and difficulty in identifying the correct source
  documents.

  I recommended to management that the Commission should adopt a proper
  accounting system to record and account each transaction of the revenue
  receipts and transfers. In addition, the amounts reported in the financial report
  should come from the Commission’s cash book and not from the bank
  statements. Further, SIGTAS may also be utilize to prepare financial reports
  and bank reconciliations.

  The management responded to my observation as follows:

  “As previously mentioned, IRC is utilizing the SIGTAS system to truck
  taxation revenue. IRC in conjunction with Department of Finance is
  examining the possibility of integrating the information captured within
  SIGTAS into IFMS. The IFMS accounting system has robust reconciliation
  and reporting modules. Utilization of these modules would ensure accurate
  and timely reporting and will alleviate any concerns regarding
  reconciliations. IRC recognizes this as the most appropriate long-term
  solution. As an interim step whilst the feasibility of this integration is being
  reviewed, IRC has created a reconciliation module entitled TRS – Tax
  Reconciliation System. This system is being used to reconcile the Admin
  Account for 2016”.

  3.0 Independent Bank Confirmation Certificates

  During the course of my review, I did not receive the third party Bank
  Confirmation Certificates for the respective Trust Account balances.

  Bank
  Account Account Name Statement
  # Balance
  31/12/2014
  1000962618 National Capital District Commission VAT Trust Account 37,254,455.43
  1000687407 New Ireland Province VAT Trust Account 245,321.58
  1000688930 North Solomon Province VAT Trust Account 2,472,642.62
  1000490748 Oro Province VAT Trust Account 375,145.33
  1003391016 Sandaun Province VAT Trust Account 195,345.42
  1000585280 Southern Highlands Province VAT Trust Account 1,589,322.54
  1000321067 Western Highlands Province VAT Trust Account 2,419,530.50
  1001052291 West New Britain Province VAT Trust Account 990,359.37
  1000943315 Western Province VAT Trust Account 818,049.16
  1000930820 Simbu Province VAT Trust Account 66,236.60
  1000585679 Central Province VAT Trust Account 80,995.17

  – 69 –

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• Internal Revenue Commission

  1000016634 East New Britain Province VAT Trust Account 1,679,366.02
  1000873030 Eastern Highlands Province VAT Trust Account 1,524,528.20
  1000873030 East Sepik VAT Trust Account 614,760.19
  1000004633 Enga Province VAT Trust Account 379,082.90
  1000943231 Gulf Province vat Trust Account 1,625,233.58
  1000100649 Madang Province VAT Trust Account 1,673,650.55
  1000433958 Manus Province VAT Trust Account 4,204,163.62
  1632156 Milne Bay Province VAT Trust Account 1,000,980.12
  1000117153 Morobe Province VAT Trust Account 8,851,680.79
  43146576 GST Refunds Drawing Account 150,374,501.98

  The management responded that IRC has followed up with the appropriate
  banking institutions and understands that the bank certificates have been
  provided to my Office. I acknowledged that I received bank confirmation
  certificates to other main and Trust accounts except for the above.

  4.0 Personnel Files

  Review of personnel files revealed that these were not updated on a timely
  basis. Employee history cards, leave records (hard copies of leave application
  forms and payments), tax declaration forms were not properly maintained in
  their individual staff files and made available for inspection at all times.

  The management informed me that the Concept Payroll system would have all
  the records of salary and payments made for each individual, appointments,
  transfer etc. The hard copies of these should be in personnel files as well.
  They further informed that upon realizing that not all records are in personnel
  files, HR has engaged additional resources to assist with filing of documents
  in respective files.

  5.0 Employment Contracts

  During my review of personnel files, I noted that some of the senior contract
  officers’ contracts were not on file, as well as some contracts that were on file
  have expired and not being renewed as at the year under review. The
  management responded to this issue as follow:

  “IRC is redefining its practices to ensure officers are proactively liaising with
  appropriate authorities to make sure that contracts are documented and
  signed in a timely manner”.

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• Internal Revenue Commission

  6.0 Other Operational Expenses

  I noted that a total of K425,866.78 was paid to purchase vehicles from Other
  Operational Expenses Vote (135) account. I also noted that there was a Motor
  Vehicle Vote (222) account in the Commitment Ledger where all the
  purchases of vehicles should have been purchased from and taken up in that
  account. Hence, Other Operational Expense Account (135) was overstated and
  Motor Vehicle account was understated by that amount. The management
  responded to my comment as follows:

  “IRC has implemented a robust process to ensure transactions are correctly
  identified before posting to the commitment ledger. The implementation of
  IFMS will assist in ensuring this process is correctly followed”.

  13.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the fieldwork associated with the inspection and
  audits of the accounts and records and the examination of the financial statements of
  the Commission for the year ended 31 December 2015 was completed and the report
  will be issued shortly.

  The Commission had not submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit.

  – 71 –

• Page 108 of 450

• 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 citizens 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 report to the Ministers under Section 8(4) of the Audit Act on the Authority’s
  financial statements for the year ended 31 December 2016 was issued on 9 May 2017.
  The report did not contain any qualification.

  – 72 –

• Page 109 of 450

• 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 2016 was issued on 15
  May 2017. The report did not contain any qualification.

  15.2.2 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 Koporesen for the year ended 31 December
  2016 was issued on 15 May 2017. The report contained the following comment:

  Managing Director’s Contract of Employment

  My examination of the Personnel Records for the year ended 31 December 2016
  revealed that the National Executive Council (NEC), in its Decision No: 14/2013
  dated 23 February 2013 confirmed the appointment of Dr. James Vele Kaiulo as
  Managing Director of Kokonas Indastri Koporesen for a period of four (4) years.

  – 73 –

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• Kokonas Indastri Koporesen

  The NEC further directed the Secretary for Department of Personnel Management to
  prepare a “Contract of Employment” for the Managing Director, which had not been
  finalised.

  I brought this to the attention of the management in my previous audits and followed
  up during the current audit as I was unable to determine the basis on which the
  Managing Director’s remuneration was calculated.

  The Koporesen took note of my concerns and advised that they would continue to
  follow up with the Department of Personnel Management for the signed “Contract of
  Employment”. In addition, the management stated that the Managing Director was on
  the same scale of the previous Managing Director and adjustments would be effected
  once the “Employment Contract” was signed.

  – 74 –

• Page 111 of 450

• 15A. PAPUA NEW GUINEA COCONUT EXTENSION FUND

  15A.1 INTRODUCTION

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

  15A.1.1 Objective of the Fund

  The objective of the Fund is to engage in extension services and related 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 2016 was issued
  on 15 May 2017. The report did not contain any qualification.

  – 75 –

• Page 112 of 450

• 15B. PAPUA NEW GUINEA COCONUT RESEARCH FUND

  15B.1 INTRODUCTION

  15B.1.1 Legislation and Objective of the Fund

  The Papua New Guinea 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 Limited 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 2016 was issued
  on 15 May 2017. The report did not contain any qualification.

  – 76 –

• Page 113 of 450

• 16. KUMUL CONSOLIDATED HOLDINGS (Formerly Independent
  Public Business Corporation)

  16.1 INTRODUCTION

  16.1.1 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.

  The Principal IPBC Act was amended on 12 August 2015. The name of the
  Independent Public Business Corporation was repealed and replaced with Kumul
  Consolidated Holdings. The objectives and functions of the principal Act were not
  amended, all dividends declared by Kumul Consolidated Holdings shall be paid into
  the Sovereign Wealth Fund.

  16.1.2 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.

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• Kumul Consolidated Holdings

  16.1.3 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:
  ‒ 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.

  16.1.4 Trust of the Corporation

  The Trust of the Corporation is General Business Trust. Comments in relation to the
  Trust are contained in paragraph 16A.

  16.1.5 Subsidiaries of the Corporation

  The subsidiaries of the Corporation are PNG Dams Limited and Port Moresby Private
  Hospital Limited. Comments in relation to these subsidiaries are contained in
  paragraphs 16B and 16C of this Report.

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• Kumul Consolidated Holdings

  16.1.6 Projects of the Corporation

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

  16.2 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
  Corporation for the year ended 31 December 2015 had been completed and the results
  were being evaluated.

  The fieldwork associated with the audit of the accounts and records and the
  examination of the financial statements of the Corporation for the year ended 31
  December 2016 was in progress.

  – 79 –

• Page 116 of 450

• 16A. GENERAL BUSINESS TRUST (Trust under Kumul Consolidated
  Holdings)

  16A.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.

  16A.1.1 Objectives of the Trust

  The Kumul Consolidated Holdings (KCH) (formerly Independent Public
  Business Corporation of PNG) was appointed as Trustee of the Trust and all
  moneys belonging to the Trust shall be invested or dealt with by KCH 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 Kumul Consolidated Holdings 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.

  16A.2 AUDIT OBSERVATIONS

  16A.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the Trust’s
  financial statements for the year ended 31 December 2014 was issued on 4 August
  2016. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Limitation of Scope on prior year Disclaimer of Opinion

  My audit report for the year ended 2013 was a disclaimer of opinion since the Trust
  did not disclose its investments at fair value in accordance with IAS 39, Financial
  Instruments: Recognition and Measurement. These investments were significant in
  values which were of fundamental importance in the preparation of the financial
  statements. Any adjustments that were found to be necessary to the opening
  balances of these investments would have consequential effect on the determination
  of financial performance for the year ended 31 December 2014. I was unable to
  determine whether adjustments to the financial statements might have been
  necessary for the year ended 31 December 2014.

  – 80 –

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• General Business Trust

  Therefore, I was unable to determine the accuracy of the Statement of
  Comprehensive Income and Statement of Changes in Equity and the associated
  disclosures for the year ended 31 December 2014.

  Measurement of Unquoted Equity Investments in State Owned Enterprises
  (SOEs)

  Note 14 of the financial statements disclosed K9,100,015,381 as Investments under
  Non-Current Assets of which K8,042,883,783 was stated as investments under State
  Owned Enterprises (SOEs). However, I was not provided with sufficient and
  appropriate evidence on the fair value increments recorded for the investments in
  Port Moresby Private Hospital Limited (POMPH) and PNG Dams Limited (PDL) at
  a carrying value of K79.6 million (2013: K38.54m) and K466.5 million (2013:
  K88.15m) respectively.

  As such, I was unable to determine whether any adjustments might have been
  required to the carrying value of the Trust’s Investments for POPMPH and PDL for
  the year ended. Consequently, I was unable to determine the accuracy and the
  measurement of the Trust’s unquoted investments in the State Owned Enterprises as
  at 31 December 2014.

  Investments in Lae – Port Project

  Note 14 (b) of the financial statements disclosed K311,165,419 as investments in
  Projects under construction. Included in the above investments was K230,300,279
  as investment made in the Lae Port Development Project (LPDP) as at 31 December
  2014. However, the audited financial statements of LPDP for the year ended
  disclosed K278,833,898 as the total investment made by the Trust in the Project
  leaving an unreconciled difference of K48.5 million. As a result, I was unable to
  determine whether adjustments were required for the carrying value of the Trust’s
  investments in LPDP amount to K230,300,279.

  QUALIFIED OPINION

  Certain balances as at 31 December 2013 enter into the determination of financial
  for the year ended 31 December 2014. Because of the existence of a disclaimer of
  opinion in opening balances as described in the basis for qualification above, I was
  unable to form an opinion on the Statement of Comprehensive Income, Statements
  of Changes in Equity and the related disclosures for the year ended 31 December
  2014.

  – 81 –

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• General Business Trust

  In my opinion, except for the matters described in the paragraphs 2 and 3 in the
  basis for qualified opinion above, and except for the possible effects of such
  adjustments, if any, as might have been determined to be necessary to the
  Statements of Comprehensive Income had the limitations on the scope of work as
  described above in paragraph 1 of basis of qualification not existed:

  (a) the financial statements of General Business Trust for the year ended 31
  December 2014:

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

  (ii) the financial statements have been presented in accordance with
  International Financial Reporting Standards and other Generally
  Accepted Accounting Practices in Papua New Guinea;

  (b) proper accounting records have been kept by the Trust; and

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

  16A.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 Trust for the year ended 31 December 2014
  was issued on 4 August 2016. The report contained the following comments:

  Investment Corporation of Papua New Guinea (ICPNG)

  The Investment Corporation of Papua New Guinea was vested with IPBC in pursuant
  to Gazettal Notice No.33 dated 6 April 2004. The value of this property was taken up
  in the financial statements as K8,660,957 for the last ten (10) years. The conditions
  attached with the vesting notice was not to use the General Business Trust (GBT)
  assets (money) for the disposal of remaining assets and settle the liabilities and submit
  all the outstanding financial statements to my office to enable me to complete the
  audit and issue the reports. However, my repeated request to provide the financial
  statements for the years since 2002 was not responded positively by the respective
  managements in place all these years.

  Investments in Niugini Insurance Corporation Limited (NIC)

  Niugini Insurance Corporation was corporatized and the business was transferred to
  Pacific MMI Insurance Limited in 1998 except to keep the insurance liability and
  assets attached with the liabilities remained with the Corporation.

  – 82 –

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• General Business Trust

  However, in 2010, IPBC informed my office that they filed an application for
  deregistration of the company but no documentation was made available for my
  review to determine the appropriateness of the claim.

  Investment made in Aquarius No. 21 Limited by Motor Vehicles Insurance Trust
  Limited, now owned by IPBC

  The Aquarius No. 21 Limited (the Company) which owns a 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 was taken up at K950,000 in the books, by
  which 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 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
  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 spite
  of mentioning this requirement in my management letters and reports since 2002.

  IPBC Board had written off this investment in the GBT books and advised me that the
  Company was deregistered in 2015. However, no deregistration certificate from
  Investment Promotion Authority was made available for my review and verification.

  16A.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 Trust for the years ended 31 December 2015 and 2016 were in progress.

  – 83 –

• Page 120 of 450

• 16B. PNG DAMS LIMITED (Subsidiary of Kumul Consolidated Holdings)

  16B.1 INTRODUCTION

  16B.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.

  16B.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.

  16B.2 AUDIT OBSERVATIONS

  16B.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 2013 and 2014 were
  issued on 27 July 2016. The reports contained similar Disclaimer of Opinions,
  hence, only the 2014 report is reproduced.

  “BASIS FOR DISCLAIMER OF OPINION

  Fair Valuation of Investment Properties

  Statements of Financial Position of the Company disclosed K466,500,000 as the fair
  value of investment properties for the year ended 31 December 2014. However, I
  was unable to obtain sufficient and appropriate audit evidence that would support
  the fair value recognised in the statement of financial position at K466,500,000 as at
  31 December 2014. Therefore, I was unable to determine whether any adjustment
  might have been found necessary to the statement of financial position as at 31
  December 2014 or the statement of comprehensive income, statement of cash flows
  or statement of changes in equity and related notes to the financial statements for
  the year then ended.

  – 84 –

• Page 121 of 450

• PNG Dams Limited

  DISCLAIMER OF OPINION

  Because of the significance of the matter described in the Basis for Disclaimer of
  Opinion paragraph, 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 PNG Dams Limited for the year ended 31 December 2014.”

  16B.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 2015 had been
  completed and the results were being evaluated.

  The fieldwork associated with the inspection and audit of the accounts and records
  and the examination of the financial statements of the Company for the year ended
  31 December 2016 was in progress.

  – 85 –

• Page 122 of 450

• 16C. PORT MORESBY PRIVATE HOSPITAL LIMITED (Subsidiary of
  Kumul Consolidated Holdings)

  16C.1 INTRODUCTION

  16C.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.

  16C.1.2 Objective of the Company

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

  16C.2 AUDIT OBSERVATIONS

  16C.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 2013 and 2014 were
  issued on 27 July 2016. The reports contained similar Disclaimer of Opinions,
  hence, only the 2014 report is reproduced.

  “BASIS FOR DISCLAIMER OF OPINION

  Fair Valuation of Investment Properties

  Statement of Comprehensive Income of the financial statements disclosed
  K6,915,000 as gain on change in fair value of investment properties for the year
  ended 31 December 2014. However, I was unable to obtain sufficient and
  appropriate audit evidence that would support the fair value recognised in the
  statement of financial position at K95,131,000 and the gain on change in fair value
  as shown in the statement of comprehensive income as at 31 December 2014.

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• Port Moresby Private Hospital Limited

  Therefore, I was unable to determine whether any adjustment might have been
  found necessary to the statement of financial position as at 31 December 2014 or the
  statement of comprehensive income, statement of cash flows or statement of
  changes in equity and related notes to the financial statements for the year then
  ended.

  DISCLAIMER OF OPINION

  Because of the significance of the matter described in the Basis for Disclaimer of
  Opinion, I have not been able to obtain sufficient and appropriate audit evidence
  and accordingly, I am unable to express an opinion on the financial statements of
  Port Moresby Private Hospital Limited for the year ended 31 December 2014.”

  16C.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 2015 had been
  completed and the results were being evaluated.

  The fieldwork associated with the inspection and audit of the accounts and records
  and the examination of the financial statements of the Company for the year ended
  31 December 2016 was in progress.

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• 17. LEGAL TRAINING INSTITUTE

  17.1 INTRODUCTION

  17.1.1 Legislation

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

  17.1.2 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.

  17.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the fieldwork associated with the inspection and
  audit of the accounts and records and the examination of the financial statements of
  the Institute for the years ended 31 December 2014, 2015 and 2016 were completed
  and results were being evaluated.

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• 18. MINERAL RESOURCES AUTHORITY

  18.1 INTRODUCTION

  18.1.1 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 the Authority commenced operations in June 2007.

  18.1.2 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.

  18.1.3 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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  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.

  18.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  18.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Authority for the years ended 31 December 2012 and 2013 were
  issued on 8 August 2016 and 7 March 2017 respectively. The reports contained
  similar Qualified Opinions, hence, only the 2013 report is reproduced.

  “BASIS FOR QUALIFED OPINION

  Production Levies

  Reported in the statement of comprehensive income was an amount of K18,325,461
  for production levies (Non-Alluvial) income. During the audit, completeness and
  accuracy of the production levies account was not verified. I noted that the Authority
  did not have proper controls and procedures to capture all production levies.

  Production levies were calculated based on 0.25% of assessable income of producing
  mines. I noted during 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 declared by the producing mines to calculate and remit the
  production levies.
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  Unallocated Receipts

  Reported in the statement of financial position was an amount of K2,629,465 for
  unallocated receipts. During my audit, the nature of these funds received could not be
  determined.

  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 Mineral Resources Authority 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 Public Finances (Management) Act.”

  18.2.2 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 Authority for the years ended 31 December
  2012 and 2013 were issued on 8 August 2016 and 7 March 2017 respectively. The
  reports contained similar significant matters, hence, only the 2013 report is
  reproduced:

  Statutory Audit

  The audit of the 2013 Statutory Financial Statements was not finalised by 31 May
  2014 due to weaknesses in the Authority’s accounting system and overall internal
  control environment. As such, management was unable to meet the deadline required
  by Section 36(1) of the Mineral Resource Authority Act 2005 which requires audited
  financial statements of the Authority to be furnished to the Minister before 31 May
  2014.

  Internal Control Environment

  During the course of my audit, I identified several weaknesses in the Authority’s
  accounting system and overall internal control environment operated during the year
  ended 31 December 2013. 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.

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

  Internal Audit Function

  I noted non-compliance with the MRA Act Section 39 (5) which states that MRA is
  required to appoint an internal auditor to provide a written audit report not less than
  quarterly to the Minister and Treasury. There was no internal audit work undertaken
  by an internal auditor.

  I recommended that management comply with the MRA Act by engaging internal
  auditors and to furnish reports thereon.

  The management responded as follows:

  “Yes we agree that we do not have internal audit manuals but now that we have an
  Internal Auditor we will work with the Internal Auditor to have internal audit manual
  in place.”

  Royalty Trust Deeds

  I noted during my review that the Authority kept in its books royalty funds for
  Simberi Gold and New Guinea Gold landowners. These monies or funds were noted
  to be held without a proper royalty trust deed in place setting out the rights and
  responsibilities of all parties including the operator or the mine, the landowners and
  MRA. In the absence of a royalty trust deed, any legal issues arising from the use of
  those funds would affect MRA in the future.

  I recommended management that all future trust funds held for and on behalf of land
  owners should come with a properly executed trust deed.

  The management responded as follows:

  “Board has asked management to look into this matter and pay money back to the
  various custodians by June 2017.”

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  Fixed Assets Register Maintenance

  During my review, I noted that there were no proper controls in place in maintaining
  the Fixed Assets Register (FAR). Further, there was no physical asset verification
  conducted in 2013. Best practice suggests that companies should perform a physical
  inventory at least annually to ensure the physical accountability of all fixed assets and
  the completeness and accuracy of financial records. No regular physical verification
  of assets may result to control deficiency in monitoring the assets existence and
  condition as the assets may not be able to identify or locate or some assets may have
  been fully depreciated and disposed of during the year and not considered in the
  financial statements.

  I noted that the fixed asset verification exercise was carried out in 2015. As such, I
  recommended the management to develop cost-effective physical asset verification
  procedures to ensure its fixed assets were properly safeguarded, maintained, utilized
  and monitored and controls around the maintenance of the fixed assets should
  improve.

  The management responded as follows:

  “We have now captured all fixed assets in our new Fixed Assets Register Module and
  physical verification of assets will now be a regular exercise. And this will enable us
  to properly account for new acquisitions and disposals as well as account for yearly
  system generated depreciation.”

  Ineffective Controls in Invoicing

  I noted that all accounts receivable/sales transactions had no (sequential) invoice nor
  any substantial documentation for the calculation of the assessable income and
  production levy except for receipt copies and payment advise from miners. As a result
  of this, I was unable to perform tests to address the risks identified of misstatement in
  the revenue account. Ineffective ways of raising invoices can encourage fraudulent
  activities.

  I recommended that the Authority should establish an effective accounting method to
  address the risk of inaccurate billing which may result in potential losses and other
  impeding issues leading up to incorrect revenue recognition.
  The management responded as follows:

  “We have now in placed an improved invoicing system in our new computerized
  accounting system which requires an invoice for all debtors and creditors.
  Management is embarking on a system, in particular for production levy where MRA
  will issue invoices in the beginning of the year based on data on production and
  revenue mining companies submit to MRA on a monthly basis as required under the
  Mining Act.”

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  Acquittal of MRA Debit Cards

  From inquiry and inspection of documentation during my audit, 40% of the entire
  acquittals for expenses were submitted to finance. I was unable to verify 60% of the
  total expenses due to lack of supporting documents required for the acquittal process.

  I recommended the management to strengthen controls around the use of debit cards
  issued by the Authority and effectively follow the written policy that was set up
  initially.

  The management responded as follows:

  “Debit Card Policy is now being drawn up for approval by the Board and the use and
  acquittals of debit card expenses will be spelt out in the Policy.”

  Production Levy (Non-Alluvial Income)

  I noted that the production levies were calculated and remitted by producing mines
  (thus “self-invoicing”). Production levies income was calculated based on 0.25% of
  assessable income of producing mines and accounts for almost 70% of the Authority’s
  income. The Authority did not test the veracity of the “self-invoiced” revenue and the
  Authority 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 have
  remitted the required production levy to the Authority. This caused uncertainty around
  the completeness and accuracy of production levy income recorded which resulted in
  a qualified audit opinion.

  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 make a profit or a loss for the relevant financial period.

  The management responded as follows:

  “Management have taken proactive action on this and have engaged an accounting
  firm to carry out an independent audit to verify or ascertain the base (i.e. assessable
  income) used by the mining companies to calculate the production levy they remit.”

  18.3 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 2014 had been completed and the
  results were being evaluated.

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  The fieldwork associated with the inspection and audit of the accounts and records
  and examination of the Authority’s financial statements for the year ended 31
  December 2015 was in progress.

  The Authority had not submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit.

  – 95 –

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• 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 AND RECOMMENDATIONS

  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 2015 was issued on 14 April
  2017. The report contained a Qualified Opinion.

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  “BASIS FOR QUALIFIED OPINION

  Asset Revaluation Reserve

  At 31 December 2015, asset revaluation reserve balance was K18,979,236 resulting
  from a valuation exercise conducted in 2011. At year end, the Authority did not
  maintain a detailed register, reconciling the increment or decrement by individual
  asset revalued to the total balance of K18,979,236 as reported in the financial
  statements.

  The Authority would not be able to comply with the requirements of International
  Financial Reporting Standards IAS 16 Property, Plant and Equipment in regards to
  any future revaluation or disposals especially in relation to the following:

  1. If a revaluation results in increase in value, it should be credited to other
  comprehensive income and accumulated in equity under the heading
  “revaluation surplus” unless it represents the reversal of a revaluation decrease
  of the same asset previously recognized as an expense, in which case it should
  be recognized in profit or loss.

  2. A decrease arising as a result of a revaluation should be recognized as an
  expense to the extent that it exceeds any amount previously credited to the
  revaluation surplus relating to the same asset.

  3. When a revalued asset is disposed of, any revaluation surplus may be transferred
  directly to retained earnings, or it may be left in equity under the heading
  revaluation surplus. The transfer to retained earnings should not be made
  through profit or loss.

  Accordingly, I was unable to ascertain the validity and accuracy of this balance at
  year end.

  Payment of Labour and Land Mobilisation Costs to Lands Investment Limited

  Included in land and building amount of K30,960,607 was an amount of K2,924,899
  relating to costs incurred for the construction of the prefabricated houses. As qualified
  in the 2014 audit, the Authority had paid additional amount of K1,048,998 above the
  approved contract value of K2,475,000 as approved by the Central Supplies and
  Tender Committee. In addition, there were no specific clause in the contract in respect
  of the above payments of K1,048,998. The houses had not been fully completed and
  certified for occupancy. However, I noted that the Authority had commenced
  depreciation of the houses, which was not in compliance with International Financial
  Reporting Standards IAS 16 Property, Plant and Equipment.

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• National Agriculture Quarantine and Inspection Authority

  Accordingly, I was unable to ascertain the basis on which the payment was made to
  Lands Investment Limited.

  Staff Provision

  Included in total staff provision account was an amount of K1,797,650 (current
  balance of K480,696 and non-current balance of K1,316,954) of which K1,778,502
  related to staff provision as follows:

  Annual leave and leave fares of K229,176;
  Long service leave of K1,316,954; and
  Gratuity of K232,372.

  I was not provided with any documentary audit evidence to substantiate and perform
  my audit procedures on staff provision balances. Accordingly, I was unable to
  perform alternate audit procedures to validate the accuracy and completeness of these
  balances at year end.

  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 National Agriculture Quarantine
  and Inspection Authority for the year ended 31 December 2015:

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

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

  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
  2015 was issued on 14 April 2017. The report contained the following significant
  matters:

  No Updated Contracts and Payroll Files

  I requested for staff files especially for current or updated employment
  contracts or employment letters that clearly shows approved revised base
  salary, allowances etc. From the samples selected, I was not provided with
  updated employment contracts or letter of employment to confirm their current
  base salary, allowances etc.
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• National Agriculture Quarantine and Inspection Authority

  After several dialogues with management, I was provided with letters written
  during my audit period but back-dated to the employee start dates providing
  the current base salary and allowances details. Best practices should ensure
  that all employee files were updated regularly to capture any changes in the
  employment status of the respective employees. However, I noted that this
  practice had not been consistently implemented by the Authority.

  In addition, during my review of personnel files, I had noted on several
  occasions that personnel files were misplaced or not readily made available
  and instances where employment contracts were not included in the personnel
  files. Also, I was not provided with information/data to ascertain number of
  days staff were entitled for Sick Leave, Recreation Leave and Furlough Leave.

  Staff Terminated or Resigned

  I selected a sample of four (4) employees for my review of staff terminated or
  resigned during the year under review and noted the following issues:

  Employee file for one of the employees was not provided for my review;
  Most of the staff final entitlements were not yet paid pending appeal and
  various reasons from those staff;
  No provision was recorded in the general ledger to take up this potential
  future liability to NAQIA (in line with accrual basis of accounting). A
  line of communication should have been maintained between payroll
  division and finance division to provide sufficient information to finance
  division to record such potential future liabilities; and
  No proper records of minutes to track the status of the terminated staff to
  ensure that appropriate actions were taken on a timely manner to avoid
  unnecessary financial liabilities to NAQIA potentially imposed under the
  Labour Act.

  Communication between Payroll Division & Finance Division

  Proper accounting practices ideally would require a clear communication
  between payroll and finance divisions. This procedure would ensure that
  timely, accurate and complete accounting information were provided to the
  finance division that captures all staff related transactions on a timely manner.
  I further noted during my review that critical payroll information were not
  provided by payroll to the finance division such as:

  Leave Fares accrual;
  Recreational Leave entitlements;
  Furlough Leave entitlements;
  Gratuity provision; and

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  Provision of potential liabilities such as delay in payments of final
  entitlements for resigned/terminated staff.

  From the weaknesses noted above, I recommended to management the
  following;

  1) A 100% review and update of all staff records to be performed
  immediately to ensure that all payroll records were updated on a timely
  manner and reconciled regularly to relevant payroll records and general
  ledgers maintained by the Authority’s finance team.
  2) All terminated or resigned employees in which their financial
  entitlements were not paid due to various reasons were to be calculated,
  approved and provided to the finance team for recording to appropriate
  liability.

  Management responded as follows:

  “NAQIA HR division has assigned a HR officer to take complete ownership of
  the process to update staff by division and compile accordingly by surname for
  ease of reference. Going forward HR will develop Staff Records Database and
  can be updated simultaneously to keep back up file and updated periodically.
  Also checklist template will be developed as well as excel spread sheet so that
  Recreation Leave, Compassionate or Sick Leave credits are taken off against
  the accrual leave balance. Once all the processes are developed, updated and
  in progress it is assumed that there will be a clear flow of communication
  between line officers in HR and Finance. These are all work in progress and
  we hope to complete all these tasks by the end of the first quarter of 2017.”

  Fixed Assets

  During my review of the fixed assets, I noted that any additions/purchases
  related to existing assets during the year were not included as costs of the
  original assets rather included as a new line in the Fixed Assets Register.
  Generally, such additions/purchases related to existing assets were added to
  the costs of the existing assets. Such may result in depreciation charges been
  charged at different rates and had different economic useful lives.

  I recommended a 100% asset verification to ensure costs related to additions
  were added to the existing assets and not as separate assets (lines) in the Fixed
  Assets Register. Also, I recommended that a review of the sub-ledger (Fixed
  Assets Register) depreciation rates to ensure that the depreciation rates were
  applicable and consistent with the economic useful life of the individual assets
  and ensure that there was consistency in the depreciation rates used which
  should be in line with applicable documents such as the financial statements
  and Financial Manual.

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  Management responded as follows:

  “A planned major stock take and valuation of the assets has been endorsed by
  the Board in its last board meeting and that has been budgeted for in the 2017
  annual budget. It’s a major project and to be implemented as priority.
  Depreciation applied in Accpac were not amended as per the Valuation
  Report. We note that as a priority concern and we will progress to locate the
  Valuation Report and advice.”

  a) Kilakila Housing Project

  The following issues were noted in relation to this housing project:

  I noted that the Authority’s housing project was still under work in
  progress and not commissioned/certified yet for occupancy. However,
  this project had been treated as fixed assets and depreciation calculated.
  This was not in accordance with IFRS requirements as assets were
  capitalized and depreciated when it was available for use.

  Actual total cost of this project recorded at year end was K3.1m (2014:
  K3.9m) and the depreciation charges was K0.1m (2014: K0.2m). During
  2015 audit, I noted that there were some costs incorrectly classified as
  Kilakila Housing Project and needed to be re-classified to the correct
  asset cost centres;

  I noted that the cost especially for land and buildings were not itemised
  by house but were grouped as one component. For prudent accounting
  and reporting purposes, it was suggested that itemised reporting by house
  was recommended; and

  Although there were costs/additions incurred in relation to the project,
  there were no significant changes in relation to the stage and status of the
  project since reported in 2013.

  I recommended management that all costs related to the Kilakila Housing Project be
  recorded under work in progress (asset account) until such time the assets were
  available for use. Also in the existing accounting treatment, the assets be reversed off
  and recorded as work in progress and the corresponding depreciation charges
  reversed. I also stressed that itemised reporting by house be undertaken to assign costs
  to each house rather than one component as currently reported.

  – 102 –

• Page 139 of 450

• National Agriculture Quarantine and Inspection Authority

  Management responded as follows:

  “There was no record of Work In Progress (WIP) account at that stage with the
  major one on the Kilakila housing project. We take note of our discussions made and
  we will trace all available records and compile all payments records and get a WIP
  account registered. WIP accounts have been created in the 2016 accounts and are all
  in order.”

  Compliance with Public Finances (Management) Act 1995

  The National Agriculture Quarantine and Inspection Authority had not prepared and
  submitted their financial statements to the Minister and the Auditor-General prior to
  30 June for the year ending 31 December preceding, resulting in breaches of Section
  63(2) and Section 63(4) of the Public Finances (Management) Act 1995.

  19.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Authority for the
  year ended 31 December 2016 had not been submitted for my inspection and audit.

  – 103 –

• Page 140 of 450

• 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 allocate
  d 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;

  – 104 –

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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 AND RECOMMENDATIONS

  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 2016 was issued on 19
  May 2017. 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
  2016 was issued on 19 May 2017. The report contained the following observations:

  Accounting System/Software

  My review of the Institute’s accounts and records for the year ended 31 December
  2016 revealed that the Institute had been using the Quicken Accounting Package for
  past several 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 that was purchased some years back was not fully utilized by the
  Institute. In my view, possibility of errors and mistakes would be minimized, a lot of
  time can be saved and a better audit trail would be available when this new Accpac
  Accounting System was fully utilized. This matter was reported to management in my
  previous reports as well and the Institute is yet to implement my recommendations.

  – 105 –

• Page 142 of 450

• National Agricultural Research Institute

  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 was fully upgraded, a project
  currently ongoing, the new system would be fully implemented.

  Land Titles, Valuation and Non-Disclosure

  My review of the Fixed Assets Register of the Institute revealed that land belonging to
  the Institute including Head Office where all establishments were currently located
  and titles secured were not valued and disclosed in the financial statements.
  Meanwhile, three (3) land titles for three (3) portions of land located in one of its high
  latitude research stations where the Institute’s activities had been carried out were still
  not secured. I recommended the Institute to value the land where titles had been
  secured and make a proper disclosure and continue to pursue with the Lands
  Department to secure land titles for those portions of land where research activities
  were carried out.

  – 106 –

• Page 143 of 450

• 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
  National Executive Council (NEC), Provincial Governments (PGs) and Local
  Level Governments (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.

  – 107 –

• Page 144 of 450

• National AIDS Council Secretariat

  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 financial
  statements of the Council for the years ended 31 December 2013 and 2014 were both
  issued on 14 October 2016. The reports contained similar Disclaimer Opinions, hence,
  only the 2014 report is reproduced.

  “BASIS FOR DISCLAIMER OF OPINION

  Internal Control Environment

  As reported in my prior years audit reports on internal controls, I noted significant
  weaknesses in the National AIDS Council Secretariat’s overall internal control
  environment operated during the year 2014. 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 during the year under review.

  Cash at Bank – K3,255,751

  My review of the Secretariat’s Recurrent and Development Accounts bank
  reconciliations revealed that the bank reconciliations were not prepared, reviewed and
  verified by senior competent finance officers of the Secretariat in 2014 on a timely
  basis. I was also not provided with the independent bank confirmation to ascertain
  whether all bank balances and bank accounts held under the name of the Secretariat
  were captured in the books. As a result, I was not able to neither verify and confirm
  the accuracy and completeness of the balance nor place reliance on the effectiveness
  of the controls maintained by the Secretariat over cash.

  Adjustments to Expenditure Accounts – K439,686

  During my review, I noted that the total recurrent expenditure was adjusted from
  K8,579,992 to K8,140,306 resulting in a decrease of K439,686. The expenditure
  account adjusted was the Salaries & Allowances. I was not provided with any
  explanation and supporting documentation for the adjustment. As a result, I was
  unable to comment and conclude on the accuracy and completeness of the expenditure
  balance disclosed at the year end.

  – 108 –

• Page 145 of 450

• National AIDS Council Secretariat

  Non-Disclosure of Fixed Assets by way of Notes to the Statement of Receipts and
  Payments

  As stated in Note # 1 to the Statement of Income and Expenditure, the Secretariat
  prepared its accounts using cash basis approach in accordance with the government
  accounting conventions. My review of the Statement of Income and Expenditure for
  the year ended 31 December 2014 revealed that the Secretariat did not disclose by
  way of notes the summary of Fixed Assets in the financial statements to comply with
  the requirements of the International Public Sector Accounting Standards, Financial
  Reporting under the Cash Basis of Accounting. This standard requires that items not
  recognized under cash basis are disclosed in the notes to the financial statements.
  Consequently the Secretariat did not properly disclose by way of notes to the financial
  statements the fixed assets value and comparatives.

  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 am unable to and do not express an opinion on the financial
  statements of the Secretariat for the year ended 31 December 2014.”

  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
  2013 and 2014 were issued on 14 October 2016. The reports contained similar
  observations, hence only the 2014 is reproduced as follows:

  1. Development Budget

  My review of the 2014 development budget revealed very weak controls and
  lack of compliance to budget appropriation regulations and requirements. The
  Secretariat had spent outside of its development budget. As a result, I noted
  that funds were not utilized for earmarked sixteen (16) budgeted activities for
  the year. Consequently, I was not able to confirm and conclude whether the
  development funding received during the year was expended for their intended
  purposes.

  2. Salary Advances – K87,332

  Salary Advances was disclosed as K87,332 at 31 December 2014 in the
  Income and Expenditures Statement. During my review, I noted that staff took
  out salary advances for motor vehicles and other related expenses.

  – 109 –

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• National AIDS Council Secretariat

  However, I was unable to substantiate the basis for which the advances were
  taken due to lack of proper source documents such as quotations of the motor
  vehicles or the building material quotes supporting the requests. I also noted
  that there was no clear policy guideline establishing the criteria for the
  payment of advances to staff.

  Without a clear policy guideline in place, public funds are susceptible to
  misuse and misapplication. Consequently, I was not able to place reliance on
  the controls surrounding the management of advances by the Secretariat.

  I brought this to the attention of the management and it responded as follows:
  “There was no policy manual to guide the process of salary advances in 2014.
  However, all salary advance applications and request were submitted to the
  office of the director and were approved by the then Director of National
  AIDS Council Secretariat.

  Since the new Director came into office in mid-2013, applications and
  requests for approval of staff advances have not been approved or entertained.
  The National AIDS Council in its meeting on 4th August, 2015 approved the
  engagement of a consultant to formulate/develop HR Policy Manual which is
  now in its final stages.”

  3. Payment of Vehicle allowances to officers provided with office Vehicle

  My review of personnel expenses revealed severe breakdowns and
  malpractices in the Secretariat. I noted that three (3) senior contract officers of
  the Secretariat were each provided vehicles for twenty-four (24) hours use
  with fuel. Despite the officers being provided with Secretariat vehicles for 24
  hours with fuel, they were also paid vehicle allowances resulting in double-
  dipping by those concerned officers of the Secretariat.

  I brought this issue to the management and it responded as follows:

  “This is true that these officers were double dipping. However, the Director
  authorized them to keep the vehicles after hours because of the nature of their
  work and where they lived was very far.

  It was unfortunate that they all got their car allowances in advance for 3 years
  and at the same time NACS was deducting their repayment and it was a catch
  22 situation.”

  – 110 –

• Page 147 of 450

• National AIDS Council Secretariat

  4. Acquittal for Provincial AIDS Council Offices (PACs)

  My review revealed that there was no proper acquittal of grants totaling
  K356,593 to Provincial AIDS Council Offices (PACs) located around the
  Country. Without the acquittals, I was not able to verify and confirm whether
  funds released were used for their intended purposes.

  Management noted my concern and responded as follows:

  “There is no competent or Finance Officer at PAC level who can be able to
  perform financial functions such as maintaining accounting records, prepare
  monthly bank reconciliations and prepare financial reports and submit to
  NACS.

  NACS in 2013 was unable to consider recruiting one because the most needed
  position was not in the PACs structure.

  However, only those PACs who successfully acquitted their received funds
  have been disbursed with their next allocation of funds. Most PACs have
  submitted acquittal reports quarterly with too many financial discrepancies
  which they were unable to take corrective actions so the next funds due at
  quarterly basis were not remitted and disbursed to them.

  Financial management of PACs has been a disaster for NACS in terms of
  acquittals, bank reconciliation and asset register. This would be a thing of the
  past now because PACs offices have been closed commencing 2016.”

  5. Fixed Assets

  My review and examination on Fixed Assets revealed that the Fixed Assets
  Register (FAR) was not properly maintained in 2014. Following are other
  additional issues noted during my review.

  A total of K330,815 relating to Information and Communication Technology
  (ICT) equipment were not captured in the Register and disclosed at year end.

  Around three hundred and sixty-five (365) items listed in the FAR did not
  have particulars including purchase cost, purchase date, cheque/ILPOC
  numbers and serial numbers. Consequently, I was unable to carry out physical
  inspection to confirm the assets existence and condition.

  The Secretariat did not have an approved Fixed Assets Policy. The Policy will
  specify clearly the procedures and processes involved in the purchase,
  recording, usage and custody of the Fixed Assets. In the absence of a proper
  policy on Fixed Assets, I was not able to conclude on whether the assets of the
  Secretariat were properly safeguarded.

  – 111 –

• Page 148 of 450

• National AIDS Council Secretariat

  Due to the above observations, I was not able to place reliance on the controls
  surrounding the management and use of the fixed assets of the Secretariat and
  whether the fixed asset were properly safeguarded to ensure value for money.

  6. Travel Acquittal and Travel Advances Register

  It is a requirement as per the Financial Management Manual Part 20
  paragraph 11.2 that cash advanced to officers travelling overseas on official
  duty must acquit travel advances within 14 days of return from duty travel. At
  the same time Part 20 paragraph 12.10 of the Manual stipulates that advances
  to officers for domestic duty travels are to be acquitted within 7 days of return
  from duty travel by submitting an acquittal form.

  However, my review of the travel and subsistence expenses totaling K48,999
  for the year ended 31 December, 2014 revealed lack of proper travel acquittals
  by concerned staff of the Secretariat. The Travel Advances Register was not
  properly maintained by the Secretariat. As a result, I was not able to ascertain
  whether all travel expenses incurred and paid during the year were properly
  acquitted.

  Management noted my concerns and responded as follows:

  “NACS maintains Travel Acquittal Register, however the travelling officers
  are not cooperating in terms of acquittals. The control of Travel Acquittals
  will now be strengthened and those officers who do not acquit their first T/A
  will not be receiving travelling allowances when they travel for the second
  time until the first travel allowance is acquitted.”

  21.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Secretariat for the
  years ended 31 December 2015 and 2016 had not been submitted for my inspection
  and audit, despite numerous reminders.

  – 112 –

• Page 149 of 450

• 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 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  22.2.1 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 2014 was issued on 11 April
  2017. The report contained a Disclaimer of Opinion.

  – 113 –

• Page 150 of 450

• National Broadcasting Corporation

  “BASIS FOR DISCLAIMER OF OPINION

  Limitation of Scope due to Disclaimer of Audit Opinion on the previous year’s
  Financial Statements

  The previous year’s audit report (2013) was issued with a full disclaimer of opinion.
  The reason for the disclaimer of opinion was the limitation of scope arising from an
  inability to substantiate most balances included in the general ledger. Consequently, I
  was unable to quantify the effects of any material misstatements in the opening
  balances that might have a consequential effect on the financial statements of the
  Corporation for the year ended 31 December 2014. Therefore, there was considerable
  uncertainty as to the accuracy of the 2014 opening balances. Due to the lack of
  records and inadequate reconciliations, I was unable to perform sufficient audit
  procedures to satisfy myself as to the completeness and accuracy of the opening
  balances or the comparatives presented in the financial statements.

  General Ledger Integrity

  I identified several significant material adjustments and weaknesses in the
  Corporation’s trial balance and accounting system. The adjustments and the existence
  of weaknesses in the accounting system occurred due to a number of reasons
  including non-existence of an appropriate accounting policy in respect of posting of
  entries, no reviews of accounting entries or journals prior to posting them into the
  Attaché system, creation of new general ledger accounts without obtaining proper
  approvals and no timely reconciliation of the general ledger at month end.
  Accordingly, I was unable to place reliance on the accounts and records submitted for
  my audit verification.

  Limitation of Scope Arising from Lack of Information on Fixed Assets

  As at 31 December 2014, the property, plant and equipment balance was
  K113,439,531 with a net written down value of K35,290,127. However, the
  Corporation had not maintained a Fixed Assets Register to properly record, account
  and control the movement and perform depreciation of its assets. Further, due to non-
  maintenance of Fixed Assets Register, I was not able to verify the fixed assets
  additions, disposals, transfers and the correctness of the depreciation during the year
  under review.

  The Corporation had not conducted any revaluation of its land and building consistent
  with the International Accounting Standard (IAS) 16. The Corporation had also
  expensed new assets purchased in the year under review valued at K1,190,415 which
  was against the IAS 16. As a result, I was unable to perform the necessary audit
  procedures to verify the physical existence, accuracy, ownership, usefulness and
  valuation of the Corporation’s asset balances at the year end.

  – 114 –

• Page 151 of 450

• National Broadcasting Corporation

  Limitation of Scope – Trade Debtors

  As at 31 December 2014 the trade debtors balance was K993,034. There was no sub-
  ledger or aged debtors’ listing maintained by the Corporation to control and monitor
  the account. As a result, I was not able to identify individual balances that made up
  the trade debtors balance. Consequently, I was unable to verify the accuracy and
  correctness of the trade debtors balance reported in the financial statements at year
  end.

  Limitation of Scope -Trade Creditors and Accruals

  According to Note 10 of the financial statements, the Corporation reported trade
  creditors balance of K248,635 and other payables and accrual balance of K2,299,804.
  The composition of the K248,635 were K34,295.72 representing unpresented cheques
  brought forward from year 2012 and various creditors totalled K202,789.36 and
  undetermined amount of K11,549.92. In addition, I was not provided with proper
  schedule or listing in regards to the other payables and accruals reported above. The
  trade creditors’ sub-ledger system in the Attaché Accounting system was not used to
  account the trade and other creditors account, hence some balances were not in
  agreement with the general ledger. As a result, I was not able to confirm the
  completeness and accuracy of the creditors’ and accrual balances reported as at 31
  December 2014.

  Limitation of Scope – Related Party Balances- Government Debtors and
  Creditors

  As at 31 December 2014, the Government Debtors’ and Creditors’ balances were
  K1,292,919 and K915,762 respectively as reflected in Noted 9 of the financial
  Statements. The Corporation did not provide any reconciliations or appropriate
  documentary evidence to support the amount.

  In the absence of sufficient audit evidence on the related party balances, I was unable
  to verify the completeness, accuracy and validity of the Government Debtors’ and
  Creditors’ balances as at 31 December 2014.

  Limitation of Scope – Non Accounting of Employee Provisions

  According to Note 11 of the financial statements, the Corporation’s Provisions for
  Furlough leave and Recreational leave balances were K2,589,749 and K1,460,513
  respectively. The two balances were brought forward from prior year without
  accounting for any movements in the current year under review. The current year’s
  employee provisions were manually calculated by the Human Resource Division and
  passed to the Finance Division for posting into the general ledger only at the year-end
  but contained numerous mistakes and errors resulting in incorrect balance. Hence,
  these were not posted into the general ledger for the current year.

  – 115 –

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• National Broadcasting Corporation

  The non-accounting of the two employee provisions to reflect any movement for the
  year may result in significant misstatement in the financial statements. In the absence
  of accounting for employee provisions for the year, I was unable to ascertain the
  accuracy and validity of the employee provision balances at year end.

  Issued Capital

  As at 31 December 2014, the Issued Share Capital balance was K25,503,697. I was
  not provided with any records and reconciliations to verify the details and accuracy of
  the share capital balance. In the absence of sufficient evidence, I was unable to verify
  the accuracy and validity of the Issued Capital balance as at 31 December 2014.

  Unexplained Adjusting Balance in Asset Revaluation Reserve

  The Asset Revaluation Reserve balance in the financial statement was K23,854,910
  while the general ledger balance was K22,910,269. An unexplained adjusting balance
  of K843,233 was taken up in the financial statement to balance the Statement of
  Changes in Equity. I was not provided with any records and reconciliations to verify
  the details and accuracy of the adjustments including the movements in the Asset
  Revaluation Reserve balance. In the absence of sufficient evidence, I was unable to
  verify the validity, completeness and accuracy of the Revaluation Reserve balance at
  the year end.

  Reporting Requirements under the Corporation’s Act 1973

  The National Broadcasting Corporation Act under Section 27 states that the
  application of Part VIII of Public Finances (Management) Act 1995, which requires
  the Board of the Corporation to furnish to the Minister an annual report on the
  progress and performance of the finances before the end of 30 June each year. I noted
  that this had not been complied with for the 2014 financial year.

  The Board have not met their responsibility to ensure the Corporation reports
  furnished to the Minister as required under this Act. Failure of the Board to produce
  the annual report to the Minister within the time frame was a breach of the NBC Act
  1973 or Part VIII of the Public Finances (Management) Act 1995.

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis of Disclaimer of
  Opinion paragraphs, 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 National Broadcasting Corporation for the year ended 31 December
  2014.”

  – 116 –

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• National Broadcasting Corporation

  22.2.2 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
  2014 was issued on 11 April 2017. The report contained the following significant
  matters:

  Non-Compliance to Generally Accepted Accounting Practices

  The 2014 Financial Statements had not considered the depreciation expense in the
  Profit and Loss Statement including expensing of the 2014 fixed assets additions
  without depreciating them as required by the International Accounting Standards
  (IAS) 16. The asset revaluation reserve balance in the financial statement did not agree
  to the general ledger (GL) balance as there was an adjustment made to the asset
  revaluation balance in the financial statement to reconcile the Equity balance in the
  Balance Sheet. Further, several GL balances relating to assets and provisions were not
  updated or adjusted to reflect the correct positions of the balances in 2014. The GL
  balances include provisions for furlough leave, provisions for annual leave, trade
  debtors and other debtors and prepayments. At the year end, the GL balances
  mentioned were brought forward from 2013 without any movements. Also some
  adjustments identified to be posted into the GL in order to amend the balances to
  reflect the correct positions were not posted into the GL rendering these balances at
  the year end to be incorrect.

  Consequently, the 2014 Trial Balance (TB) printed for my review lack integrity and
  showed evidence of weakness of the accounting environment. The TB contained
  incorrect balances and did not reflect the true position of the Corporation at year end.
  This means that the 2014 Financial Statements also contained inaccurate balances and
  was also materially misstated. Management’s practices and maintenance of the
  accounting system were not in accordance with the generally accepted accounting
  practices including the International Financial Reporting Standards (IFRS).

  I recommended the management to conduct an assessment of the accounting functions
  and implement improvements to the basic accounting functions and to prepare its
  financial statements in full compliance with the requirements under the IFRS. The
  management responded as follows;

  “The management is taking note of your recommendations concerning the financial
  statements adjustments. NBC has been preparing its financial statements late for
  several years. But this has dramatically over the years now. NBC is on par with its
  annual audits, with 2015 audit to commence soon. Hence more concentration shall be
  given around the way the general accounting I conducted and adjustments are treated
  once NBC is on par with the accounting period or annual reporting period.

  – 117 –

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• National Broadcasting Corporation

  NBC has expensed its assets due to no proper Fixed Assets registry (system) to reflect
  capital expenditure; hence all assets were expensed. Even that depreciation was not
  considered. NBC had adjusted to reflect this significant IFRS issues in 2016.”

  Government Debtors and Creditors

  My review of related party balances included amounts due to and receivable from
  government statutory bodies, state owned entities and senior management staff
  remunerations, staff loans and board allowances. I noted that there were no aged
  debtors listing maintained for the government debtors’ account to clearly identify the
  balances, their ages and to control the balances. There were also no reconciliations
  performed to ensure each individual government debtors were paid and identifed
  those which were outstanding. The government creditors balance of K915,762 is
  related to 2012 and prior years’ unpresented cheques, which were yet to be identified
  and cleared. Further, the movement and retrenchment of finance staffs had
  contributed to the poor level of maintenance of accounting and historical records
  including a weak internal control environment.

  The non-maintenance of these critical accounting records had restricted me from
  performing my audit procedures on these accounts in order to place any reliance on
  the balances. Such weaknesses in the internal control environment provide a
  conducive environment for fraud and other irregularities without detection.

  I recommended the management to review the related party debtors’ and creditors’
  accounts in detail and assess legitimacy of the balances in the general ledger
  particularly those brought forward from previous years.

  Those debtors found to be genuine to be followed up for payments while genuine
  creditors to be settled. I also recommended that management to prepare
  reconciliations of the two accounts including key individual supplier/customers’ on a
  monthly basis. The management responded as follows:

  “The management is taking note of the recommendations done. There are some
  reconciliations getting underway to establish the genuine figures by 2016. Significant
  accounts were identified and adjustments are done in 2015 and 2016 to fix the GL.”

  General Ledger Integrity – General Ledger Reconciliations

  The National Broadcasting Corporation (NBC) had not performed any monthly
  reconciliation of its entire general ledger accounts for better internal control purposes.
  This included some major general ledger balances relating to the assets and liabilities.
  These general ledger accounts were not reconciled and independently reviewed on a
  monthly basis resulting in unresolved balances carried forward from year to year.

  – 118 –

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• National Broadcasting Corporation

  In addition, specific contributing issues noted include changes to some key finance
  positions, no independent review of monthly bank reconciliations and an unclear
  financial reporting structure. Consequently, I was unable to place reliance on the
  whole accounting system maintained and applied by the NBC as a result of internal
  control weaknesses noted in the Finance Division.

  Due to the weak internal control environment, the risk of fraud and malpractice
  without detection was significantly high. Furthermore, I was also unable to complete
  and conclude my audit procedures on the general ledger balances for the year ended
  31 December 2014 due to unavailability of critical accounting information.

  I recommended that the Executive Director Finance and the Accountant to conduct a
  review of the current accounting processes and procedures in Finance and implement
  changes to improve the internal control environment. Management responded as
  follows;

  “NBC is willing to take on board some of the recommendations as some
  recommendations were already part of the operating system. It is a matter of
  implementing the procedures by responsible division leaders/heads with the staff by
  2016 and beyond.

  NBC has recently recruited new officers in the recent restructure and are members of
  CPAPNG. Hence NBC will promote training and development as one of its key
  priority areas.

  NBC’s internal control is strong especially the procurement processes and
  procedures when procuring goods and services. The approval of procuring goods and
  services is still maintained by the Chef Accountable Office (CEO) through strict
  processes as per required by the PFM act. The risks associated with procurement are
  well contained by the system but implementation was the issue highlighted for NBC to
  comply. The Accounting process and procedures is under review and by 2016 there
  will be some effective implementation of the process. The challenges of using attaché
  accounting system in 2013 and 2014 were one of the main reasons behind improper
  management of the GL environment. Also if internal audit function was supported by
  management with funding and directions NBC should address the issues internally.”

  Missing Records and Files

  During my review, certain vital audit information requested was not provided as these
  were either not available or missing. I was informed that certain experienced staff
  members including the executive Director Finance and Accountant, who were there in
  2014 had left or were terminated between 2015 and early 2016. When these staff left,
  the information I required for my audit was misplaced or left somewhere where
  current finance staff were unable to locate. The missing vital audit information
  resulted in the limitation of my audit scope.

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• National Broadcasting Corporation

  I recommended that the departing finance staff must go through a proper hand-over-
  take-over in order to update new staff with status of their accounting work, records
  and other information within their section before leaving. Also NBC had to
  implement a strict and effective policy and system of filing and records management
  since it was important when there was frequent change of staff positions.
  Management responded as follows:

  “The current new (intake) management in 2016 is aware of this situation and take
  note of the recommendations provided by the external auditors.

  NBC has been providing all information requested and deny any missing records and
  files. The information was within NBC but during the audit NBC couldn’t provide due
  to certain responsible officers not available.”

  No Tax on Assessable Benefits Allowances

  During my review, I noted the following;

  Certain management staff were provided with rental accommodation at prices
  ranging from K1,000 to K2,000 per week. The rental rates would fall within
  medium cost house and in area 1 in terms of taxable allowances. As such, all
  staff that were provided with accommodation under this arrangement would
  attract an assessable benefit allowance of K400 in his/her tax computation. My
  reviews of payroll records revealed that this prescribed amount had not been
  included in the fortnightly pay calculation in 2014 for assessment of income
  tax earned;

  All executive managers were provided motor vehicle with fuel and were
  allowed unrestricted use of the vehicles. This would also attract an assessable
  benefit allowance of K125 in their tax computation. My review of payroll
  records also revealed that this prescribed amount had also not been included in
  the fortnightly pay calculations in year 2014 for assessment of income tax
  earned; and

  Other staff members were provided accommodation at the Corporation’s
  owned flats or houses. Such arrangement fall within low cost house or flat and
  in area 1 attracting an assessable benefit allowance of K160 in his/her tax
  computations. My review of payroll records revealed that this prescribed
  amount was not included in the fortnightly pay calculations in year 2014 for
  assessment of income tax earned.

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• National Broadcasting Corporation

  The implications for the above issues were such that the Corporation was in breach of
  the PNG Income Tax Act- salary and wages tax, the staff who were provided with
  accommodation and motor vehicle with fuel had been under paying tax, and the
  Corporation may be liable for a fine of K2,000 and also order to pay the un-deducted
  tax payable amounts to the Internal Revenue Commission.

  I recommended that the prescribed taxable amounts must be included in fortnightly
  tax computations for those staff that were provided accommodation and motor
  vehicles with fuel and have no usage restriction and the management responded as
  follows:

  “In 2015 after the successful restructure exercises conducted by NBC, management
  has consulted an Attaché specialist to update, review and incorporate into the Attaché
  payroll module, a comprehensive computation that will calculate staff leave accruals
  every fortnight in conjunction with the normally payroll runs.”

  Journals and Creation of General Ledger Accounts

  I noted significant weaknesses in relation to journal entries and creation of new
  general ledger accounts as follows;

  Some manual journal entries posted into the general ledger system were not
  independently reviewed by the Executive Director Finance or the Accountant;
  Some manual journal entries posted were not stamped as posted;
  A complete listing of all manual journal entries processed into the attaché
  system in the 2014 financial year were not provided for my review;
  There were many new general ledger accounts created in 2014 but were not
  supported by approval from the management team including the Managing
  Director; and
  Some new general ledgers created had similar functions to those that already
  existed.

  The key controls to detect fraud and errors in financial reporting system were the
  segregation of duties, and the independent review of manual journals posted in the
  ledger system including appropriate approvals for creation of new general ledger
  accounts in the attaché system.

  Without such controls, the general ledger and the resulting financial reports produced
  may contain incorrect and materially misstated balances. I recommended the
  following to the management:

  The manual journal entries prepared by any division including payroll be
  reviewed independently and approved for postings by the Executive Director
  Finance or his nominee;

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• National Broadcasting Corporation

  The Executive Director Finance should collate all journals and maintain a
  central filing in order of their batch numbers and posting dates;
  All journal entries posted should be clearly marked as posted; and
  Any new general ledger accounts created in the general ledger system should be
  properly approved by the designated senior management member appointed by
  the Managing Director and copies of such approval issued must be kept in the
  Finance Division.

  The management responded as follows;

  “The management is taking note of this recommendation regarding issues relating to
  accounting procedures and process where it is being reviewed in 2016 by the new
  management team. NBC maintain all new GL were approved by EDF. NBC was
  moving on a slow pace from manual to systemize hence most entries were initially
  posted or never reviewed since 2012.”

  Board Meeting Minutes

  According to Section 4(2) of the Broadcasting Corporation Act 1973 (NBC Act) the
  Board was responsible for the affairs of the Corporation and Section 14 states that the
  Board shall meet at such time and places and cause minutes of its meetings to be kept
  and forward copies of its minutes to the Minister. I noted the following issues in
  relation to the Board Meeting Minutes:

  No Board Meeting Minutes were held on record or were provided to me
  during the audit; and
  I was not provided with other statutory records including the common seal
  register, charges’ register and directors’ interest register.

  The implications were that the failure to maintain statutory records was a breach of
  Sections 4 and 14 of NBC Act and General Order 23 – Record Management. Also
  without the Board Meeting Minutes, I was unable to make reference to any Board
  Resolutions or Directives that may had significant financial and operational
  implications during the year under audit.

  I recommended that the Corporation should maintain proper statutory records
  including its Board Meeting Minutes according to the requirements of the NBC Act.
  The statutory records must be produced to external auditors and other legitimate
  reviewers as part of a statutory requirement. The management responded as follows;

  “The management is taking note of the recommendation done. NBC has full board
  appointed to manage the affairs of NBC. There were board meetings held as required
  but there was change in management including the Board Secretary that delays the
  process to deliver the board meeting minutes during the course of the audit (field
  work).”
  – 122 –

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• National Broadcasting Corporation

  Non-Maintenance of a Fixed Assets Register (FAR)

  The Corporation had not maintained a Fixed Assets Register for some years now in
  order to properly record, account and control the movement of its assets, which
  included land and building, plant & equipment, furniture and fittings and motor
  vehicles. Accordingly, the cost of assets totaling K111,978,884 and accumulated
  depreciation balance totaling K75,528,522 were carried over in the general ledger
  since 2012,without any movements.

  The issues were noted in my reports including disclaimer of opinion within those
  years.

  Given the lack of a FAR, the assets additions, disposals, transfer of assets between
  stations and depreciation of the assets were not properly accounted for. Consequently,
  in the current year’s audit, I was unable to determine the completeness, existence,
  accuracy and valuation of fixed assets at year end. Further, a full disclaimer of
  opinion was issued on the 2013 financial statements thus in the current year audit, I
  was also unable to quantify and confirm the opening balances of the fixed assets as
  stated in the general ledger. I was also informed that there was work done on setting
  up a FAR and updating of the assets but I was not provided any information since this
  will be taken up in the 2015 financial year.

  The balances of the different categories of fixed assets in the trial balance (TB) were
  not supported by a fixed assets register. Therefore, I was unable to satisfy myself on
  the completeness, existence, accuracy and valuation of fixed asset balances at year
  end.

  In addition, failure to maintain a Fixed Assets Register created a weak internal control
  environment which may result in assets being abused or stolen without being
  detected.

  I recommended that management, as priority, should immediately set up a Fixed
  Assets Register by installing an off the shelf system relevant to the Corporation’s
  assets. All existing assets categories must be updated through a thorough asset
  verification exercise. Furthermore, I also recommended the following:

  Perform detailed reconciliation of balances between the general ledger balances
  and new FAR, and also to ensure that the balances were adequately supported
  by proper documentation. Any differences noted to be cleared and also only
  assets with proper documentation to be updated in the new FAR;

  Costs of new assets purchased to be updated in a timely manner in both the new
  FAR and the general ledger to avoid omissions and errors including
  commencing depreciation on them;

  – 123 –

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• National Broadcasting Corporation

  Disposals and write offs of significant value assets must be approved by the
  BOD and properly documented; and

  Perform monthly FAR reconciliations to match the general ledger amounts and
  have them reviewed by appropriate personnel for proper control and accuracy.

  The management responded as follow:

  “The management is taking note of the recommendations done and working on the
  attaché module to take this long time matter done. The fixed assets register will be
  done once the attaché module work in progress in 2016 and beyond is done. NBC still
  maintain and guard its assets well on ad-hoc basis to prevent wastage of resources at
  least.”

  Group Tax Liabilities

  The Corporation had an outstanding group tax payable balance of K4,724,838 at the
  2014 balance date. This balance had been accumulated since 2006 which the
  Corporation was yet to settle in full. On 13 January 2013, the Corporation received a
  demand letter from the Internal Revenue Commission (IRC) to settle outstanding
  Group Tax Liabilities of K1,821,219 which was related to 2006 assessments. As there
  were no proper reconciliations performed on the liabilities outstanding at year end
  including proper records and hence, I was unable to determine the completeness and
  accuracy of the K4,724,838 balance, and also to match them to which period the tax
  liabilities relate to. Further delay in settling the group tax balance would result in IRC
  imposing a penalty of 20% of the amount not remitted plus additional tax of 20% per
  annum calculated on a daily basis from the date the amount was due.

  I recommended that management, as a matter of priority, should review properly its
  tax accounts to establish its tax position and hold conference with IRC management
  given the significance of the amount outstanding and to settle any tax liability in full
  with IRC. Management responded as follows:

  “The management is taking note of the recommendations provided for action. NBC
  was faced with financial difficulties in that operating period but the salaries and
  wages bill were settled in 2015. NBC has settled this issue via arrangement with IRC
  to settle its Goods and Services Tax against Group Tax in 2016. A proper
  reconciliation is done in 2016.”

  22.3 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 2015 and 2016 for my inspection and
  audit.

  – 124 –

• Page 161 of 450

• 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 report to the Ministers under Section 8(4) of the Audit Act on the Commission’s
  financial statements for the year ended 31 December 2013 was issued on 14 March
  2017. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Koki Market

  The value of Koki Market taken over by the Commission in 1986 had not been
  included as an asset in the Balance Sheet of the Commission after the repealing of
  Koki Market Place Trust in 1986. The independent valuation conducted in 1994
  valued the property at K3,440,000. Therefore, the asset balance was understated in the
  financial statements.

  Valuation of Land and Buildings

  The underlying records maintained in relation to fixed assets of the Commission
  indicated that the value of land and buildings was K21.622 million as at 31 December
  2013. Land and building were not revalued since 1992. As a result, I was unable to
  ascertain that K21.622 million balance of land and building was fairly stated in the
  financial statements.

  Payroll Expenses

  The Accpacc system disclosed payroll expenses of K30,065,131 as at 31 December
  2013. However, satisfactory records were not maintained to enable me to verify the
  completeness, existence and accuracy of these expenses due to the difficulty in
  accessing these records from Concept, the contracted payroll service provider. As a
  result, I was unable to satisfy myself as to the validity of the payroll related expenses.

  – 126 –

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• National Capital District Commission

  Salary Clearing Accounts

  Salaries clearing account had a total debit of K21,370,206 under the liabilities
  category. It appeared that this amount was not cleared to salaries expense account and
  resulted in understatement of salaries expenses and liabilities to the said amount
  respectively. Consequently, I was unable to satisfy myself as to the completeness and
  accuracy of this balance.

  Provision for Employee Benefits

  The Annual leave and long service leave provisions were both generated by the
  Concept Payroll System which amounted to total of K8,513,817. I was not able to
  verify the calculations of these provisions due to unavailability of appropriate
  supporting documentation. It appeared that the Concept Payroll records cannot be
  accessed by Human Resource or the Finance staff to provide the information.
  Therefore, I was not able to comment on the completeness and accuracy of the
  provision for annual leave and long service leave as at 31 December 2013.

  Land and Garbage Rate Debtors

  The Commission’s TARMIS system was unable to separate the rate exempt
  institution and individuals. The provisions for doubtful debts were made to cater for
  the ratable payers and the defaulters. However, these estimates had no equitable basis.
  In addition, the information in the database were not verified to the physical building
  and properties. Therefore, the Land and Garbage debtors net balances of K25,344,559
  and K25,235,901 respectively may not been fairly stated in the financial statements.

  Land, Garbage and Sanitation Rates

  The land, garbage and sanitation rates income were based on the data recorded in the
  TARMIS system. The calculation of the rates included non-ratable properties of
  institution that were exempted from paying these rates. This error was adjusted as part
  of the provision for doubtful debts. A provision of 60% for land rates and 60% for
  garbage rates were provided against the TARMIS generated report figures. These
  estimates had no valid basis. Therefore, I was unable to determine whether the land
  rates of K15,683,825 and garbage and sanitation income of K6,052,373 were fairly
  stated.

  Capital Project (Road Works)

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

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• National Capital District Commission

  The carrying value of these assets at 31 December 2013 was K108 million which
  primarily included amount capitalized in 2005. I was unable to test check the accuracy
  of the depreciation charges for reasonableness as the lives of these roads were
  unpredictable given the extreme tropical weather experiences in NCD. I was
  therefore, unable to verify reasonableness of the corresponding yearly depreciation
  charge of K40.1 million and the adjustments of K24.2 million on the road assets and
  their carrying values as at year end.

  Furthermore, significant spendings were made for Capital Projects in relation to
  constructions of new roads and road resealing during the year under review which
  amounted to K55.9 million. I was unable to review nor conduct in-dept tests on the
  additional cost of capital projects to ensure proper tendering procedures were
  followed prior to awarding of contracts due to absence of appropriate supporting
  documentations. Several requests were made for supporting evidence during the
  course of my audit but none were provided.

  Due to this limitation, I was unable to provide a satisfactory comment that additional
  capital project contracts were awarded in adherence to tendering procedures and also
  unable to reasonably comment that significant variations payments made during the
  year under review were properly authorized by appropriate authority.

  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 am unable to express an opinion on the financial
  statements of the National Capital District Commission for the year ended 31
  December 2013.”

  23.2.2 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 National Capital District Commission for the
  year ended 31 December 2013 was issued on 14 March 2017. The report contained
  the following significant matters:

  Payroll Functions

  All payroll reports were generated from Concept Payroll System. During my review,
  it was revealed that Payroll manager and HR manager did not have access to the
  system to view and do reconciliation of certain payroll expenses. The payroll duties
  were outsourced to Concept Payroll which made it difficult for the payroll manager to
  access additional information.

  – 128 –

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• National Capital District Commission

  It was difficult for the audit to obtain certain information such as reconciliation of
  allowances, gratuity, other fringe benefits, etc. paid to employees and senior officials.
  As a result, I was unable to satisfy myself as to the completeness and accuracy of
  payroll expenses recorded.

  I recommended to management to ensure that all payroll transactions were reconciled
  on a regular basis. Also, the agreement with Concept Payroll must be reviewed to
  amend some clauses in the agreement to give ease access data when requested to
  download payroll records for regular verification and reconciliation purposes.

  The management responded that they were addressing this through review of the
  Payroll Division and Concept agreement to have access to the payroll records.

  Disaster Recovery Plan

  The general controls for Information Technology (IT) emphasized in prior audits in
  2008 to 2012 and up to the time of my review had not been addressed by the
  management. The IT manager claimed that Information Technology Department had
  a disaster recovery plan that guarantees the continuity of activities or operations in the
  event that the Commission encounters catastrophic disasters such as fire, earth quake
  and cyclones, etc. I was not given the opportunity to view the documented plan but
  was informed that the back-ups of data were done daily, weekly and on monthly basis.
  As advised, the disaster recovery plan had not been tested to ensure it was feasible.
  Without a proper working disaster recovery plan, the risk of discontinuity of activities
  increases in the case of unforeseen circumstances. This can endanger the continuity of
  the Commission’s operations.

  The management concurred and commented that a new team was recommended to
  review and address this issue.

  Budget

  In-depth test carried out on expenses incurred in 2013 revealed that the Commission
  had not adhered to the approved budgetary limit for 2013. Expenses incurred in 2013
  were not within budget allocation for that year which resulted in expenses exceeding
  the budget by K85.4 million. Out of that, a total of K58.9 million comprised of
  payments that were not budgeted for in the year under review.

  It appeared that there was no control in spending, even though payments were
  approved by the authorized personnel. I recommended management that necessary
  steps to ensure that expenses incurred were within the approved budget limits set for
  the particular year. If the expenses were inevitable, then the budget should have been
  revised or appropriate action taken during the year to accommodate the increase. The
  management responded below:

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• National Capital District Commission

  “Management has noted this and has bought and put in place procurement and
  budget accounting system in Accpac to monitor budget during the year. Budget is
  distributed or spread throughout the 12 months, and internal order requisition
  request & authorizations levels is used to managed the request with in the NCDC
  management hierarchy. An online system introduced in January 2016 will eliminate
  budget overruns and minimize possible over budget expenditure.”

  Tax on Allowances of Senior Management

  Certain allowances such as domestic servant allowance, utility, telephone,
  entertainment and security were taxed at zero rate. These allowances were fully taxed
  in the hands of the employee when paid as cash allowance and non-taxable when paid
  on behalf of the employee by the employer.

  Further, all allowances or benefits not mentioned under specific tax exemption paid in
  cash to or on behalf of employees were subject to tax unless a variation was issued by
  Commissioner of Internal Revenue Commission (IRC). Documentary evidence such
  as payroll report or pay slips was not provided to confirm if these allowances had
  been included in the payroll on fortnightly basis and were taxed accordingly or
  allowances were paid by employer directly to the service provider.

  I recommended the Commission to obtain a variation from IRC for allowances paid to
  employees. All other allowances paid to employees and for which variation was not
  obtained must be considered as taxable for group tax calculation. The Commission
  responded that management was addressing this through review of the Payroll
  division and CONCEPT agreement to have access to our payroll records.

  Internal Controls

  In addition to the specific issues identified in the course of my audit, I also observed
  that most of the senior staff did not review the work of those at lower level position to
  ensure financial data were accurate before they were posted to the system. It was
  noted that many duplicate invoices and payments were identified in the course of my
  review due to lack of proper training and review of appropriate personnel. The records
  of payments to creditors were not up to date.

  My subsequent payment test revealed that some payments were actually paid in the
  year under review but the records were not properly updated to reflect the payments.
  As a result, year-end balance was corrected by way of audit adjustment.

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• National Capital District Commission

  Non-Compliance with Public Finances (Management) Act 1995

  The National Capital District Commission had not prepared and submitted their
  financial statements to the Minister and the Auditor-General prior to 30 June for the
  year ending 31 December preceding, resulting in breaches of Section 63(2) and
  Section 63(4) of the Public Finances (Management) Act 1995.

  23.3 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 Commission for the year ended 31 December 2014 had been completed and the
  results were being evaluated.

  The fieldwork associated with the inspection and audit of the accounts and records
  and the examination of the financial statements of the Commission for the year ended
  31 December 2015 was in progress.

  The financial statements of the Commission for the year ended 31 December 2016
  had not been submitted for my inspection and audit.

  – 131 –

• Page 168 of 450

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

  23A.1 INTRODUCTION

  The NCD Botanical Enterprises Limited was incorporated under the Companies Act
  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.

  23A.1.1 Objective of the Company

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

  23A.1.2 Functions of the Company

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

  23A.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 2013, 2014, 2015 and 2016 for my
  inspection and audit, despite my reminders.

  – 132 –

• Page 169 of 450

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

  23B.1 INTRODUCTION

  The National Capital District 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 National Capital Disrict
  Commission.

  23B.1.1 Functions of the Company

  The Company’s activities include business promotions in the National Capital
  District and the management of the Taurama Leisure Centre’s gymnasium.

  23B.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 2013, 2014, 2015 and 2016 for my
  inspection and audit. The Commission advised that this entity was no longer in
  operation and in the process of deregistering from the Investment Promotion
  Authority (IPA).

  – 133 –

• Page 170 of 450

• 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. 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.

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  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:

  Carrying out fund raising schemes and charitable projects for the
  purpose of the Company, including exhibition and competitions; and
  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 inspection and
  audit of the accounts and records and the examination of the financial statements of
  the Company for the years ended 31 December 2014 and 2015 were in progress.

  The Company had not submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit.

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• 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 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  24.2.1 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 2013 was issued on 8 August
  2016. The report contained a Disclaimer of Opinion:

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• National Cultural Commission

  “BASIS FOR DISCLAMER OF OPINION

  Limitation of Scope – Cash at Bank – K14,030,525

  During the audit, I noted that bank reconciliations were not properly prepared by the
  Commission. I was unable to verify the bank reconciliation statements of the Main
  Account operated by the Commission during the year. The Commission did not
  follow the correct procedures in performing the bank reconciliations of the main
  operating account. Further, the stale cheques totaling K567,818 of the main account
  was also not correctly adjusted and reflected in the account. Consequently, I was not
  provided with all the necessary information for me to carry out my audit procedures.
  As a result, I was unable to confirm the reconciled cash book balance of K14,030,525
  stated as at 31 December 2013.

  Limitation of Scope – Cost Centre Accounting Information

  During the audit, I noted that the accounting information and the bank reconciliations
  from the National Film Institute, the National Performing Arts Troupe and Institute of
  PNG Studies were not provided to me by the Commission for my examination and
  inspection. I was unable to verify the expenditures (acquittals of payments) and other
  documentary evidences including the bank accounts maintained by the National Film
  Institute, National Performing Arts Troupe and Institute of PNG Studies during my
  review. Consequently, I was not provided with all the necessary information to enable
  me to carry out my audit procedures to confirm whether proper accounting records
  had been maintained by the National Film Institute, the National Performing Arts
  Troupe and Institute of PNG studies.

  Limitation of Scope – Fixed Assets – K5,234,222

  In my review of the Commission’s Fixed Assets Register, I noted that the
  Commission had not maintained a Fixed Asset Register. I also noted that the
  Commission’s acquisitions and disposals of assets were not properly accounted for.
  Since fixed assets of the Commission are susceptible to theft and misuse, the
  Commission must have appropriate control mechanism in place to safeguard these
  assets. As a result, I was unable to verify the value and existence of fixed assets
  totaling K5,234,222 disclosed by way of notes in the financial statements.

  Accounting Control System

  The Commission since its inception had been recording and maintaining its financial
  information on a manual cash book and spreadsheets. Receipts and Payments of the
  Commission were recorded manually using large cash register books and
  spreadsheets. Due to inadequate manual controls, the financial statements produced
  from manual cashbook and ledgers, cannot be relied upon.

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• National Cultural Commission

  As a result, I was unable to obtain comfort over the internal control environment and
  the accuracy and completeness of the account balances stated in the financial
  statements.

  DISCLAIMER OF 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 am unable to express an opinion on the financial statements of the
  National Cultural Commission for the year ended 31 December 2013.”

  24.2.2 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
  2013 was issued on 8 August 2016. The report contained the following observations:

  Non Maintenance of Travel Advances Acquittal Register

  The Commission had not maintained a proper Travel Advances Register for all duty
  travels and related expenses. Consequently, the Commission had breached the Public
  Finances (Management) Act and the Financial Management Manual Part 20
  paragraphs 11.2 & 12.10 which states that cash advanced to officers on official duty
  travels must acquit travel advances within 14 and 7 days for international and
  domestic travels respectively on return from duty travels. In the absence of a Travel
  Advance Register, the Commission was unable to monitor the acquittals promptly.

  Policy and Procedural Manual

  During my review, I noted that the Commission did not have any policy and
  procedural manual for its financial and operational areas to guide its operations. The
  policy and procedural manuals serve as a governance guide to assist staff performance
  and may be used as a reference material at all levels to execute their duties and
  responsibilities in accordance with the guideline established via the manual. This
  would promote Good Corporate Governance and a standardized practice for executing
  transaction in uniformity and in accordance with Public Finances Management
  Manual and General Orders.

  24.3 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 2014, 2015 and 2016 for my inspection
  and audit despite numerous reminders.

  – 138 –

• Page 175 of 450

• 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.

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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 2016 was issued on 11 May
  2017. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Salaries and Allowances

  The Commission has disclosed its Salaries and Allowances as K1,097,986 at 31
  December 2016 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 K1,097,986 disclosed 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
  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 2016 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
  2016 was issued on 11 May 2017. The report contained the following significant
  matters:

  Finance and Administration

  During my examination, I noted that the Commission was unable to undertake
  effective finance and administration tasks due to lack of capacity. I recommended that
  the Commission should recruit competent staff to assist the two (2) current finance
  and administration officers and also provide training to ensure that the officers were
  appropriately and adequately skilled in discharging their duties.

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• National Economic and Fiscal Commission

  There should be different officers performing incompatible functions to maintain
  segregation of duties for effective internal control of the Commission. The
  management responded to my observation as follows;

  “We acknowledge this weakness and have since advertised and awaiting the
  administrative department (DPM) to complete the process of appointing officers with
  suitable skills to perform the duties. This will also provide an opportunity for more
  effective segregation of functions.”

  Fixed Asset Register

  It is a requirement under the Public Finances (Management) Act, 1995 and the
  Financial Management Manual (Section 12) for the Commission to properly maintain
  and safeguard assets under its custody. My review of the Fixed Assets revealed that
  the Commission did not maintain a proper Fixed Assets Register for all its assets for
  the year under review. The Register did not capture the identification numbers to
  identify individual assets and there was no physical stock take undertaken during the
  year under review. As a result, I was unable to determine the fair value, the state, and
  the location of the assets.

  I recommended management to take 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 corrective measures will now be
  undertaken.”

  Staff Personnel Files

  My review of the personnel emoluments revealed that staff personnel files were not
  properly maintained. I noted that records such as salaries and allowances variation
  advices, tax declaration forms and appointment letters were not on file for my
  verification. The Commission also did not maintain control records such as 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 management to update all Staff Personnel Files on a regular basis for
  ease of reference and the management responded as follows;

  “We acknowledge the issue and have since advertised and awaiting Department of
  Personnel Management (DPM) to complete the process of appointing an experienced
  HR officer.”

  – 141 –

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• National Economic and Fiscal Commission

  Group Tax Liability

  During my review of the Salaries as well as the personnel emoluments revealed that
  casual wages were paid out from the Commission’s Operational bank account. Based
  on the Commission’s fortnightly calculations, a total of K32,522 had been deducted
  for tax in 2016. This tax liability was withheld by the Commission but had not been
  remitted to the Internal Revenue Commission and disclosed as a liability.

  I recommended management to comply with respective tax provisions and the
  management responded as follows;

  “We have been complying but there were no mechanism/tax coding in place with the
  IRC to capture tax payment from NEFC. We acknowledge the issue and agree to
  review for proper controls and will comply to correct this weakness.”

  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 of K453,346 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 (7) days of return from duty trips for domestic
  travels and within fourteen (14) days for overseas travels.

  The management responded to my observation as follows;

  “Some hotel and hire car receipts for the regional workshops are adding to the issues
  raised. Also Officers have not properly acquitted advances despite ongoing follow ups
  by the Accounts/Records Management Officer. We acknowledge and agree with the
  issue raised and will comply in taking corrective measures to rectify this weakness.”

  – 142 –

• Page 179 of 450

• 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 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  26.2.1 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 2014 was issued on 25
  November 2016. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Land Titles

  I was unable to sight and verify the Authority’s Certificates of Titles of Lands held
  throughout Papua New Guinea. I understand that the Authority was in the process of
  compiling all their landholdings and to ensure that appropriate Certificate of Titles are
  in place. The available documentation was not sufficient to allow me to perform my
  audit procedures and satisfy myself that the Authority holds appropriate titles to land
  recorded in statement of financial position at K16,000,001 (2013: K16,008,001).

  Long Term Loan Transferred to Equity

  The statement of changes in equity includes a balance of contributed equity
  amounting to K19,139,858 which was transferred to equity during the year ended 31
  December 2006. I understand that the Independent State of PNG (the “State”)
  negotiated the relevant loan with the Asian Development Bank (“ADB”) and then
  signed a subsidiary loan agreement with the Authority. I was advised that the loan
  was completely drawn down in 2003 and was forgiven by the State. On this basis the
  loan was classified to equity. I was not provided with the subsidiary loan agreement
  or documentation to support the Authority’s position that the loan was forgiven and is
  no longer payable. In the absence of such documentation, I am unable to satisfy
  myself as to the validity, completeness and classification and presentation of the
  balance as an equity item rather than a loan item.

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• National Fisheries Authority

  Validity of Project Development Funds (PDF) Expenses

  Note 10 to the financial statements disclosed Public Investment Program expenses
  amounting to K25.55 million (2013: K63.1 million) and included are the following
  expenses;

  Project Development Funds (PDF) of K8.295m (2013: K18.2m).
  PSID Cooperatives K0.322m (2013: K0.925m).
  PSID Provincial Assistance K0.894 (2013: K0.518m).

  The state of the records was such that I was unable to successfully validate the
  linkages between expenses recorded in the general ledgers and the actual projects
  funded.

  In addition, I was not provided with the following;

  Documentation in connection with selection of grant beneficiaries.
  Evidence of project evaluation and monitoring of activities.
  List of all projects funded and that of the successfully implemented.

  Furthermore, an external independent audit commissioned by the Authority in April
  2014 concluded that PDF projects and grants lacked proper controls and monitoring
  procedures and were subject to abuse.

  As a consequence, I could not satisfy to the validity of the Project Development
  Funds (PDF) expenses incurred during the year ended 31 December 2014 and the
  related comparative balances for the year ended 31 December 2013.

  QUALIFIED OPINION

  In my opinion, except for the effect of the matters described in the Basis for Qualified
  Opinion paragraph, the financial statements of National Fisheries Authority for the
  year ended 31 December 2014:

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

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

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• National Fisheries Authority

  26.2.2 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
  2014 was issued on 25 November 2016. The report contained the following
  significant matters:

  Financial Statements

  The National Fisheries Authority had not prepared and submitted their financial
  statements to the Minister and the Auditor-General prior to 30 June for the year
  ending 31 December proceeding, resulting in breaches of Section 63(2) and Section
  63(4) of the Public Finances (Management) Act 1995.

  Unsuitable Accounting Software

  The National Fisheries Authority had been using the MYOB software as its
  accounting system since it was established. This accounting software was generally
  for small and medium sized enterprises with simple reporting requirements. This was
  not suitable for lager entities such as the NFA which operates in multiple locations
  with a more sophisticated reporting and management information needs. I
  recommended to management for a strategic review of NFA financial systems to
  consider a more appropriate Enterprise Resource Planning (ERP) system that
  integrates all the management information needs for NFA. The management
  responded as follow:

  “Software has been purchased however installation and training were temporarily
  stopped as current server and SQL needs to be upgraded to at least version 12. Target
  date will be 2nd quarter of 2017.”

  Concentration of Approval Function to Managing Director

  During my review of procurement procedures, the Managing Director and in the
  absence of the Managing Director (MD) the Deputy Managing Director was required
  to approve all purchase requisitions between K1,000 to K100,000. An examination of
  a sample of requisitions identified instances where the MD had approved the
  purchases without any evidence of review on the requisitions by the originating unit
  managers. This existing process concentrates the approval function to the top
  executive whose role should be driven towards corporate level control and monitoring
  activities rather than operational activities.

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• National Fisheries Authority

  I recommended to management that an appropriate Delegation of Authority limit
  should be established and set in the operating policies and procedures to ensure that
  all requisitions were reviewed and approved by line managers and executive
  managers where applicable before escalating to the Managing Director when required.
  The management concurred to my recommendation.

  Lack of Internal Audit Functions

  I noted that an Internal Audit Division was included in the Authority’s organizational
  structure but the unit had not been established as yet and the Internal Auditor position
  had remained vacant for a number of years. I brought this issue with the management
  and they responded that this Division was budgeted but it didn’t push through as NFA
  was fixing its structure hence recruitment was on hold. Once the structure is approved
  they would proceed with the recruitment.

  Procurement Procedures in Expenditures

  During my review on expenses and project expenditure, I noted the following issues;

  A lack of discipline in documentation – maintaining a trail of receipt of goods and
  services paid to suppliers. NFA may possibly be paying for goods and services it
  had not even received. This was in spite of the payment vouchers specifically
  requiring this aspect to be signed off in many instances of non-compliance with
  procurement procedures where payments made on the basis of usually 1 written
  quote or 2 rather that 3 written quotes as required.

  Finance & Administration – a review appears superficial and a mere formality.
  There was lack of scrutiny on whether or not funding was available, within budget
  and tracking against was not monitored.

  I brought these issues to management and they responded that the Authority was
  gradually implementing.

  Procurement Procedures in Public Investment Program

  I noted in the Public Investment Program, there was lack of management and financial
  control specifically in the projects under the following:

  Project Development Funds (PDF) – This program had a total of K38.5m in the last
  three (3) years that have not been properly recorded and monitored by the Project
  Division of the Authority. There was no control system to register the number of
  projects and verification of such grant couldn’t be demonstrated.

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  Provincial Support & Industry Development – Cooperatives – Relates to NFA grants
  to the cooperatives which totalled K2.9m in the last three years. There was no register
  of the number of cooperatives that have been supported by this funding and let alone
  no monitoring process of this funding to the Cooperatives.

  Provincial Support & Industry Development – Provincial Assist – The provincial
  assist provided by NFA had accumulated to about K25.7m in the last three years. This
  included the coastal and highlands provincial support projects that did not appear to
  be proper monitoring or appropriate financial control of the funds.

  I recommended to management that controls and policies surrounding these areas
  must be reviewed and strengthened to avoid further wastage of financial resources.
  The management agreed to my recommendation.

  Acquisition of Tablets

  I noted that the Authority had purchased 100 tablets for K187,000 from a fishing
  company (United Seafood Limited). These tablets were meant for observers, however
  there were more tablets purchased than the number of observers. As a result, the
  tablets that remained after distributions to observers were sold to staff at a lower
  price.

  I recommended to management that they need to observe appropriate procurement
  policies and procedures by enforcing a three quotes policy and review and approval
  should all be part of this process to ensure ethical conduct and value for money
  purchasing principles are applied. The management agreed to my recommendation
  and will implement immediately.

  Other weaknesses I noted during my review are the following:

  Control over routine travel was weak.
  Travel Advances acquittal process not effective.
  Sighted the three (3) patrol boats but could not confirm ownership since marine
  registrations were not provided.
  Payroll files were not updated timely.
  High level of staff advances.

  26.3 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 2015 was in progress.

  The Authority had not submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit.
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• Page 185 of 450

• 27. NATIONAL GAMING CONTROL BOARD

  27.1 INTRODUCTION

  27.1.1 Legislation

  The National Gaming Control Board was established under the Gaming Control Act
  2007. The Act came into operation on 1 May 2007. The objective of the Act is to
  provide for the control of all forms of gaming; including lotteries, games and wagers,
  gaming machines and casinos and for their operations, and for related purposes. This
  Act repealed the Gaming Machine Act 1993.

  27.1.2 Functions of the Board

  The principal functions of the Board are to:

  Promote probity and integrity in gaming;
  Maintain the probity and integrity of persons engaged in gaming in the Country;
  Promote fairness, integrity and efficiency in the operations of persons engaged in
  gaming in the country;
  Reduce any adverse social impact of gaming;
  Promote a balanced contribution by the gaming industry to general community
  benefit and amenity; and
  Consider applications for and where appropriate grant permits and licenses under
  this Act and to control the operations of gaming machines as specified in this
  Act.

  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 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 2015 had been completed and results were
  being evaluated.

  The Board had not submitted its financial statements for the year ended 31 December
  2016 for my inspection and audit.

  – 149 –

• Page 186 of 450

• 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 towards 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;

  – 150 –

• Page 187 of 450

• 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 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 2015 had been completed and results were being
  evaluated.

  The Fund had not submitted its financial statements for the year ended 31 December
  2016 for my inspection and audit.

  – 151 –

• Page 188 of 450

• 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, 2014, 2015 and 2016 for my inspection and
  audit despite numerous reminders from my Office.

  28.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  28.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the Corporation’s
  financial statements for the years ended 31 December 2011, 2012 and 2013 were
  issued on 11 August 2016, 21 March 2017 and 24 April 2017 respectively.
  – 152 –

• Page 189 of 450

• National Housing Corporation

  The reports contained similar Disclaimer of Opinions, hence, only the 2013 report is
  reproduced as follows:

  “BASIS FOR DISCLAIMER OF OPINION

  Management Declaration of Disclaimer on Financial Statements

  The management made a declaration on the status of the preparation of the financial
  statements. The management declared deficiency in the preparation of the financial
  statements of the Corporation due to ongoing major internal control lapses including
  lack of proper accounting system, lack of proper record keeping, nonexistence of
  accounting manual, absence of fixed assets management and registers and lack of
  debtors control system.

  The declaration indicated that the Directors and the management had failed to comply
  with the requirements of the Public Finances (Management) Act 1995 (PFMA) by not
  maintaining proper records and books of accounts to enable me to conduct the audit in
  time as required by Section 63(4) of the PFMA.

  Limitation of Scope due to Opening Balances

  My Report for the prior year, 31 December 2012 was a disclaimer of opinion. I was
  not able to satisfy myself as to the accuracy and completeness of the opening balances
  of fixed assets, trade payables, provisions and other liabilities, cash and cash
  equivalents, advance from PNG government and government equity. Since these
  opening balances entered into the determination of the results of operations and cash
  flows of the Corporation for the financial year ended 31 December 2013, I was unable
  to determine whether adjustments to the results of operations and cash flows might
  have been necessary for the year then ended.

  Revenue and Expenses

  The Income Statement reported total revenue of K18,977,425, total expense of
  K13,978,665 and a net profit of K4,998,760 for the year ended 31 December 2013.
  However, I could not confirm these figures as accurate and fairly presented operating
  results for the 2013 financial year as there was no reliable system in place to ensure
  that all billed amounts in rental, mortgage and other revenues were collected and
  properly accounted for through a debtor’s ledger system. In addition, schedules and
  accounting records for all the revenue and expense account balances reported in the
  financial statements were not made available for my review. I also noted serious
  internal control weaknesses with payment procedures that could affect the balance
  and classification of various expense items stated in the financial statements.

  – 153 –

• Page 190 of 450

• National Housing Corporation

  Further, included in Note 11 of the financial statements was an amount of
  K11,283,770 stated as Proceed from Disposal of Properties. This figure could not be
  confirmed as documents and records in respect of the sale of the properties were not
  made available for my review. As a result, I was unable to confirm the accuracy and
  completeness of the revenue and operational costs as disclosed for the year ended 31
  December 2013 in the income statement.

  Cash and Cash Equivalents

  The Cash and Cash Equivalents balance reported as at 31 December 2013 was
  K3,782,856. There was no bank reconciliation statements made available for my
  review. Therefore, I was unable to verify and confirm the accuracy and existence of
  the cash and cash equivalent balance as at 31 December 2013.

  Trade Receivables

  The Trade Receivables had nil balance as at 31 December 2013. This was a major
  omission as the Corporation would have debtors while it operates property rentals and
  sales schemes. A proper debtors’ ledger system had not been maintained from which a
  reliable debtors’ balance could be obtained.

  Fixed Assets

  The carrying value of Properties, Plants and Equipment as at 31 December 2013 was
  K11,731,247 as reported in the balance sheet. A fixed assets register was not
  maintained and listings and schedules were not available in support of the carrying
  value. A physical stock-take was not carried out on fixed assets and periodic
  valuations were not done on properties owned by the Corporation. As a result, I was
  unable to confirm the completeness, existence, valuation and accuracy of the fixed
  assets balance as at 31 December 2013.

  Investments

  The National Housing Estate Limited (NHEL), a subsidiary of the National Housing
  Corporation was established and incorporated in 2007. However, the Corporation had
  not taken up the value of the investment in NHEL in the financial statements for the
  year ended 31 December 2013.

  Accruals, Provisions and Other Liabilities

  The balance for Accruals, Provisions and Other Liabilities as at 31 December 2013
  was K8,769,700 and Trade Payables K126,893 as stated in the balance sheet.
  According to Note 9 of the financial statements this value consisted of Accrued
  Expenses (K258,080), GST Refund (K469,528), Group Tax Provision (K9,769,120)
  and Employee Benefits (K298,812).

  – 154 –

• Page 191 of 450

• National Housing Corporation

  There was no acceptable accounting records, documents and schedules available to
  substantiate the balances presented in respect of GST Refund, Group Tax Provision
  and Payroll Liabilities. As such, I was not able to verify and confirm the existence and
  accuracy of the balances. Further, unpaid employee superannuation contributions
  have not been taken up in this balance despite an amount of K2,670,450 was taken up
  in the 2010 financial statements.

  Government Advance

  The financial statements reported a balance of K7,779,200 as Government Advance
  as at 31 December 2013. No acceptable record, document or confirmation was
  available to confirm this balance.

  State’s Equity

  An amount of K27,668,800 was stated as balance of State’s Equity as at 31 December
  2013. There was no acceptable record, document or confirmation to confirm the
  accuracy and existence of this balance as at year end.

  Historical Balancing

  An amount of K27,994,279 (2012: K26,364,864) was reported in the Balance Sheet
  and Statement of Changes in Equity as Historical Balancing. Note 2.3 of the financial
  statements disclosed that the balance was MYOB reconciliation items for posting to
  correct accounts. The historical balancing had been reported in the financial
  statements for a number of years without taking necessary steps to reconcile and
  allocate to correct accounts. Therefore, I was unable to determine the validity of the
  amount reported 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 and accordingly I am unable to and do not express an opinion on the
  financial statement of the National Housing Corporation for the year ended 31
  December 2013.”

  28.2.2 Audit Observations Reported to the Ministers

  My reports to the Ministers under Sections 8(2) of the Audit Act, on the inspection and
  audit of the accounts and records of the Corporation for the years ended 31 December
  2011, 2012 and 2013 were issued on 14 August 2016, 21 March 2017 and 24 April
  2017 respectively. The reports contained similar observation, hence, only the 2013
  observation is reproduced as follows:

  – 155 –

• Page 192 of 450

• National Housing Corporation

  Non Compliance with Public Finances (Management) Act

  The audit of the 2013 statutory financial statements commenced in August 2016
  which was after the deadline of 30 June 2014. As such, the Directors did not meet the
  deadline set by Section 63 of the Public Finances (Management) Act 1995 for audited
  financial statements of public bodies to be furnished to the Minister before 30 June of
  the subsequent year.

  Financial Statements

  The financial statements of National Housing Corporation for the financial year ended
  31 December 2013 was not prepared from a properly maintained accounts and records
  and lacked sufficient supporting documentation and evidence. The errors, omissions,
  irregularities and misstatements were so significant which formed the basis for a
  Disclaimer of Opinion in my Section 8(4) Report on the 2013 financial statements.

  Internal Control Environment

  The internal control weaknesses in management accounting, record keeping and
  payment procedures had negatively impacted the reliability, validity, completeness
  and correctness of the financial information disclosed in the financial statements. I
  noted following weaknesses in relation to internal control environment:

  Revenue and Account Receivables

  Controls over billing, collection of revenues, and accounting of debtors and revenues
  had been very deficient. The Corporation’s incomes were not properly managed and
  were exposed to abuse and fraud. The debtors’ subsidiary ledger system was not
  properly maintained and lacked integration with the general ledger.

  I recommended to the management to create a debtors subsidiary ledger system to
  integrate with billing and cash receipting system and general ledger.

  Fixed Assets Management

  The Corporation did not maintain a Fixed Assets Register in 2013. This was a very
  serious internal control lapse. The Corporation without having a Fixed Assets Register
  posed a high risk for loss of its properties. Also, valuation of the properties was not
  done periodically to establish fair values at any given point of time.

  I carried out property inspection at NHC Head Office, Lae, Madang and Goroka and
  noted that the Corporation owns and had in its custody properties with values that can
  run into hundreds of millions of Kina.

  – 156 –

• Page 193 of 450

• National Housing Corporation

  I recommended the management to maintain a Fixed Assets Register to form evidence
  of ownership and control over them and to ensure their values at any given point of
  time are fair and reliable.

  Payment Procedures

  My review of the payments of the Corporation for the year 2013 revealed the
  following discrepancies:

  a) The Corporation issued many cashable cheques in 2013 to its staff members and
  other service providers. From the sample of 111 payments vouched, 86
  payments totalled K743,130 were issued in “Pay Cash” cheques. Issuing
  cashable cheque promotes fraud, abuse and corruption and was not an
  acceptable business practice;

  b) Five (5) payments totalled K145,500 were made to three different companies.
  The cheques were issued in the form of “Pay Cash” and not in their respective
  companies’ names. Of the five (5) payments made, four (4) of them related to
  invoices dated back to February 2008;

  c) A cashable cheque valued K29,800 was issued after alteration being made to the
  original invoice amount of K19,800. Also, another invoice was altered upwards
  from its original value of K19,200 to K29,800 and finally paid at K30,000;

  d) Two (2) cheques totalled K50,000 were made to the former Chairman of the
  Corporation, being an Ex-Gratia payments. Powers of approving ex-gratia
  payments were vested with the Secretary for Finance, Minister for Finance and
  NEC. However, approval from these authorities were neither sought nor
  granted;

  e) Three (3) cashable cheques totalled K21,500 were paid to an officer of the
  Corporation. The amount paid was claimed for vehicle allowance in lieu of
  providing a fully serviced vehicle (car) for 62 days at the rate of K300 per day
  by the officer.

  However, the actual amount paid was above the original invoice of K18,600.
  Also, the payment made was irregular and did not comply with the Salaries and
  Conditions Monitoring Committee determinations;

  f) In one instance overtime allowance of K1,000 each was paid to thirty-seven (37)
  staff members including the Senior Executives of the Corporation. There was no
  proper basis for paying the Senior Executives. Also, it is improper for Senior
  Executives to approve overtime payments for themselves;

  – 157 –

• Page 194 of 450

• National Housing Corporation

  g) An officer who had been terminated from employment was paid K10,000 as part
  payment of K25,000 awarded for damages caused as a result of the employment
  termination. I noted that the compensation award of K25,000 was agreed
  through verbal discussion between the officer and management of the
  Corporation. I could not obtain legal evidences to determine validity and
  appropriateness of the management making the award and paying the claim;

  h) I noted that a motor vehicle was hired from a company at the rate of K1,000 per
  day between January and March 2013. Three (3) payments totalled K99,000 was
  made in April 2013. Hiring of vehicles in Port Moresby at such an high rate of
  K1,000 per day was wasteful and unwarranted. The K99,000 spent could have
  been used to buy a new vehicle;

  i) A total of K19,000 was paid as entertainment allowances to the Managing
  Director in “Pay Cash” cheques. Entertainment allowances of Chief Executive
  Officers of all Statutory Authorities come as part of their salaries which are paid
  fortnightly. No acquittals were available for my review to determine the validity
  and appropriateness of the payments;

  j) Sixteen (16) payments totalled K127,000 had no payment vouchers and
  supporting documents on file; and

  k) Lack of proper record keeping and non-provision of all the necessary
  information requested including staff structure, SCMC approved staff celling,
  and the contract officers’ terms and conditions of employment had prevented me
  from performing my audit procedures on payroll and related payments.

  Sale of Properties

  The Corporation in 2013 sold some of its properties with a total value of K11,283,770
  as disclosed in the income statement. Documents and records in relation to sale of the
  properties including tender documents, contract of sale, and settlement statements
  were not provided for my review. Record keeping was very deficient and the
  management was unable to retrieve and provide all the necessary information and
  documents on the properties sold.

  Governance

  a) Minutes of Board Meetings

  I was not provided with minutes of all Board meetings held in 2013.
  Therefore, I was unable to determine the implication of the decisions made by
  the Board on the financial statements and affairs of the Corporation.

  – 158 –

• Page 195 of 450

• National Housing Corporation

  b) Internal Audit

  My review of the internal audit function noted that the Internal Audit Unit had
  not fully implemented its work plans partly due to staff constraints. Also, work
  plans performed in 2013 were on ad hoc instructions received from the top
  management.

  The matters contained in this report had been conveyed to the management on 3 June
  2016 and no responses had been received from the management.

  28.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Corporation had not submitted the financial
  statements for the years ended 31 December 2014, 2015 and 2016 for my inspection
  and audit.

  – 159 –

• Page 196 of 450

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

  29.1 INTRODUCTION

  29.1.1 Legislation and Objectives of the Authority

  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
  National Information and Communications Technology Authority Act 2009.

  29.2 AUDIT OBSERVATIONS AND RECOMMENTATIONS

  29.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Authority for the years ended 31 December 2013 and 2014 were
  issued on 27 July 2016 and 28 July 2016 respectively. The reports contained similar
  Disclaimer of Opinions, hence, only the 2014 report is reproduced as follows:

  – 160 –

• Page 197 of 450

• National Information and Communications Technology Authority

  “BASIS FOR DISCLAIMER OF OPINION

  Opening Balances

  The opening balances could not be confirmed as correct due to errors and material
  limitations of scope expressed in my previous audit reports. As a result, I was unable
  to express an opinion on the opening balances for the year ended 31 December 2014,
  a number of which enter into determination of the result and cash flows for the year
  ended 31 December 2014.

  Adjustment for Unreconciled Item

  The statement of comprehensive income includes the impact of adjustments
  amounting to a net charge to the profit and loss account of K1.2 million as a result of
  reconciliation of a bank account. I was not provided with sufficient evidence to
  support the recording of the correcting entry to profit and loss and was unable to
  conclude on the appropriateness of the accounting treatment applied.

  Trade Debtors

  The statement of financial position at 31 December 2014 includes total trade debtors
  of K17.7 million, representing a gross balance of K25.4 million net of provision for
  doubtful debts of K7.7 million. The gross trade debtors figure includes K6.3 million
  which is not recorded in the trade debtors subsidiary ledger and for which I have been
  unable to obtain sufficient appropriate audit evidence to support its validity and
  collectability. In addition, I was not provided with sufficient appropriate audit
  evidence to demonstrate the appropriateness of the doubtful debts provision
  recognised as at 31 December 2014. As a result of these matters, I was unable to
  verify the existence, accuracy and valuation of trade debtors including the
  appropriateness of the provision for doubtful debts.

  Land and Buildings Titles

  The statement of financial position at 31 December 2014 includes land and buildings
  totaling K20.3 million. I was not provided with sufficient audit evidence supporting
  the Authority’s title to the properties. In addition, I was informed by management that
  there was an ongoing dispute over the legal ownership of property with a carrying
  value at 31 December 2014 of K6.5 million. As a result of the above matters, I was
  unable to conclude on the appropriateness of the inclusion of land and buildings in the
  statement of financial position.

  – 161 –

• Page 198 of 450

• National Information and Communications Technology Authority

  Fixed Assets Revaluations

  The statement of financial position at 31 December 2014 includes an asset revaluation
  reserve of K18.7 million. I was not provided with sufficient audit evidence to support
  the revaluation of fixed assets performed in prior periods. As a result, I was unable to
  conclude on the valuation of land and buildings and the associated carrying value and
  the accuracy of the related asset revaluation reserve.

  Investment Property

  The statement of comprehensive income for 2014 included income derived from the
  rental of certain properties within land and buildings in the statement of financial
  position. To the extent that the properties were held to earn rental income or derive
  capital gains they met the definition of investment property. I was not provided with
  sufficient audit evidence to support the basis on which properties earning rental
  income have remained classified as land and buildings in the financial statements.

  Provision for Long Service Leave and Annual Leave

  Included in the statement of financial position at 31 December 2014 were provisions
  for annual leave and long service leave totaling K1.2 million. As a result of issues
  experienced by the Authority in generating accurate leave liability records, I was not
  provided sufficient appropriate evidence to enable me to conclude on the
  completeness and accuracy of the recorded provisions.

  Other Matters

  The values attributed to the components of the financial statements referred to above
  were significant to the financial statements and were of fundamental importance to the
  preparation of the financial statements. As a result of the matters above, I was unable
  to determine whether any adjustments were found necessary to the statement of
  financial position at 31 December 2014, or the statement of comprehensive income,
  statement of changes in equity or the statement of cash flows for the year then ended.

  In view of the significance of these matters and other areas in which I was unable to
  obtain sufficient and appropriate audit evidence, I was unable to form an opinion as to
  whether or not the financial statements presented a true and fair view of the financial
  position of the Authority as at 31 December 2014 and its financial performance and
  cash flows for the year ended on that date.

  – 162 –

• Page 199 of 450

• National Information and Communications Technology Authority

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis for Disclaimer of
  Opinion paragraphs above, 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 National Information & Communication Technology Authority for
  the year ended 31 December 2014.”

  29.2.2 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 Authority for the years ended 31 December
  2013 and 2014 were issued on 27 July 2016 and 28 July 2016 respectively. The
  reports contained similar observations, hence, only the 2014 report is reproduced as
  follows:

  1. Reconciliation of General Ledger Account Balances

  While most of the general ledger accounts were examined with appropriate
  general ledger reconciliations, I noted that a few significant accounts like trade
  receivables and trade payables were left unreconciled at the end of the year.
  Periodic reconciliation of general ledger accounts assists in detecting
  unrecorded transactions which may materially misstate the financial
  statements. I recommended the management to conduct general ledger
  reconciliations on a periodic basis across all general ledger accounts and
  ensure that variances were investigated and resolved on a timely manner. The
  management noted my comments and assured me to take remedial measures to
  ensure all accounts were reconciled.

  2. Policy on Accounts Receivable Provisioning

  I noted that the Authority recognised a general provision for past due and long
  outstanding trade receivable balances. Recognition of a specific provision
  based on impairment review and recoverability of specific accounts receivable
  balances was not performed. I informed management that creating a general
  provision alone may not completely identify outstanding balances that were
  deteriorating and may no longer be recovered. Further, doubtful debts
  recognised may not clearly capture amounts that should be provided for, thus,
  may result in over or understatement of trade receivables and revenue for the
  year. I recommended that management determine and recognise a specific
  provision through assessment per customer balance. The management noted
  my comments and were working on implementing my recommendations.

  – 163 –

• Page 200 of 450

• National Information and Communications Technology Authority

  3. Other Weaknesses

  Other weaknesses noted were as follows;

  Certain cash receipts were not allocated specific accounts receivable
  invoices
  Lack of segregation of duties in the payroll process.

  29.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the inspection and audit of the accounts and
  records and the examination of the financial statements of the Authority for the year
  ended 31 December 2015 was in progress.

  The financial statements of the Authority for the year ended 31 December 2016 had
  been submitted and arrangements were being made to commence the audit shortly.

  – 164 –

• Page 201 of 450

• 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.

  – 165 –

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• National Maritime Safety Authority

  30.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  30.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Authority for the years ended 31 December 2015 and 2016 were
  issued on 26 September 2016 and 15 June 2017 respectively. The reports did not
  contain any qualification.

  30.2.2 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 Authority for the years ended 31 December
  2015 and 2016 were issued on 26 September 2016 and 15 June 2017 respectively. The
  reports contained similar significant matters, hence only the 2016 report is
  reproduced:

  1. Trade Debtors

  My review of the Authority’s trade debtors of K18,573,884 as at 31 December
  2016 revealed that a large number of debtors amounting to K2million were
  outstanding for more than 90 days. I further noted that most of these long
  outstanding debtors may not be collected. I brought this matter to the attention
  of the management and the management responded as follows;

  “We developed a debt management policy to address the debts that are falling
  behind the due dates for collection and allow provision for doubt-full debts.
  One of the outcomes of the policy is to enforce the relevant legislation on
  detaining vessel for non-payment of levies. The enforcement unit will be
  created within the legal department to enforce the law. A warning letter to
  major clients informing them of the Authority’s intention will be disseminated
  to the industry. We expect this drastic measure will force many shipping
  agents/owners/masters to pay the levies on time.”

  2. 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 the management and the management responded
  as follows;

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  “We will institute process to address the management of the Authority’s
  assets. A fixed assets management policy and procedures will be formulated
  and adopted by the Authority. An audit of the current asset listing will be
  executed to establish the viability of the assets. We are very much aware of old
  assets that are still on the list and are fully depreciated and obsolete. We
  anticipate a clean-up in 2017 and appropriate asset listing for deletion in the
  Asset Register will be tabled for Board’s approval.”

  3. Staff Salary History Cards

  During my review of the personnel files for certain selected officers of the
  Authority, I observed that the Authority did not maintain salary and leave
  history cards for employees in their respective personnel files. The salary and
  leave history cards should show an updated base salary, allowances, gratuities
  and the updated leave records for each employee. Proper filing of employees’
  salary and leave history cards would enable the payroll staff to easily access
  the information and calculate the staff entitlements correctly including
  provisions for leave entitlements. As a result, I was unable to confirm the
  salary and allowances and the leave records from their personnel files.

  I recommended the Authority to maintain staff salary and leave history cards
  for each employee in their personnel files as a control mechanism to enable
  the payroll staff to easily access the information and correctly calculate the
  staff entitlements. Further, for these files to be regularly updated upon
  changes/variations on each individual staff files.

  Management responded to my concern as follows;

  “Management acknowledged that due to lack of staffing in HR, management
  will immediately address this issue and update staff personnel files with the
  recruitment of additional HR personnels.”

  4. Travel Acquittal Register

  I was not provided with a Travel Acquittal Register for examination despite
  my requests during my audit review. Although the Authority maintains files
  for its acquittals, it was not able to provide an Acquittal Register to show
  details of all acquittals for the duty travels for the 2016 financial year.

  As a result, I was unable to determine and verify the amount of funds
  acquitted for duty travel related expenses and how much was still outstanding
  as at the balance date.

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  I recommended the Authority to maintain a proper Acquittal Register that
  would show a summary of details of all duty travel acquittals and how much
  was outstanding at year end. I brought this query to the attention of the
  management and they responded to my query as follows:

  “Management acknowledged this and will engage accounts staff to maintain
  all acquittal register both international and domestic separately going
  forward.”

  5. Board Meetings

  My review revealed that the Board only held two (2) meetings during the year
  under review. However, the National Maritime Safety Authority Act, 2003
  stipulates that the Board shall meet as often as the business of the Authority
  requires, and at such times and places as the Board determines, or as the
  Chairperson directs, but in any event shall meet not less frequently than once
  in every three (3) months or four (4) meetings per year. I drew this to the
  management and the management responded to my query as follows:

  “In 2016, there was no quorum to have full four (4) board meetings in the
  year except two meetings. That was due to three vacancies in board
  membership, whilst there were instance of postponing meetings due to lack of
  quorum as some of the members had to send in their apology to attend to other
  matters.

  Management has instigated the process to appoint new board members in
  2016 and expects a full board by mid-year 2017. In 2017 the board meetings
  requirement will be met.”

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• 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 AND RECOMMENDATIONS

  31.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the Museum’s
  financial statements for the year ended 31 December 2014 was issued on 27 March
  2017. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Accounting System

  The Museum, despite my recommendations, had not maintained a proper accounting
  system for a systematic preparation of financial statements. Consequently, the
  financial statements, trial balance and the cash book presented for my review could
  not be relied upon. The Museum did not maintain necessary accounting records and
  documents such as receipt books, 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 and MYOB which were used by the
  Museum as a basis for the preparation of the financial statements.

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  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

  The Museum was required to maintain necessary accounting records under Sections
  (62 – 64) of the Public Finances (Management) Act, 1995. During my examination, I
  observed that there were significant variances between the financial statement
  balances and general ledger balances. Further, some payroll 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 – K1,588,025

  The Museum disclosed its Bank Balance as K1,588,025 at 31 December, 2014.
  During my examination, I was not able to reconcile and verify the year end balances
  of bank accounts as the bank statements have not been provided for my review and
  confirmation. Furthermore, 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
  K1,588,025 disclosed at the year end.

  Fixed Assets – K7,527,735

  The Museum did not properly maintain and update its Fixed Assets Register with the
  details of identification or serial/code numbers to enable me to locate and verify the
  existence of the assets. I was advised that no proper stock take or physical count of
  assets was conducted during the year under review. As a result, I was unable to
  determine the condition and existence of various assets. In addition, I was not
  provided with revaluation certificates of buildings and title deeds of land owned by
  the museum; therefore, I was unable to determine the ownership and valuation of
  these assets.

  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 proper inventory records, the accuracy, completeness and existence
  of these collections could not be verified.

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  Internal Receipts – K86,680

  My review of the Internal Receipts Account revealed that there was lack of control
  over internal receipts. There were no records or receipts file to keep the internal
  receipts document files such as, invoices, receipts books, deposit books and other
  documents. Furthermore, I was not provided any schedules for the Internal Receipts
  Account for the year under review.

  In the absence of the above documents, I was unable to confirm the correctness and
  completeness of Internal Receipts Accounts as disclosed in the financial statements at
  year end.

  Wages – K469,850

  During my review, I was unable to place any reliance on the total wages of K469,850
  disclosed in the financial statements as the amount lacked any form of audit trail to
  properly trace the aggregate sum to supporting schedules to confirm the break-up of
  the figures. Despite my requests and several reminders, no schedule was provided for
  me to confirm and verify the year-end balance of K469,850.

  Limitation of Scope – Unallocated Expenditure – K1,963,012

  The Museum had disclosed K1,963,012 as unallocated expenditures in its financial
  statements for the year ended 31 December, 2014. During my review, the Museum
  was unable to provide the necessary supporting documents to substantiate the above
  payments. As a result, I was unable to confirm whether or not the above expenses
  were incurred for the benefit of the Museum.

  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 audit evidence and
  accordingly, I am 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 2014.”

  31.2.2 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 Museum for the year ended 31
  December 2014 was issued on 27 March 2017. The report contained the following
  comments:

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  Non-Submission of Financial Statements

  The Museum had not prepared and submitted its financial statements to my Office
  before 31 March, 2015 to enable me to conduct the audit and issue the report within
  the timeframe stipulated by the Law. Consequently, the Museum had breached
  Sections 63 (2) and 63 (4) of the Public Finances (Management) Act 1995.

  Acquittal of Travel Related Expenses

  During my examination, I noted that the payments relating to Travel and Subsistence
  totaling K322,837 were paid to staff during the year. This amount was not acquitted
  by officers of the Museum after travel which was contrary to the requirements
  stipulated in the Financial Management Manual.

  It is a requirement under the Financial Management Manual Part 20 paragraph 11.2
  that cash advance to officers travelling overseas on official duty must acquit travel
  advances within 14 days of return from duty travel. While Part 20 paragraph 12.10 of
  the Manual requires that advances to officers for domestic duty travel to be acquitted
  within 7 days of return from duty travel. I drew this issue to the National Museum and
  Art Gallery’s management and they responded as follows:

  “A template for acquittals has been developed and is being implemented. We have
  now demanded that officers provide acquittals for their trips before they are able to
  take the next official trip.”

  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. The 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 contract and casual
  employees were paid their salaries and wages since their personnel files were not
  provided for my review. I brought this matter to the attention of the management of
  the Museum and the management concurred with my observation and assured me that
  they will look into it and rectify the matter.

  Ministerial Support/Grant

  As reported previously, during my review I observed that the Museum was funding
  monthly grant of K20,000 while Tourism Promotion Authority and National Cultural
  Commission were paying K25,000 and K8,333.33 respectively per month for
  ministerial duties and commitments. These grants were 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.

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  Further, I noted that there had been 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 legitimize the funding to the Ministry. I brought this matter
  to the attention of the management of the Museum and they responded that this issue
  had now been raised with the agencies and would be actioned to rectify the issue.

  Amphitheater Project

  During my review, I noted that the Museum had awarded the contract worth
  K1,356,500 to a firm without following the Public Tendering process as stipulated in
  Section 40 of the Public Finances (Management) Act. The above contract was
  awarded based on Selective Tender process.

  As a result, I was unable to establish whether or not the Museum received “Value for
  Money” through Selective Tender process and the funds were utilized for the benefit
  of the project. I brought this issue to the management’s attention and they did not
  respond to this query.

  Internal Control Weaknesses

  Other internal controls breakdown and weaknesses noted during my audit were
  summarized in the subsequent paragraphs:

  (i) I noted that most transactions were not classified to their respective accounts
  and were posted to wrong votes.

  (ii) I was not provided with contract/service agreement or documents for
  transactions totaling K118,479 despite my request.

  (iii) I was not able to substantiate the validity and the authenticity of payments
  amounting to K53,400 due to insufficient and missing supporting documents.

  (iv) The Museum had neither maintained any records for petty cash, nor done any
  reconciliations.

  (v) 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 verify if employees were qualified for recreational leave
  and leave fares in the absence of the leave records.

  (vi) A new vehicle, a 10 Seater Toyota Land Cruizer was purchased by the
  Museum for the police and security guards to use it at the project site (ICC). I
  requested the registration documents, but was not provided. As a result, I was
  unable to confirm the ownership of this vehicle.

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  The management agreed to take necessary actions to rectify the above internal control
  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 2015 and 2016 had not been submitted for my inspection
  and audit, despite reminders.

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• 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 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, 2014, 2015 and 2016 for my
  inspection and audit despite repeated reminders.

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• 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 AND RECOMMENDATIONS

  33.2.1 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 2016 was issued on 28
  June 2017. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Investment – K2,500,000

  My review of the Interest Bearing Deposit (IBD) account revealed that the IBD
  Certificates and IBD register/schedules were not properly maintained by the Institute
  and not provided for my verification. In addition, I noted that the IBD balance was
  reduced by K1,368,702 from K3,868,702 in 2015 to K2,500,000 at year end.

  – 176 –

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  Due to lack of proper supporting documentation, I was unable to perform the
  necessary audit procedures to confirm the accuracy and the correctness of the balance
  presented in the financial statement. Further, I was unable to determine the reasons for
  the reduction in the IBD due to lack of supporting documents.

  Accounts Receivable – K96,203

  My review revealed that IBD interest receivable opening balance of K32,039 was not
  captured in the general ledger. As a result, I was unable to confirm whether interest
  receivable was properly captured in the general ledger and disclosed in the financial
  statements.

  Fixed Assets – K14,844,982

  The Institute disclosed its fixed assets as K14,844,982 at 31 December 2016. During
  my review, I noted an unreconciled difference of K1,221,393 between the general
  ledger and the financial statement balances. I also noted that the Institute has not
  properly maintained a Fixed Assets Register (FAR) to record the details of all fixed
  assets purchased and under its custody. No physical stock-take was undertaken by the
  Institute at year end or during the year under review. As such, I was not able to
  confirm the existence, valuation and condition of the fixed assets and the depreciation
  expense totaling K359,052 recorded in the financial statements as at 31 December
  2016.

  Accumulated Funds/Capital Equity – K19,437,547

  My review of the accumulated funds revealed a variance of K974,072 between the
  prior year audited financial statement balance of K14,852,623 and the opening
  balance brought forward in the 2016 general ledger of K15,826,695, thus, overstating
  the opening balance. I was not provided with any explanation on the variance and as a
  result, I was unable to confirm the accuracy and completeness of the balance
  disclosed at year end.

  Provision for Employee Benefits – K924,457

  Provision for Employee Benefits disclosed in the financial statements as at 31
  December 2016 was K924,457. I was not provided with the employee schedules to
  verify and confirm the balance. In addition, the journals passed relating to the
  provisions were not made available for my verification. As a result, I was not able to
  verify and confirm the accuracy and correctness of the balance presented 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:
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  (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 Institute as at 31 December 2016 and the
  results of its financial operations for the year then ended.”

  33.2.2 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
  2016 was issued on 28 June 2017. The report contained the following matters:

  Bank Reconciliations

  My review of the four (4) bank accounts owned and operated by the Institute revealed
  instances where bank reconciliations were not done on a timely basis. Further, on
  several occasions, no monthly reconciliations were prepared at all which contravened
  the Financial Management Manual, Part 4, Division 1 Para 4.7. As a result, I was
  unable to place reliance on the controls surrounding the bank reconciliation process of
  the Institute.

  I brought this to the attention of the management and it responded as follows:

  “Management notes this issue raised. Bank reconciliations are normally prepared by
  month. However, if transactions are minimal, we combine two or three months, the
  most, into one reconciliation and is checked and signed off by the Finance Manager.
  Since the departure of the Finance Manager, the Senior Finance Officer checks and
  signs off on the bank reconciliations in his Acting Finance Manager capacity.”

  Council Meetings

  The National Research Institute (NRI) Council met on four (4) occasions in 2016. My
  review of the minutes of the four (4) meetings revealed that the meeting minutes were
  not signed by the Minute Secretary nor were they approved by the Chairman
  certifying the proceedings of the meetings. As a result, I was unable to comment on
  whether all the administrative, financial and operational issues deliberated and
  transacted during the year were in the best interest of the Institute.

  Management concurred with my finding and stated that it was an administrative
  oversight and will ensure this is complied with going forward.

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  Appointment of Council Members

  As reported in my prior years’ reports, I noted that the Chairman and the Community
  Representative of the NRI Council terms had expired on 17 January 2010. During the
  2016 audit, I observed that there were no appointments made for the respective
  positions. I brought this issue again to the attention of the management of the Institute
  and it responded as follows:

  “Management notes the outstanding issue raised. We agree with the recommendation
  to follow up on the progress of the appointments.”

  Director’s Vehicle Allowance Advance

  My review of the prepayment account revealed that in 2015, the Institute paid
  K109,000 (Cheque # 821) to Boroko Motors to purchase the Director’s motor vehicle
  with the arrangement that the said amount need to be repaid over four (4) years using
  the Director’s Motor Vehicle Allowance. On 28 October 2015, the Director again
  encashed an amount of K198,379 (Cheque # 114949) as vehicle allowance advance to
  be repaid over the same period. I noted the following discrepancies in relation to the
  above:

  a) Salaries and Remuneration Commission (SRC)Determination G007-03-General
  Provisions stipulates that the vehicle allowance advance can be paid to the
  supplier of the motor vehicle and not direct to the recipient. The Institute had not
  adhered to this provision;

  b) The amount encashed by the Director was subject to normal salary and wages
  tax treatment. However, my review of the Director’s payroll records revealed
  that the fortnightly deduction of K2,879.35 being Motor Vehicle Allowance was
  not included in the calculation of tax; and

  c) At the time of my audit, the then Director had resigned without fully repaying
  the advance.

  As a result, I was unable to comment on whether the arrangements made were proper
  and transparent and whether the Institute will be able to recoup the remaining balance
  from the former Director.

  I recommended the Institute to cease such practice of paying cash advances to officers
  without following proper procedures. I further advised the Institute that the
  underpayment of tax and outstanding advance from the Director should be recouped
  before final entitlement is paid.

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  The management agreed with my recommendation and responded as follows:

  “The management notes the issue raised which occurred during the term of the
  immediate former Director who held the post from 1 June 2015 to 8 April 2017 when
  he resigned from the post. The management agrees with the recommendation and will
  implement it. At the time of writing, the Institute has not paid the then Director’s final
  entitlements yet due to its own concerns on the issue raised. Relevant calculations will
  be done and applied. That is all entitlements will only be paid after money owed has
  been recouped. In the event that the money owed is greater than final entitlements, the
  former Director, will be asked to repay the outstanding balance. The former Director
  has been advised of the implications and has agreed with the recommended approach
  to address the issue.”

  Lack of Proper Maintenance of Staff Personnel Files

  My examination on personnel files for selected officers of the Institute revealed that
  staff salary history cards/ledgers were not properly maintained. Salary history cards
  should be maintained to update salary adjustments and to provide summary of staff
  employment information and benefits such as leave and other entitlements. I further
  noted that the birth certificates and other dependents’ records were not properly
  maintained for me to verify the leave fares paid. Inadequate record keeping of the
  staff salary records expose the Institute to the risk of paying incorrect employee
  benefits and provide avenue for abuse and fraud.

  The management concurred with my observation and advised that it will ensure that
  staff salary history cards and other records are maintained going forward.

  Other Internal Control Weaknesses

  Other internal control weaknesses noted during my review were:

  Controls surrounding the procurement process of the Institute were not effective.
  As such, payments totalling K603,046 were not approved by the Director for
  Payments to be processed, instead payments were approved by Divisional
  Managers whose approval limits were below K5,000 as stipulated in the NRI
  draft financial procedures manual;

  The Institute had been operating without an approved operational and financial
  manual. The existing one was still in draft form but had already been used
  without the Council’s approval. Accordingly, I was not able to comment on the
  standards of the operations in relation to the systems and controls; and

  There was no Internal Audit Unit established as per the requirements under
  Section 9 (1)(a) and (f) of the Public Finances (Management) Act 1995.

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  I drew management’s attention to these weaknesses and was advised that steps will be
  taken to address these issues.

  General Journals – Lack of Source Documents

  My examination revealed that the Institute passed numerous journal entries during the
  year under review. However, appropriate records of the journals were not maintained
  for my verification. Accordingly, I was unable to obtain a complete list of journals
  processed and recorded in the general ledger during the year so as to obtain sufficient
  appropriate evidence to confirm the basis on which the journals were passed and
  whether they represent the correct balances disclosed at year end.

  I noted that the Institute did not have proper strategy in place to ensure that all records
  and information of the entity is not destroyed for smooth succession and continuity by
  exiting officers.

  – 181 –

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• 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.

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  34.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  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 2015 was issued on 12 May
  2017. 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 inspection and
  audit of the accounts and records of the Council for the year ended 31 December 2015
  was issued on 12 May 2017. The report contained the following significant matters:

  1. Traffic Infringement Notices (TIN)

  My review of the traffic infringement fines revealed that controls surrounding
  this area had improved over the years. However, there were instances where
  TIN books that were given to police officers were never returned to the
  Council and some Inspectors lost the TIN books. Although TIN Fines
  schedules were properly maintained and summarized, summaries of deposits
  and deposit vouchers were not properly filed by the designated officer for
  review purposes. I brought this matter to the management and the management
  responded as follows:

  “We have reviewed our internal control systems and are now implementing
  new controls including the control of TIN and receipt books. Officers are
  designated to ensure proper record keeping and the actual TIN and receipt
  books are safely and properly maintained.”

  2. Maintenance of Staff Personnel Files

  My review of the Staff Personnel Files again 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. Management since
  responded to my query as follows;

  “We have reviewed maintaining of staff files by our human resources division
  and are in the process of replacing the current officer in charge of the division
  concerned and have identified the areas concerned to be improved and IRC
  salaries and wages declarations are complied with on a regular basis.”

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• National Road Safety Council

  3. Loss of Laptop Computer

  A laptop for the Lae Branch used in its operations was stolen in November
  2016. This theft was reported to the police and a report was provided for my
  review. However, the case was still outstanding and the Council was yet to
  conduct an internal investigation and ensure appropriate action had been taken
  to recoup the cost of the laptop. I brought this matter to the attention of the
  management and the management responded as follows:

  “We confirm the laptop from within our Lae office and as per your
  recommendation we have reported the matter/theft to the Lae metropolitan
  police but investigation is yet to be conducted and we are yet to be informed of
  the date of investigation.

  An internal investigation will be conducted soon when our internal auditor
  travels to Lae office sometimes this year and will take appropriate disciplinary
  actions based on the internal auditor’s recommendations to my office.”

  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 2016 had not been submitted for my inspection and audit.

  – 184 –

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• 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;

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• 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 AND RECOMMENDATIONS

  35.2.1 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 2015 was issued on 12
  September 2016. The report did not contain any qualification.

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• National Roads Authority

  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
  2015 was issued on 12 September 2016. The report contained the following
  observations:

  Cash at Bank – Reconciliation

  The National Roads Authority disclosed its cash balance as K19,881,507 at 31
  December 2015 in its financial statements. The Authority maintained two (2) bank
  accounts namely Operating Account and the Road Fund Account. During my review,
  I noted that the Operating and Road Fund accounts contained K1,142,904 and
  K481,560 unreconciled transactions carried forward from prior years respectively. I
  also noted that stale cheques amounting to K208,834 were not written back in the
  Operating Account at balance date.

  I raised these issues with the management and was notified that the unreconciled
  transactions were identified and matched off bringing the balance to K277,843 and
  K481,560 for the Operating and Road Fund accounts respectively. I was further
  advised that the transactions totaling K759,403 were identified and would be cleared
  in the subsequent year (2016).

  Fixed Assets – K5,275,602

  The Authority disclosed its fixed assets as K5,275,602 at 31 December 2015. My
  review of the fixed assets of the Authority revealed that the Fixed Assets Register
  (FAR) was not properly maintained and updated on a timely basis. I noted that assets
  were not allocated with numbers tagged to them for identification purposes. Further,
  the Authority did not have a clear capitalization policy specifying the criteria for
  capitalizing fixed assets.

  Management noted my concerns and advised that the FAR was work-in-progress and
  that the fixed assets policy will be drafted and submitted for management
  endorsement.

  Road Maintenance Work – Highlands Region

  I noted during my physical inspection of road maintenance projects in the
  Highlands Region that a particular contractor was awarded different contracts in
  three (3) Highlands provinces of Jiwaka, Western Highlands and Southern
  Highlands. This contractor had utilized/used the same equipment across the three
  (3) separate provinces mentioned above which had resulted in delays to project
  completion.

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• National Roads Authority

  I queried management whether careful consideration was given in awarding the
  contracts to one contractor which resulted in delays in completing these projects.

  In its response, the management concurred with my finding and commented as
  follows:

  “…lessons learned in this project include;

  Recommendations will be made in such a way that no single contractor gets
  most contracts;
  Ensure to assess the bidders’ plant and equipment capacity in view of
  recently awarded and ongoing projects. Penalty proposals were made to
  penalise contractors who failed to provide proposed key plant and
  equipment as a conditional clause in future NRA contracts.
  Ensure that bidders’ capacities are sufficient to execute the contract in view
  of ongoing projects.”

  Road Maintenance Work – Momase Region

  During my review of the road maintenance works in the Momase Region, I noted that
  total amount contracted to two (2) separate contractors for respective road sections
  was K14,129,418. However, during my physical inspection I noted that some sections
  of the Highway were in very poor condition despite incurring substantial amount of
  funds for these projects. As a result, I was not able to confirm whether proper work
  had been carried out based on the scope of the contract and whether proper inspection
  and monitoring of the work were conducted by the Authority on a timely basis.

  I raised this issue with the management and was advised that the poor condition of
  the road was the result of the procurement being delayed by twenty (20) months,
  the pavement design to cater for low traffic volume and the wet weather patterns
  around the area. Management also provided better alternative approaches to avoid
  such issues in the future.

  Outstanding Payroll Liability

  The Department of Finance pays for the salaries and allowances through Alesco
  (Government) Payroll for the NRA employees based on the condition that the amount
  paid will be refunded back to the Department of Finance. My review revealed that the
  Authority had accrual salaries and allowances paid by the Department of Finance
  since 2011 without any settlements to date. As a result, amount totalling K7,787,290
  remained outstanding as at 31 December 2015. This issue was also raised in my prior
  year audits for the Authority to settle the outstanding liability, however, the Authority
  had not honoured its commitment to settle the outstanding liability on a timely basis.

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• National Roads Authority

  I recommended management to have a dialogue with the Department of Finance and
  resolve the issue.

  Management commented as follows;

  “Audit comments are noted. Management will make an appointment to follow up on
  an earlier letter sent to Dept. of Finance to seek further clarification and response
  regarding the payroll liability. NRA will seek to negotiate for Department of Finance
  to give consideration to recognise the payroll liability as a government grant. Failing
  that, then all attempts will be made to reduce this liability a structure repayment
  program with their concurrence.”

  Withholding Taxes Payable

  During my review I noted that the Authority disclosed Withholding Tax as
  K1,904,932 as at balance date. This amount was related to the ten per cent (10%)
  withholding tax component of payments to contractors without valid Certificate of
  Compliance (COC). However, at the time of my examination, I noted that this amount
  which had accumulated over the years was not remitted to Internal Revenue
  Commission (IRC). I brought this non-compliance of Sections 280 (1f) and (6) and
  Section 354O(1) of the Income Tax Act 1959 again to the attention of the management
  and management responded to my query as follows;

  “NRA has reconciled the WHT Account and has prepared forms for lodgement but
  did not lodge the returns and payment to IRC because it is awaiting advice from IRC
  on NRA’s claim for reimbursement on GST Input credits that will be to match off
  against WHT Payable.

  With the letter for IRC ruling against the NRA claim for GST input credits,
  management have taken appropriate steps to lodge in WHT Returns and settle the tax
  amount owed.”

  Deposit for Land – K33,000

  During my examination and review of the accounts, I noted the amount of K33,000
  had been carried forward from prior years relating to a deposit made for land for NRA
  staff housing scheme. I further noted that nothing had been done in relation to the
  purpose for which the money was deposited and was not able to confirm and
  comment on the process undertaken to effect such transaction and whether proper
  decision was reached before the payment was made. I was not able to satisfy myself
  whether this money will be refunded. I raised this issue and recommended
  management to conduct such transactions in light of achieving value for money in the
  future.

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• National Roads Authority

  Management concurred with my finding and explained that the amount was actually
  paid to secure land for the purpose of the Weigh Bridge in Lae, Morobe Province. I
  was also advised that the amount was only a deposit to secure that land and a follow-
  up will be done in 2016.

  35.3 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 2016 was in progress.

  – 190 –

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• 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.

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• National Training Council

  36.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  36.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Council for the year ended 31 December 2015 was issued on 30
  January 2017. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Other Receipts – K52,145

  The Council disclosed K52,145 in its accounts as other receipts received for
  registration and renewal fees from the training providers during the year. However, I
  noted that the Council had not maintained a proper database or a comprehensive list
  of all the training providers in Papua New Guinea. I further noted that the training
  providers were not properly monitored by the Council and fees collected were based
  on an ad hoc basis. As such, I was unable to verify the total number of training
  providers and the amount of fees expected to be collected from the training providers
  due to lack of audit trail. As a result, I was unable to validate the fees collected.
  Consequently, I was unable to ascertain the accuracy and completeness of the fees
  collected at year end.

  Fixed Assets – K893,252

  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 K893,252 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, 2015 and
  the results of its operations for the year then ended.”

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• National Training Council

  36.2.2 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 Council for the year ended 31 December 2015
  was issued on 30 January 2017. The report contained the following observations:

  1.0 Financial Procedural Manuals

  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. Further, as reported in my prior year report, I noted that there was no
  proper accounting system in place. 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 cash book provided for
  my examination. I recommended that the Council deliberate on the matter and
  compile procedural manuals and source a proper automated accounting system
  that suit the need of the Council.

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

  1.0 Personnel Emoluments

  My examination of the Council’s 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 2015 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 take corrective actions to rectify the short
  comings.

  The management agreed with my comments and accepted my
  recommendations and ensured proper controls would be maintained.

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• National Training Council

  3.0 Expenditure Control Weaknesses

  During my review of the operational expenses incurred in 2015, I noted that
  payments totaling K68,365 were made without proper supporting
  documentations. In addition, payments totaling K38,453 were made without
  obtaining the required three (3) written quotations. As a result, I was unable to
  verify and confirm the above payments as to their validity and
  appropriateness.

  I also noted payments totaling K317,575 were made as pay cash cheques and
  not raised in the name of payees. I further noted that the Council had not
  maintained a proper Travel Advance Register to acquit for payments totaling
  K305,658. As a result, I was unable to verify and confirm if the above
  payments were made for the purpose intended.

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

  36.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the Council for the
  year ended 31 December 2016 had not been submitted by the Council for my
  inspection and audit.

  – 194 –

• Page 231 of 450

• 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 AND RECOMMENDATION

  37.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the National Volunteer Service for the year ended 31 December 2016
  was issued on 29 May 2017. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Cash at Bank – K1,174,126

  During my review of cash at bank, I noted a variance of K1,173,060 between the
  reconciled balance of K1,066 and the final cash book balance of K1,174,126. I further
  noted that the bank reconciliations were not done properly due to no proper cash book
  had been maintained by the Service. The bank reconciliations were not done on a
  timely basis to identify any differences. Bank reconciliation was a key control
  mechanism which helps to detect errors and ensures the bank records were reconciled
  with the cash book of the Service to report a correct ending bank balance. As a result,
  I was not able to satisfy myself as to the accuracy of the bank balance of K1,174,126
  as disclosed at the year end.

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• National Volunteer Service

  Fixed Assets – K192,125

  The Service disclosed its total Fixed Assets balance in Note 4 to the financial
  statements as K192,125 at 31 December 2016. 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. As such, I was unable to confirm
  whether all assets under the custody of the Service had been fully disclosed 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 National Volunteer Service for the year
  ended 31 December 2016 and the results of its financial operations for the year
  then ended.”

  37.2.2 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 Service for the year ended 31 December 2016
  was issued on 29 May 2017. The report contained the following comments:

  Group Tax Liabilities – K244,566

  The Service reported Group Tax Liabilities totalling K244,566 as at 31 December
  2016. 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 it responded to my
  observations as follows:

  “The Service will raise these issues with DPM/Finance and Alesco (Ascender) payroll
  who are responsible for group tax remittance to IRC, as the administrator of the
  Payroll System for NVS. This issue was raised with the Finance Department, but is
  still pending and we will follow up with Finance Department this year (2017).”

  – 196 –

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• National Volunteer Service

  Payroll

  I was not able to confirm the total salaries and gratuities of K873,565 and K86,576
  respectively as there were no Alesco payroll details and summary reports provided to
  me during my review to verify and confirm the actual payments disclosed in the
  financial statements. I brought this to the attention of the management and it
  responded that they took note and would take action to address the issue by recruiting
  staff as staff capacity was the problem.

  Travel Advance/Acquittals Register

  During my review, I noted that the Service did not properly maintain the Travel
  Acquittals/Advance Register during the year under review. I observed that the
  supporting documents like ticket butts, boarding passes, hotel and hire car receipts
  were not on acquittal file for my verification. I recommended the Service to maintain
  a Travel Acquittals/Advance Register for proper acquittal to account for funds
  disbursed for duty travel purposes. I brought this to the attention of the management
  of the Service and they responded that they will comply and maintain the Travel
  Advance Register.

  – 197 –

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• 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 management responses were submitted and
  the audit reports of the Commission for the years ended 31 December 2012 and 2013
  were under preparation.

  The financial statements of the Commission for the years ended 31 December 2014,
  2015 and 2016 had been submitted for my inspection and audit and arrangements
  were being made to commence the fieldwork shortly.

  – 198 –

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• 39. OIL PALM INDUSTRY CORPORATION

  39.1 INTRODUCTION

  39.1.1 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.

  39.1.2 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.

  39.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  39.2.1 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
  September 2016. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFED OPINION

  Cash at bank – K3,380,634

  The Cash at Bank balance included the Head Office operating account balance of
  K107,195, Popondetta project of K111,064, Bialla project of K93,244 and Milne Bay
  project of K3,699 at the year end. My review of the accounts revealed that bank
  reconciliations were not prepared on a monthly basis and not signed by the preparer
  and the reviewer. In addition, the Head Office bank reconciliation included
  unadjusted outstanding cheques totalled K5,814.37, Popondetta project bank
  reconciliation included 2009 and 2010 unadjusted outstanding cheques totalled
  K13,943.77, Bialla project bank reconciliation included unadjusted outstanding
  cheques totalled K2,976.99 and Milne Bay project bank reconciliation reported
  unadjusted outstanding cheques amounting to K13,691.03. Further, I was not
  provided with the bank confirmation for Head Office and some Project accounts to
  enable me to confirm the closing balances.

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• Oil Palm Industry Corporation

  As a result, I was unable to satisfy myself as to the correctness and validity of the cash
  at bank balance disclosed as at 31 December 2011.

  Fixed Assets – K4,093,262

  I noted that the Corporation disclosed K4,093,262 as its fixed assets balance as at year
  end. My review of the Fixed Assets Registers, the general ledgers and their opening
  balances revealed that their opening balances did not agree. Consequently, I noted a
  variance of K433,138 between the consolidated ledgers balance of K4,526,399.42 and
  the financial statement balance of K4,093,262 at year end. As such, I was unable to
  satisfy myself as to the correctness and validity of the Corporation’s fixed assets
  balance disclosed as at 31 December 2011.

  QUALIFIED OPINION

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

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

  b) the financial statements are in agreement with those accounts and records, and
  show fairly the state of affairs of the Corporation for the year ended 31
  December 2011 and the results of its financial operations and cash flows for
  the year then ended.”

  39.2.2 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 September 2016. The report contained the following matters:

  Internal Control Environment

  My examination revealed that segregation of duties was not implemented in the
  financial operation in Head Office and various Project offices of the Corporation. The
  officers who performed the collection, receipting and banking functions also had
  control over the data entry into MYOB Accounting Software. In some instances they
  also undertook payroll and cheque requisition functions.

  Fixed Assets Registers

  The Corporation, despite my previous recommendations, had not up-dated its Fixed
  Assets Registers. Complete stock take of all Projects fixed assets is essential since
  most of them were purchased long time ago and their existence may be in doubt.

  – 200 –

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• Oil Palm Industry Corporation

  In addition, for some projects, there were no proper reconciliations done between the
  Fixed Assets Registers and the general ledgers to reflect accurate information.

  Budget Overspending

  I noted that during 2011 the Projects’ expenditure exceeded the budgeted amounts
  without the proper approvals from their respective Local Planning Committees (LPC).
  In addition, for some Projects, I was not provided with the budget. I recommended
  management that spending should be regularly reviewed and monthly reports should
  be prepared for LPC review and approval.

  Non-Submission of Financial Statements

  The Corporation had not prepared and submitted its financial statements to my Office
  before 31 March 2012 to enable me to complete the audit within the timeframe
  stipulated by the Public Finances (Management) Act 1995. Consequently, the
  Corporation had breached Section 63(2) and 63(4) of the Public Finances
  (Management) Act 1995.

  Other Internal Control Weaknesses

  Other weaknesses noted during the audit were:

  OPIC Board meeting minutes and some Projects’ meeting minutes were not
  signed by the Chairman in order to confirm the minutes were true and correct. In
  addition, for some Projects, I was not provided with the meeting minutes.

  GST preparation and lodgment to IRC were not done.

  No evidence of signatures for casual employees attached to the cheque
  requisitions/vouchers to support that monies were received.

  Head Office and Projects did not maintain an Advance/Acquittal Registers
  during the year under review.

  Periodic reconciliation of trade debtors and creditors accounts general ledgers
  and subsidiary ledgers were not done.

  Head Office and Projects personnel files and salary history cards were not
  updated and properly maintained on a regular basis.

  My review in the procurement process revealed that some Projects paid for
  goods and services without obtaining three written quotations and some
  payments were not properly authorized by the appropriate financial delegate.

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• Oil Palm Industry Corporation

  In addition, leave fare entitlements were paid for staff dependents whose ages
  were over 19 years. In some instances, staff claimed extra dependents that were
  not their legitimate dependents.

  I brought these weaknesses together with other audit findings to the attention of
  management for their appropriate responses but the management had not responded to
  my Management Letter to enable me to incorporate their comments as part of this
  report.

  39.3 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 2012, 2013, 2014, 2015 and 2016 for my
  inspection and audit, despite numerous reminders from my Office.

  – 202 –

• Page 239 of 450

• 40. OMBUDSMAN COMMISSION OF PAPUA NEW GUINEA

  40.1 INTRODUCTION

  40.1.1 Legislation

  The Ombudsman Commission was established under Section 217 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.

  40.1.2 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.

  40.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  40.2.1 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 2014 and 2015 were issued on 1
  August 2016 and 29 June 2017 respectively. The 2014 report contained a Qualified
  Opinion while the 2015 did not contain any qualification.

  – 203 –

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• Ombudsman Commission of Papua New Guinea

  40.2.2 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
  2014 and 2015 were issued on 1 August 2016 and 29 June 2017 respectively. The
  reports contained similar observations, hence only the 2015 report is reproduced.

  Cash at Bank – K4,899,631

  During my review of the 2013 cash at bank account, I noted that the Operating
  Account bank reconciliations were not prepared and certified on a timely basis. I was
  not provided with the bank reconciliation statements by the Commission to perform
  the necessary audit procedures which resulted in scope limitation and was reported
  accordingly. In my 2014 audit, I noted a difference of K2,385,580 between the cash at
  bank and the statement of receipts and payments balance which the Commission was
  unable to reconcile due to lack of proper bank reconciliations in 2013. In my 2015
  audit, I noted that the accumulated variances amounted to K2,401,734. I therefore,
  extended my audit procedures/scope during the 2015 audit and revisited the 2013
  bank reconciliations statements and cash book. The following were noted during this
  exercise:

  The systematically generated monthly bank reconciliations for the main
  operating account from the PNG Government Accounting System (PGAS) were
  not prepared and reviewed on a timely basis.
  In 2013 a total of K1,369,188 relating to payroll expenses were incorrectly
  posted as debits inflating the cashbook balance. Further, an amount of K138,319
  relating to payroll expenses debited by the bank was not taken up in the
  Commission’s cashbook. As a result, the cash book was inflated by K1,507,507;
  An amount of K536,186 relating to capital assets was incorrectly credited twice
  in 2013 understating the cashbook balance at year end by K1,072,372; and
  The revised/adjusted statement of receipts and payments balance of K4,858,849
  as at 31 December 2015 had a variance of K40,782 against the cash at bank
  amount disclosed in Note 5 as K4,899,631;

  As a result, I was not able to conclude on the accuracy of the balance disclosed as at
  31 December 2015 nor place reliance on the effectiveness of the internal controls
  surrounding the bank reconciliation process of the Commission.

  I have recommended the Commission to make necessary adjustments to reconcile the
  bank accounts to agree with the cashbook balance.

  – 204 –

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• Ombudsman Commission of Papua New Guinea

  Lack of proper maintenance and update of Fixed Assets Register (FAR)

  The Fixed Assets Register (FAR) is the main control mechanism that captures and
  confirms the value and the ownership of the assets of an organization. During my
  review, I was not provided with the updated FAR to confirm the balance of
  K14,157,919 representing fixed assets as at 31 December 2015 disclosed in Note 4 of
  the Statement of Receipts and Payments. I further noted that no stock-take exercise
  was carried out by the Commission during the year under review. In the absence of a
  properly updated FAR, I was unable to perform the necessary audit procedures to
  verify and confirm the conditions and the existence of the assets held by the
  Commission at year end. In addition, there is a high risk of assets being misused or
  lost through theft when proper records are not maintained.

  I brought this issue again to the attention of the Commission and recommended for
  improvement in this area.

  Institutional Housing Policy

  During my review, I noted that the Commission built eight (8) new staff houses and
  acquired a duplex from the National Housing Corporation for staff accommodation.
  The eight (8) new houses were completed fully furnished in 2015 and commissioned
  in early 2016. However, I was not provided with the housing policy to further
  comment on the basis of allocation of houses to staff. I also noted that the
  Commission continues to pay housing allowances to staff despite Institutional
  Housing being provided to some officers.

  I brought this issue to the attention of the Commission stating that such practice may
  be considered as double dipping and recommended the Commission to cease the
  practice of paying housing allowances to officers whom Institutional Housing had
  been allocated to. I further advised the Commission to recoup the amounts paid as
  housing allowance from concerned officers.

  The Commission responded to my observation as follows;

  “Commission is currently reviewing its Housing Policy and or HR Manual which will
  address the issue. In the meantime, Commission will consider the recommendation.”

  Management of Office Vehicle Fleet

  In 2015, I noted that one of the Commission’s vehicle (bus), rego# BCW 586 was
  involved in an accident, and while in Police custody, the vehicle went missing and
  had not been recovered. I further noted another vehicle (Toyota Landcruiser, 10
  Seater) rego# BEJ 076 at the Ela Motors workshop for maintenance due to another
  accident at the time of my audit. No Police reports were provided for my review and
  verification.

  – 205 –

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• Ombudsman Commission of Papua New Guinea

  In the absence of Police reports, I was unable to verify and comment on the
  effectiveness of the controls surrounding the usage of motor vehicles in the custody of
  the Commission. Further, I was not able to confirm whether the accidents occurred
  during official hours.

  The Commission acknowledged my observation and accepted the recommendation.

  Internal Control Break-down in the Usage of Telephone & Internet

  Utilities expense incurred and paid in 2015 totalled K1,046,017. The utilities expense
  significantly increased by fifty per cent (50%) compared to the amount expended in
  2014. I also noted that K758,557 constituting seventy-three per cent (73%) of the total
  amount disclosed as utilities expense was related to internet usage and toll free (voice)
  calls.

  Upon my review, I noted that the accounting system with the Private Automatic
  Branch Exchange (PABX) was not installed to monitor calls resulting in increased toll
  free (voice) calls in 2015. Internet usage per month from Telikom PNG Limited was
  restricted to fifty (50) gigabytes for the Commission as a whole. However, I noted that
  one officer used seventy-three (73) gigabytes during the month of July 2015, which is
  (147%) more than the fifty (50) gigabyte allocation.

  Due to the above observations, I was unable to place reliance on the effectiveness on
  the controls surrounding the usage of internet and telephone. Further, I was unable to
  comment whether that increase in telephone and internet bills related to official and/or
  operational purposes.

  I brought this issue to the attention of the Commission and recommended for effective
  controls in the area of telephone and internet usage which the Commission
  acknowledged and accepted my recommendation.

  Human Resource (HR) and Payroll Procedural Manual

  I noted during my audit that Human Resource Division did not have in place a proper
  In-House HR and Payroll Procedural Manual to assist staff of the Human Resource
  Division and Payroll to perform their functions in accordance with best practice and
  applicable standards/regulations. Consequently, I noted that the Commission did not
  comply with General Orders 14.47. General Orders 14.47 states that “An officer
  shall pay to the State at the time of applying for payment of recreation leave fares, a
  contribution towards the cost of the fares which shall be calculated at ten per cent of
  his/her gross substantive fortnightly salary at the date immediately prior to
  proceeding on recreation leave”. Due to the absence of a proper HR and Payroll
  Policy, I was unable to comment on whether proper procedures were followed by the
  Commission in 2015.

  – 206 –

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• Ombudsman Commission of Papua New Guinea

  The Commission advised me that the HR and Payroll Policy Manual was in draft form
  since 2014 and would address the issues I raised.

  Expired Contract of Employment

  During my review, I noted that an officer’s employment contract had expired on 26th
  January 2014 but had been employed by the Commission for more than two (2) years
  without a valid employment contract.

  In the absence of a proper contract of employment, I was not able to confirm and
  verify the basis of the allowances and benefits (motor vehicle and school fee) paid to
  the officer during the period February 2014 to 31 December 2015. I recommended the
  Commission to ensure all payments to staff are made in accordance with approved
  contract of employment.

  In response to my query, the Commission stated that:

  “whilst we acknowledge that we do not have a written contract, a written contract for
  the immediate prior period exists, which terms and conditions extend to this present
  period now under consideration.”

  40.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Commission had submitted its financial
  statements for the year ended 31 December 2016 and arrangements were being made
  to commence the audit shortly.

  – 207 –

• Page 244 of 450

• 41. PACIFIC GAMES (2015) AUTHORITY

  41.1 INTRODUCTION

  41.1.1 Legislation

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

  41.1.2 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.

  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 Authority for the year ended 31 December 2014 was issued on 16
  August 2016. The reports for the year ended 31 December 2015 and for the period 1
  January 2016 to 19 July 2016 were both issued on 29 June 2017. The 2014 and 2015
  reports contained similar Qualified Opinions while the report for the period ended 1
  January 2016 to 19 July 2016 did not contain any qualification. For the purpose of this
  Report, the 2015 report is reproduced.
  – 208 –

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• Pacific Games (2015) Authority

  “BASIS FOR QUALIFIED OPINION

  Acquittals of Legacy Expenditures

  The administrative expenses of the Authority for the year ended 31 December 2015
  included Legacy expenses amounting to K14,744,661. I was not provided with
  sufficient and appropriate evidence in relation to the acquittal of these expenses.
  Therefore, I am unable to confirm the validity of these expenses disclosed in the
  Statement of Receipts and Expenditures for the year ended 31 December 2015.

  QUALIFIED OPINION

  In my opinion, except for the effects of the matter described in the Basis for Qualified
  Opinion paragraph, the financial statements of Pacific Games Authority for the year
  ended 31 December 2015:

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

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

  OTHER MATTERS

  Compliance with Public Finances (Management) Act 1995

  The audit of the 2015 statutory financial statements commenced in April 2016 and the
  financial statements was approved by management on 28 June 2017. As such, the
  directors did not meet the deadline set by Section 63 of the Public Finances
  (Management) Act 1995 for audited financial statements of public bodies to be
  furnished to the Minister before 30 June of the subsequent year.”

  41.3 STATUS OF FINANCIAL STATEMENTS

  This Special Purpose Authority was established by the National Parliament under the
  Pacific Games (2015) Authority Act 2011 (as amended) and has ceased its operation
  on the anniversary of the completion of the Games. As such, the Authority ceased to
  exist on 19 July 2016. Therefore, this would be my last report to Parliament on this
  Authority.

  – 209 –

• Page 246 of 450

• 42. PAPUA NEW GUINEA ACCIDENT INVESTIGATION
  COMMISSION

  42.1 INTRODUCTION

  42.1.1 Legislation

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

  42.1.2 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.

  42.1.3 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;

  – 210 –

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• Papua New Guinea Accident Investigation Commission

  ‒ 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;
  ‒ 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.

  42.2 AUDIT OBSERVATIONS

  42.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Commission for the years ended 31 December 2011 and 2012 were
  issued on 18 April 2017. These reports did not contain any qualification.

  42.2.2 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 Commission for the years ended 31
  December 2011 and 2012 were issued on 18 April 2017. The reports contained similar
  comments, hence only the 2012 report is reproduced.

  Compliance with Public Finances (Management) Act 1995

  The financial statements for the year ended 31 December 2012 were approved and
  issued on 10 April 2017. The directors did not meet the deadline set by Section 63 of
  the Public Finances (Management) Act for audited financial statements of public
  bodies/ Companies owned by the State to be furnished to the Minister before 30 June
  of the subsequent year.

  42.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Commission had submitted the financial
  statements for the years ended 31 December 2013, 2014, 2015 and 2016 for my
  inspection and audit and arrangements were being made to commence the audit
  shortly.

  – 211 –

• Page 248 of 450

• 43. PAPUA NEW GUINEA CUSTOMS SERVICE

  43. INTRODUCTION

  43.1.1 Legislation

  The National Executive Council (NEC) in its meeting on 24 July 2014, Decision No:
  216/2014 approved that the Papua New Guinea Customs Service be transformed from
  the National Public Service into an Independent Statutory Authority through a
  separate Act of Parliament.

  In accordance with the NEC Decision, the Papua New Guinea Customs Service Act
  2014 was drafted and certified on 21 October 2014, establishing the Papua New
  Guinea Customs Service as a Statutory Authority.

  Prior to November 2014, the Papua New Guinea Customs Service was operating as a
  Department of the National Public Service.

  43.1.2 The Functions of the Service

  The functions of the Papua New Guinea Customs Service are to:

  Administer and enforce the customs laws;
  Promote compliance with the customs laws;
  Take such measures as may be required to improve service provided to importers
  and exporters with a view to improving efficiency and maximising revenue
  collection;
  Take such measures as may be required to counteract customs fraud and other
  forms of duty evasion;
  Advise the State on matters relating to customs and to liaise with relevant
  stakeholders on such matters;
  Represent the State internationally in respect of matters relating to customs; and
  Carry out such functions as are given to the Papua New Guinea Customs Service
  under this Act or any other law.

  43.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Service had not submitted its financial
  statements for the period ended 21 October 2014 to 31 December 2014 and for the
  years 2015 and 2016 for my inspection and audit despite my reminder.

  – 212 –

• Page 249 of 450

• 44. PAPUA NEW GUINEA FOREST AUTHORITY

  44.1 INTRODUCTION

  44.1.1 Legislation

  The Papua New Guinea 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).

  44.1.2 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;

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• Papua New Guinea Forest Authority

  Prepare and review the National Forest Plan and recommend it to the NEC for
  approval;
  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
  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.

  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 2013 and 2014 were in progress.

  The Authority had not submitted its financial statements for the years ended 31
  December 2015 and 2016 for my inspection and audit.

  – 214 –

• Page 251 of 450

• 45. PAPUA NEW GUINEA IMMIGRATION AND CITIZENSHIP
  SERVICE AUTHORITY

  45.1 INTRODUCTION

  45.1.1 Legislation

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

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

  45.1.2 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 citizenship through education and training;
  Pursuit of effective strategies including improved administrative and legal
  machinery for managing immigration, citizenship 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.

  – 215 –

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• Papua New Guinea Immigration and Citizenship Service Authority

  45.1.3 Functions of the Authority

  The functions of the Authority are to:

  Perform the functions and exercise the powers conferred on an authorised
  person or an officer under the Migration Act (Chapter 16) or the Passports Act
  (Chapter 17);
  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 citizenship in the performance of his/her
  functions under Part IV of the Constitution and the Citizenship Act (Chapter
  12);
  Collect fees, penalties and other revenue authorised under the Migration Act
  (Chapter 16), Passport Act (Chapter 17) and Citizenship 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, citizenship 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 Citizenship 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 Citizenship 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.

  45.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  45.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the Authority for the years ended 31 December 2014 and 2015 were
  issued on 13 June 2017. The reports contained similar Disclaimer of Opinions, hence,
  only the 2015 report is reproduced.

  – 216 –

• Page 253 of 450

• Papua New Guinea Immigration and Citizenship Service Authority

  “BASIS FOR DISCLAIMER OF OPINION

  Limitation of Scope

  Closing Balance – K26,279,497

  I was unable to confirm the correctness of the opening balance as at 1 January 2015
  due to a material difference noted between the closing balance of the Statement of
  Receipts and Payments and the aggregate bank balance reported in my prior years
  audit. As a result of this material variance, I was unable to perform the necessary
  audit procedures to verify the completeness and the accuracy of the opening balance
  for the year ended 31 December 2015. Since the opening balance has a bearing on the
  closing balance of the Authority, I was unable to state whether the balance of
  K26,279,497 has been fairly stated in the accounts at the year end.

  Bank Reconciliation

  My review of the cash balance of the two bank accounts (Trust and Operating)
  maintained by the Authority revealed that the bank reconciliations were not prepared,
  checked and approved by senior finance officers of the Authority in 2015 on a timely
  basis. I was also not provided with the independent bank confirmation to ascertain the
  completeness and accuracy of the bank accounts disclosed in the financial statements.
  As a result, unpresented cheques totaling K2,698,653 dating back to 2012 still
  remained outstanding. Further, direct deposits, transfers and payments classified as
  reconciling items totaling K72,697,619 were noted in the reconciliations as at 31
  December 2015. The huge balance reflects lack of proper updating of cashbook to
  capture all the reconciling items. Consequently, I was not able to place reliance on the
  effectiveness of the controls maintained by the Authority over cash.

  Accounting Records – Cashbook

  My review of the accounting records and cashbooks for the year ended 31 December
  2015 revealed that the Operating and Trust cashbooks were incomplete and were not
  correctly maintained. I noted that the cash books only captured the expenditures and
  no journals were passed to account for the receipts such as portions of the fifty
  percent (50%) Migration Service Fees, Government Grants and other receipts. As a
  result, I noted a variance of K21,244,381 between the financial statement and the
  reconciled cash book balance. As such, I was unable to ascertain the reconciled cash
  book balance at the year end.

  – 217 –

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  Fixed Assets

  My review of the Fixed Assets Register (FAR) of the Authority for the year ended 31
  December 2015 revealed that the Authority did not properly maintain an updated
  Fixed Assets Register on a timely basis showing all additions and disposals (if any) of
  assets made during the year. I also noted that summary of the fixed assets owned by
  the Authority as at 31 December 2015 was not disclosed by way of notes to the
  accounts. The Assets Register provided for my verification was incomplete and did
  not capture all assets purchased during the year totaling K3,250,325. As such, I was
  unable to conclude on the accuracy, valuation, existence and ownership of the fixed
  assets owned by the Authority as at 31 December 2015.

  Expenditure – K911,286

  The Authority did not maintain proper records of payments totalled K911,286 during
  the period under review. My review of the expenditures during the year revealed on
  twelve (12) instances, payments totaling K911,286 were missing or not placed on the
  payment voucher files for my verification. Consequently, I was unable to perform my
  audit procedures to determine the validity, completeness and accuracy of the
  payments amounting to K911,286 as reported in the financial statements.

  DISCLAIMER OF OPINION

  Because of the significance of the matters referred to 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 the Authority for the year ended 31 December
  2015.”

  45.2.2 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 Authority for the years ended 31 December
  2014 and 2015 were issued on 13 June 2017. The reports contained similar
  observations, hence, only the 2015 report is reproduced as follows:

  Lack of Proper Assets Records

  During my review, I was unable to ascertain the value and existence of the assets
  purchased during the year and the cumulative assets balance due to lack of proper
  maintenance of records. In addition, I noted that there were no proper asset numbers
  or tagging done for all the assets purchased by the Authority. Further, no stock-take
  exercise was carried out during the year to verify assets’ conditions, existence and
  usage.

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• Papua New Guinea Immigration and Citizenship Service Authority

  Motor Vehicle Allowances

  My review of the salaries and allowances revealed that certain senior officers of the
  Authority who were receiving motor vehicle allowances were also provided with
  Office vehicles for 24 hour usage with fuel. In my view that the officers were in
  breach of their Employment Contracts with the Authority by double dipping from
  motor vehicle allowances as well as provided with motor vehicles for 24 hour usage
  with fuel. Pursuant to the General Order 9, contract officers were to benefit either
  from the vehicle allowance or a motor vehicle provided by the Authority, not both.

  The management responded with the following;

  “The other contract officers who are part of management team are allocated motor
  vehicle and also are receiving motor vehicle allowance is approved by the Chief
  Migration Officer. Due to the nature of their work and are on call during and after
  business hours to attend to urgent duties they were assigned vehicles at the
  prerogative of Chief Migration Officer.”

  Incorrect Classification and Posting

  My review of expenditure classified under Other Operational Expenses and
  operational materials and Supplies (Vote: 135 and 124) during the year revealed that
  capital expenses totaling K210,453 were incorrectly classified and treated as other
  operational expenses and operational materials and supplies. I also noted that the
  payments were capital in nature however, not captured in the Assets Register. As a
  result, the balance representing other operational expenses and operational materials
  and supplies were overstated while the Capital Expenditure balance had been
  understated by the same amount. In addition, travel and subsistence expenses totaling
  K75,040 were incorrectly posted to other operating expenses resulting in the
  understatement of the travel and subsistence expenses and overstating other operating
  expenses by the same amount respectively.

  Non-Acquittal of Travel Advances

  My review of travel and subsistence expenses totaling K3,562,822 during the year
  revealed that only K107,320 were acquitted and K3,455,502 had not been acquitted
  by concerned staff of the Authority during the year. There was no proper Travel
  Advances Register maintained by the Authority in 2015 to monitor that the advances
  were properly recorded and timely acquitted. As a result, the Authority had not
  complied with the Financial Management Manual.

  I drew management’s attention to the requirements of the Financial Management
  Manual paragraph 11 and 12 of Part 20 for compliance. The management responded
  that they would ensure officers will comply with the audit recommendation.

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• Papua New Guinea Immigration and Citizenship Service Authority

  45.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Authority had not submitted its financial
  statements for the year ended 31 December 2016 for my inspection and audit.

  – 220 –

• Page 257 of 450

• 46. PAPUA NEW GUINEA INSTITUTE OF MEDICAL RESEARCH

  46.1 INTRODUCTION

  46.1.1 Legislation

  The Papua New Guinea 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 report to the Ministers under Section 8(4) of the Audit Act on the Institute’s
  financial statements for the year ended 31 December 2014 was issued on 30
  September 2016. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  LIMITATION OF SCOPE

  Opening Balance – K13,978,406

  I was unable to confirm the accuracy of the opening balance as at 1 January, 2014 due
  to errors and a material difference of K13,978,406 noted between the closing balance
  of the Statement of Receipts and Payments and the aggregate bank balance in my
  prior year audits. The Institute was unable to reconcile the difference and restate the
  account balances. As a result, 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 2014.

  Bank Accounts – K18,770,346

  I noted that during 2014, the Institute maintained thirty-eight (38) bank accounts and
  three (3) fixed term deposit accounts. My review of the bank reconciliations and
  related records revealed the following;

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  ● That six (6) bank accounts were not properly and timely reconciled resulting
  in variances. I was not provided any explanation for these variances.

  ● The migration from the Peachtree Accounting software through to the Sybiz
  Accounting package was carried out without correct cash balances transferred
  over.

  ● I noted that cheques have been drawn from some bank accounts without
  sufficient funds resulting in overdrawn account balances.

  ● Further, I noted that a stale and cancelled cheque register was not maintained
  to properly monitor and investigate long outstanding cheques. The stale
  cheques totaling K3,775,588.26 noted in 2013 accounts were written back
  during 2014.

  As such, I was unable to determine the accuracy of the bank balances and their
  aggregate closing balance of K18,770,346 as at 31 December 2014.

  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 recognizes cash transactions and does not take into account
  those that are payable and receivable on an accrual basis. The difference between total
  receipts and payments should agree to the bank balance. During my review, I noted a
  material difference of K8,581,189 between the total reconciled bank balances and the
  Statement of Receipts and Payments net balance. I was not provided any valid
  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
  stated at year end.

  Fixed Assets – K37,039,979

  My review of the Fixed Assets Register and capital expenditures revealed that the
  Register was not properly maintained and updated on a timely basis. The Institute’s
  accounts are prepared using the “cash basis” of accounting therefore, the Fixed
  Assets Register not only forms part of the financial statements but is the only record
  that keeps track of the Institute’s fixed assets. Consequently, 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 K37,039,979 disclosed in the financial statements.

  – 222 –

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• Papua New Guinea Institute of Medical Research

  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 2014.”

  46.2.2 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 30 September 2016. The report contained the following
  observations:

  Fixed Assets Register

  My review of the Fixed Assets Register (FAR) and capital expenditures for the year
  revealed that the FAR provided for audit verification was incomplete and did not
  capture all assets under the custody of the Institute as at 31 December 2014. The
  Institute’s accounts were prepared using the “cash basis” of accounting. As such,
  FAR not only forms part of the financial statements but was the only record that keeps
  track of an entity’s fixed assets which were off the “cash radar”.

  I drew management’s attention to Section 62 of the Public Finances (Management)
  Act 1995 that requires all Public Bodies to maintain adequate controls over their
  assets or assets in their custody. I recommended management to conduct a thorough
  stock-take of all its assets and record them accordingly in the Fixed Assets Register.
  Assets must also be labeled for custody, control, movement and monitoring purposes.
  The management acknowledged my findings and took note of my recommendation.

  Non-Acquittal of Travel Advances

  My review of the travel and subsistence expenses totaling K1,775,428 during the year
  by staff on duty travel (domestic and overseas) revealed that the advances were not
  acquitted on a timely basis by staff. In addition, there was no Travel Advances
  Register maintained by the Institute in 2014.

  I drew management’s attention to the Public Finances (Management) Act 1995 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 (7) days for
  domestic travel and fourteen (14) days for overseas travel. Management responded
  that appropriate action would be taken. This was a recurring issue that I pointed out in
  my last report but no corrective measures had been taken by the Institute.

  – 223 –

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• Papua New Guinea Institute of Medical Research

  Staff Capacity and Competency

  I noted that the Institute continued to maintain more than thirty (30) bank accounts
  each year.

  Most of these bank accounts were for certain medical research programs funded by
  donor agencies; hence poor cash management within each project account without
  proper and timely bank reconciliations can have an adverse impact on both the current
  and future projects. As such, the Institute should consider increasing staff capacity
  with appropriate skills and knowledge to perform bank reconciliations and other
  accounting tasks on a timely basis.

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

  The Institute had not submitted its financial statements for the year ended 31
  December 2014 on a timely basis to enable me to conduct the audit and submit the
  audit report within the time frame prescribed by the Public Finances (Management)
  Act 1995 (as amended). Consequently, the Institute had breached Sections 63(2) and
  63(4) of the Public Finances (Management) Act 1995.

  46.3 STATUS OF FINANCIAL STATEMENTS

  The financial statements for the year ended 31 December 2015 had been submitted for
  my inspection and audit and arrangements were being made to commence the audit
  shortly.

  The Institute had not submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit.

  – 224 –

• Page 261 of 450

• 47. PAPUA NEW GUINEA INSTITUTE OF PUBLIC
  ADMINISTRATION

  47.1 INTRODUCTION

  47.1.1 Legislation

  The Papua New Guinea Institute of Public Administration was established in 1993
  under the Papua New Guinea 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 in the Country 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 AND RECOMMENDATIONS

  47.2.1 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
  the 11 August 2016 and 8 May 2017 respectively. The reports contained similar
  Qualified Opinions, hence only the 2013 report is reproduced.

  “BASIS FOR QUALIFIED OPINION

  Internal Control Environment

  My review on the accounts and records of the Institute for the year ended 31
  December 2013 revealed that weak internal controls operated during the year under
  review. There were no approved procedural guidelines or manuals to guide the daily
  operations of the Institute in respect of approval limits, authorization of expenditures
  and other recurring activities. Further, I noted that the accounts were maintained using
  spread sheets (Microsoft Excel) without having a proper accounting system/software.
  In the absence of proper internal control guidelines and mechanisms, I was unable to
  place any reliance on the effectiveness of the internal control system and whether this
  will have a bearing on the financial information recorded and disclosed in the
  financial statements.

  – 225 –

• Page 262 of 450

• Papua New Guinea Institute of Public Administration

  Variance between the Cash at Bank Balance and the Statement of Receipts and
  Payments – K112,605

  During my review of cash at bank, I noted that the bank balance per the
  reconciliations for the bank accounts maintained by the Institute was K85,855 while
  the ending balance disclosed in the Statement of Receipts and Payments for the year
  ended 31 December 2013 was K198,460 resulting in a variance of K112,605. The
  Institute was unable to reconcile the difference. I also noted that the bank
  reconciliations for the bank accounts were never prepared and verified by senior
  officers of the Institute on a timely basis. As a result, I was not able to place any
  reliance on the effectiveness of the internal controls surrounding the preparation of the
  bank reconciliations nor conclude on the accuracy of the balance disclosed as at 31
  December 2013.

  Fixed Assets – K240,811

  The Institute has not disclosed its assets schedule as part of its financial statements.
  As a result, I was unable to state whether all the assets acquired to date by the Institute
  had been properly accounted for by the Institute in the absence of a Fixed Assets
  Register.

  Receipt and Receivables

  During my review of receipts and receivable accounts of the Institute, I was not
  provided with individual student ledgers to verify the receipts pertaining to course
  fees. The receivables representing student outstanding fees totalled K522,300 was
  disclosed in note 3 of the financial statements. However, due to the absence of student
  ledgers, I was unable to confirm the accuracy of the balance stated at year end.

  PGAS Payments on Goods and Other Services – K1,990,500

  My review and examination on payments made out from the Operational Account
  revealed that most payments were made as reimbursements to the General Fund
  Account (GFA). The total reimbursement was 76.33% (K1,519,371.93) of the total
  expenditure on goods and other services. However, payment vouchers provided for
  my review were incomplete to enable me to extend my audit procedures to verify the
  amounts paid and recorded. Consequently, I was unable to conclude on the
  completeness, accuracy and propriety of the payments pertaining to General Fund
  Account reimbursements from the Operational Account.

  QUALIFIED OPINION

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

  – 226 –

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• Papua New Guinea Institute of Public Administration

  (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 Public
  Finances (Management) Act 1995 as at 31 December 2013, and the results of its
  financial operations for the year then ended.”

  47.2.2 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 the 11 August 2016 and 8 May 2017 respectively. The
  reports contained similar observations, hence only the 2013 report is reproduced as
  follows:

  1.0 Accounting System (Software)

  The Institute did not have a proper Accounting System (accounting software)
  in place to produce financial reports. The Statement of Receipts and Payments
  (Financial Statements) was being manually prepared and produced using
  Microsoft Excel spreadsheets. The basic accounting records were being
  maintained on spreadsheets to draw monthly Income and Expenditure Reports
  from which the Statement of Receipts and Payments was compiled. I noted
  this manual process of preparing the Statement of Receipts and Payments
  during my previous audits and recommended the management to consider
  sourcing an Accounting Software appropriate for the entity. The Institute is yet
  to implement my recommendation.

  2.0 Accounting Policy and Procedural Manual

  During my review of the internal controls, I noted that the Institute did not
  have any policy and procedural manual in place to guide its financial and
  operational activities. The policy and procedural manuals serve as control
  tools to assist staff at all levels to execute their duties and responsibilities in
  accordance with legislative requirements and best practice.

  I brought the matter to the attention of the management and was advised that it
  would ensure priority is given to effectively address the matter.

  – 227 –

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• Papua New Guinea Institute of Public Administration

  3.0 Governing Council Meeting Minutes

  I noted that the Institute did not have a Governing Council in place during the
  year under review after the previous Council’s term had expired. There was no
  timely appointment of a Council to oversee the operations and to ensure
  significant decisions made were based on sound and economic deliberations
  and considerations. Further, I was unable to use a bench mark or measurement
  to provide any assurance as to whether the Institute was properly governed and
  that all decisions and transactions executed were for the benefit of the
  Institute.

  I brought the matter to the attention of the management and was advised that it
  will ensure an appointment of a Council is done on time.

  4.0 General Fund Account (GFA) Wages – K335,620

  During my review of the wages paid to staff of the Institute, I noted that staff
  personnel files did not have salary history cards as well as approved time
  sheets for actual hours worked. As a result, I was unable to determine whether
  the staff wages were calculated correctly and accurately according to the hours
  worked by each employee.

  5.0 Service Providers Contract

  I noted during my examination of the Institute’s expenditures that significant
  amounts totaling K1,036,351 were incurred for various services provided to
  the Institute.

  However, I was not provided with the contractual agreements, service
  completion reports and appropriate documents for my audit verification. As a
  result, I was not able to conclude on the accuracy, legality and whether such
  payments were made appropriately under the provisions specified in Public
  Finances (Management) Act 1995 and the Financial Instructions.

  47.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Institute had not submitted its financial
  statements for the years ended 31 December 2014, 2015 and 2016 for my inspection
  and audit despite my reminders.

  – 228 –

• Page 265 of 450

• 48. PAPUA NEW GUINEA MARITIME COLLEGE

  48.1 INTRODUCTION

  48.1.1 Legislation

  The Papua New Guinea Maritime College was established under the Papua New
  Guinea 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 AND RECOMMENDATIONS

  48.2.1 Comments on Financial Statements

  My report to the Ministers under Section 8(4) of the Audit Act on the financial
  statements of the College for the year ended 31 December 2014 was issued on 29
  March 2017. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Equity Opening Balances

  The 2014 opening balances for Changes in Equity did not agree with the audited
  closing balances of 2013 in the financial statements by K333,963. I noted that the
  variances occurred due to the College not taking the 2013 audited figures for prior
  year adjustments, net surplus/(loss) related to accumulated surplus/(loss) and capital
  grants/project as the opening balances at 1 January 2014. As a result, I was unable to
  satisfy myself as to the completeness and accuracy of the account balances as at 31
  December 2014.

  Project Account – K24,937

  During my review, I was not provided with the bank reconciliation statements and the
  bank confirmation for the Ausaid Incentive Fund Project account balance of K24,937.
  Further, the maintenance of the account and the monthly reconciliation documents
  were not provided for my audit verification.
  – 229 –

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• Papua New Guinea Maritime College

  In addition, the College had no control over cheque books for the Project Account and
  not in the custody of the College. As a result, I was not in a position to comment on
  the accuracy and validity of the Project account disclosed at year end.

  Project Expenses – K38,286

  During my review of the expenditures, I noted that withdrawals were made from the
  Project bank account totalling K38,286 from January to September 2014. I was unable
  to validate the authorization of the withdrawals and was unable to trace the cheque
  withdrawals on the bank statements to the general ledger. I also noted that the journals
  for payments were not prepared and posted for the above period. Further, I was not
  provided with the bank statements for the period October 2014 to December 2014 for
  my review and examination. As a result, I was unable to make any comment on
  accuracy, validity and disclosure of the project expenses stated in the financial
  statements.

  Other Debtors – K677,641

  The other debtors comprised of staff advance, prepayments and sundry debtors
  totaling K677,641 at year end. I noted during my review that the College did not
  maintain proper accounts and records and reconciliation schedules to perform the
  necessary audit procedures to satisfy myself on the account balance. As a result, I was
  unable to comment as to whether the account balance has been fairly stated in the
  financial statements at year end.

  Student Tuition Fee – K3,087,647

  I noted during my review that Maritime College did not maintain a proper listing of
  deposits, reconciliations and other necessary supporting documents in respect of the
  Student Tuition Deposit account during 2014 academic year to enable me to verify the
  amounts as reported in the financial statements at the year end. Further, the College
  did not have employees with necessary skills and experience to maintain and prepare
  reconciliation on the students’ tuition fees account. Due to lack of skilled staff in the
  College, reconciliations were not done and the amount in the account had
  accumulated over the years till now. Consequently, I was unable to state whether the
  2014 students’ tuition fees account has been fairly stated at year end.

  Valuation of Non-Current Assets – K10,548,441

  I noted that since the establishment of the College, there was no valuation exercise
  carried out on its properties and other assets totalling K10,548,441 by an independent
  valuer to determine the fair values of the College assets. Further, the Fixed Assets
  Register maintained by the College did not capture all the assets; the useful life and
  residual values; their depreciation and amortization methods.

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• Papua New Guinea Maritime College

  As a result, I was unable to comment on the value of the properties and other assets
  disclosed in the financial statements at year end.

  Long Service & Annual Leave Provisions – K103,500

  During my review of the leave provisions, I observed that the College did not
  maintain proper accounts and records for the provisions for long service and annual
  leave for its employees. Further, I noted that the closing account balance that was
  brought forward included prior year’s 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 used-up, it was difficult to determine the leave accruals for each
  employee. As a result, I was unable to comment on the accuracy and completeness of
  the leave provision balances as disclosed in the financial statements.

  Withholding Taxes (Salary Taxes) – K1,550,951

  The College disclosed Withholding Tax as K1,550,951 at 31 December 2014. During
  my review, I noted that there was no audit trail nor proper supporting documentation
  produced for my review and examination. I had difficulty in reconciling the
  withholding tax deductions and other tax deductions accumulated over the years.
  Further, the College had not remitted group taxes over the years to-date. As a result, I
  was unable to ascertain the accuracy and completeness of the account balance at year
  end.

  Accounting Treatment – Students Unearned Revenue Fee Deposit

  Upon my examination of the Students Unearned Revenue Fees account, I noted that
  there were errors made in the accounting treatment of pro-forma invoice for Student
  Unearned Revenue Fees by the College. When the College issued pro-forma invoices
  to confirm students enrolment, the College recognized the Pro-Forma Invoice as
  income and a liability by debiting accounts receivable and crediting Student Unearned
  Revenue Fees liability account for the full amount of the fees payable. There should
  not be any accounting treatment for the pro-forma invoice because it was merely a
  quote for the courses offered. As a result, there were large unreconciled unearned
  revenues amount in the Students Tuition Unearned Fees Account totalling K440,425.
  Consequently, I was unable to satisfy myself as to the accuracy and validity of the
  account balance in the financial statements at year end.

  DISCLAIMER OF OPINION

  As a result of the significance of the matters discussed in the Basis for Disclaimer of
  Opinion paragraphs, I am unable to and do not form an opinion as to whether the
  financial statements give a true and fair view of the state of the College’s affairs as at

  – 231 –

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• Papua New Guinea Maritime College

  31 December 2014 and the results of its operations and cash flows for the year then
  ended.”

  48.2.2 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 College for the year ended 31 December 2014
  was issued on 29 March 2017. The report contained the following observations:

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

  The College had not prepared and submitted 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 2014. Consequently, the College
  had breached Sections 63(2) and 63(4) of the Public Finances (Management)
  Act 1995.

  2. Title Deeds of College Properties

  During my review of the Land and Buildings, I noted that the College had no
  valid title deeds in place or was unable to locate the deeds for thirteen (13)
  properties for my verification. As a result, I was unable to verify the College’s
  ownership and rights over the properties.

  I brought the above issue to the attention of the College management and I
  was advised that the College was continuously perusing and addressing the
  title issues.

  3. Board Meeting Minutes

  During my review of the board meeting minutes, I noted that the Board had
  held six (6) meetings during the year. However, all of these meeting minutes
  were not signed by the Board Chairperson.

  The unsigned minutes meant the minutes were not authenticated to indicate
  the actual issues discussed at the meetings. As a result, I was unable to
  determine the credibility of the matters discussed and the resolutions passed
  during the meetings.

  I recommended the Board Chairperson of the College to sign all the Board
  meeting minutes to validate the discussions and resolutions. I drew this matter
  to the management and they responded as follows:

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• Papua New Guinea Maritime College

  “All minutes of meetings held in 2014 were effectively signed by the Board in
  2016. These meeting minutes were not properly filed and made available to
  the Board for its consumption and signing as and when required. We were
  only able to do this this year when putting together 2015 and 2016 minutes for
  Board approval.”

  4. Travel & Subsistence – K135,935

  I noted in my review of the travel & subsistence expenses amounting to
  K135,935 that the College did not maintain any Travel Advance/Acquittals
  Register for all duty travels and related expenses. Thus, most of the duty
  travels taken were not properly and fully acquitted. As required by Public
  Finance Management Manual (Part 20), the management did not acquit
  travels within 7-14 days of Domestic and International Travels respectively.

  I recommended the College to properly maintain a Travel Advance/Acquittals
  Register to record all duty travels taken and the register updated with
  supporting documents such as ticket butts/boarding passes, hotel invoices and
  receipts, hire car invoices and receipts and other documents. The management
  of the College had concurred with my observation and advised that
  appropriate/corrective action would be taken.

  5. Personnel Emoluments

  During my review of staff personnel files, I noted that the employment
  contract for the Principal of the College was not signed. In the absence of a
  valid contract of employment, I was unable to substantiate and validate the
  salary and allowances paid to him.

  I brought the matter to the attention of the management and I was advised as
  follows:

  “Terms and conditions for the Principal is awarded by SCMC through which
  payroll have paid year to date. It’s only his appointment by National
  Executive Council (NEC) is yet to be received. The management is still
  following up with DPM on the matter.”

  6. Casual Wages

  During my review of the casual wages payments, I noted on several instances
  where there were weaknesses noted in the approval process. Time sheets were
  not signed off by the officers responsible for the preparation,
  checking/verification and approval. A lack of adherence to the proper approval
  process indicated control weakness and might result in errors including
  calculations of casual wages.

  – 233 –

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• Papua New Guinea Maritime College

  I recommended management to implement proper check and approval process
  to ensure that casual staff wages payments were correct and genuine. The
  management advised that it became aware of the issue and would address the
  matter in 2015.

  48.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the College for the
  years ended 31 December 2015 and 2016 had not been submitted for my inspection
  and audit, despite reminders.

  – 234 –

• Page 271 of 450

• 49. PAPUA NEW GUINEA NATIONAL INSTITUTE OF
  STANDARDS AND INDUSTRIAL TECHNOLOGY

  49.1 INTRODUCTION

  49.1.1 Legislation and Objectives of the Institute

  The Papua New Guinea 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.

  – 235 –

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• Papua New Guinea National Institute of Standards and Industrial Technology

  49.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  49.2.1 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 2014 and 2015 were issued on 7
  June 2017. The reports contained similar Qualified Opinions, hence, only the 2015
  report is reproduced as follows:

  “BASIS FOR QUALIFIED OPINION

  Debtors – K37,949

  During my review of the Debtors, I observed that the Institute disclosed its trade
  debtors as K37,949 at 31 December 2015. However, the Institute had not compiled a
  trade debtors listing to record and monitor unpaid invoices. Further, accounts
  receivable ageing report and accounts receivable reconciliations were not maintained
  by the Institute. As a result, I was unable to state whether the debtors balance have
  been fairly stated in the financial statements.

  Staff Advance – K43,407

  The Institute disclosed K43,407 as staff advance in the financial statements. During
  my review, I noted that the Institute did not maintain a Staff Advance Register to
  record and monitor advance payments and collections so as to reconcile with general
  ledger records. In addition, the Institute had no documented policy for advances. As a
  result, I was not able to verify the staff advance amount as disclosed in the financial
  statements.

  Fixed Assets – K3,009,468

  The Fixed Assets Register provided for my review was not properly maintained and
  updated. During my examination, I noted that the Fixed Assets Register was
  incomplete and did not adequately capture all the Institute’s assets including additions
  purchased in the current year. As a result, I was not able to verify the amount as
  disclosed 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

  – 236 –

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• Papua New Guinea National 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
  2015 and the results of its financial operations for the year then ended.”

  49.2.2 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 Institute for the years ended 31
  December 2014 and 2015 were issued on 7 June 2017. The reports contained similar
  observations, hence, only the 2015 report is reproduced as follows:

  Non-Submission of Financial Statements

  The Institute had not prepared and submitted its financial statements to my office
  before 31 March 2016 to enable me to conduct the audit within the timeframe
  stipulated by the Public Finances (Management) Act 1995. Consequently, the Institute
  had breached Sections 63(2) and 63(4) of the Public Finances (Management) Act
  1995.

  Bank Reconciliation

  My review of Cash at Bank revealed that bank reconciliations were not prepared,
  reviewed, checked and certified by senior officers of the Institute in 2015 on a timely
  basis. As a result, I was not able to place reliance on the effectiveness of the controls
  surrounding the management of cash and the bank reconciliation process. I brought
  this to the attention of the management and they concurred with my observations and
  assured me that corrective action would be taken.

  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 2015. I drew this to the attention
  of the management and they responded as follows:

  “We agree with your comments that the Institute needs a proper FAR and will look
  into it.”

  – 237 –

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• Papua New Guinea National Institute of Standards and Industrial Technology

  Investment Register

  During my review, I observed that the Institute did not prepare and maintain an
  investment schedule to calculate and capture the interests earned and the rolled over
  balances. The Institute relied entirely on the certificates and bank statements provided
  by the Finance Companies.

  Furthermore, I was not provided with the lodgement certificate to confirm the
  movements of both the 180 days term with First Investment Finance Limited and 30
  days term with Micro Finance Limited. As a result, I did not perform any
  reconciliation to ascertain the existence, validity and completeness of the recorded
  interest income and investment balance at each maturity date at year-end. I
  recommended the Institute to prepare and maintain proper IBD Investment Schedule
  to keep track of the movements of the IBD investments. I brought this to the attention
  of the management and they concurred with my observations and assured me that
  corrective action would be taken.

  Travel Advance/Acquittals Register

  The Institute did not maintain a Travel Advance/Acquittals Register to keep proper
  records of acquittals for all duty travels and related expenses. The Institute did not
  comply with the Public Finances (Management) Act 1995 which governs the
  management and use of public funds. It is a requirement under the Financial
  Management Manual Part 20 paragraph 11.2 that cash advance to officers travelling
  overseas on official duty to acquit travel advances within 14 days of return from duty
  travel. While Part 20 paragraph 12.10 of the Manual requires that advances to
  officers for domestic duty travel to be acquitted within 7 days of return from duty
  travel. Thus, I was unable to trace and authenticate advances and travel expenses
  against its acquittals. I brought this issue to the attention of the management and they
  responded as follows:

  “We take note of your recommendation and will take appropriate action to address
  the issue.”

  Personnel Emoluments

  My review of the personnel files for employees of the Institute revealed that no proper
  and timely updating of staff personnel records were done. Information such as salaries
  and wages tax declarations, birth certificates, salary history cards, leave records and
  other correspondences relating to salaries variations were not updated on a timely
  basis. I brought this issue to the attention of the management and they responded as
  follows:

  – 238 –

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• Papua New Guinea National Institute of Standards and Industrial Technology

  “We take note of the issue raised and has instructed the Institute’s Human Resource
  Section to update the staff files.”

  49.3 STATUS OF FINANCIAL STATEMENTS

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

  – 239 –

• Page 276 of 450

• 50. PAPUA NEW GUINEA SPORTS FOUNDATION

  50.1 INTRODUCTION

  50.1.1 Legislation

  The Papua New Guinea Sports Foundation was established by the Papua New Guinea
  Sports Foundation Act 2005. This Act was certified on 8 August 2006 and became
  operational on the same date and replaced the Papua New Guinea Sports Commission
  Act 1992.

  Under this Act, all assets held or occupied by and all liabilities and obligations of the
  Papua New Guinea 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
  Papua New Guinea; to provide leadership in the development of Papua New Guinea’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 Papua New Guinea for the development of sports and
  to develop and implement programs to promote equality of access to and
  participation in sports by all Papua New Guinea 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;

  – 240 –

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• Papua New Guinea Sports Foundation

  Fostering co-operation in sports between Papua New Guinea and other
  countries and to provide access to persons from other countries to the
  resources, services and facilities of the Foundation;
  Raise money through the National Sports Trust or by other means for the
  purposes of the Foundation and to administer and expend 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 Papua New Guinea 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

  50.2.1 Comments on Financial Statements

  My reports to the Ministers under Section 8(4) of the Audit Act on the Foundation’s
  financial statements for the years ended 31 December 2005 to 2013 were issued on 09
  March 2017. The reports contained similar Disclaimer of Opinions, hence only the
  2013 report is reproduced as follows:

  “BASIS FOR DISCLAIMER OF OPINION

  Non-submission of Audit Evidence

  The management of the Papua New Guinea Sports Foundation was unable to provide
  me with any sufficient appropriate audit evidence on which I could perform my audit
  procedures to the following Accounts;

  Income – K39,701,083
  Expenses – K46,044,406
  Total Assets – K81,302,263
  Total Liabilities – K41,621,660
  Total Accumulated Funds – K39,680,604

  The management of the Foundation had provided me a management representation
  regarding the lack of availability of sufficient appropriate audit evidence. As a result,
  I was unable to form an opinion on the accuracy and completeness of the financial
  statements of Papua New Guinea Sports Foundation.

  – 241 –

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• Papua New Guinea Sports Foundation

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis for Disclaimer of
  Opinion, I was not able to obtain sufficient appropriate audit evidence and
  accordingly I am unable to express an opinion on the financial statements of Papua
  New Guinea Sports Foundation for the year ended 31 December 2013.

  OTHER MATTER

  Non-submission of Financial Statements

  The Foundation had not prepared and submitted its financial statements to the
  Minister and the Auditor-General prior to 30 June for the year ending 31
  December proceeding, resulting in breaches of Section 63(2) and Section 63(4) of
  the Public Finances (Management) Act 1995.”

  50.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Foundation had not submitted its financial
  statements for the years ended 31 December 2014, 2015 and 2016 for my inspection
  and audit.

  – 242 –

• Page 279 of 450

• 51. PAPUA NEW GUINEA UNIVERSITY OF TECHNOLOGY

  51.1 INTRODUCTION

  51.1.1 Legislation and Objectives of the University

  The Papua New Guinea 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 Papua New Guinea.

  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 Subsidiaries of the University

  The University has two wholly owned subsidiary companies, National Analytical 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 AND RECOMMENDATIONS

  51.2.1 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 2013 and 2014 were issued on
  17 March 2017 and 10 April 2017 respectively. The reports contained similar
  Qualified Opinions, hence only the 2014 report is reproduced as follows:

  “BASIS FOR QUALIFIED OPINION

  Opening Balances

  In previous years (2010 to 2012) a disclaimer opinion were issued on the financial
  statements due to limitation of scope expressed in my prior years audit reports. For
  the year ended 31 December 2014, I was unable to carry out necessary audit
  procedures to satisfy myself as to the accuracy and completeness of the opening
  balances taken up in the books of the University.

  – 243 –

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• Papua New Guinea University of Technology

  Hence, I am not able to comment on the accuracy of the opening balance of Fixed
  Assets, Receivables, Employee provisions, Creditors, Group tax payable & Un-
  appropriated Surplus.

  QUALIFIED OPINION

  In my opinion, except for the effect of the matter described in the Basis for Qualified
  Opinion paragraph, the financial statements of the PNG University of Technology for
  the year ended 31 December 2014:

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

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

  51.2.2 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 University for the years ended 31 December
  2013 and 2014 were issued on 17 March 2017 and 10 April 2017 respectively. The
  reports contained similar comments, hence only the 2014 report is reproduced as
  follows:

  Financial Statements

  The Papua New Guinea University of Technology had 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 the results before the deadline, resulting in
  breach of Section 63(2) and Section 63(4) of the Public Finances (Management) Act
  1995.

  Trade Debtors Reconciliations

  I reviewed the trade debtor’s balance of the University and noted that this was not
  properly reconciled to the subsidiary ledger. The amount per general ledger trial
  balance was K82,740 while the balance per subsidiary ledger was K359,427 resulted
  in a difference of K276,687.

  – 244 –

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• Papua New Guinea University of Technology

  I had also noted that other non-trade debtor’s transactions and/or accounts like the
  gratuity provisions and other refunds which I had isolated during my review was
  captured on the subsidiary ledger. Furthermore, invoicing and receipting of student
  fees which should have been done in the respective subsidiary accounts were not done
  consistently. My inquiry with the relevant staff within the bursary department
  revealed that the debtors’ module had a configuration/setup issue which they had not
  resolved since the implementation of Attache reporting package.

  I recommended to management that proper control cannot be exercised over trade
  debtors should proper and timely reconciliations were not carried out. Management
  agreed with my comments and stated that they were taking appropriate measures to
  fix the problems highlighted.

  Staff Advances – K360,054

  Proper reconciliations for the staff advances account as stated in Note 10 was not
  provided. Hence, I was not able to comment on the validity of the balance. The
  management responded that the staff debtors were carried forward from the previous
  years and they were working on the list of employees to start their fortnightly salary
  deduction.

  Tuition Fees, Maintenance Fees and Insurance Fees

  The tuition fees, maintenance fees and insurance fees are part of the University’s
  overall course fees. During my review, I noted that proper register of course fees was
  not maintained. I also noted that timely reconciliation of course fees were not carried
  out. I recommended to management to ensure proper records are kept. The
  management responded as follows:

  “These fees were not misstated or overstated. Invoices are being raised and debited
  into the student ledger and credited into School Fee Account. GL extract were
  provided during the audit. We are requesting the Attache consultant to provide the
  system generated Fee Register in future.”

  Salaries and Wages

  I had reviewed the salaries and wages of the University and noted that the tax value of
  the housing benefit, as prescribed by the Income Tax Act, 1959 (as amended), was not
  included in the gross taxable income of each employees to calculate the salary income
  tax. Therefore, the staff of the University were paying lesser salaries and wages tax. I
  recommended to management to ensure group tax is calculated correctly and remitted
  to tax office.

  – 245 –

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• Papua New Guinea University of Technology

  The management commented that the tax value of the housing benefits was excluded
  from taxable income. They will check with Internal Revenue Commission and then
  discuss with the senior management and implement it if it is required by law.

  Other Payments

  I tested selected payments above K10,000 and vouched to supporting documentation.
  The aim of my vouching exercise was to ensure (a) payment agreed to supporting
  documentations, (b) supporting documents were adequate, (c) payment were approved
  by proper authorities, (d) classified correctly and posted to correct general ledger
  accounts, and (e) payments were in line with the requirements of the Public Finances
  (Management) Act 1995. I noted several documentation issues which I recommended
  to management to ensure the documentation issues are rectified in due course. The
  management concurred with my views and stated that they would implement my
  recommendations.

  Fixed Assets

  A stock take of fixed assets was carried out during the period under review and values
  established. The values arrived at did not reconcile with the general ledger trial
  balance and were difficult to correlate. The management responded that they were
  working to finalize the fixed assets register in Attache and to incorporate the assets
  brought through the PIP account during the years 2011, 2012 and 2013. They further
  stated that from 2016 onwards all assets shown in the Fixed Assets Register are to be
  reflected in the general ledger.

  Compliance with Income Tax Act

  My review of the operations of the University revealed that they were not compliant
  with the requirements of the Income Tax Act. These requirements mainly relate to
  submission of income tax returns and GST returns timely. I also noted that the group
  tax liability was not paid on time. I recommended to management to ensure tax laws
  are complied with. The management responded as follows:

  “Firstly, University is exempted from filing of income tax returns but is liable to pay
  Group tax and GST. We have filed the GST returns up to February 2017. Regarding
  the group tax outstanding, we started paying K200,000 per month. Also, we filed CR1
  form to transfer the GST in put credit into Group tax.”

  – 246 –

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• Papua New Guinea University of Technology

  Control Environment – Policies and Procedures

  The University did not have tailor made policies and procedures in place over its
  financial management function. The specific areas were fixed assets, investments,
  income, payments, accounting, human resources and compliance. Policies and
  procedures describe the parameters within which the University would like to operate
  and the risks that it would like to assume.

  I recommended to management to take steps to ensure a set of policies and procedures
  are in place to ensure continuity and consistency of operations. The management
  responded as follow:

  “The Financial Manual has been prepared by Internal Audit Office and the Bursary.
  The comprehensive document is available now. We are regularly checking payroll by
  other office that is not in payroll preparation as “Internal Control System” because
  70% of the University expenses are coming from payroll cost.”

  51.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the financial statements of the University for the
  year ended 31 December 2015 had been submitted for my inspection and audit and
  arrangements were being made to commence the audit shortly.

  The University had not submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit.

  – 247 –

• Page 284 of 450

• 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 years ended 31 December 2012 and 2013 were in
  progress.

  The Company had not submitted its financial statements for the years ended 31
  December 2014, 2015 and 2016 for my inspection and audit.

  – 248 –

• Page 285 of 450

• 51B. UNITECH DEVELOPMENT AND CONSULTANCY COMPANY
  LIMITED (Subsidiary of University of Technology)

  51B.1 INTRODUCTION

  Unitech Development and Consultancy 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 financial statements of the Company for the
  years ended 31 December 2014, 2015 and 2016 had not been submitted for my
  inspection and audit.

  – 249 –

• Page 286 of 450

• 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 objectives of the Fund are 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 Minister under Section 8(4) of the Audit Act on the Fund’s financial
  statements for the year ended 31 December 2015 was issued on 27 February 2017.
  The report did not contain any qualification.

  52.2.2 Audit Observations Reported to the Minister

  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 2016 for my inspection and audit.

  – 250 –

• Page 287 of 450

• 53. PUBLIC CURATOR OF PAPUA NEW GUINEA

  53.1 INTRODUCTION

  53.1.1 Legislation

  The Office of the Public Curator of Papua New Guinea 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 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 2013 had been completed
  and management responses were being awaited to finalize the audit report.

  The financial statements for the years ended 31 December 2014, 2015 and 2016 had
  not been submitted by the Public Curator’s Office for my inspection and audit.

  – 251 –

• Page 288 of 450

• 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 AND RECOMMENDATIONS

  54.2.1 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 year ended 31 December 2012 was issued on 8 August
  2016 while 2013 and 2014 were issued on 7 October 2016. The reports contained
  similar Qualified Opinions, hence only the 2014 report is reproduced as follows:

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  “BASIS FOR QUALIFIED OPINION

  Cash at Bank – K692,560

  My examination revealed that the bank reconciliations were prepared by the Manager
  (Finance and Administration) without any checks performed by an independent
  person as an internal control measure to validate the amount stated in the
  reconciliation statements. I also noted an unidentified cash disbursement of K5,991
  which the management advised that this amount was generated by the Accounting
  system currently in use and that this will be rectified via proper reconciliation. I was
  unable to place reliance on controls surrounding the bank reconciliation process. As a
  result, I was unable to state whether the bank balances have been fairly stated in the
  accounts.

  Fixed Assets – K210,669

  My review of the Fixed Assets Register (FAR) revealed that the Register was not
  properly maintained and updated on a timely basis. 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 K210,669 as disclosed in the
  financial statements.

  Accounts Receivable – K59,215

  My examination of accounts receivable revealed that receivable balance was
  understated as it did not capture license and permit fees as fees receivable from
  license and permit holders who have not paid their fees on due dates. The Authority
  had not maintained proper debtors’ records detailing the debtors, invoices and other
  supporting documents to validate the actual existence of debtors.

  As a result, I was unable to confirm the completeness and accuracy of the debtors and
  the fair presentation of the accounts receivables amount stated 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

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  (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 2014 and
  the results of its financial operations for the year then ended.”

  54.2.2 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 Authority for the year ended 31 December
  2012 was issued on 8 August 2016 while 2013 and 2014 were issued on 7 October
  2016. The reports contained similar significant matters, hence only the 2014 report is
  reproduced as follows:

  Non Acquittals of Travel Advances

  My review of the travel expenses totalling K171,921 incurred 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, the above total remained outstanding or unacquitted at year end.
  I drew this issue to the attention of the management and they responded as follows:

  “There are 2 security compliance inspection per year and some short trips by me
  (Registrar) and the managers therefore there are not many acquittals on the files.
  However, we have maintained an accurate record but we do appreciate and take your
  advice to have manual Register which we have now created a book to cater for this.”

  Register of Disciplinary Points

  I noted that the Authority had not maintained a Register of Disciplinary Points. It is a
  statutory requirement pursuant to provisions of the Security (Protection) Industry Act
  2004, Section 25 which stipulates that the Authority should maintain a Register of
  Disciplinary Points. The Register of Disciplinary Points were to be used by the
  Authority to record findings through Board of Complaints in relation to disciplinary
  points that were recorded against a holder of license or permit. My review revealed
  that the Authority did not have in place a proper mechanism to account for
  disciplinary issues and actions taken against the license and permit holders when any
  breach occurs.

  I drew this matter to the attention of the Authority and they agreed and informed me
  that they have now put in place a Registrar of Disciplinary Points managed by the
  Manager Licensing and Compliance despite the absence of Board of Complaints.

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  Board of Complaints

  I noted during the audit that the Authority did not have a Board of Complaints to deal
  with complaints raised by or against license and permit holders as required under
  Section 57 of the Security (Protection) Industry Act 2004.

  I recommended the Authority to ensure that a Board of Complaints was established as
  per the requirement of Section 57 of the Security (Protection) Industry Act 2004 to
  perform its required function as a quasi-judicial Board to hear into
  complaints/allegations made by or against permit and license holders.

  The Authority responded to my concern as follows:

  “The Board of Complaints was never set up by the Security Industries Authority since
  its inception in January 2006. In 2015 the Security Industries Council approved the
  establishment of the Board of Complaints and the list was submitted to the Police
  Minister to be gazetted as required by Section 9 of the Security Industries (Protection)
  Act and nothing has happened. We have noted your concerns and will take it up to the
  Council in the next meeting to check the status of the Board of Complaints.”

  Annual Returns

  It is a requirement under Section 76 of the Security (Protection) Industry Act 2004
  that all license holders are required to submit an Annual Return on or before 31st
  March for the year ending 31st December preceding. During my review, I noted that
  no annual returns were received from license holders. The Authority had not pursued
  the enforcement of this statutory requirement through mechanism such as cancelation
  or refusal to grant licenses.

  I drew this matter to the attention of the management and they responded as follows:

  “We agree with you on the requirement for the submission of annual return by
  Security Companies as required by Section 9 of the Security (Protection) Industries
  Act. We’ve advertised in media reminding security companies to submit their annual
  returns but only few have been submitting their annual returns.

  And further, there is no penalty listed in the Security (Protection) Industries Act for
  failing to submit the Annual Returns, therefore we cannot cancel the security
  providers’ license and guards’ permit or penalize security companies in one way or
  another.”

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  Council Meetings

  During my review of the 2014 meeting minutes, I noted that two (2) meetings were
  held during the year without the presence of a quorum as required under the Security
  (Protection) Industry Act 2004. The two (2) meetings were held with less than six (6)
  council members present which was not in accordance with Section 15, Sub-section 1
  (a) of the Security (Protection) Industry Act 2004 to form a quorum.

  I recommended the Authority to ensure that required quorum exists to lawfully
  conduct Council meetings. The Authority responded to my observation as follows:

  “We agree with the audit findings that we did not have the full quorum for the two (2)
  meetings. This issue is noted and advice that the council members not present have
  endorsed the issues discussed and agreed in the two (2) meeting resolutions.

  This deficiency has been identified and we advertised publicly for interested
  candidates from the stakeholders through the former Chairman but nothing has
  happened. We will follow up with the current Police Commissioner and Chairman to
  sort this issue out soon.”

  54.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the Authority had not submitted its financial
  statements for the years ended 31 December 2015 and 2016 for my inspection and
  audit, despite my reminders.

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• 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 fieldwork associated with the inspection and
  audit of the accounts and records and the examination of the financial statements of
  the Corporation for the years ended 31 December 2013, 2014 and 2015 had been
  completed and the results were being evaluated.

  The Corporation had not submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit.

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• 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 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  56.2.1 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 2015 was issued on 5 August
  2016. The report did not contain any qualification.

  56.2.2 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 Tourism Promotion Authority for the year
  ended 31 December 2015 was issued on 5 August 2016. The report contained the
  following comments:

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  Staff Debtors – K118,974

  The staff debtors had been disclosed as K118,974 at 31 December, 2015. This balance
  had increased by more than 50% compared to prior year as a result of more advances
  taken by staff during the year. Further, I noted that staff debtors amounting to
  K34,930 were 180 days old and represented 30% of the total staff debtors. The
  Authority did not have any specific policy guidelines on staff advances to give out
  staff advances and monitor staff repayments. I brought this matter to the attention of
  the Authority and the management responded as follows:

  “We agree that Authority lacks specific written policies in the types of “Staff
  Advances” and “Repayment method”. As you are aware, our Financial Procedures
  Manual is well due for a review and a proposal is now being worked on for
  management’s deliberation. However, this project is subject to availability of
  funding.”

  Staff Salary History Cards

  My review of the personnel files for certain selected officers of the Authority revealed
  that the management had not maintained the salary and history cards in their
  respective personnell files to confirm their appropriate remuneration rate for their
  employment. The proper filing of history and salary cards would enable the payroll
  staff to easily access the information and perform correct calculation of the staff
  entitlements. In the absence of proper and updated salary history cards, I was unable
  to confirm the salary and allowances calculations and the accuracy of leave records
  maintained by the Authority.

  The Authority responded to my observation as follows:

  “We admit that salary history cards were not maintained in individual personnel files.
  The Human Resource section is currently transferring employee salary and allowance
  including leave records onto their individual history cards.”

  56.3 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 2016 had been completed and the
  management responses were being awaited to finalise the audit reports.

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• 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 Salaries and Conditions Monitoring Committee 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;

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  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.

  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 AND RECOMMENDATIONS

  57.2.1 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 2014 was issued on 24 October
  2016. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Opening Balances

  The 2013 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, Cash at Bank, Equity and
  Cashflows. 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 balances stated in the
  financial statements of the University for the year ended 31 December 2014.

  Cash at Bank – K12,221,167

  The University maintained five (5) Bank Accounts; Grant, Internal Revenue,
  Special Purpose, Public Investment Program (PIP) and Menifor accounts which
  aggregate total amounted to K12,221,167. During my review I noted that:

  Adjustments of material amount were included as outstanding cheques and
  uncleared deposits totaling K1,871,298 and K752,634 respectively in the
  reconciliation report. I was unable to verify the nature of the material
  adjustments due to lack of records and proper explanation; and

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  Bank reconciliations for the five (5) accounts above were not prepared,
  reviewed and verified by senior competent officers of the University on a
  timely basis.

  As a result of the above observations, I was unable to neither ascertain the
  accuracy and completeness of cash at bank balance stated at year end nor place
  reliance on the effectiveness of the controls maintained by the University during
  the year.

  Cashflows Statement

  During my review and examination of the cashflows statement of the University for
  the year ended 31 December 2014, I noted an unreconciled difference of K3,340,643
  between the cashflows statement balance of K15,561,810 and the cash and cash
  equivalent balance of K12,221,167 disclosed in the balance sheet. I was not provided
  with a consolidated cashflows statement capturing all the accounts maintained by the
  University. As such, I was unable to place any reliance on the cashflows statement
  presented as part of the financial statements.

  Fixed Assets – K36,646,791

  My review of the University’s Fixed Assets account revealed the following:

  The University did not have an updated and complete Fixed Assets Register
  (FAR). I noted that additions for the year were captured and added to the
  cumulative balance carried forward from prior years. Due to the absence of a
  complete FAR, I was unable to perform necessary audit procedures to confirm
  the balance disclosed at the year end;

  There was no clear policy formulated by the University in relation to the
  acquiring of assets, capitalization and the disposal;

  Fixed assets were never been counted and tagged with asset numbers for
  identification and monitoring purposes. In the absence of fixed assets stock-take
  and tagging, assets that are idle, misplaced or stolen cannot be identified by the
  University;

  The University has not carried out any revaluation exercise on all the Buildings
  and Land owned and in its custody to reflect the current market value. As such,
  the University has not complied with International Accounting Standards (IAS 16)
  (Measurement and Recognition) requirement where valuation of property, plant
  and equipment should be done on a regular basis.

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  Consequently, I was unable to confirm the accuracy and valuation of the balance
  of K32,243,116 and K1,817,228 relating to Buildings and Land presented in the
  financial statements as at 31 December 2014; and

  Lack of proper coordination was noted between the Bursary and Planning
  divisions in relation to the Fixed Assets Management. I further noted that both
  divisions were using different Fixed Assets Software to record assets of the
  University that were never consolidated. MYOB was used in the Bursary
  Division and Kumul Software in Planning. The lack of coordination and proper
  management of the fixed assets create avenues for misuse and abuse of State
  property under the custody of the University.

  Due to the 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 2014. I was also unable to place any reliance on the effectiveness of the
  controls surrounding the use and custody of the Fixed Assets of the University.

  Work-In-Progress – K51,954,032

  I noted that Work-In-Progress (WIP) balance was disclosed as K51,954,032 in the
  financial statements at year end. My review revealed that there were no proper
  schedules and records detailing the amounts classified under work-in-progress apart
  from the MYOB listings. There was no correlation between the source of funding and
  for which (earmarked projects) the funds were used for during the year. Further, the
  ongoing projects and projects continued from prior years cannot be traced to the
  funding source.

  As a result, I was not able to ascertain and confirm whether the balance representing
  the Work-In-Progress was fairly stated in the financial statements.

  Incorrect Classification – Work-In-Progress

  I noted that an amount of K310,670 was paid to PNG Power for power supply to the
  University’s new student dormitories as per PNG Power Ltd Ref No. PC/ED dated
  26/02/2014. As per the letter, the payment was made under Refundable Capital
  Advance Agreement. Under this agreement, within 5 years if PNG Power recoups the
  money, it would refund the money back to the University. However, I noted that the
  payments were treated under work-in-progress. In addition, I noted that there was no
  work undertaken by PNG Power Ltd to date. The payment made to PNG Power for
  the specific work was not properly classified as receivable due to the refundable
  nature per the contract. As a result, the balance of the Work-In-Progress disclosed was
  not fairly stated in the accounts.

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  Recognition of Tuition Fees Income

  Tuition Fees Income is recognised as income when deposit slips and tuition fee bank
  confirmations are provided to the University upon student registration. During my
  review, I noted that since the University was applying the accrual basis of accounting,
  a receivable account was supposed to be created and income earned upon the issuance
  of acceptance letters/invoices.

  However, the University recognises income as and when school fee deposits are
  made. As a result, I was not able to comment on whether all fees charged for the year
  were received in full and income has been correctly disclosed in the financial
  statements. Further, I was not able to ascertain the amount outstanding at the year end.

  Incorrect Classification and Posting of OHE Funding

  During my review of the Tuition Fees income for the year ended 31 December 2014, I
  noted that the University was receiving sponsorship from the Office of Higher
  Education through Tertiary Education Scholarships Assistance Scheme (TESAS) and
  directly crediting income account instead of liability. This liability account will be
  reduced upon the disbursement of funds on behalf of the students. The TESAS
  funding is calculated per student head for Boarding and Lodging, Book Allowance,
  Beginning and End of Year Travels and Pocket Allowances. Except for the other
  OHE funding component, Boarding and Lodging should be classified as income as
  the University is providing these facilities. Due to the fact that the TESAS funding is
  being directly earmarked for student expenditures, a liability account should be
  created instead of income to reflect the correct treatment and definition of liability. As
  a result, I was not able to comment on whether the OHE funding received during the
  year was correctly classified, posted and correctly reflected in the financial statements
  as at 31 December 2014.

  Deferred Income – K57,485,229

  During my review of deferred income of K57,485,229 disclosed in the financial
  statements, I noted that the University did not have proper schedules and records
  substantiating this balance. I further noted that the balance was carried forward from
  prior years without adjustments. This coupled with lack of proper records relating to
  PIP Grants received in prior years compounded the problem to determine the accuracy
  and correctness of the balance. As a result, I was unable to determine whether the
  above balance was fairly stated and disclosed in the financial statements.

  Staff Entitlements – K3,741,833

  During my review, I noted that the staff entitlements (Note #8) was disclosed as
  K3,741,833, in the financial statements for the year ended 31 December 2014.

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  However, I was not provided with staff listing and supporting documents at the time
  of the audit to enable me to extend my audit procedures to confirm the accuracy and
  completeness of the balance. As a result, I was unable to confirm and conclude on the
  accuracy and valuation of the balance representing staff entitlements disclosed 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 am unable to and do not express an opinion on the financial
  statements of the University for the year ended 31 December 2014.”

  57.2.2 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
  2014 was issued on 24 October 2016. The report contained the following
  observations:

  Council Meeting Minutes

  During my review, I noted that the Council met on three (3) occasions in 2014.
  However, minutes of the three (3) Council meetings provided for my review were
  neither signed by the minute secretary nor approved by the Chairman. In the absence
  of signed Council meeting minutes, I was unable to confirm whether the proceedings
  were properly recorded and whether issues deliberated were in the best interest of the
  University.

  Accounting Skills and Knowledge

  During my review, I noted that the University’s accounting staff lack required
  knowledge and skills in accounting and other related areas to perform their day to day
  function. I also observed a need for training on computerised accounting system to
  equip them to discharge their duties effectively.

  Operational and Financial Policy Manual

  The University during the year under review had not produced approved Operational
  and Accounting Procedural Manuals, Operational Guidelines and Policies. These
  guidelines and policies should be formally established, well documented and
  communicated to all levels and functions of the organisation and be used in everyday
  work by all staff employed by the University.

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  In the absence of such guidelines and policies, I was unable to measure and comment
  on the standards of operations in relation to the systems and controls. Further, I was
  unable to confirm whether uniform procedures were followed in respective divisions.

  Management responded to my finding as follows:

  “The University has its Financial Policy Manual but it has not been updated since a
  few years back and it requires updating. However, we are currently operating
  complying with the Public Finance (Management) Act 1995 (PFMA) for our UOG
  operation. With an engagement of appropriate Financial Consultant by the UOG
  management and Council, it may be updated in future.”

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

  The Public Finances (Management) Act 1995 Section 63(2) and 63(4) requires the
  University to furnish to the Minister before 30 June 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 had not prepared and submitted its
  financial statements for the year ended 31 December 2014 to my Office on a
  timely basis to enable me to complete the audit on time for tabling the report in
  Parliament before 30 June 2015. Accordingly, the University had breached
  Section 63(2) and 63(4) of the Public Finances (Management) Act 1995. I have
  repeatedly brought this non-compliance of the above Section to the University’s
  management to take necessary action.

  Unbudgeted Expenditures

  During my review of the recurrent budget, I noted that the University incurred
  K2,311,212 on unbudgeted expenditures in 2014. As a result, I was unable to state
  whether all factors were taken into consideration by the University before the budget
  was formulated. Expenditures not considered in the budget creates and provides the
  avenue for misapplication of public funds and at the same time a constraint to the cash
  flow available for the University’s normal operations.

  I brought this to the attention of the management and it ensured to comply with
  budgetary controls in the future.

  Payments for Signing Cheques and Extra Duties

  I noted instances where payments were made to senior officers of the University for
  signing of cheques and for other duties perceived as outside their job description. The
  amount authorized and paid during the year was K139,500 in total.

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• University of Goroka

  Of this amount, a total of K109,500 was paid to certain officers of the University as
  consultancy payments in the preparation and lodgement of tax returns for rebates. A
  total of K17,000 was paid to staff for processing of student school fee refunds and
  K13,000 was paid to the Bursar and Registrar for signing of cheques, perceived as
  being for extra duties. However, I was not provided with proper consultancy policy
  stating clearly the category of staff that are entitled and qualify to claim consultancy
  fees from the University. As a result, I was unable to ascertain the basis of which
  these payments were made to these officers. As the staff of the University were
  employed by the University as determined by their respective job descriptions and
  employment conditions, such compensation payments are considered improper and
  questionable.

  Lack of Proper Contracts

  My review of the contractual payments made by the University in 2014 revealed
  severe weaknesses and control breakdown in the payment process. Contract payments
  totaling K3,512,477 were made to suppliers without proper documentation and
  binding contracts. There were no proper tendering and procurement procedures
  followed in the awarding of the contracts. As a result, I was not able to confirm
  whether proper procedures were applied in determining the contracts. Consequently, I
  could not place reliance on the effectiveness of the controls surrounding the process of
  tendering, assessing and awarding of contracts by the University in 2014 and whether
  due care and value for money was taken into account while awarding contracts.

  Lack of Proper Acquittal of Travel Advances

  My review of travel and subsistence expenses amounting to K849,215 for the period
  ended revealed lack of travel acquittals by concerned staff of the University during the
  year. There was no Travel Advances Register maintained by the University in 2014. It
  is a requirement as per the Financial Management Manual Part 20 paragraph 11.2
  that cash advanced to officers travelling overseas on official duty must acquit travel
  advances within fourteen (14) days of return from duty travel. At the same time Part
  20 paragraph 12.10 of the Manual stipulates that advances to officers for domestic
  duty travels to be acquitted within seven (7) days of return from duty travel by
  submitting an acquittal form.

  Lease Agreements not sighted

  My review revealed that payments amounting to K148,832 were paid for rental of
  property during the year. However, no proper lease agreements between the landlords
  of the properties and the University were provided for my verification. There was no
  legal agreement between the University and the respective landlords thus place the
  University at risk of legal implications. As a result, I was not able to verify whether
  due care was exercised by the University in ensuring that proper agreements were
  undertaken.

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• University of Goroka

  Procurement Process

  My review of the payment process of the University revealed that payments totaling:

  K521,064 were made without obtaining three (3) written quotations from three
  (3) different suppliers. It is a breach of Financial Management Manual Part 12
  Division 3, which states that three (3) written quotations must be obtained for
  purchases valued between K5,000 and under K100,000; and

  K239,815 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 had been
  received by the University.

  Due to above discrepancies, I was unable to place reliance over the controls
  surrounding the payment process.

  The management concurred with my findings and agreed to take necessary action.

  Payment of Contract Allowances

  During my review of the personnel emoluments, I noted that some of the contract
  officers of the University were paid contract allowances through cheques instead of
  the normal payroll system without being correctly taxed as required by the Income
  Tax Act 1959 (as amended) which I viewed as means to avoid tax. I recommended the
  management to immediately cease such practices and comply with proper procedures
  in compliance to the Income Tax Act 1959 (as amended).

  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 examination of the financial statements of the
  University for the year ended 31 December 2015 had been completed and the results
  were being evaluated.

  The University had submitted its financial statements for the year ended 31 December
  2016 for my inspection and audit and arrangements were being made to commence
  the audit shortly.

  – 268 –

• Page 305 of 450

• 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 textbooks, 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 Company had not submitted its financial
  statements for the years ended 31 December 2014, 2015 and 2016 for my inspection
  and audit.

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• Page 306 of 450

• 58. UNIVERSITY OF NATURAL RESOURCES AND
  ENVIRONMENT (VUDAL)

  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;

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• 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 financial
  statements of the University for the year ended 31 December 2014 was issued on 29
  October 2016. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  1. Internal Control Environment

  The University maintains its accounts on a spread sheet and then the
  accounting information are posted to the MYOB accounting system to compile
  its financial statements. During my audit, the University has made numerous
  material adjustments to financial statements and some of the reconciliations
  were done during the field audit. I also noted that lack of supervision in the
  Busary Division coupled with lack of skilled and competent staff to maintain
  proper accounting records has contributed to poor quality reports. Further, I
  observed that there was lack of co-ordination between Project Planning
  Division, which is responsible for major projects of the University and the
  Bursary.

  As a result of weak internal control environment, financial statements were
  revised on numerous occasions. Consequently, I was unable to place reliance
  on the internal controls operated during the year under review.

  2. Opening Balances

  During my review, I noted that the 2014 general ledger opening balances did
  not agree with 2013 audited account balances of the University. The reason
  being that the MYOB accounting system had not been configured to roll over
  the year end closing balances to the new accounting period.

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• University of Natural Resources and Environment

  As a result, assets and liabilities of the University’s opening balances did not
  reconcile to closing balance of 2013 audited accounts. Since 2013 closing
  balances enter into the determination of the results of the University for 2014,
  I was unable to ascertain the correctness and measurement of the account
  balances stated at the year end.

  3. Valuation of Property, Plant and Equipment – K58,921,248

  The University disclosed its Fixed Assets amount as K58,921,248 at 31
  December, 2014 in the financial statements. I noted that the University did not
  acquire Fixed Asset Management System software to maintain and update its
  large record of fixed assets data but these details are maintained on a spread
  sheet. The maintenance of the large volume of this data on spread sheet may
  not be complete and accurate due to lack of audit trail. Further, the financial
  data are prone to alternation and manipulation when no audit trails are
  available.

  The University did not carry out a valuation exercise on all of its property
  since the last valuation done in 1997. In the absence of such valuation of
  assets under the custody of the University, I was unable to determine the
  valuation, existence and completeness of the fixed asset balance as disclosed
  in the financial statements. I was also unable to comment and ascertain the
  correctness and accuracy of the depreciation charge disclosed as K3,255,756
  in the financial statements.

  4. Farm Livestock

  I noted that the University’s Vudal and Oro Campuses Farms have several
  herds of livestock and disclosed as K7,087,654 in the financial statements.
  During my review of the livestock assets, I noted a decrease in value of
  K4,633,567 (K7,105,384 to K2,471,817) from 2013 to 2014.

  In accordance with the International Accounting Standards 41 (IAS 41), any
  gains or losses in the movements of livestock must be taken up in the
  Statement of Financial Performance, however, this difference was not
  recognised in the Statement of Financial Performance. The Livestock assets do
  undergo natural changes and in this case, the University’s Livestock biological
  transformation occurred through birth and growth. The movements of such
  transformation represent a gain or loss in the value of the assets that requires
  to be captured in the statement of financial performance as per International
  Accounting Standard 41 Para 26 (IAS 41 Para 26).

  – 272 –

• Page 309 of 450

• University of Natural Resources and Environment

  5. Biological Assets – K7,087,654

  In my review of the annual stock take on the biological assets, I noted that
  there was no independent confirmation such as the annual stock take count
  sheet for my examination. During my inspection of Warangoi and Vudal
  Cattle Ranch, I noted that the Cows were not tagged with any identification
  number to monitor their movements.

  Further, the failure to tag cows and all other livestock with any form of
  identification makes the stock value unreliable. As a result, I was unable to
  comment on the quantity and the value of livestock disclosed as K7,087,654 in
  the financial statements at the year end.

  6. Capital Work-In-Progress – K6,315,000

  During my review of Capital Work-in-Progress (CWIP), I noted that the
  account has registered a decrease of K22,626,546 during the year under
  review. The University claimed that the Capital Work-in-Progress was based
  on the valuation carried out by a project engineer of the University. However,
  the University was unable to substantiate any documentary evidence to
  support the valuation. Further, I was unable to verify the account to which the
  corresponding debit entry was made. My review revealed that neither the fixed
  assets account nor the Statement of Financial Performance was affected. As a
  result, I was unable to state that Capital Work-in-Progress has been fairly
  stated in the financial statements.

  7. Projects and Capital Works in Progress (PIP) Expensed-off

  During my review of the University’s Capital Works-in-Progress, I noted that
  costs associated with the projects were expensed off in the Statement of
  Financial Performance in respect of buildings totaling K3,000,000. These
  buildings were the University Library valued at K2,000,000, Taguba Office
  Complex at K400,000 and a new construction of two bedroom unit staff
  accommodation amounting to K600,000. The respective projects accounts in
  the general ledgers were not adjusted to account for the K3,000,000. As a
  result, expenses have been overstated by K3,000,000 in the financial
  statements.

  8. Accrued Employee Expenses – K707,137

  In my review of the Accrued Employee Expense, I was unable to confirm the
  amount disclosed in the financial statements due to the absence of general
  ledgers detailing the break-up of the accounts and the supporting employee
  fortnightly payroll listing.

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• University of Natural Resources and Environment

  As a result, I was not able to comment on the accuracy and completeness of
  the account balance of K707,137 stated at the year end.

  9. Accrued Salaries Tax Liability – K2,444,065

  During my review of Accrued Salaries Tax Liabilities, I noted that the
  University Accrued salaries tax expense accumulated to K2,444,065 at 31
  December 2014. During my review, the ledger reconciliation statement and
  the employees fortnightly tax deduction documents were not provided for me
  to confirm the existence of this liability account.

  I also noted that included in this aggregate amount was unpaid taxes owed to
  Internal Revenue Commission (IRC), however, I was not provided with any
  correspondence between IRC and the University regarding the outstanding tax
  liability. As a result, I was unable to state whether accrued tax expenses have
  been fairly stated in the financial statements.

  10. Accrued Leave Entitlements – K2,562,476

  During my review of the Leave Entitlements, I noted that a total of
  K2,562,476 was shown as liability comprising of Accrued Leave Fares of
  K152,285, Pro Rata Recreational Leave of K900,988, Long Service Leave of
  K1,146,092 and Accrued Recreational Leave of K363,108. However, I was
  not provided with a detailed listing and supporting documentation to verify the
  break-up of the figures as per the disclosure. As such, I was unable to
  comment on the completeness and accuracy of the accrued leave entitlements
  of K2,562,476 disclosed in the financial statements.

  11. Payment of Employee Entitlements – K101,200

  During the review of the employee entitlements, I noted that the former Vice
  Chancellor was paid his contract entitlement of K101,200 in 2014. I was not
  provided with source documents for my review and as a result, I was unable to
  comment whether the contract entitlement was properly calculated, checked
  and verified before his entitlement was paid.

  12. Project Wages

  During my review of the Project expenses, I noted that a large amount of
  expenses were incurred on project wages amounting to K2,285,109 in 2014
  which represent 22% of total PIP grants received during the year. The projects
  include constructions and renovation of buildings and sports complexes at
  three different campuses, namely: Vudal, Maprik and Oro Campuses. During
  the construction phase, rural casual workers were employed from the local
  area with extended hours and was paid at rural casual wage rates.

  – 274 –

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• University of Natural Resources and Environment

  I was not able to obtain sufficient appropriate audit evidence such as acquittal
  reports from the management on casual wages and employees details to
  validate the expenses incurred. As a result, I was unable to comment on the
  accuracy and completeness of the project wages expenses of K2,285,109
  incurred in relation to various projects.

  DISCLAIMER OF OPINION

  In my opinion, because of the significance of the matters discussed in the preceding
  paragraphs, I am unable to and do not express an opinion on the financials statements
  of the University for the year ended 31 December 2014.”

  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
  2014 was issued on 29 October 2016. The report contained the following matters:

  1.0 Quotation for Goods & Services

  During my review of various payments amounting to K2 million for supply of
  building material, purchase of equipment and consultancy, I noted that the
  University had not obtained three quotations as required under Public
  Finances (Management) Act, 1995 and the Public Finance Instruction
  Circular No. 2/2013 dated 20 May 2013. As a result, I was unable to state
  whether proper procedures were followed in selecting suitable suppliers and
  whether value for money was received for the goods and services provided to
  the University.

  2.0 Non-submission of Financial Statements

  The University had not prepared and submitted its financial statements to my
  Office before 31 March, 2015 to enable me to conduct the audit within the
  timeframe stipulated by the Audit Act. Consequently, the University had
  breached Section 63(2) and Section 63(4) of the Public Finances
  (Management) Act 1995.

  58.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the University had not submitted its financial
  statements for the years ended 31 December 2015 and 2016 for my inspection and
  audit despite numerous reminders.

  – 275 –

• Page 312 of 450

• 59. UNIVERSITY OF PAPUA NEW GUINEA

  59.1 INTRODUCTION

  59.1.1 Legislation

  The University of Papua New Guinea was established under the University of Papua
  New Guinea 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.

  Comments in relation to the subsidiaries are contained in paragraphs 59A and 59B of
  this Report.

  – 276 –

• Page 313 of 450

• University of Papua New Guinea

  59.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  59.2.1 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 8 December
  2016. The report contained Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Opening Balances/Comparatives

  My report for the year ended 31 December 2012 was a disclaimer of opinion. I was
  not able to satisfy myself as to the accuracy and completeness of the opening balances
  of cash on hand and at bank and other accounts which were qualified due to
  disagreement between the books and the financial statements. Consequently, I was
  unable to perform tests to verify the completeness and accuracy of the closing balance
  of assets (excluding cash) and liabilities disclosed in the Notes to the financial
  statements as at 31 December 2013.

  The Financial Statements

  The University’s financial statements were prepared on cash basis. The financial data
  was derived from the accrual basis attaché accounting system after making
  adjustments for movement of liabilities. However, I was not provided with complete
  details of adjustments to verify whether any potential misstatement existed in the
  receipts and payments of the University for the year ended. I also noted that various
  manual journal entries were posted at the year-end and not on a monthly basis.

  Further, the nature and volume of the transactions of the University has been
  significant and its properties were of great value. Therefore, cash basis of accounting
  seemed not appropriate for the University. The 2013 financial statements did not
  disclose sufficient financial information for me to determine the accurate financial
  position of the University.

  Cash at Bank – K24,666,133 (2012: K5,857,553)

  Note 8 of the financial statements disclosed cash on hand and bank balances of the
  various bank accounts of the University as at 31 December 2013. However,
  K44,725,034 was adjusted against the opening balance as prior period adjustment. I
  was not provided with adequate documentation for my verification to ascertain the
  appropriateness of the adjustment amount. As a result, I was unable to determine the
  completeness and accuracy of the bank balance as reported in the financial statements
  as at 31 December 2013.

  – 277 –

• Page 314 of 450

• University of Papua New Guinea

  Special Purpose Accounts – K3,079,189 (2012: K2,699,990)

  I noted that the Special Purpose Account (SPA) appeared to operate on its own. All of
  SPA’s transactions were not taken up as part of the receipts and payments of the
  University in the income statement. As these accounts relate to funds received for
  various projects funded by donor agencies and the Government, there must be
  accountability and subject to my audit as required by the Public Finances
  (Management) Act. The non-reporting of the SPA transactions for the year under
  review, renders the University’s financial statements incomplete.

  Therefore, I was unable to determine whether the financial statements submitted for
  my audit was complete with all the financial transactions taken place during the
  financial year.

  Fixed Assets – K106,925,337 (2012: K105,567,525)

  Note 9 of the financial statements disclosed fixed assets of the University at a book
  value of K106,925,337. The University did not maintain a proper fixed asset register
  during the year. The register was incomplete and details of the assets including
  descriptions, additions, disposals, and location of their existence were not recorded.
  Physical stock take of all the fixed assets of the University was not conducted in 2013
  or in the past years in order to update the register.

  I also noted that the details on Infrastructure Development Program (IDP) money
  spent by the Office of Higher Education (OHE) on various rehabilitation programs of
  the University were not disclosed under fixed assets. In addition, the work-in-progress
  on major constructions undertaken during the year was not adequately identified and
  disclosed.

  Due to lack of physical stock count and revaluation, and in the absence of full
  disclosure of all the fixed assets of the University, I was unable to conclude on the
  cost, valuation, existence, ownership and the conditions of the fixed assets totalled
  K106,925,337 as reported in the financial statements.

  Payments from Building Grants – K20,142,179 (2012: K15,141,629)

  The financial statements disclosed K20,142,178 expended towards investments of PIP
  Fund (Building Grants), of which, K11,279,534 was paid to a contractor towards the
  second phase of UPNG Law School building. The contractor was engaged at a total
  cost of K30.45 million for construction of UPNG Law School building in three (3)
  phases. However, I was unable to validate the contract in the absence of the National
  Executive Council (NEC) approval. As a result, I was unable to confirm the validity,
  completeness and accuracy of the payments from building grants totalled
  K20,142,179 as reported in the financial statements for the year ended 31 December
  2013.

  – 278 –

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• University of Papua New Guinea

  QUALIFIED OPINION

  In my opinion, except for the effects of the matters described in the Basis for
  Qualified Opinion paragraphs, the financial statements of University of Papua New
  Guinea for the year ended 31 December 2013:

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

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

  59.2.2 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 8 December 2016. The report contained the following
  observations:

  Non-Submission of Audited Financial Statements

  The University has submitted its 2013 financial statements on 15 December 2015 to
  enable me to conduct the audit. The 2013 audit was commenced in March 2016 and
  completed by May 2016. However, the management responded to my management
  letter in August 2016. Non-submission of the Financial Statements by the University
  to my Office to enable me to complete the audit before 30 June of the following year
  was a breach of Section 63(2) & Section 63(4) of Public Finances (Management) Act
  1995.

  Financial Statements/Accounting System

  The University’s financial statements were prepared on cash basis. However, the
  financial information presented was derived from the data maintained on an accrual
  basis accounting from the attaché system. The financial statements submitted for my
  audit had failed to include additional information. The University was lacking proper
  management accounting system. A uniform management accounting system
  (accounting package) was needed by all the branches, divisions, and centers of the
  University to be integrated to enable timely production of system generated financial
  reports.

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• University of Papua New Guinea

  Students Fee

  I noted that there were no proper reconciliations performed on the tuition fees
  collected from the external students against the number of students registered under
  the Distance Education Mode at UPNG and all other Open Campus Centers. Further,
  the fees collected from the Honiara Open Campus Students were not accounted for in
  the books of the University. The University should enforce adequate internal control
  measures on tuition fee revenue collections to ensure that all fees collectable from the
  external students are collected and accounted appropriately.

  Associate Companies

  I was not provided with audited financial statements of the University’s associate
  companies, namely Univenture Limited and Unisave Limited. As a result, the 2013
  financial results of the associate companies were not disclosed in the notes to the
  University’s financial statements.

  Further, I was not provided with all the necessary documentation to determine the
  correctness of the K1.0 million disclosed in Note 13 as Univenture’s Capital fund
  received from SPA. The management should maintain and provide adequate
  documentation in respect of this investment for my verification.

  Personnel Emoluments

  The University did not provide me with Department of Personnel Management
  approved staff ceiling and structure and Staff Establishment Register to confirm the
  total number of staff on strength to agree with payroll and other allowances being
  claimed and paid to Academics, part timers, non-academic staff and a large number of
  casual employees employed by the University during the year.

  Further, salaries of staffs employed by the subsidiaries were paid from the UPNG
  Payroll which is not appropriate. Management claimed the salary expenses paid for
  the subsidiaries were subsequently recovered from the respective companies.
  However, I was not provided with relevant documentation to verify the management’s
  claim. I recommended the management to keep the Department of Personnel
  Management approved staff ceiling, Staff Establishment Register and necessary
  approval for all casual employees engaged by the University for my future
  verification.

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  Capital Payments

  A project manager was employed at a cost of K1.568 million for construction of the
  UPNG Law School Building which was to be completed in three (3) phases.
  However, the project manager was paid the full contract value (K1.57m) while the
  construction was completed only up to phase two (2). Further, approval of the Central
  Supply & Tenders Board (CSTB) was not made available for my review to validate
  the engagement of the project manager. I recommended the management that all
  relevant documentation from CSTB and NEC in respect of all projects funded by the
  State must be collected and made available for my future verification.

  Home Ownership Scheme

  The University had implemented National Home Ownership Scheme (NHOS) for its
  staff members. However, adequate information was not disclosed in the financial
  statements. Consequently, I was unable to confirm the status of this scheme as at 31
  December 2013.

  “The Section 39D of the University of Papua New Guinea Act 1983 stipulates that the
  University must at least once in every fiscal year, furnish to the Minister, for
  presentation to the National Executive Council (NEC), a report on NHOS devised and
  operated by the University.”

  I was unable to confirm whether this provision was complied with by the University.

  Open Campus

  As per Memorandum of Understanding between the University and the respective
  Provincial Governments, Open Campus/Centers in each province are to be provided
  with an annual grant/subsidy to meet the cost of respective Provincial Center
  Director’s, staff salaries and routine maintenance, etc. However, I did not sight any
  evidence of accounting for the receipt of the provincial government grant and
  associated expenditures in the financial statements. With these omissions, the
  financial statements were understated in the respective receipts and payments.

  The management should obtain necessary documentation from the respective open
  campus centers for the grants received from the respective Provincial Governments
  and the financial information must be accounted for in the books of the University.

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• University of Papua New Guinea

  Staff Records

  The staff records were not well maintained and updated. Therefore, the information
  available was not accurate. As such, the computation of dues was not evident and
  calculation of the provisions and employee liabilities could not be accurate. I was
  unable to confirm the correctness of all entitlements due to incomplete information in
  the personnel files.

  Liabilities

  Due to errors and material limitation of scope mentioned in my earlier reports, I could
  not confirm the completeness and accuracy of the opening balances of Payroll Tax
  Liability and Loan from Special Purpose Accounts.

  I was not provided with the proper reconciliations and relevant supporting documents
  to perform the audit procedures to determine the accuracy of the closing balances of
  these accounts as disclosed in Note 10 of the financial statements. I recommended the
  management to provide all documentation to support the tax liability for my future
  verification.

  59.3 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 2014 was in progress.

  The financial statements of the University for the years ended 31 December 2015 and
  2016 had not been submitted for my inspection and audit.

  – 282 –

• Page 319 of 450

• 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 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, 2014, 2015 and 2016 had not been submitted
  for my inspection and audit, despite numerous reminders.

  – 283 –

• Page 320 of 450

• 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, 2014, 2015 and 2016 for
  my inspection and audit despite numerous reminders from my Office.

  – 284 –

• Page 321 of 450

• 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 report 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 year ended 31 December 2014
  was issued on 24 April 2017. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Limitation of Scope due to Opening Balances

  My audit report for the year ended 31 December 2013 was a Disclaimer of Opinion
  due to the limitation of scope on the opening balances. A number of general ledger
  accounts had unknown material amounts which related to prior years’ opening
  balances. The unexplained opening balances had not been reconciled prior to
  migration from the former Magix accounting system to the current Pronto accounting
  system. I was unable to satisfy myself as to the accuracy and completeness of the
  opening balances of fixed assets, trade debtors, other current assets, asset revaluation
  reserve, trade payables, other payables, and long term borrowings. Since the opening
  balances entered into the determination of the results of operations and cash flows of
  Water PNG for the year under review, 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 2014.

  – 285 –

• Page 322 of 450

• Water PNG

  Physical Verification and Valuation of the Board’s Fixed Assets

  The fixed assets reported at K216,914,625 represented a significant proportion (77%)
  of Water PNG’s total assets. The Board had not performed physical verification and
  valuation of its property, plant and equipment in 2014 and the prior years. Therefore, I
  could not determine the fairness and correctness of the property values, and accurate
  information related to disposed, damaged or stolen fixed assets was not available. In
  April 2016, Deloitte Chartered Accountants presented valuation report on the Board’s
  property, plant and equipment. However, the management could not effect the
  adjustments due to system technical issues. As a result, I was unable to confirm the
  existence, completeness, valuation and accuracy of Water PNG’s property, plant and
  equipment as reported in the financial statements as at 31 December 2014.

  Fixed Assets in Arawa, Bougainville – K1,343,092

  Fixed assets held in Arawa, Bougainville at a value of K1,343,092 were included in
  the financial statements. I noted that the assets have been abandoned since the
  Bougainville crisis in 1989. Water PNG had not carried out any operational activities
  in the area since then, and most likely the assets are obsolete, damaged, misplaced or
  stolen. I noted that prior to finalization of the 2014 accounts the assets in Bougainville
  had been revalued to a K1 (one Kina) value with Board approval granted.

  However, the management could not effect the adjustments due to system technical
  issues. As a result, I could not determine the appropriateness of the assets being
  included in the financial statements.

  Financial Statements for Provincial Water Supply Projects

  Water PNG with the assistance of the National Government and the Asian
  Development Bank initiated a number of Provincial Water Supply Projects (PWSP).
  Audited financial statements of these projects were not available for my review. Also,
  I could not obtain all relevant information and records relating to specific PWSP
  undertaken to determine their completion status and timely transfer to fixed assets. As
  a result, I could not determine value of PWSP that might have been completed and
  capitalized in 2014 and the prior years, and consequential impacts this might have on
  the financial statements of Water PNG for the year ended 31 December 2014.

  Work-In-Progress – K24,282,056

  Note 7 of the financial statements included Work-In-Progress (WIP) at K24,282,056.
  The value of the WIP comprised costs that incurred dated back to 2006 (K66,155),
  2007 (K96,323), 2010 (K10,308,520), 2011 (K3,201,305), and 2012 (K2,010,758).

  – 286 –

• Page 323 of 450

• Water PNG

  In addition, costs of completed building and fencing totalled K1,218,988 were still
  captured as WIP. I was not provided with status report, certificate of completion and
  all necessary documents related to the individual projects listed under WIP. As a
  result, I was not able to perform audit procedures to determine the validity and
  appropriateness of their recognition as WIP year after year without capitalizing.
  Additionally, I could not determine completeness and accuracy of the deprecation
  charges for the year and possible impacts this might have on the profit and loss
  statement for the year ended.

  Trade Receivables – K27,938,922

  The trade receivables was stated at K27,938,922 after allowing K13,212,910 as
  doubtful debts. The trade debtors per the schedule before allowing doubtful debt was
  K41,151,832 which did not agree with the system generated debtors aged listing
  balance of K36,850,642. This resulted to give a variance of K4,301,190. As a result, I
  was unable to confirm the accuracy of the trade receivables balance as disclosed in the
  financial statements as at 31 December 2014.

  Other Current Assets: Accrued Income – K308,373

  Note 3 of the financial statements included Accrued Income at K308,373. I noted
  from my review that there was no separate account in the general ledger which
  accounted for this balance. Also, no information and supporting documentation were
  available to substantiate this amount. As a result, I could not confirm the correctness
  of the amount reported in the financial statements.

  Other Current Assets: Bank Suspense – (K1,052,810)

  Note 3 of the financial statements included Bank Suspense at K1,052,810 ( in credit
  balance). I noted from review that the amount was a net of various accounts as
  detailed below:

  Bank Suspense Account K1,595,258
  Suspense Account K 427,239
  Magix OPB Account (K2,766,708)
  Total (K 744,211)
  Unconfirmed amount (K 226)
  Total (K 744,437)
  Disclosed as Accrued Income (K 308,373)
  Total (K1,052,810)

  I was not provided with schedules and listings to support the K1,595,258 in Bank
  Suspense account and K427,239 in Suspense account. The K2,766,708 (credit) in the
  Magix OPB account was a general ledger balancing figure and no one has any
  information in respect of the composition of this amount.

  – 287 –

• Page 324 of 450

• Water PNG

  Also, an additional amount of K308,373 was added. A minor amount of K226 also
  added to bring the Bank Suspense balance at K1,052,810 (credit) as reported in the
  financial statement. Due to lack of relevant information and documentation, I was
  unable to perform my planned audit procedures. As a result, I could not ascertain the
  correctness and accuracy of the amounts disclosed in the financial statements as at 31
  December 2014.

  Inventory – K525,307

  The inventories of Water PNG was reported at K525,307. Listings and reports relating
  to inventory count performed were not available. Also, the general ledger account was
  not reconciled. My 2013 audit reported that obsolete and rusted items were included
  in the listing. No documents were available to confirm actions taken to resolve the
  issue. Due to lack of appropriate information, I was unable to verify the accuracy of
  the inventory value reported in the financial statements as at 31 December 2014.

  Trade Payables – K1,189,431

  Note 5(a) of the financial statements disclosed trade payables at K1,189,431. The
  amount as disclosed in the financial statements had increased by K5,048 when
  compared with system generated aged creditors listing balance of K1,184,383. I was
  not provided with creditor listings and explanation to support the increase in trade
  payables.

  Other Payables & Accruals – K19,118,855

  The balance sheet reported Other Payables & Accruals at K19,118,855 which
  comprised of various liability account balances as disclosed in Note 5(b) of the
  financial statements. My review of the individual liability account balances revealed
  that they were not reconciled, not supported by creditor listings and lacked
  information and explanations. These could distort the accuracy of the Other Payables
  & Accruals balance.

  The details are shown below:

  a) Bank Overdraft – K2,478,958

  Water PNG did not reconcile its general ledger bank account (cash book). I
  noted a significant unreconciled amount of K5,744,338 between the cash book
  and bank statement. In the absence of bank reconciliations, I was unable to
  perform audit procedures to ascertain accuracy of the Bank Overdraft balance of
  K2,478,958 as disclosed in Note 5(b).

  – 288 –

• Page 325 of 450

• Water PNG

  b) Payroll Accruals – K952,935

  Included in the Payroll Accruals was an amount of K581,912 from an account
  named Payroll Deduction – Other which was not supported by any form of
  schedules or listing to confirm the deductions. As a result, I could not comment
  on the accuracy of the Payroll Accruals balance of K952,935 as disclosed in
  Note 5(b).

  c) Other Accrued Taxes – K320,567

  Supporting documents and listings were not available for this amount.
  Therefore, I could not confirm accuracy of the Other Accrued Taxes balance of
  K320,567 as disclosed in Note 5(b).

  d) Goods and Services Tax – K3,515,045

  I noted from my review that K3,443,035 was a balance carried forward from
  prior years. There were no supporting documents or reconciliations showing
  outstanding taxes for years prior to 2013. As a result, I was unable to confirm
  the accuracy of the GST payable balance of K3,515,045 as disclosed in Note
  5(b).

  e) Other Liabilities – K427,358

  The Other Liabilities included K215,456 relating to outstanding purchase orders
  that was a balance carried forward from prior years. Also, included was
  K118,400 (debit balance) relating to cash adjustment done. Due to lack of
  information and documentation, I was unable to conduct a full review of the
  amounts. As a result, I could not confirm accuracy of the Other Liabilities
  balance of K427,358 as disclosed in Note 5(b).

  Bonds & Refundable Deposits – K4,129,241

  Note 6 of the financial statements included Bonds & Refundable Deposits at
  K4,129,241. I was not provided with the schedules or listing of items making up the
  balance. I therefore was unable to perform all my planned audit procedures to verify
  and ascertain the accuracy of the balance as disclosed in the financial statements.

  Deferred Income: Grants Received and not Spent (Current) – K3,496,711;
  (Non-Current) – K93,294

  Note 8(a) and 8(b) of the financial statements disclosed grants received and not spent
  at K3,496,711 as current and K93,294 (debit) as non-current respectively. These were
  the amounts reported in the Balance Sheet as Deferred Income under Current and
  Non-Current Liabilities.

  – 289 –

• Page 326 of 450

• Water PNG

  I noted that K211,143 was the advance payments by customers for water project
  licensing and compliance fees received in the current year. The remaining balance of
  K3,285,568 was a carried forward balance from prior years in respect of current
  liabilities. In respect of non-current grant the amount was a carried forward debit
  balance and there were no details and supporting documents to support these balances.
  Due to materiality of the unsupported balances, I could not comment on the accuracy
  of the Current and Non-Current Deferred Income balance as reported in the financial
  statements.

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis for Disclaimer
  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 Water
  PNG for the year ended 31 December 2014.”

  60.2.2 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 2014
  was issued on 24 April 2017. The report contained the following significant matters:

  Compliance with Public Finances (Management) Act 1995

  The audit of the 2014 statutory financial statements commenced in April 2016 which
  was after the deadline of 30 June 2015. As such, the Directors did not meet the
  deadline set by Section 63 of the Public Finances (Management) Act 1995 for audited
  financial statements of public bodies to be furnished to the Minister before 30 June of
  the subsequent year.

  Account Reconciliations

  The reconciliations of the balance sheet accounts provided to me were in most cases
  incomplete. Most of the balances provided were only restatements of the general
  ledger balances without separate listings or schedules to support them. Almost half of
  the accounts were not reconciled which included the bank account balances.

  General Ledger Account Reports

  The system generated general ledger transaction reports provided to me were not user-
  friendly. The format provided did not have details of suppliers, payment reference,
  transaction description and GL account totals for all business units combined. I
  requested for a better organized report but was not addressed due to system capacity
  issues.

  – 290 –

• Page 327 of 450

• Water PNG

  A lot of time was spent sorting the transactions in order to get the transactions
  organized in a meaningful format to conduct review of accounts. Furthermore, some
  of the account balances from the report did not agree with the trial balance.

  Land Titles

  I noted that Water PNG did not have title deeds for all the properties (land and
  buildings) it owns. Water PNG was unable to provide proper listing of the land and
  buildings it claimed to own. I brought this to the attention of management and it
  responded that Water PNG had delivered the Master Files of the lands to the Lands
  Department with a request to issue land titles. The management also advised that a
  Consultant will be engaged to pursue with the land title issue.

  General Accounting and Internal Control Environment

  The use of the Pronto accounting system and the internal control environment at
  Water PNG appeared to be deficient. The Board suffers from ineffective use of the
  Pronto accounting system due to lack of skills and training. The management was
  unable to reconcile and substantiate many of the general ledger balances. The result
  could be slow, ineffective, irreconcilable, and incomplete financial data as well as
  unreliable information for management. This increased the risk of suboptimal
  decision making, incomplete financial records and delayed financial statements.

  I also observed that Water PNG lacked a proper documentation system. A number of
  essential documentation could not be retrieved or did not exist. This resulted in delays
  and even failures to provide the requested audit information.

  60.3 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 2015 was in progress.

  The financial statements of the Board for the year ended 31 December 2016 had not
  been submitted for my inspection and audit.

  – 291 –

• Page 328 of 450

• – 292 –

• Page 329 of 450

• SECTION B

  NATIONAL GOVERNMENT

  OWNED COMPANIES

  – 293 –

• Page 330 of 450

• – 294 –

• Page 331 of 450

• 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, 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.

  Comments in relation to the companies are detailed in paragraph 62 to 74.

  – 295 –

• Page 332 of 450

• – 296 –

• Page 333 of 450

• 62. AIR NIUGINI LIMITED

  62.1 INTRODUCTION

  62.1.1 Legislation

  Air Niugini Limited was 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 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.

  62.1.3 Subsidiary of the Company

  The Company has a subsidiary Company, Link PNG Limited. Comments in relation
  to that Company are contained in paragraph 62A of this Report.

  – 297 –

• Page 334 of 450

• Air Niugini Limited

  62.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  62.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies Act on the inspection
  and audit of the accounts and records of the Company for the year ended 31
  December 2014 was issued on 27 September 2016. The report contained a Qualified
  Opinion.

  “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. 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 revaluation 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 did not perform a revaluation on the rotables and
  engines in 2014.

  As a result, it is impractical for me to determine the value of rotables and engines as at
  31 December 2014 and 31 December 2013 and as such, I am unable to determine
  what adjustments might have been necessary to the statement of financial position as
  at 31 December 2014 and 31 December 2013 and the statement of comprehensive
  income, statement of cash flows and statement of changes in equity for the year ended
  31 December 2014 and for the comparative year ended 2013.

  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 aircraft that it owns or finance leases in accordance
  with IAS 16, rather the aircraft 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 am unable to quantify the effect on the
  financial statements, however, I believe the accumulated effect would be material.

  – 298 –

• Page 335 of 450

• Air Niugini Limited

  Due to the fact that the Company records its aircraft 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 at year end 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 Retained Earnings.

  However, I am 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 2014 and for the comparative year
  ended 31 December 2013.

  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 aircraft at each balance date. This may result in a number of
  different errors in depreciation calculations, and also in the revaluation increments
  when aircraft are subsequently revalued.

  As with componentisation of assets, due to the aircraft 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 2014 and for the comparative year
  ended 31 December 2013.

  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 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 1997, International Financial Reporting Standards and
  other generally accepted accounting practice in Papua New Guinea;

  – 299 –

• Page 336 of 450

• Air Niugini Limited

  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 qualification paragraphs.”

  62.2.2 Audit Observations Reported to the Ministers

  My report to the Ministers under Section 8(2) of the Audit Act on the inspection and
  the audit of the accounts and records of the Company for the year ended 31 December
  2014 was issued on 27 September 2016. The report contained the following
  significant matters:

  Inventory Aging Analysis

  I noted that aging of inventory had not been set up in WinAir system and this issue
  has been carried over from the 2011 to 2013 audit findings. I 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 formal procedures and processes to identify obsolete stock for consumable
  stock and commercial stock is non-existence or is done on a manual adhoc basis by
  stores staff. No aging analysis being done by management may result in the valuation
  of inventory not being fairly stated as at year end.

  Accounting for Previously Unrecorded Land

  In 2013, the management identified 28 blocks of land for which the Company was
  paying rates and taxes but were not included in the Company’s asset 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
  both Property, Plant and Equipment and the Revaluation Reserve.

  I had not been provided with title deeds of the properties, nor any information in
  respect of the properties original acquisition. The Company had not been able to
  calculate the effect of this proposed error on prior year financial statements and no
  restatement of prior year financial statements was 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 2014 and for the comparative year ended 31 December 2013.

  – 300 –

• Page 337 of 450

• Air Niugini Limited

  Information Technology (GITC)

  During the 2014 audit, I was unable to take full controls of the audit approach as
  many of the Airline’s General IT controls were not effective. This resulted in a far
  more substantive audit approach including more intrusive and time consuming
  procedures. The lack of GITC’s should also be a concern for the Airline as it indicates
  existence of higher possibility of misstatement or fraud. A number of specific
  deficiencies found have been detailed in my management letter to the Airline. It is
  important that a Company of Air Niugini size and complexity have a functioning
  internal control environment.

  I recommended a holistic review of all IT controls (general and application) be
  conducted to find all deficiencies and a project be conducted to work towards
  eliminating those deficiencies.

  Information Technology – Other

  Other IT matters I have noted include:

  Existence of users who have been terminated from the Company;
  Absence of a formal disaster recovery plan;
  No IT asset management system in place;
  The administration of the Skychain (Cargo) application is still performed by the
  staff of the Cargo Group and not managed by the IT team and the IT team had
  no visibility of the status of the application;
  ANL is still using Microsoft Windows XP which is no longer supported by
  Microsoft; and
  There was a lack of IT resources and knowledge gaps across critical functions.

  Some of these matters had been considered by management and were in progress.
  However, I believe a full assessment of the IT environment should be undertaken and
  appropriate action taken to ensure a secure and functional environment.

  Appropriate Books and Records to be kept for Link PNG Limited

  During the 2014 audit, I noted that income for the applicable routes of Link (PNG)
  Limited and the relevant direct expenditure had been booked to a separate trial
  balance. However, it appeared that supporting documents for the operations of the
  subsidiary or any balance sheet of its operations were not maintained. There was no
  management or operational contracts between the two companies including
  assignment and responsibility of assets and liabilities in 2014.

  – 301 –

• Page 338 of 450

• Air Niugini Limited

  Without appropriate documentation, the assets and liabilities, income and expenses
  may not be recorded correctly in the books. Sufficient charges may not be recharged
  from Air Niugini Limited to Link (PNG) Limited. Therefore, I recommended all
  required contracts for statutory, regulatory and operational purposes should be put in
  place immediately.

  Fixed Asset Register on Cost Basis

  IAS 16, Property, Plant and Equipment, requires that if items of property, plant and
  equipment are stated at revalued amounts, the Company should disclose for each
  revalued class of property, plant and equipment, the carrying amount that would have
  been recognized had the assets been carried under the cost model.

  I noted that this was not disclosed and that the management was not able to provide
  me with an asset register to calculate such a balance. Fixed asset register and
  depreciation schedule based on original cost must be maintained.

  Operating Leases

  During my review, I noted that some of the operating leases of the Company had
  escalation rates as per IAS 17, Leases, “Operating leases shall be recognized as an
  expense on a straight-line basis over the term of the lease term unless another
  systematic basis is more representative of the pattern of the user’s benefit”.

  The Company did not book its rent expense on a straight-line method but instead
  based on the invoice received from the vendors. I estimated a K11 million liability
  was not booked should operating leases were booked on a straight-line basis.

  I understood that the management did not believe in following IAS 17 appropriately
  reflects the economic basis of the transaction. However, it is my opinion that the
  Company’s method is not compliant with IAS 17.

  Unearned Executive Club Membership Fee

  During the year, the management reversed K4.4 million liability for revenue received
  in advance associated with executive club membership fees. Membership fees are
  required to be recognized as earned. As memberships do not match the financial year,
  membership fees paid included an unearned portion. Thus, the unearned revenue
  liability should be reinstated.

  I recommended to management that proper revenue accounting treatment should be
  applied and reinstatement of the liability. Management agreed to correct this in the
  2015 Financial Statements.

  – 302 –

• Page 339 of 450

• Air Niugini Limited

  Annual Leave taken by Pilots

  During my audit, I noted that there was major annual leave reconciliation carried out
  for the pilots in 2014 due to leave taken by pilots recorded in the pilots system
  “Geneva”, but not being recorded in the Airline’s payroll system, CHRIS21. The
  reconciliation of the two systems had not been done for a number of years. An
  adjusting entry of K8 million was taken up in the 2014 financial statements.

  I recommended the Company to perform monthly reconciliation for leaves taken by
  pilots. In addition, flight operations team (GENEVA) should liaise with the Payroll
  team (CHRIS 21) to minimize the risk of annual leaves not taken properly. I
  understood that management had corrected this in 2015.

  Adjustment taken to match IATA Deposit’s confirmation compare to General
  Ledger

  During my audit, I noted a reconciliation and adjustment totalled K7.1m in outward
  Billing suspense taken up in 2014. This was due to realized foreign exchange sitting
  into the account coming from previous years brought by the incorrect entries being
  made at payment date.

  I recommended IATA balances reconciled on a monthly basis including movement in
  balances associated with foreign exchange. I understand that the management has now
  implemented a monthly reconciliation.

  Useful Life of Buildings

  During my review, I noted that the useful lives of land and buildings appear to be
  inconsistent with most standard expectations of commercial and residential buildings.
  Although, there may be reasons for the useful lives used (e.g. asset acquired part way
  through its life), these reasons were not documented and current management were
  unaware as to the reason for these useful lives have used. No assessment had been
  conducted to determine the remaining useful life on these assets.

  I believed an assessment of useful lives of all building should be conducted as soon as
  possible. Management should also consider reassessment of useful lives of all PPE to
  ensure they are appropriate.

  Inadequate Provision of Bad Debts

  I noted that management had moved towards a specific provision basis when
  calculating the provision for bad and doubtful debts. However, I do not believe the
  work performed to substantiate the recovery of over-due receivables was sufficient.

  – 303 –

• Page 340 of 450

• Air Niugini Limited

  Further, with the large amount of debtors, it would be difficult to assess each
  individual debtor on a consistent basis without appropriate processes in place. I
  observed management was working on improving the process for the 2015 year end. I
  recommended a more robust process be put in place to ensure all required provisions
  are taken up.

  Falcon Jet

  In 2013, K9 million received from the Government for the Falcon Jet was incorrectly
  taken up as revenue by the Company instead of being applied against trade debtors
  and revenue received in advance. This was corrected in the 2014 Financial
  Statements. I believe the error was as a result of a number of factors; there was a large
  unpaid balance receivable from the Government for the operation and maintenance of
  the Falcon Jet; the nature of the payment was not advised by the Government when
  paid; and lack of understanding by the Government of the amounts owed by the
  Government to the Company or the charges they incur each year even though
  management agreements were in place.

  I recommended that the Government and Company to agree on what prior year
  charges are payable and are cleared; and that payments for future charges are agreed
  and paid on a timely basis in accordance with the management agreements in place.

  Internal Audit Reports

  My review of the Internal Audit Reports revealed existence of a number of control
  weaknesses in the operational management of the Company for the year 2014. I
  recommended management should take appropriate measure to address all the internal
  control weakness presently exists as per the Internal Audit Reports and monitor the
  operation of the controls.

  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 years ended 31 December 2015 and 2016 were in progress.

  – 304 –

• Page 341 of 450

• 62A. LINK-PNG LIMITED (Subsidiary of Air Niugini Limited)

  62A.1 INTRODUCTION

  62A.1.1 Legislation

  The Link-PNG Limited came into existence on 26 June 2014 after the name
  changed from PNG Link Limited. Link-PNG Limited was incorporated under the
  Companies Act 1997 on 4 May 2010. This Company was bought by Air Niugini
  Limited from Steamships Limited on 05 August 2014 for a consideration of K100.

  This Company is a 100% subsidiary of Air Niugini Limited. The Company
  commenced the business of air travel for the PNG Domestic markets since
  November 2014.

  62A.1.2 The Objective of the Company

  The key objective of the Company is to:

  Be the leading domestic airline in Papua New Guinea, delivering safest, cost
  effective air travel to the communities.

  62A.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 2015 and 2016 were in
  progress.

  – 305 –

• Page 342 of 450

• 63. KUMUL PETROLEUM HOLDINGS LIMITED (formerly NPCP
  Holdings Limited)

  63.1 INTRODUCTION

  63.1.1 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. As
  a result of the enactment of the Kumul Petroleum Holdings Limited Authorisation Act
  2015 the issued shares of the Kumul Petroleum Holdings Limited previously owned
  by Independent Public Business Corporation (IPBC) was transferred to the Kumul
  Petroleum Trustee. On 25 September 2015, the Company changed its name from
  NPCP Holdings Limited to Kumul Petroleum Holdings Limited.

  63.1.2 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.

  63.2 AUDIT OBSERVATIONS

  63.2.1 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 2016 was issued on 5 June 2017.
  The report did not contain any qualification.

  – 306 –

• Page 343 of 450

• 63A. EDA OIL LIMITED (Subsidiary of Kumul Petroleum
  (Development) Limited which is a subsidiary of Kumul Petroleum
  Holdings Limited)

  63A.1 INTRODUCTION

  This Company was incorporated under the Companies Act. The Company has two
  (2) shares and Petromin was the 100% shareholder of the Company. As a result of
  the enactment of the Kumul Petroleum Holdings Limited Authorisation Bill 2015,
  Eda Oil Limited and Kumul LNG Limited were transferred to Kumul Petroleum
  (Development) Limited, a subsidiary of Kumul Petroleum Holdings Limited on 30
  June 2016 by Petromin PNG Holdings Limited.

  63A.1.2 Objective of the Company

  The main objective of the Company is the investment in development and
  production of hydrocarbons in the Moran Joint Venture in Papua New Guinea.

  The Company has a direct participation on the Moran Petroleum Project, through
  20.3% License Interest it directly holds in PDL 5 and an initial 11.275% unit
  interest in unit Operation under MOUA and an indirect participation in the PNG
  LNG Project through its holdings of the only issued share in the share capital of
  Kumul LNG Limited.

  63A.2 AUDIT OBSERVATIONS

  63A.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 2016 was issued
  on 5 June 2017. The report did not contain any qualification.

  – 307 –

• Page 344 of 450

• 63B. KUMUL LNG LIMITED (Subsidiary of Kumul Petroleum
  (Development) Limited which is a subsidiary of Kumul Petroleum
  Holdings Limited)
  63B.1 INTRODUCTION

  This Company was incorporated under the Companies Act. On 19 May 2009 the
  Company was incorporated under the name of Kumul PNG Limited. The Company
  has one (1) share and EDA Oil Limited is the sole shareholder of the Company. Eda
  Oil Limited is 100% subsidiary of Petrolmin PNG Holdings Limited. This Company
  was established as a special purpose entity to hold Petromin’s interests in the LNG
  Projects. As a result of the enactment of the Kumul Petroleum Holdings Limited
  Authorisation Bill 2015, both Eda Oil Limited and Kumul LNG Limited were
  transferred to Kumul Petroleum Holdings Limited on 30 June 2016 by Petromin
  PNG Holdings Limited.

  63B.1.1 Objective of the Company

  The Company has 0.20% interest in the PNG LNG Project. The Project interest is
  connected to EDA Oil Limited’s license interest in PDL 5 (20.5% License Interest
  in PDL 5) and the Moran Petroleum Interest.

  63B.2 AUDIT OBSERVATIONS

  63B.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 2016 was issued
  on 05 June 2017. The report did not contain any qualification.

  – 308 –

• Page 345 of 450

• 63C. KUMUL PETROLEUM (DEVELOPMENT) LIMITED (formerly
  NPCP Pipeline and Gas Supply Limited) (Subsidiary of Kumul Petroleum
  Holdings Limited)

  63C.1 INTRODUCTION

  63C.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. Kumul Petroleum Holdings Limited is the sole shareholder of
  Kumul Petroleum Development Limited. On 25 September 2015 the Company
  changed its name from NPCP Pipeline and Gas Supply Limited to Kumul Petroleum
  Development Limited. On 28 January 2016 the Company changed its name from
  Kumul Petroleum Development Limited to Kumul Petroleum (Development)
  Limited.

  63C.1.2 Objective of the Company

  The objective of the Company is to provide pipeline facilities to the upcoming
  various Liquefied Natural Gas (LNG) projects. In 2014, the Company 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.

  63C.2 AUDIT OBSERVATIONS

  63C.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 2016 was issued
  on 5 June 2017. The report did not contain any qualification.

  – 309 –

• Page 346 of 450

• 63D. KUMUL PETROLEUM (INVESTMENTS) LIMITED (formerly
  NPCP Investments Limited) (Subsidiary of Kumul Petroleum Holdings
  Limited)

  63D.1 INTRODUCTION

  63D.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. Kumul Petroleum Holdings Limited is the sole shareholder of
  Kumul Petroleum Investments Limited. On 25 September, 2015, the Company
  changed its name from NPCP Investments Limited to Kumul Petroleum
  Investments Limited.

  63D.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 provided by UBS to Kumul
  Petroleum Investments Limited and Kumul Petroleum Holdings Limited.

  63D.2 AUDIT OBSERVATIONS

  63D.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 2016 was issued
  on 5 June 2017. The report did not contain any qualification.

  – 310 –

• Page 347 of 450

• 63E. KUMUL PETROLEUM (KROTON) LIMITED (formerly National
  Petroleum Company of PNG (Kroton) Limited) (Subsidiary of Kumul
  Petroleum Holdings Limited)

  63E.1 INTRODUCTION

  63E.1.1 Legislation

  This Company 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 (PNG
  LNG) 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. On 25 September 2015, the
  Company changed its name from National Petroleum Company of PNG (Kroton)
  Limited to Kumul Petroleum (PNG LNG) Limited. On 28 January 2016 the
  Company changed its name from Kumul Petroleum (PNG LNG) Limited to Kumul
  Petroleum (Kroton) Limited.

  63E.1.2 Objective of the Company

  The objective of Kumul Petroleum (PNG LNG) Limited is to invest in the PNG
  LNG Project as PNG State’s nominee holding 16.57% Equity in the Project.

  63E.2 AUDIT OBSERVATIONS

  63E.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 2016 was issued
  on 5 June 2017. The report did not contain any qualification.

  – 311 –

• Page 348 of 450

• 63F. KUMUL PETROLEUM (PIPELINE) LIMITED (Subsidiary of
  Kumul Petroleum Holdings Limited)

  63F.1 INTRODUCTION

  This Company was incorporated under the Companies Act. On 30 October 2015 the
  Company incorporated under the name of Kumul Petroleum Pipeline Limited. On
  28 January 2016 the Company changed its name to Kumul Petroleum (Pipeline)
  Limited. Kumul Petroleum Holdings Limited is the sole shareholder of Kumul
  Petroleum (Pipeline) Limited.

  63F.1.2 Objective of the Company

  The Company holds the interest of Kumul Petroleum Holdings Limited in the
  Western Pipeline (Strategic Pipeline) Project.

  63F.2 AUDIT OBSERVATIONS

  63F.2.2 Comments of 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 2016 was issued
  on 05 June 2017. The report did not contain any qualification.

  – 312 –

• Page 349 of 450

• 63G. KUMUL PETROLEUM (TECH & ADVISORY) LIMITED
  (formerly NPCP Technical Institute and Consulting Limited) (Subsidiary of
  Kumul Petroleum Holdings Limited)

  63G.1 INTRODUCTION

  63G.1.1 Legislation

  The Company was incorporated under the Companies Act on 8 September 2014 in
  accordance with the NEC Decision No. 108/2011 dated 7 July 2011. Kumul
  Petroleum Holdings Limited is the sole shareholder of Kumul Petroleum Technical
  Institute and Consulting Limited. On 25 September 2015, the Company changed its
  name from NPCP Technical Institute and Consulting Limited to Kumul Petroleum
  Technical Institute and Consulting Limited. Subsequently, the Company changed its
  name from Kumul Petroleum Technical Institute and Consulting Limited to Kumul
  Petroleum (Tech & Advisory) Limited on 28 January 2016.

  63G.1.2 Objective of the Company

  The principal objective of the Company is to provide professional and other
  business services. In 2015, the Company bought 12.5% shares in Orion Enga
  Children’s Fund JV Limited. Orion Enga Children’s Fund JV owns South Pacific
  Employment Institute which is registered as a business name which runs the Port
  Moresby Technical College (now known as Kumul Petroleum Academy).

  63G.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 2016 was completed and the results were being evaluated.

  – 313 –

• Page 350 of 450

• 64. LIVESTOCK DEVELOPMENT CORPORATION LIMITED

  64.1 INTRODUCTION

  64.1.1 Legislation

  The Livestock Development Corporation Limited was incorporated under the
  Companies Act. The share capital is wholly owned by the National Government.

  64.1.2 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.

  64.2 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, 2014, 2015 and
  2016 for my inspection and audit.

  I expressed my concern to the Minister for Agriculture and Livestock through my
  letters dated 12 April 2015 and 26 April 2016 for the long delay by the Corporation in
  submitting its financial statements to enable me to perform the audit for the years
  stated above.

  – 314 –

• Page 351 of 450

• 65. MINERAL RESOURCES DEVELOPMENT COMPANY LIMITED

  65.1 INTRODUCTION

  65.1.1 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.

  65.1.2 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.

  65.2 AUDIT OBSERVATIONS

  65.2.1 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 2012, 2013 and 2014 were
  issued on 6 October 2016, 16 March 2017 and 1 June 2017 respectively. These reports
  contained similar Disclaimer of Opinions, hence, only the 2014 report is reproduced.

  “BASIS FOR DISCLAIMER OF OPINION

  Opening Balances

  My report for the year ended 31 December 2013 was a disclaimer of opinion. I was
  not able to satisfy myself as to the accuracy and completeness of the opening balances
  in respect of related party receivables investments in Coleman Properties, investments
  in Ramu Nickel and short term deposits. Since these opening balances entered into the
  determination of the results of operations and cash flows of the Company and the
  Group in 2014, I was unable to determine whether adjustments to the financial
  position, results of operations and cash flows might have been necessary for the year
  ended 31 December 2014.

  – 315 –

• Page 352 of 450

• Mineral Resources Development Company Limited

  Short Term Deposits

  The statement of financial position as at 31 December 2014 reported short term
  deposits of K6.233m in various banks for both the Company and the Group.

  The short term deposits comprise of a number of individual deposits with various
  financial institutions and in various currencies. The direct confirmations obtained
  from these financial institutions for the year ended 31 December 2014 varied from the
  amounts recorded by the Company and the Group. In aggregate, the amounts
  confirmed by the financial institutions were greater than that recorded in the statement
  of financial position of the Company and Group by K0.356m. However, the financial
  statements have been adjusted to reflect the amounts as confirmed by the financial
  institutions through an adjustment to the income statement without proper
  reconciliation. Therefore, I was unable to determine whether the variances were
  related to unrecognised foreign exchange differences or other matters.

  As a result, I was unable to conclude on the appropriateness of the adjustment
  recorded and whether further adjustments to the financial statements might be
  necessary in respect of the variances identified.

  Investments

  Note 11 of the financial statements disclosed the total investments at K57.483m
  (Company) and K74.865m (Group) as at 31 December 2014.

  Included in K8.383m (Company and Group) (2013:K7.453m) was the
  investment made in Pacific Balance Fund (PBF). The audit opinion of the PBF
  financial statements for the year ended 31 December 2014 was qualified in
  respect of the total number of units issued. As this impacted the value per unit
  used by the Company in valuing the PBF investment, I was unable to determine
  whether adjustments to the financial statements might be necessary in respect of
  fair value gain on the investment in PBF for the year reported in the statement of
  comprehensive income and the investment balance in the statement of financial
  position.

  Included in K16.155m (Group) (2013:K15.002m) relates to projects under
  development, representing the Group’s interest in the Ramu Nickel Project. This
  interest is held by the Company’s subsidiaries, Mineral Resource Madang
  Limited and Mineral Resources Ramu Limited and is recorded on consolidation
  in the Group financial statements. I was not provided with sufficient and
  appropriate audit evidence to confirm the proper valuation of the investments as
  at 31 December 2014. Consequently, I was unable to determine whether
  adjustments to the financial statements might be necessary in respect of the
  carrying value of this investment.

  – 316 –

• Page 353 of 450

• Mineral Resources Development Company Limited

  Included in K7.420m (Company and Group) relates to an investment in Pacific
  International Hospital (PIH) which was acquired in 2013.The investment has
  been classified as an available for sale financial assets and in accordance with
  the Company’s accounting policy should be carried at fair value, however, has
  been recorded at cost in the financial statements of the Company. I was not
  provided with sufficient and appropriate evidence to support the carrying value
  of the investments as at 31 December 2014. As a result, I was unable to
  determine whether adjustments to the financial statements might be necessary in
  respect of fair value gain or loss on investments in PIH for the year reported in
  the statement of comprehensive income and the investment balance reported in
  the statement of financial position.

  Receivables

  Note 8 of the financial statements disclosed the total receivables at K55.944m
  (Company) and K39.758m (Group) as at 31 December 2014.

  Of the above receivables K3.899m (Company and Group) represent tax
  refundable by the Internal Revenue Commission (IRC) to Mineral Resource
  Porgera Limited (MRP), a former subsidiary of the Group. This balance is the
  subject of dispute relating to a transaction which occurred in 1999 and the recent
  correspondence I have been provided in support of this balance was from 2011.
  I was unable to obtain sufficient and appropriate audit evidence in respect of the
  recoverability of this balance. As a result, I was unable to determine whether
  adjustments to the financial statements might be necessary in respect of the
  accuracy of recoverable value of this balance.

  The above receivable includes K21.504m (Company and Group) relates to a
  loan given to Speedy Hero Development Limited. I was provided with the
  audited financial statements of Speedy Hero Development Limited which shows
  an amount payable to the Company of K62.167m (2013: K52.266m) as at 31
  December 2014. I was not provided with sufficient information to reconcile the
  difference between the two balances and other relevant documentation to
  support the balance recorded by the Company. Consequently, I was unable to
  determine whether adjustments to the financial statements might be necessary in
  respect of the carrying value of this receivable.

  Of the above receivables K1.151m (Company and Group) relates to amounts
  receivable from related parties for which supporting documentation to confirm
  the existence and accuracy of the balance were not made available for my
  review. As a result, I was unable to determine whether adjustments to the
  financial statements might be necessary in respect of the recorded values of
  these balances.

  – 317 –

• Page 354 of 450

• Mineral Resources Development Company Limited

  Related Party Balances

  The statement of financial position as at 31 December 2014 includes non-current
  loans from related parties of K11.728m (Company) and K11.727m (Group). Included
  in this amount are amounts payable to related parties of K9.144m, for which no
  supporting documentation to confirm the existence and accuracy of these balances
  were made available for my review. As a result, I was unable to determine whether
  adjustments to the financial statements might be necessary in respect of the recorded
  values of these balances.

  Income Tax

  The matters mentioned in the above qualifications may impact on the financial
  performance of the Company and the Group and accordingly, the basis for the
  calculation of the income tax position and deferred tax balance may not be accurate as
  disclosed in the financial statements. As a result, I was unable to determine the
  appropriateness of the income tax balances mentioned in Note 7 to the financial
  statements.

  Financial Statements Disclosures

  Due to the limitation of information available, I was unable to comment whether the
  financial statements presented all matters that are required to be disclosed under
  International Financial Reporting Standards (IFRS) or the Companies Act.

  As a result of the matters above, I was unable to determine whether any adjustments
  might have been found necessary to the statements of financial position as at 31
  December 2014 or the statement of comprehensive income, statement of changes in
  equity, or the statement of cash flows for the year then ended.

  DISCLAIMER OF OPINION

  Because of the significance of the matters described in the Basis for Disclaimer of
  Opinion paragraphs above, 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 Mineral Resources Development Company Limited for the year ended
  31 December 2014.

  – 318 –

• Page 355 of 450

• Mineral Resources Development Company Limited

  OTHER MATTERS

  Compliance with Public Finances Management Act 1995

  The financial statements for the year ended 31 December 2014 was approved and
  made available on 20 April 2017. The directors did not meet the deadline set by
  Section 63 of the Public Finances (Management) Act 1995 for audited financial
  statements of public bodies to be furnished to the Minister before 30 June of the
  subsequent year.”

  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 2015 and 2016 were in progress.

  – 319 –

• Page 356 of 450

• 66. MOTOR VEHICLES INSURANCE LIMITED

  66.1 INTRODUCTION

  66.1.1 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 (MVIL) 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.

  66.2 AUDIT OBSERVATIONS

  66.2.1 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 2015 was issued on 6 June 2017.
  The report contained a Qualified Opinion.

  – 320 –

• Page 357 of 450

• Motor Vehicles Insurance Limited

  “BASIS FOR QUALIFIED OPINION

  Non-Consolidation of Subsidiaries

  Note 16(ii) of the financial statements disclosed the Investment in subsidiaries. The
  investment related to 100% and 52% of shareholdings in Pacific MMI Limited and
  Pacific Re Limited respectively. I noted that the shareholdings in the subsidiaries as at
  31 December 2015 exceeded 50% therefore consolidated financial statements for the
  group is necessary as required by IAS 27, Consolidated and Separate Financial
  Statements. However, no consolidated financial statements had been prepared and
  submitted for my review. As a result, the Company had not complied with the
  requirements of the IAS 27.

  Investments in NCDC Road Investment

  Note 16(iii) of the financial statements reported Non-Current Investments under other
  investments totalled K60,686,286. Included in this investment was the Grant of
  K50,000,000 paid to the National Capital District Commission (NCDC) under Road
  Investment Grant at an annual interest rate of 15%. Clause 6 of the agreement states
  that K50.0 million paid by MVIL to NCDC was a Grant.

  The Board of MVIL had approved for this Grant on 6 July 2013. However, the Board
  Minute was not signed by the Chairman and Secretary of the meeting to validate the
  resolution made. In addition, approval of the Minister for Finance in respect of this
  investment was not made available for my verification. As a result, I was unable to
  determine the appropriateness of including the K50.0 million as investments in the
  financial statements as at 31 December 2015.

  Fixed Assets

  Note 13 of the financial statements disclosed fixed assets totalled K37,041,477.
  Included in the Fixed Assets was Work In Progress (WIP) valued K20,760,099. This
  amount was spent by the Company between 2008 and 2011 towards property
  development at Koki Heights Land (KHL). However, the project was scrapped upon
  advice of the Investment Manager. A Consultant firm that reviewed this project
  advised that the project had failed and the full amount should be provided for a write-
  off. However, the Company still reported the value of the failed project as WIP in the
  financial statements. As a result, the fixed assets at the value of K37,041,477 as
  reported in the financial statements as at 31 December 2015 could be overstated.

  – 321 –

• Page 358 of 450

• Motor Vehicles Insurance Limited

  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 2015:

  (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 other matters paragraph, 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.”

  66.2.2 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
  2015 was issued on 6 June 2017. The report contained the following observations:

  Overseas Investments – Woodlawn Capital Limited

  Note 16 of the financial statements disclosed a total amount of K412,950,444 as
  Investments. Included was K48,944,255 which was the remainder of the K100 million
  overseas investment in Woodland Capital Limited, Australia.

  My review of the initial investment of K100 million noted that K51,281,946 had been
  refunded to MVIL from the Lawyers Trust account. The Company then made a
  provision of K38,257,972 on the residual value of K48,944,255 leaving a balance of
  K10,460,082 in the Gadens Trust Account, Sydney. This resulted in MVIL making a
  loss of K38,257,972 on the overseas investment in Woodland Capital Limited.

  Penalty for Non-Compliance of Agreement

  In 2013 under Note 10 to the financial statements reported K22,861,850 as penalties
  and fines in relation to monetization of BSP shares, and as liability to Nominees
  Niugini Limited for non-compliance of monetization agreement. I was not provided

  – 322 –

• Page 359 of 450

• Motor Vehicles Insurance Limited

  with all relevant documentation in respect of this claim for my review to determine
  the validity of this provision.
  This liability was discharged in April 2014 by Garnisheed order out of MVIL BSP
  bank account. I was advised by MVIL management that they have no idea whether
  the money is with IRC or not, but informed that there is currently a case against
  Nominees Niugini Limited.

  Non-Compliance with the notification issued on Investment Criteria

  Motor Vehicles Insurance Limited (MVIL) was a successor company under the Motor
  Vehicles (Third Parties Insurance) Act. The Finance Minister, in accordance with
  powers granted by Motor Vehicles (Third Parties Insurance) Act, had laid down the
  following criteria with regard to the composition of investments made by MVIL:

  Per Notification At 31-12-2015
  Government Securities 15% – 25% Nil
  Term Deposits 20% – 30% 25%
  Commercial Equities 25% – 35% 52%
  Property 20% – 30% –
  Long Term Development
  Loans/Debentures 10% – 20% –
  Subsidiaries Nil 6.4%
  Overseas Investments Nil 16.6%

  From the above table, it is evident that MVIL had not complied with the criteria laid
  down in the notification.

  Further, per investment policy the company should not invest in any one company
  more than 50% of the paid up capital of that company. However, MVIL has owned
  100% equity in Pacific MMI Limited and 52% in Pacific Re Limited by which it did
  not complied with the investment policy.

  I brought this matter to the attention of management and I was advised that;

  “the 50% of the shares in Pacific MMI going to be divested to prospective buyer.
  However, to date the investment was not divested as earlier advised.”

  Non-Compliance with Income Tax Act

  No variation forms from the Internal Revenue Commission for the exemption of
  motor vehicle allowance and housing allowance (other than those who participated in
  NHOS) were made available for my verification. As a result, I was unable to
  determine whether appropriate taxes had been deducted from the payment of
  K3,233,464 as housing allowance and K363,687 as motor vehicle allowances during
  the year as to comply with the Income Tax Act.

  – 323 –

• Page 360 of 450

• Motor Vehicles Insurance Limited

  I brought this to the attention of management and I was advised that;

  “Due to previous management oversight, this area has been ignored and therefore, a
  lot of the affected staff have enjoyed the gross benefits without any tax deductions
  reducing the take home benefit.”

  Budget Vs Actual

  The Company had exceeded the budget for the year by K8,318,778. The following
  major expenses indicated poor management control over its operational expenses.

  Expenses Budget Actual Variation
  Kina Kina Kina
  Communication 550,000 1,872,873 1,322,873
  Director’s Travel 220,000 587,966 367,966
  Travel & Accommodation 880,000 1,698,999 818,999
  Medical 198,600 771,135 573,135
  Service fees 44,000 464,707 424,707
  Entertainment 55,000 236,907 181,907
  Premises Security 638,000 1,390,861 752,861
  Welfare & Amenities 49,500 373,875 324,375

  I brought this to the attention of management and I was advised that;

  “Management notes the recommendations made. However, there were areas where
  there were savings and the overall result was favourable.”

  Provision for Sick Leave

  I noted that Clause 20(b) of the employment contract of senior managers instigated
  the provision of sick leave entitlement and further provided that they can cash the sick
  leave entitlement whether they are sick or not. As a result of this contractual
  obligation accrued sick leave of contract officers was brought forward and encashed
  at the new contract or beginning of the following year. However, cashing of sick leave
  does not comply with IAS 19 that states unused sick leave can be carried forward for
  one calendar year only after which the provision must be written off. I brought this to
  the attention of management and they responded that;

  “over the years and in line with HR policy, contract officers have been entitled to
  redeem in full or otherwise the reminder of the un-used sick leave balance on or after
  the employment anniversary dates. Therefore, we believe this could be treated in the
  same line with other employment benefits.”

  – 324 –

• Page 361 of 450

• Motor Vehicles Insurance Limited

  66.3 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 2016 was in progress.

  – 325 –

• Page 362 of 450

• 67. NATIONAL AIRPORTS CORPORATION LIMITED

  67.1 INTRODUCTION

  67.1.1 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.

  67.1.2 Functions of the Corporation

  The functions of the National Airports Corporation Limited are derived from Section
  132 of the Civil Aviation Act.

  67.1.3 Subsidiary of the Corporation

  The Corporation has a subsidiary company, Airport City Development Limited.
  Comments in relation to that company are contained in paragraph 67A of this Report.

  67.1.4 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 are contained in my Special Project Audit Report to
  Parliament.

  67.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  67.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies 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 September 2016. The report contained a Qualified
  Opinion.

  – 326 –

• Page 363 of 450

• National Airports Corporation Limited

  “BASIS FOR QUALIFIED OPINION

  Fixed Assets – K11,193,548

  I refer to the Note 21 to the financial statements disclosed the land and building
  transferred to National Airport Corporation Limited from the former Civil Aviation
  Authority in 2010. These assets have not been recorded in the Company’s books as at
  31 December 2011 as the cost or value could not be reliably measured.

  Though, a resolution had been made between the concerned parties in this regard, the
  cost or valuation amounts have yet to be included against these assets. Therefore, I
  was unable to ascertain the completeness and accuracy of the fixed assets totalled
  K11,193,548 as reported in the financial statements as at 31 December 2011.

  QUALIFIED OPINION

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

  (a) the financial statements of National Airport Corporation 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) proper accounting records have been kept by the Company; and

  (c) I have obtained all the information and explanation as required.”

  67.2.2 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
  2011 was issued on 27 September 2016. The report contained the following
  significant matters:

  – 327 –

• Page 364 of 450

• National Airports Corporation Limited

  Compliance with Public Finances (Management) Act 1995

  The financial statements for the year ended 31 December 2011 were approved and
  issued on 23 October 2015. The directors did not meet the deadline set by Section 63
  of the Public Finances (Management) Act for audited financial statements of public
  bodies and companies owned by the State to be furnished to the Minister before 30
  June of the subsequent year.

  Revenue

  I noted that a number of reversal journals were passed against the landing charges
  account, however, I was not provided with relevant supporting documents and credit
  notes to support the reversal. Though the variance was only K117,604 this would lead
  to issue of credit notes without the necessary approval and revenue could be
  misstated. I recommended to the management to properly file all the credit notes
  raised and journals passed for future verification, however, no response was provided.

  Petty Cash

  In 2011 the Company set up a petty cash fund totalled K18,000 and was kept in
  various sections. My review revealed that the petty cash of K10,000 kept by the
  Finance Office for Head Quarters X-mas function was expended but never acquitted. I
  was unable to verify whether this money were used in accordance with the
  Company’s policy as the acquittals and reconciliation were not provided. I advised
  that this control deficiency may lead to possible misappropriation.

  ANZ Imprest Accounts

  National Airports Corporation had five (5) imprest accounts with ANZ Bank for a
  total amount of K70,000 as at 31 December 2011. However, no reconciliation or
  acquittal was made available for my review. As a result, I was unable to verify
  whether the funds were properly accounted for in line with the Company’s accounting
  policy manual.

  Business Visa Card

  My review of the bank audit confirmation certificate reveled that there were five (5)
  Visa Credit cards issued by ANZ bank to the Company. The management claimed that
  out of the five cardholders, only two (2) of the cardholders were executives during the
  year. I further noted that the two (2) cardholders’ outstanding balances were not
  recorded in the general ledger.

  – 328 –

• Page 365 of 450

• National Airports Corporation Limited

  I brought this issue to the management to liaise with the bank and investigate why the
  other three non-employees of the Company were given VISA credit card under NAC
  account. No response from management was received at the time of this report.

  Lease Agreements

  Some of the lease agreements entered into between the Company and tenants were not
  executed by both parties as no signatures were affixed on the lease agreements. As
  such, these agreements cannot be enforceable by the Company for any outstanding
  rentals or damages to the properties which cost financially and leave the Company for
  litigations. I brought this matter to the attention of management but no response was
  made available at the time of this report.

  Group Tax

  As at 31 December 2011, the Company had an outstanding Group Tax liability of
  K4,961,797. The group tax that was deducted from the employees fortnight pay
  should have been remitted to Internal Revenue Commission (IRC) before seventh (7)
  day of the following month. Now IRC has penalized the Company with a 20% penalty
  for late payment and an additional 20% as interest on the outstanding amount until the
  tax has been remitted.

  Operational Expense

  During my review, I noted that three (3) payment vouchers valued K356,761 were not
  made available for my inspection. This implied that the Company did not follow
  proper filing system. I suggested to management to establish a proper filing procedure
  and ensure all supporting documents are kept properly for ease of reference in future.

  67.3 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the fieldwork associated with inspection and
  audit of the accounts and records and examination of the financial statements of the
  Company for the years ended 31 December 2012, 2013, 2014 and 2015 were in
  progress.

  The Company had not submitted the financial statements for the year ended 31
  December 2016 for my inspection and audit.

  – 329 –

• Page 366 of 450

• 67A. AIRPORT CITY DEVELOPMENT LIMITED (Subsidiary of National
  Airports Corporation Limited)

  67A.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.

  67A.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.

  67A.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, 2014, 2015 and 2016 had not been submitted
  for my inspection and audit, despite reminders.

  – 330 –

• Page 367 of 450

• 68. NCD WATER AND SEWERAGE LIMITED (Trading as Eda Ranu)

  68.1 INTRODUCTION

  68.1.1 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.

  68.1.2 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.

  68.2 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 2015 was in progress.

  The Company had not submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit.

  – 331 –

• Page 368 of 450

• 69. PAPUA NEW GUINEA 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 Papua New Guinea 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 AND RECOMMENDATIONS

  69.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies Act on the inspection
  and audit of the accounts and records of the Company for the year ended 31
  December 2015 was issued on 5 December 2016. The report did not contain any
  qualification.

  69.2.2 Audit Observations Reported to the Ministers

  My report to the Ministers under Section 8(2) of the Audit Act on the inspection and
  the audit of the accounts and records of the Company for the year ended 31 December
  2015 was issued on 9 March 2017. The report contained the following significant
  matters:

  Compliance with the Companies Act

  The financial statements for the year ended 31 December, 2015 had not been
  submitted to the Registrar within the required timeframe. This is in my opinion, a
  contravention to the Companies Act, 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.

  – 332 –

• Page 369 of 450

• Papua New Guinea Ports Corporation Limited

  Deficient Cargo Management Process

  The internal audit department had noted that inefficiencies in the cargo management
  unit’s processes for accounting for long stay cargo resulted in:

  48 containers sitting in the wharf since 2010 with total accumulated inward
  storage charges of K33m; and
  32 containers being unaccounted for.

  The inefficiencies in the cargo management unit will result in the accumulation of
  storage charges for long stay cargo, which may not be recognized over time. This may
  result in overstatement of the revenue and receivables account balance.

  I recommended that management take steps to improve the efficiency of its cargo
  management unit to prevent further accumulation of storage revenue that may not be
  recognized. I also recommended that management take steps to recover long stay
  cargo revenue, for cargo currently held in the port area. Legal notice should be given
  to the owners of the containers to claim them, if all other measures have failed.

  The management responded as follows:

  “The system is capable of accounting for long stay cargo.

  The system is not able to use more than one rate concurrently, e.g. the rate for 2015
  and the rate for 2016. The cargo revenue for 2016 is now calculated using 2016 rate
  in the system. For cargo for 2015 and prior years, calculation of revenue is done
  outside the system using the respective years’ rates (i.e. 2015, 2014 and 2013).

  System was designed in the operational requirements that every year rates were to
  change and that cargo are not supposed to be in port for more than 1 year.”

  Accrued Storage Revenue

  While performing recalculations of three (3) selected samples for accrued storage fee,
  I noted an error amounted to K6,297. Upon reviewing the relevant supporting
  documents, I further noted that the cause of the error was due to the Klein System not
  capturing the charges based on the correct day range which attracted penalty fees
  (Tariff rate) in the course when containers were held in PNGPCL storage yard.

  Additionally, I noted issues with Klein System when having discussions with the ICT
  Division in understanding the entity’s IT environment:

  – 333 –

• Page 370 of 450

• Papua New Guinea Ports Corporation Limited

  1. No link between cargo and container tracking;
  2. System does not capture the transshipment storages of cargoes;
  3. Not flagging duplicates;
  4. Not printing IDD;
  5. Not generating pro-forma invoice for storage; and
  6. Not capturing additional charges.

  The implication is that the financial statement could be misstated as at year end as a
  result of stating an erroneous amount for accrued storage fees.

  I recommended that management advises Klein to address these issues and implement
  controls within the system during the next routine maintenance and review of the
  system.

  Management responded as follows:

  “System is configured to calculate storage according to the business operation and
  commercial requirements of the Non-Regulated Tariffs schedule where storage is to
  commence 24 hours after last line, five (5) days free, Storage 1 (day 5 & 6), Storage 2
  (day 7 – 14) and Storage 3 (day 15++).

  There is now a link between Cargo and Container Tracking after system upgrade.
  System is not picking up transshipment because most of the cargo stays within the free
  storage days.

  No duplicates accepted but same container can be re-entered on different voyage.
  Gate pass is the IDD, IDD is Gate Pass which is system generated. It is the same
  thing.

  System is not generating proforma because it is already done by the carbon copy of
  IDD document.”

  Idle Property, Plant and Equipment and lack of supporting ownership to Land

  During my inspection and inquiry of property, plant and equipment, I noted some
  items that were idle and no use in the Company. As per my discussion with the
  management, the cost of running these assets were higher than the revenue they would
  receive if they used the assets. I also noted that the Company’s fixed assets register
  contained land without certificate of land titles.

  The property, plant and equipment recorded in the books maybe impaired or
  overstated due to the recoverable amount of some items included in property, plant
  and equipment was lower than the carrying value of the assets.

  – 334 –

• Page 371 of 450

• Papua New Guinea Ports Corporation Limited

  I recommended management that at each reporting date, management assesses
  whether impairment indicators exists for long lived assets. Some indicators of
  impairment of property, plant and equipment:

  a) Internal indicators

  1. Obsolescence or physical damage.
  2. Significant changes with adverse effect on the Company (e.g. idle
  assets; plan to dispose).
  3. Internal reporting that indicates that the economics performance of the
  assets is unsatisfactory.

  b) External indicators

  1. Assets market value has declined.
  2. Significant changes (e.g. technological changes, market or legal).
  3. Carrying amount of assets of the Company is more than its market
  capitalization.

  Management should work out to determine and acquire the necessary documentation
  to show ownership to these lands.

  The management responded as follows:

  “Management is aware of this matter which was raised by previous auditors and
  accepted qualification in 2011 and 2012 which was subsequently addressed and taken
  up as management letter point in 2013. Management is working on acquiring titles for
  the land. Management considers this a management letter point as the total value of
  all missing titles is approximately K2 million which can be considered not material
  compared to the total asset value.

  The RTG (Lae Rubber Tyred Gantry’s Cranes) have not been used since end of 2013
  due to high operating cost and not been able to charge fees due to regulatory
  restrictions. Management is working on strategies to ensure the machines are utilized
  in the future.”

  Capitalization Policy on Borrowing Costs

  IAS 23 – Borrowing Costs applies to all borrowing costs incurred in relation to
  qualifying assets where construction of the asset starts on or after the beginning of the
  first accounting period that commences on or after 1 January 2009. No retrospective
  restatement is required.

  – 335 –

• Page 372 of 450

• Papua New Guinea Ports Corporation Limited

  As at 31 December 2015, the Company had loans amounting to K129,454,043
  outstanding to Westpac and K3,803,293 due to ANZ. These loans had been taken out
  to fund both operations and capital assets or qualifying assets.

  a) Loan (100 m) – used to refinance BSP loans.
  b) Loan (50 m) – used to finance Kimbe; and operations.

  The Company has no accounting policy manual on the application of IAS 23. But the
  financial statements stated that “Borrowing costs directly attributable to the
  acquisition, construction or production of an asset that necessarily takes a substantial
  period of time to get ready for its intended use or sale are capitalized as part of cost of
  the assets. All other borrowing costs are expensed in the period in which they occur.
  Borrowing costs consist of interest and other costs that an entity incurs in connection
  with the borrowing of funds.”
  In 2015, no borrowing cost was capitalized as part of asset cost.

  IAS 23, Borrowing costs, addresses accounting for borrowing costs. It considers
  whether borrowing costs should be capitalized as part of cost of the assets or expensed
  in profit or loss.

  Without written accounting policy, management might overlook this accounting
  standard.

  Management should establish formal accounting and policy manual under property,
  plant and equipment specifically addressing the capitalization of borrowing costs. The
  objective of the policy is to prescribe the Company’s accounting treatment for the
  capitalization of borrowing costs associated with qualifying assets of property, plant
  and equipment. Additionally, guidance is provided on how to determine what falls
  into the qualifying asset category.

  Management responded as follows:

  “In the absence of accounting manual, international accounting standards apply. This
  will be addressed in the Accounting manual that will be developed in 2017.”

  Lack of Supporting Documentation

  On completion of the statutory and compliance testing, I was advised to send list of
  items to management that I required supporting the work I performed. The following
  documents were requested:

  1) Share Register
  2) Interest Register
  3) Solvency Certificate

  – 336 –

• Page 373 of 450

• Papua New Guinea Ports Corporation Limited

  4) Application for extension of time and change of balance date – 2015 annual
  returns

  Attempts in following up with management on many occasions to provide these
  documents were unsuccessful.

  Lack of available information may create non-compliance with the relevant
  regulations or reporting requirements under Companies Act.

  Management is encouraged to ensure that all relevant documentation and filing of
  documents under Companies Act be prioritized.

  The management responded as follows:

  “There is a share register, but not interest register. We manage the interests’ aspect
  by documenting it in the Minutes. There is a specific column devoted to this part in
  the Minutes.

  Solvency certificates are signed off when it becomes necessary. For instance, when we
  enter into a big commercial transaction involving a huge amount, or about to make a
  big payment like a dividend and kept with Board Paper documentation.

  Application for extension of time will be done when we are ready to conduct an AGM
  and also to lodge the Annual Returns for 2015. Company Registrar’s Office extend
  time for three months only after the conventional period expires (normally the period
  between Jan and June in each year) and when the extension expires, we will need to
  apply for another extension.

  The 2015 accounts will go to Auditor General for review and after we get it back, we
  will apply for extension of time. So to save costs, we will seek the extension when we
  are ready to conduct the AGM and also to lodge the Annual Returns for 2015.”

  Absence of Accounting Manual

  Similar to prior year audit issue, the Company still did not have proper accounting
  manual in place. In the absence of detailed accounting procedures manual, it would be
  difficult for the Company to monitor and implement the new and revised accounting
  standards. I suggested management consider the implications of the foregoing
  standards on the preparation of the Company’s financial statements, both for internal
  and statutory reporting purposes. I further suggested that the Company personnel
  involved in accounting and preparation of financial statements attend training courses
  related to these new standards.

  – 337 –

• Page 374 of 450

• Papua New Guinea Ports Corporation Limited

  The management responded as follows:

  “Management is in the process of preparing an accounting manual. However, in the
  absence of accounting manual international accounting standards apply (e.g. IFRS &
  IAS). Management is in the process of finalizing engagement of a service provider to
  develop an accounting manual.”

  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 2016 was in progress.

  – 338 –

• Page 375 of 450

• 70. PNG AIR SERVICES LIMITED

  70.1 INTRODUCTION

  70.1.1 Legislation

  PNG Air Services Limited was incorporated under the Companies Act. 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 (as 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) 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
  Independent 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 (as 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 report in accordance with the provisions of the Companies Act on the Company’s
  financial statements for the year ended 31 December 2015 was issued on 8 August
  2016. The report contained a Qualified Opinion.

  – 339 –

• Page 376 of 450

• PNG Air Services Limited

  “BASIS FOR QUALIFIED OPINION

  Fixed Assets – K70,154,077

  The financial statements and fixed assets register discloses assets that were acquired
  since 2008 totalled K70,154,077 (2014:K50,971,008). 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’s books. These assets
  include the Control Tower Building, MES & HQ Building, HF Receiver Station,
  James Hill (CDVOR/DME) and Rader Hill. Furthermore, the measurement of these
  assets were uncertain at the time of my audit as neither costs nor valuation amounts
  had been made available for my review.

  Though, a resolution had been made between the concerned parties in this regard, the
  cost or valuation amounts have yet to be included against these assets. Therefore, I
  was unable to ascertain the accuracy and completeness of the fixed assets taken up in
  the financial statements as K70,154,077 as at 31 December 2015.

  Levy Payable to Civil Aviation Safety Authority (CASA)

  Sub-section 3(b) of Section 147E of the Civil Aviation Act (as amended) provides for
  PNG Air Service Limited (PNGASL) to pay a levy of 10% to Civil Aviation Safety
  Authority (CASA) from the aeronautical charges of upper airspace.

  In 2013, PNGASL and CASA entered into a Memorandum of Understanding that
  PNGASL would pay a fixed sum of K1.6 million in 2013 and subsequently K1.74
  million to CASA towards the aeronautical charges on International en-route Service.
  However, this agreement was not in compliance with the requirement of the Civil
  Aviation Act (as amended). I was unable to determine exactly the actual total liability
  payable to CASA by PNGASL for want of relevant documentation as this liability to
  be ascertaining since the Act came into operation in 2010.

  Therefore, I was unable to determine the accuracy and completeness of the levy
  shown as paid in the profit and loss account, the taxable profit derived for the
  respective years and the total outstanding liability payable as at 31 December 2015.

  QUALIFIED OPINION

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

  (a) the financial statements of PNG Air Services Limited for the year ended 31
  December 2015:

  – 340 –

• Page 377 of 450

• PNG Air Services Limited

  (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 Papua New Guinea;

  (b) proper accounting records have been kept by the Company; and

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

  OTHER MATTER

  Non-Compliance with Section 212 (1) (g) of the Companies Act 1997

  Note 22 (c) to the financial statements disclosed the remuneration paid to employees
  of the Company. However, this information was not presented in the bands of
  K10,000 above K100,000 as required by Sub-section 1(g) of Section 212 of the
  Companies Act. Management claims that compliance of this requirement is likely to
  result in significant disadvantage and risk to the Company’s business therefore it did
  not make these disclosures.”

  70.3 STATUS OF FINANCIAL STATEMENTS

  The Company has advised as per the letter dated 14 November 2016 that it will
  appoint its own auditor for the 2016 audit. However, I have advised that I am still
  the auditor for the Company.

  At the time of preparing this Report, the Company had not submitted its financial
  statements for the year ended 31 December 2016 for my inspection and audit.

  – 341 –

• Page 378 of 450

• 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 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 Enterprise (SOE) to oversee and implement the National
  Transmission Network (NTN) Impact Project 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 in February 2014.

  71.1.2 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 telecommunication 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.

  – 342 –

• Page 379 of 450

• PNG DataCo Limited

  71.1.3 Functions 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 AUDIT OBSERVATIONS

  71.2.1 Comments on Financial Statements

  My report in accordance with the provisions of the Companies Act on the Company’s
  financial statements for the years ended 31 December 2014 was issued on 29 July
  2016. The report did not contain any qualification.

  71.3 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 2015 had been completed and the
  results were being evaluated.

  The fieldwork associated with the inspection and audit of the accounts and records
  and the examination of the financial statements of the Company for the year ended 31
  December 2016 was in progress.

  – 343 –

• Page 380 of 450

• 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.

  – 344 –

• Page 381 of 450

• PNG Power Limited

  72.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  72.2.1 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 2015 was issued on 26
  January 2017. The report contained a Disclaimer of Opinion.

  “BASIS FOR DISCLAIMER OF OPINION

  Opening Balances

  My report for the year ended 31 December 2014 was a disclaimer of opinion. I was
  not able to satisfy myself as to the accuracy and completeness of the opening balances
  of capital work in progress, property, plant and equipment, trade receivables, trade
  creditors, cash and cash equivalents and bank overdrafts, inventories, other payables,
  other receivables, employee entitlements and tax balances. Since these opening
  balances entered into the determination of the results of operations and cash flows of
  the Company in 2015, I was unable to determine whether adjustments to the financial
  position, results of operations, cash flows and changes in equity might have been
  necessary for the year ended 31 December 2015.

  Revaluation of Land and Building

  Included in the carrying value of property, plant and equipment reported as K1,815.73
  million as at 31 December 2015 was land and building valued K532.11 million. The
  Company had elected to adopt revaluation model as its accounting policy and carried
  its Property, Plant and Equipment at fair value. In 2015, the Company had recorded a
  revaluation adjustment of K428.20 million. However, the Company was unable to
  confirm whether all of its properties have been revalued during 2015. As a result, I
  was unable to ascertain the completeness of assets revalued, the accuracy of the fair
  value adjustment and whether any impairment would have been necessary for certain
  assets should the recoverable amount be lower than its respective carrying amount.

  Fair value of certain properties can be lower than the carrying value as at 31
  December 2015. In the absence of information available in respect of the opening
  balance of revaluation reserve, I was unable to ascertain whether it was appropriate to
  offset the decrease in the fair value of the properties against the revaluation reserve as
  at 31 December 2015. Furthermore, I was unable to confirm whether the fair value
  adjustments have been accurately included in the carrying value of individual fixed
  assets.

  Therefore, I was unable to satisfy myself as to the accuracy of the carrying value of
  the land and building and related asset revaluation reserve of the Company as at 31
  December 2015.

  – 345 –

• Page 382 of 450

• PNG Power Limited

  Impairment of Property, Plant and Equipment

  In accordance with IAS-36 Impairment of Assets, an entity shall assess at the end of
  each reporting period whether there is any indication that an asset may be impaired.
  If such indication exists, the Company shall estimate the recoverable amount of the
  asset. I was not provided with the supporting information to consider the
  reasonableness of the assumptions used in the impairment assessment performed by
  the Company. As a result, I was unable to verify as to whether the carrying values of
  property, plant and equipment and related impairment loss, if any, were fairly stated
  in the financial statements as at 31 December 2015.

  Accounting for Capital Work in Progress

  Note 4 of the financial statements disclosed the carrying value of capital work in
  progress at K263.59 million as at 31 December 2015. During the year, the Company
  transferred capital work in progress valued K42.31 million to Fixed Asset Register
  and charged depreciations on them. I was unable to ascertain the date from which
  these assets should have been classified as property, plant and equipment and
  appropriately depreciated. Further, my review of the capital projects management
  identified a number of control weaknesses such as delay in finalization of Project
  Completion Forms, ineffective monitoring and approval of Project Variation Forms
  and a lack of physical inspection of projects. Also, I was not provided with the details
  for capital work in progress as at 31 December 2015 (project ledger). In addition, I
  was unable to reconcile the work in progress per the project ledger and general ledger.

  Consequently, I was unable to obtain sufficient and appropriate audit evidence to
  confirm the accuracy and completeness of the property, plant and equipment
  including capital work in progress as at 31 December 2015, and the related
  depreciation expenses charged to the comprehensive income for the year ended.

  Inventories

  The inventories of the Company and provision for stock obsolescence were reported
  at K35.87 million and K2.29 million respectively as at 31 December 2015. I was
  unable to verify the adequacy and reasonableness of these amounts due to the
  following reasons:

  I was unable to confirm the cost of inventory due to discrepancies observed as
  part of our testing of cost computation performed by the Company’s inventory
  system; and
  I noted certain items of inventory were valued using standard costing
  methodology, however, the standard cost assumptions have not been updated
  since 2008.

  – 346 –

• Page 383 of 450

• PNG Power Limited

  As a result of the above, I was unable to obtain reasonable assurance that inventories
  were appropriately valued at K35.87 million as reported in the financial statements as
  at 31 December 2015.

  Trade and Other Receivables

  I noted two manual journals valued K37.92 million and K33.43 million were recorded
  at 31 December 2015 to reduce the reported amount of advances to suppliers
  (including prepaid bank draft in other receivables) as at balance sheet date. These
  adjustments were recorded on the basis that the advances to suppliers were made in
  prior financial years and the Company could not substantiate that any further supplies
  or services were to be received from the suppliers. Corresponding adjustments were
  made to various General Ledger accounts relating to Goods Received Not Invoiced,
  various expense accounts and property, plant and equipment. I was unable to obtain
  sufficient and appropriate audit evidence to ascertain that the resulting adjustments
  were reasonable.

  As a result, I was unable to satisfy myself as to the accuracy, existence and
  completeness of the trade receivables of K139.88 million as at 31 December 2015.

  Trade and Other Payables and Related Operating Expenses

  Note 9 of the financial statements disclosed trade and other payables totalled K234.22
  million as at 31 December 2015. I was not able to obtain sufficient appropriate audit
  evidence including reconciliation of trade payable accounts between the General
  Ledger and subsidiary ledger. In addition, reconciliations between supplier statements
  and their respective payable balances in the subsidiary ledger were not made available
  for my review. Further, I was not provided with appropriate audit evidence to support
  accruals amounting to K29.96 million and net output GST payable of K16.06 million.

  Accordingly, I was unable to confirm the accuracy and completeness of the carrying
  value of trade and other payables and related operating expenses as at 31 December
  2015.

  Accounting for Government Grants

  I was provided by the Company with an adjustment which corrected the accounting
  for its Government Grant in accordance with paragraph 12 of IAS 20, Accounting for
  Government Grants and Disclosure of Government Assistance, which required
  government grants be recognised in the profit or loss on a systematic basis over the
  periods in which the entity recognised as expenses the related costs for which the
  grants were intended to compensate.

  – 347 –

• Page 384 of 450

• PNG Power Limited

  However, I was unable to validate the reasonableness of the calculations provided due
  to the qualification on capital work in progress and unable to ascertain the
  completeness of the listing of projects funded through government grants.

  Employee Benefits

  Accuracy of calculation of employee benefits:

  Note 10 of the financial statements disclosed the Company’s obligation to its
  employees at K61.25 million. The provision for employee benefits included long
  service leave, annual leave, ex-gratia payments and other employee benefits. The
  Chris Payroll System calculated the provision for employee benefits based on data
  supplied by the employee master file. However, there were errors and inconsistencies
  between the employee master file and supporting documents. Also, I was unable to
  obtain sufficient information and documentation including commencement dates,
  basic pays, and the completeness of employees entitled to the benefits. Consequently,
  I was unable to quantify the potential impact on provisions for employee benefits and
  operating expenses in the comprehensive income for the year ended 31 December
  2015.

  Measurement of provision for other long term employee benefits:

  Further, included in the provision for employee benefits were other long-term
  employee benefits such as ex-gratia payment and long service leave. The Company
  had measured these other long-term employee benefits at undiscounted value of the
  entitlements which was a departure from IAS 19, Employee Benefits. In accordance
  with the revised IAS 19, Employee Benefits, the amount recognised as liability for
  other long-term employee benefits should be the net present value of the benefit
  obligation.

  However, the Company had not provided me with an actuarial valuation report or
  other supporting information for these long-term employee benefits.

  Accordingly, I was unable to obtain sufficient appropriate audit evidence to confirm
  the accuracy, completeness and valuations of the carrying value of employee
  provisions reported at K61.25 million as at 31 December 2015, and quantify any
  potential impact on operating expenses in the comprehensive income for the year
  ended.

  Electricity Revenue

  The financial statement disclosed K843.73 million as electricity revenue for the year
  ended 31 December 2015. However, I was unable to obtain sufficient and appropriate
  audit evidence to attest the occurrence of revenue recorded.

  – 348 –

• Page 385 of 450

• PNG Power Limited

  I was unable to verify the completeness of the revenue as the Company was not able
  to provide evidence such as approved credit meter application forms, bill notes/
  invoices and reconciliation of the amount recorded between the General Ledger and
  the Company’s Supreme Billing System.

  Adequacy of Allowance for Doubtful Debts

  Note 7 of the financial statements disclosed that the Company has made a provision of
  K39.80 million doubtful debts in respect of its trade receivables as at 31 December
  2015. However, I was not able to assess the completeness or calculation accuracy of
  the trade receivables ageing reports generated by the Company’s Gentrack Billing
  System as at 31 December 2015.

  Consequently, I was not able to attest the completeness or accuracy of the doubtful
  provision reported as at 31 December 2015.

  Provision for Legal Claim

  The Company recorded a provision of K3.49 million towards legal claim as at 31
  December 2015. However, my review of this provision disclosed that it did not
  include allowances for all matters identified by the Company’s Legal Division or the
  allowances for matters handled by the Company’s external solicitors.
  Accordingly, I was unable to ascertain the completeness of the provision for the legal
  claims as at 31 December 2015.

  Income Taxes

  I was provided with a tax calculation by the Company to support the income tax
  balances. However, I was not provided with the supporting information and
  reconciliations to consider the reasonableness of the inputs used in the calculation.
  Further, given the qualifications in the revenue and operating expenses, I was unable
  to quantify the impact of these on income tax balances. As a result, I was unable to
  satisfy myself whether the income tax balances were fairly stated as at 31 December
  2015.

  Presentation and Disclosure of Financial Statements

  The 2015 financial statements as presented did not contain all the disclosures required
  by International Financial Reporting Standards (IFRS), including:

  Required disclosures on restatements of prior period adjustments, and consistency
  of presentation of comparative figures under IAS 1, Presentation of Financial
  Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates and
  Errors;
  IAS 7, Statement of Cash Flows – no disclosure of non-cash activities;
  – 349 –

• Page 386 of 450

• PNG Power Limited

  IAS 12, Income Taxes – no disclosure of income tax effect of revaluation reserve;
  IAS 16, Property, Plant and Equipment – no disclosure for each revalued class of
  property, plant and equipment of the carrying amount that would have been
  recognised had the assets been carried under the cost model;
  IAS 20, Accounting for Government Grants and Disclosure of Government
  Assistance – no disclosure of the nature and extent of government grants
  recognised in the financial statements and an indication of other forms of
  government assistance from which the entity has directly benefited and unfulfilled
  conditions and other contingencies attaching to government assistance that has
  been recognised;
  IAS 1, Presentation of Financial Statements – disclosure of significant accounting
  policies and key estimation assumptions were not complete;
  IAS 24, Related Party Disclosures – disclosures of related party transactions were
  not complete;
  IAS 19, Employee Benefits (Revised) – disclosure of actuarial assumptions were
  not complete; and
  IAS 10, Events after the Reporting Period – no disclosure of non-adjusting events
  after the reporting period.

  Accordingly, I was unable to attest to the statement of compliance with International
  Financial Reporting Standards as set out in Note 1 of 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 and accordingly, I am unable to express an opinion on the financial
  statements of PNG Power Limited for the year ended 31 December 2015.”

  72.2.2 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
  2015 was issued on 26 January 2017. The report contained the following significant
  matters:

  Minutes of the Board Meetings

  I was not provided with all minutes of the board meetings for my review. There could
  be significant matters discussed in these meetings, which may have impacts on the
  financial statements of the Company for the year ended.

  – 350 –

• Page 387 of 450

• PNG Power Limited

  Purchase and Payable Processes and Systems

  a) I noted control deficiencies in the design and implementation of the purchase
  orders and invoices having approved subsequent to the delivery of goods and
  services;

  b) I noted that PPL operated a General Ledger account named “goods received
  not invoiced”. As at 31 December 2015, this account had a balance of K10.93
  million. Goods received not invoiced, indicated that the three-way matching
  process was not operating effectively. That is, goods have not been matched at
  receipt to clear the goods received not invoiced account and created a creditor
  against which the account can be paid;

  c) Evidence in respect of review of creditors’ reconciliation by a senior officer
  was not sighted. I also noted that documentation supporting the reconciliation
  of the creditors was insufficient to allow the preparer to perform the
  reconciliation effectively and the reviewer of the reconciliation to effectively
  identify items that required attention; and

  d) Sufficient audit evidence was not available to support the incurrence and
  recording of the expense transactions selected for testing during the audit.

  Revenue Process and Systems

  I was unable to validate the control environment surrounding revenue recognition due
  to an incomplete ‘audit trail’. The following control deficiencies were noted:

  a) Monthly reconciliation of electricity sales per Suprima, Gentrack and Oracle
  I noted that the reconciliation of electricity sales between the three systems
  (Suprima, Gentrack and Oracle) was not performed during the year. In
  addition, a net reconciling amount of K1.94 million was identified which PPL
  had not provided me with the supporting documentation.

  b) Monthly reconciliation of electricity debtors
  Monthly reconciliation of the electricity debtors were not performed on a
  regular basis.

  I noted that the General Ledger account of electricity debtors had a balance of
  K130.3 million which was less than the balance of K113.7 million per the
  Gentrack system. Reconciliation was provided but an unidentified variance of
  K4.12 million was written off during the year.

  – 351 –

• Page 388 of 450

• PNG Power Limited

  c) Review of validation report for read meters
  Due to lack of sufficient documentation, I was unable to ascertain whether
  review was performed to ensure that manual meter readings were input
  correctly into Gentrack system and that sales recorded were accurate. The
  validation report, which was utilized by the data input clerks to check whether
  the sales per bill-book were within accepted parameters was not reviewed by
  the Centre Supervisors.

  d) Review of exception reports on unread meters
  Due to lack of sufficient documentation, I was unable to ascertain whether a
  review was performed on a monthly basis to ensure the sales were complete
  and accurate.

  e) Accuracy of aging report
  From the sample of the aging reports of the electricity debtors tested, I noted
  variances which were not reconciled. I was unable to ascertain the accuracy of
  the aging report generated from the Gentrack system.

  Information Technology control Environment

  I noted significant weaknesses in the IT control environment. Specifically, I noted
  weaknesses with respect to system access, system change management, reporting
  capability to support account reconciliations and the broader control environment and
  ongoing system monitoring. These are detailed below:

  a) Follow up of prior year findings

  Significant control weaknesses identified and reported in my prior years
  reports remained unresolved. I understood from IT management that
  remediation plans to address the issues were in progress.

  b) Testing over Information Technology

  (i) The Company did not have procedures in place to formalize the
  documentation and approval of the request for change in the system.
  Unauthorised or inappropriate program changes were made and as a
  result, the integrity of financial data may be compromised;

  (ii) I noted that documentation in respect of testing by the Company
  personnel for changes to the Oracle, Chris21, Gentrack and Suprima
  applications was lacking. The Company was not able to provide the
  test plans, test cases and test results. Lack of adequate user acceptance
  testing and approval may also resulted in application systems that did
  not meet user functionality or internal control requirements been
  placed into the production environment.

  – 352 –

• Page 389 of 450

• PNG Power Limited

  This increases the risk of accidental or deliberate programming errors
  adversely affecting processing at PNG Power. Consequently, the
  Company may suffer loss of business and revenue due to incorrect data
  processing or system failure;

  (iii) The Company did not maintain evidence to support the approval
  obtained for program changes prior to implementation. Unauthorised
  or inappropriate program changes can be made and as a result the
  integrity of financial data may be compromised;

  (iv) At the time of my review, there was no formal process for reviewing
  changes post-implementation and the procedures currently being
  developed will satisfy the control objective in the future. Failure to
  adequately review or monitor change activities in a timely manner
  increases the risk of unauthorised access to production environment
  being undetected for an extended period of time, resulting in
  unauthorised and erroneous changes being developed and implemented
  within the application;

  (v) The responsibility to develop and move changes was performed by the
  same person. Where adequate segregation of duties was not enforced,
  it was possible that the integrity of programs being moved into the live
  systems can be compromised, either accidentally due to oversight or
  deliberately due to manipulative processing;

  (vi) The password settings for the Oracle, Chris21, Gentrack and Suprima
  applications were set to minimum and below the recommended
  settings. Unauthorised access to accounts was made more possible
  where password settings were not activated;

  (vii) Formal periodic reviews of user access privileges have not been
  performed for the Oracle, Chris21, Gentrack and Suprima applications
  to confirm that users with active accounts are valid employees and the
  access privileges granted is consistent with their roles and
  responsibilities. Excessive or inappropriate access granted to users
  increases the risk of unauthorised access to financial applications and
  may result to deliberate or accidental manipulation of financial data;

  (viii) At the time of my review, there was no formal process in place for the
  removal of terminated user access. As a result, access of terminated
  employee was not removed in a timely manner (i.e. a day after his/her
  termination). Furthermore, there was no process for Human Resources
  (HR) to communicate the need for access removal to IT.

  – 353 –

• Page 390 of 450

• PNG Power Limited

  Where user accounts belonging to terminated employees were not
  removed or disabled in a timely manner, the risk of unauthorised use of
  these accounts may increase;

  (ix) I noted that no periodic review was performed of user access to the key
  financial systems to determine that their access rights were
  appropriately authorised and established. Unauthorised or
  inappropriate access may be granted to a user which increases the risk
  that key financial data/programs were intentionally or unintentionally
  modified; and

  (x) There were no backup processes in place for the Chris21, Suprima or
  Gentrack applications. I understand that there was a backup process for
  Oracle where the data was backed up to tapes daily, but these tapes are
  stored onsite. There was no policy and procedure in place to support
  the process. There was also no formal process in place to test that
  backups can be successfully restored if needed. Without a formalised
  backup policies and procedures on servers and supporting
  infrastructure, there is an increased risk of a prolonged outage should
  the power, or restore procedures fail. In addition, a lack of formal
  backup and recovery policies and procedures increases the risk that
  day-to-day backup administration activities were difficult to monitor
  and enforce.

  I brought the above deficiencies to the attention of the management and
  recommended for improvements on these weaknesses.

  Quality of General Ledger Reconciliations

  The reconciliations were prepared on a regular basis and that there was an overriding
  framework to manage the reconciliation process.

  However, I identified a number of weaknesses which included the level of skepticism
  applied for account reconciliations (preparer and reviewer), limited knowledge and
  understanding of operational processes by reconciliation preparers/reviewers, limited
  support provided for reconciling items and aging of reconciling items.

  I also identified a number of reconciliations and schedules which were signed off by
  the preparer and reviewer but contained errors, which were not detected during the
  review process.
  These findings indicated that the review process was not effective and increases the
  risk of errors and irregularities not been detected and resolved. This could increase
  risks of material misstatement.

  – 354 –

• Page 391 of 450

• PNG Power Limited

  The impacts of the above issues include:

  Reconciliations containing material errors could not be detected;
  Increased use of ‘general provisions’ by management to counter the risk of
  potential reconciliation errors;
  Reconciliations were not supported by adequate documentation / calculations;
  and
  Build-up of long outstanding reconciling items that had not been actioned.

  Asset and Project Management Process

  The management of PPL commenced implementing improvements in this area.
  However, there remains significant opportunity to improve processes associated with
  asset impairment monitoring, fair value assessments, useful life assessments and
  capital WIP management.

  The significant matters that were highlighted include:

  a) Capital Project Management

  Capital project management was a critical process for PNG Power. I noted a
  number of deficiencies as summarised below:

  (i) Delay in finalisation of project completion forms
  PPL was currently behind in their submission of completion notice
  forms for completed projects. This increases the risk that projects were
  not closed out and subsequently capitalized and depreciated from the
  date the assets were held ready for use.

  (ii) Lack of physical inspection of projects
  The Company performed physical inspection of significant project
  assets. However, I suggest that a full count be performed to account for
  the recorded assets in the books. This created risks of misuse of project
  related assets and the completion status of projects may not be
  physically verified by PPL staff independent of the project team.

  b) Review of Assets’ Useful Lives

  I noted inconsistencies in the useful lives disclosed in the financial statements
  and those used in the Fixed Asset Register. Management should review the
  useful lives of its assets and appropriately reflect this in its financial
  statements.

  – 355 –

• Page 392 of 450

• PNG Power Limited

  c) Accuracy of Property, Plant & Equipment (PPE) as at 31 December 2014

  In 2014 and in prior years’ audit reports, I qualified in respect of capitalized
  Project Work-In-Progress (WIP). To this extent I was unable to confirm the
  accuracy of the cost of property, plant & equipment (PPE) as at 31 December
  2015.

  This consequentially impacted the accuracy of depreciation charge for the
  year, which further impacted the accuracy of results for the year and carrying
  value of the PPE at the year end.

  I recommended that a review should be performed on all Projects in progress
  from the date each project commenced so as to identify when each asset is
  available for use. Once this review was completed, assets should be
  transferred from Project WIP to PPE from the date they become available for
  use.

  Reconciliation and Cash and Bank Balance

  I noted the following matters over the bank reconciliation process:

  a) Bank reconciliations were prepared manually. Oracle had a built in function
  where bank reconciliations were automatically prepared if the accounting
  system was linked to online banking.

  b) Bank reconciliation items were not addressed on a timely basis.

  Receivables

  I noted the following matters over the receivable balances:

  a) Variance between subsidiary and General Ledger Balances for which the
  General Ledger was overstated by K4.12 million;

  b) Advance collected from customers valued K5.84 million was deducted from
  the total receivable balance thereby understating the receivable balance;

  c) A full allowance for receivable which were past due for more than 180 days
  and for those balances which were determined to be uncollectible was
  provided by the Company. I was unable to obtain sufficient appropriate
  evidence to evaluate the reasonableness of the policy due to issues noted in the
  aging of receivables and the Company could not generate report to show the
  collection status subsequent to year end for receivables outstanding as at 31
  December 2015;

  – 356 –

• Page 393 of 450

• PNG Power Limited

  d) Errors were noted in the assumptions used in the computation of the accrual
  for unread meters thereby overstating the revenue accrual during the year; and

  e) The propriety of the adjustment in the prepayment account totalled K37.93
  million could not be ascertained due to lack of supporting documents.

  Inventory

  I noted the following key matters with respect to inventories:

  a) I noted variances between the inventory listing report and General Ledger.
  Also, there were negative quantities in the inventory listing provided as at 31
  December 2015;

  b) I observed that costs directly attributable to bring inventories to their present
  location and condition (which includes freight, insurance, handling charges)
  were not included as part of inventory cost, instead incorrectly charged
  directly to the income statement. Inventory and cost of sale may be
  understated;

  c) No appropriate supporting calculation was made available for the provision for
  stock obsolescence valued K2.29 million as at 31 December 2015; and

  d) The weighted average cost as per my recalculation and the amount as shown
  in the system had variances which were not reconciled.

  Tax workings could not be substantiated

  In 2014 and prior years audit reports, I disclaimed my opinion on tax balances for lack
  of supporting documentation to ensure completeness and accuracy. To the extent that
  these balances were brought forward and included in the 2015 financial statements
  had also impacted the accuracy and completeness of the tax balances as at 31
  December 2015 and tax expense charged for the year. Due to information not
  provided in respect of PPE, Projects WIP, revenue, inventory and accounts payable, I
  was unable to substantiate the tax workings provided. The following specific matters
  were noted:

  a) Income Tax Refundable
  The Company’s Statement of Account showed refundable amount of K4.68
  million while the financial statements reflected K4.03 million as refundable
  amount. I was unable to obtain a reconciliation of the difference.

  – 357 –

• Page 394 of 450

• PNG Power Limited

  b) Deferred Tax Liabilities
  I was unable to confirm the accuracy and completeness of deferred tax
  liabilities amounted to K133.91 million. This significant amount of deferred
  tax liability arose from depreciation. I was unable to obtain reasonable
  assurance on the balance of depreciation expenses recognized for tax purpose
  since Fixed Assets Register was not made available to verify this claim.

  Skills, Culture and Work Ethic

  The current accounting processes and outcomes were significantly impacted by level
  of skills, culture and work ethic of staff. The Company needs to improve on quality
  and productivity of accounting and other key business processes. These areas include:

  Inadequately skilled and motivated staff to:

  perform business as usual functions;
  Implement the changes required to improve the operational efficiency and
  control environment; and
  Maintain operations once necessary changes have been made.

  Payroll and Employee-related Provisions

  I noted the following key matters with respect to payroll and employee-related
  provisions:

  a) Validity of Data used in calculating employee provisions
  As at 31 December 2015, the Company had a provision for employee benefits
  amounted to K61.25 million for long service leave, annual leave, ex-gratia
  payments and other employee benefits. The provision amount was
  automatically calculated by the Chris21 Payroll System which is highly
  dependent of the employee master file. Based on my audit procedures, there
  were errors and inconsistencies between the employee master file and
  supporting documents.

  b) Measurement and accuracy of provision for other long term employee
  benefits
  As at 31 December 2015, the Company provided for other long-term
  employee benefits such as ex-gratia payments and long service leave. These
  other long-term employee benefits were measured currently at the
  undiscounted value of the entitlements. In accordance with Revised IAS 19,
  Employee Benefits, the amount recognised as liability for other long-term
  employee benefits must be the net total at the end of the reporting period of
  the present value of the defined benefit obligation.

  – 358 –

• Page 395 of 450

• PNG Power Limited

  c) Presentation of employee related provisions in the financial statements
  During the year, the Company had presented all its employee-related
  provisions as current with the concept that these were vested already.
  However, the year end balances were not reclassified to maintain comparative
  presentation of the balances.

  Other Provisions

  I noted that management had ongoing cases as at 31 December 2015. Management
  had not assessed the probability of potential outflow for probable claims and the
  impact of these ongoing cases in the financial statements considering the requirements
  of IAS 37, Provisions, Contingent Liabilities and Contingent Assets.

  72.3 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 examination of the financial statements of the
  Company for the year ended 31 December 2016 was in progress.

  – 359 –

• Page 396 of 450

• 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.

  – 360 –

• Page 397 of 450

• Post (PNG) Limited

  73.2 STATUS OF FINANCIAL STATEMENTS

  At the time of preparing this Report, the fieldwork associated with the inspection and
  the audit of the accounts and records and the examination of the financial statements
  of the Company for the year ended 31 December 2016 was completed and results
  were being evaluated.

  – 361 –

• Page 398 of 450

• 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 National Information and
  Communication Technology Authority (NICTA) formerly known as (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 of 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;

  – 362 –

• Page 399 of 450

• Telikom (PNG) Limited

  ‒ Represent PNG as a member of, and actively participate, in
  international bodies concerned with the administration of
  telecommunication services;
  ‒ 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 DATEC (PNG) Limited, Kalang
  Advertising Limited, Media Niugini Limited (EMTV) and PNG Directories Limited.
  Comments in relation to these subsidiaries are contained in paragraphs 74A, 74B, 74C
  and 74D of this Report respectively.

  74.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

  74.2.1 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 29 July
  2016. The report contained a Qualified Opinion.

  “BASIS FOR QUALIFIED OPINION

  Impairment of Property, Plant and Equipment

  Property, plant and equipment were carried at a value of K736 million as at 31
  December 2014. The network assets, equipments and vehicles included in this balance
  amounted to K508.5 million. Despite the presence of impairment indicators, the
  Company had not prepared an impairment test to determine the recoverable value of
  these assets as required by IAS 36 Impairment of Assets. As such, I was unable to
  determine if any impairment had arisen in relation to these assets and whether their
  carrying value was appropriate.

  – 363 –

• Page 400 of 450

• Telikom (PNG) Limited

  Land Titles

  Documentary evidences in relation to the state leases were not provided to me for
  properties with a carrying value of K38.8 million to confirm the existence and
  ownership of these assets. These properties were recognised as part of the land and
  buildings in the statement of financial position. I was unable to determine whether the
  recognition of these assets were appropriate.

  Impairment of Goodwill

  The Company made an acquisition of a subsidiary effective 1 August 2014 and this
  transaction resulted in a goodwill of K18 million. The Company had not performed an
  impairment test of the goodwill on the basis that there were no impairment indicators
  as the acquisition was only completed five months prior to the financial year end and
  the subsidiary remained profitable and its net assets improved since acquisition.
  However, the accounting standard IAS 36 “Impairment of Assets” requires that an
  annual impairment test must be performed in relation to the goodwill. As an
  impairment test had not been performed, I was unable to confirm whether the carrying
  value of the good will was appropriate.

  Trade Receivables

  Trade receivables as at 31 December 2014 include a net amount of K7.1 million from
  a local telecommunication company. Sufficient and appropriate audit evidence was
  not provided to substantiate the recoverability and accuracy of this account balance.
  As such, I was unable to determine whether any adjustment were required in relation
  to this balance.

  Investment Property

  Certain properties of the company were held for the purpose to earn rental income by
  leasing to third parties and employees of the company. The carrying value of such
  properties was K40.5 million as at 31 December 2014 and classified as part of
  property, plant and equipment in the statement of financial position. This presentation
  was not in accordance with the requirements of International Accounting Standard 1
  “Presentation of Financial Statements” which requires investment properties to be
  classified as a separate line in the Statement of financial position. Consequently, the
  financial statements also did not include all the disclosures in relation to investment
  properties as required by International Accounting Standard 40 “Investment
  Properties”.

  QUALIFIED OPINION

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

  – 364 –

• Page 401 of 450

• Telikom (PNG) Limited

  a) the consolidated financial statements of Telikom (PNG) Limited have been
  properly drawn up in accordance with the provisions of the Companies Act,
  1997 and comply with generally accepted accounting practice and give a true
  and fair view of the financial position of the Consolidated Entity as at 31
  December, 2014, and of its financial performance and its cash flows for the year
  then ended.

  b) proper accounting records have been kept by the Group as far as it appears from
  my examination of those records; and

  c) I have obtained all the information and explanations I required for the purposes
  of my audit.

  EMPHASIS OF MATER

  I draw attention to Note 1 to these financial statements, which stated that the
  Company and the Group reported a loss of K15.8 million and K13.0 million
  respectively for the year. As at the balance date the Company’s and the Group’s
  current liabilities exceeded the current assets by K69.5 million and K59.6 million
  respectively. This, along with other matters described in Note 1, indicated the
  existence of a material uncertainty which may cast significant doubt about the ability
  of the Company to continue as a going concern and therefore the entity may be unable
  to realise its assets and discharge its liabilities in the normal course of business and at
  the amount stated in the financial statements. My opinion is not qualified in respect of
  this matter.”

  74.2.2 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 2014 was issued on 29 July 2016. The report contained the following
  significant matters:

  Inventory GL Reconciliation

  The results of the annual stock counts performed by the Company were not
  completely recorded in the general ledger as at 31 December 2014. This resulted in a
  difference of K2 million. This was appropriately adjusted in the financial statements. I
  recommended management to ensure that the inventory GL balance be updated timely
  by the results of physical stock counts. The management responded as follows:

  “Internal system capability was limited. All inventories has since been migrated and
  managed in the new Microsoft AX ERP system. This has now made it possible for a
  three way reconciliation of physical stock, sub-ledger and general ledger.

  – 365 –

• Page 402 of 450

• Telikom (PNG) Limited

  Such full reconciliations has been done before the audit of 2015 accounts and will be
  a quarterly activity going forward.”

  Periodic physical count of inventory

  Periodic physical counts of inventory were not currently performed. In addition, the
  technical personnel did not attend the stock takes. I recommended management to
  ensure that technical stocks were counted on a regular basis. Moreover, attendance of
  technical personnel during stock counts of technical stocks was also recommended.

  Reconciliation of GL revenue accounts with Avabill

  Bulk of the revenue recorded in the accounting system was generated from Avabill.
  While there was a monthly fluctuation review of the general ledger (GL) balances,
  this however did not help ascertain the completeness of the batches of revenue
  generated from Avabill that were fed to the accounting system. I recommended to
  management to establish a reconciliation procedure on revenue between Avabill and
  GL system to ensure that complete revenue was recorded in the accounting system.
  The management responded as follows:

  “There is a critical monthly review process during and after Avabill data loaded into
  GL. We have started reconciling the Avabill GL Text Files vs AX Uploaded Files
  since January 2015.”

  Area of Other Control Weakness

  Improvement on General Ledger reconciliations
  Monitoring of Telephone bond fees
  Timeliness of completed projects to Fixed Asset Register (FAR)
  Completeness of accrual at year end
  Filing of payroll evidences
  Effective filing of customer application forms

  IT Policies and Procedures

  During the review, it was identified that although there were policies and procedures
  in place at Telikom, these were five years old and needed update to reflect the current
  practices. In addition, there was an opportunity to strengthen the current password and
  change management sections.

  – 366 –

• Page 403 of 450

• Telikom (PNG) Limited

  Change Management

  Generally, applications operate systematically; so, an application that initially
  processes data accurately would continue to do so. A robust change management
  process ensures that changes follow a controlled and approved set of procedures. I
  noted that there were a number of changes made during 2014. However, I noticed the
  following issues in relation to changed management:

  Avabill – I did not obtain sufficient supporting documentation (evidence) for the
  change ref: 014-20140807-TPNG-CR-MOD-006-v1 to confirm that the changes
  was authorized, prioritized, tested, and implemented in accordance with
  Telikom’s change management policy.

  SAP – Telikom uses the internal SAP tool to manage changes. I was unable to
  obtain sufficient evidence to verify that these changes were managed in line
  with the requirements of the company’s change management policy.

  Other control issues noted during the review:

  Inappropriate administrator access rights
  Weakness in the user management processes and procedures
  Opportunity to improve password controls
  Lack of evidence when performing backup recoverability testing

  74.3 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 2015 and 2016 were in progress.

  – 367 –

• Page 404 of 450

• 74A. DATEC (PNG) LIMITED (Subsidiary of Telikom (PNG) Limited)

  74A.1 INTRODUCTION

  74A.1.1 Legislation

  Datec (PNG) Limited was incorporated under the Companies Act. The Company
  was fully acquired by Telikom (PNG) Limited from Steamships Trading Company
  Limited on 1 August 2014. The Company is a wholly owned subsidiary of Telikom
  (PNG) Limited.

  74A.1.2 Functions of the Company

  Datec (PNG) Limited’s principal activity is in the provision and support of
  technology applied solutions including business critical ICT consulting, solutions
  and services, IT outsourcing, business process outsourcing, internet services,
  electronics and computer retail, training and wide-ranging technical support.

  74A.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 2015 had been
  completed and the results were being evaluated.

  The Company had not submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit.

  – 368 –

• Page 405 of 450

• 74B. KALANG ADVERTISING LIMITED (Subsidiary of Telikom (PNG)
  Limited)

  74B.1 INTRODUCTION

  74B.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.

  74B.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.

  74B.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 2014 was completed and results were
  being evaluated.

  The fieldwork associated with the inspection and audit of the accounts and records
  and examination of the Company’s financial statements for the year ended 31
  December 2015 was in progress.

  The Company had not submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit.

  – 369 –

• Page 406 of 450

• 74C. MEDIA NIUGINI LIMITED (EMTV) (Subsidiary of Telikom
  (PNG) Limited)

  74C. INTRODUCTION

  74C.1.1 Legislation

  Media Niugini Limited (EMTV) was incorporated under the Companies Act. The
  Company was acquired by Telikom (PNG) Limited from Fiji Television Limited
  (FijiTV) on 4 February 2016.

  The Company was founded in 1985 by two local businessmen in a joint venture with
  the Nine Network of Australia. In July 1987 the Company commenced broadcasting
  through its national television service. In 1990 Nine Network acquired 100%
  ownership of Media Niugini Limited and later sold its interest in the Company to
  Fiji Television Limited (FijiTV) in December 2004. The Company then operated as
  a subsidiary of FijiTV.

  The Company is now a wholly owned subsidiary of Telikom (PNG) Limited.

  74C.1.2 Functions of the Company

  Media Niugini Limited, trading as EMTV, provides television broadcasting services
  in Papua New Guinea.

  The Company offers:

  current affairs, national news, weather reports, and special documentaries; and
  shows in the areas of sports, lifestyle, entertainment, drama, children, religion,
  music and others.

  74C.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 2016 was in progress.

  – 370 –

• Page 407 of 450

• 74D. PNG DIRECTORIES LIMITED (Formerly E. H. O’Brien Limited)
  (Subsidiary of Telikom (PNG) Limited)

  74D.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.

  74D.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 2015 was in progress.

  The Company had not submitted its financial statements for the year ended 31
  December 2016 for my inspection and audit.

  – 371 –

• Page 408 of 450

• – 372 –

• Page 409 of 450

• SECTION C

  NATIONAL GOVERNMENT

  SHAREHOLDINGS IN

  OTHER COMPANIES

  – 373 –

• Page 410 of 450

• – 374 –

• Page 411 of 450

• 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. Details of these companies are
  contained in paragraphs 76 to 79.

  – 375 –

• Page 412 of 450

• – 376 –

• Page 413 of 450

• 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 2016 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 2016 and the
  audit report was issued on 28 February 2017. This report contained a Qualified
  Opinion.

  “BASIS FOR QUALIFIED OPINION

  On 24 November 2016, the Company acquired a subsidiary which holds an
  investment in an unlisted investment fund. The investment is classified as an available
  for sale asset at a fair value of K1.1 million.

  A K1.4 million discount on acquisition was recognised in the Statement of
  Comprehensive Income of the Group on the date of acquisition. The fair value of the
  available-for-sale asset forms part of the calculation of the discount on acquisition.

  Management has not been provided with the 2016 audited financial statements of the
  investee and the investee is unable to confirm the number and value of units held by
  the various investors.

  Accordingly, we have been unable to determine whether the fair value of the
  investment of K1.1 million is fairly stated.

  – 377 –

• Page 414 of 450

• Bougainville Copper Limited

  As a result, we have been unable to satisfy ourselves as to the accuracy of the K1.4
  million discount on acquisition and the valuation of the available-for-sale asset
  recognised by the Group at 31 December 2016.

  QUALIFIED OPINION

  In our opinion, except for the possible effects of the matter described in the Basis for
  qualified opinion section of our report, the accompanying financial statements:

  1. comply with International Financial Reporting Standards and other generally
  accepted accounting practice in Paua New Guinea; and

  2. give a true and fair view of the financial position of the Company and the Group
  as at 31 December 2016, and their financial performance and cash flows for the
  year then ended.”

  – 378 –

• Page 415 of 450

• 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.

  As 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
  reports of the Company for the years ended 31 December 2010, 2011, 2012, 2013,
  2014, 2015 and 2016 had not been submitted for my 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 the Investment Promotion Authority (IPA) in June 2017
  revealed that the Company was not deregistered.

  – 379 –

• Page 416 of 450

• 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.

  As 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 conducted the audit of Company’s financial statements for
  the years ended 31 December 2015 and 2016 and the audit reports were issued on 12
  July 2016 and 7 March 2017 respectively. The reports did not contain any
  qualification.

  – 380 –

• Page 417 of 450

• 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.

  – 381 –

• Page 418 of 450

• 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, 2014, 2015 and 2016 for my verification.

  – 382 –

• Page 419 of 450

• SECTION D

  PROBLEM AUDITS
  (AUDITS IN ARREARS)

  – 383 –

• Page 420 of 450

• – 384 –

• Page 421 of 450

• 80. FOREWORD

  This Section of my Report deals with problem audits, especially audits in arrears.
  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.

  – 385 –

• Page 422 of 450

• – 386 –

• Page 423 of 450

• 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 (2016) 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 relieve 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.

  – 387 –

• Page 424 of 450

• 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 31 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 (2016 AUDITS)

  Entities totalling 104 subject to audit by the Auditor-General comprise 78 Public Bodies
  and their subsidiaries, 26 National Government owned companies and 4 companies in
  which the National Government has share holdings (referred to as Section ‘C’
  Companies).

  – 388 –

• Page 425 of 450

• TYPES OF ENTITIES SUBJECT TO AUDIT

  Table 1

  Section Types of Audit Number of Entities
  2016/2017 2015/2016
  (A) Public Bodies and their Subsidiaries 78 77
  (B) National Government Owned Companies 26 22
  (C) National Government Shareholdings in other Companies 4 4
  108 103
  Table 1. Shows the total of Types of Entities subject to Audit.

  Chart 1

  Types of Audits
  National Government
  Shareholdings in
  other Companies
  4%
  National Government
  Owned Companies
  24%

  Public Bodies and
  their Subsidiaries
  72%

  Chart 1. Shows the percentages of Types of Entities subject to Audit during 2016/2017 Audit Cycle.

  – 389 –

• Page 426 of 450

• 81.5 STATUS OF CURRENT YEAR AUDITS

  Each of the 104 entities, 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 44 entities have submitted their
  financial statements for 2016 (Schedule A) for audit up to the time of preparing this
  Report. A total of 60 entities have not submitted their 2016 financial statements
  (Schedule A) for audit in 2016. It could therefore be logically concluded that, about 58%
  of the public bodies might not have submitted their annual reports and financial
  statements for 2016 together with my reports on them, to the respective Ministers for
  tabling in the National Parliament on or before June 2017.

  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 2016.

  – 390 –

• Page 427 of 450

• STATUS OF CURRENT YEAR AUDITS 2016

  Table 2

  No. Status of Current Year Audits Number of Entities
  2016/2017 2015/2016
  1 Audits completed and reports issued thereon (Schedule A) 20 16
  2 Audits substantially completed (Schedule A) 4 5
  3 Audits in progress (Schedule A) 15 18
  4 Audits to commence shortly (Schedule A) 5 2
  5 Financial Statements not submitted (Schedule A) 60 58
  6 Ceased Entities (Schedule D) 1 0
  105 99
  Table 2. Shows the total of Status of Current Year (2016) Audits (Schedule A).

  Chart 2

  Status of Current Year Audits 2016
  Audits completed
  and reports issued
  Ceased Entities thereon (Schedule A)
  (Schedule D) 19%
  1%
  Audits substantially
  completed
  (Schedule A)
  4%

  Audits to commence Audits in progress
  Financial Statements shortly (Schedule A) (Schedule A)
  not submitted 5% 14%
  (Schedule A)
  57%

  Chart 2. Shows the percentages of Audit Status for the Current Year (2016) during 2016/2017 Audit Cycle. (Schedule A)

  – 391 –

• Page 428 of 450

• 81.6 AUDITS IN ARREARS (2015 AND PRIOR YEARS)

  Records available in my Office show that a total of 72 entities (125 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.

  – 392 –

• Page 429 of 450

• STATUS OF AUDITS IN ARREARS BY NUMBER OF ENTITIES
  (2015 AND PRIOR YEARS)

  Table 3A
  Status of Audits in Arrears by No. of Entities
  No. ( 2015 and Prior Years) Number of Entities
  2016/2017 2015/2016
  1 Audits substantially completed (Schedule B) 17 25
  2 Audits in progress (Schedule B) 18 17
  3 Audits to commence shortly (Schedule B) 6 4
  4 Financial Statements not submitted (Schedule B) 31 37
  72 83
  Table 3A. Shows the Status of Audits in Arrears by number of Entities for 2015 and Prior Years during 2016/2017 Audit
  Cycle. (Schedule B)
  Chart 3A

  Status of Audits in Arrears by number of Entities
  (2015 and prior years)
  Financial Statements Audits substantially
  not submitted completed
  (Schedule B) (Schedule B)
  43% 24%

  Audits in progress
  Audits to commence (Schedule B)
  shortly (Schedule B) 25%
  8%

  Chart 3A. Shows the percentages of Audit Status for Audits in Arrears by number of Entities for 2015 and Prior Years during
  2016/2017 Audit Cycle. (Schedule B).

  – 393 –

• Page 430 of 450

• STATUS OF AUDITS IN ARREARS BY NUMBER OF AUDITS
  (2015 AND PRIOR YEARS)

  Table 3B

  No. Status of Audits in Arrears by No. Of Audits (2015 & prior years) Number of Audits
  2016/2017 2015/2016
  1 Audits substantially completed (Schedule B) 21 32
  2 Audits in progress (Schedule B) 24 31
  3 Audits to commence shortly (Schedule B) 10 5
  4 Financial Statements not submitted (Schedule B) 70 58
  125 126
  Table 3B. Shows the Status of Audits in Arrears by number of Audits for 2015 and Prior Years during 2016/2017 Audit Cycle.
  (Schedule B).
  Chart 3B

  Status of Audits in Arrears by number of Audits
  (2015 and prior years)

  Audits substantially
  completed
  (Schedule B) Audits in progress
  17% (Schedule B)
  19%

  Financial Statements
  not submitted
  (Schedule B)
  56% Audits to commence
  shortly (Schedule B)
  8%

  Chart 3B. Shows the percentages of Audit Status for Audits in Arrears by number of Audits for 2015 and Prior Years during
  2016/2017 Audit Cycle. (Schedule B).

  – 394 –

• Page 431 of 450

• 81.7 LONG OUTSTANDING FINANCIAL STATEMENTS

  During this Audit Cycle (2016/2017), 31 audit entities were in the arrears category,
  decrease of six compared to prior year (2015). Of these 31 entities, 70 financial
  statements for periods ranging from one year to six years have still not been submitted. In
  other words, they still have financial statements outstanding for the years from 2010 to
  2015. Details of these are shown below in Table 4, Chart 4 and also in Schedule C
  attached.

  – 395 –

• Page 432 of 450

• LONG OUTSTANDING FINANCIAL STATEMENTS
  BY NUMBER OF ENTITIES
  (2015 AND PRIOR YEARS)

  Table 4A

  No. Years Outstanding by Entities Number of Entities
  2016 Report 2015 Report
  1 One Year (Schedule C) 9 24
  2 Two Years (Schedule C) 12 7
  3 Three Years (Schedule C) 5 5
  4 Four Years (Schedule C) 4 0
  5 Five Years (Schedule C) 0 1
  6 Six Years (Schedule C) 1 0
  31 37
  Table 4A. Shows the total of Long Outstanding Financial Statements by number of Entities during 2016/2017 Audit Cycle.
  (Schedule C).
  Chart 4A
  Long Outstanding Financial Statements by number of Entities
  Six Years
  Five Years
  (Schedule C)
  (Schedule C) One Year
  Four Years 3%
  0% (Schedule C)
  (Schedule C)
  13% 29%

  Three Years
  (Schedule C)
  16%

  Two Years
  (Schedule C)
  39%

  Chart 4A. Shows the percentages of Long Outstanding Financial Statements by number of Entities during 2016/2017 Audit Cycle
  (Schedule C).

  – 396 –

• Page 433 of 450

• LONG OUTSTANDING FINANCIAL STATEMENTS
  BY NUMBER OF AUDITS
  (2015 AND PRIOR YEARS)

  Table 4B

  No. Years Outstanding by Audits Number of Audits
  2016 Report 2015 Report
  1 One Year (Schedule C) 9 24
  2 Two Years (Schedule C) 24 14
  3 Three Years (Schedule C) 15 15
  4 Four Years (Schedule C) 16 0
  5 Five Years (Schedule C) 0 5
  6 Six Years (Schedule C) 6 0
  70 58
  Table 4B. Shows the total of Long Outstanding Financial Statements by number of Audits during 2016/2017 Audit Cycle.
  (Schedule C).

  Chart 4B
  Long Outstanding Financial Statements by number of Audits (2015
  and prior years)
  6 Six Years
  5 Five Years (Schedule C) 1 One Year
  (Schedule C) 9% (Schedule C)
  0% 13%
  4 Four Years
  (Schedule C)
  23%

  2 Two Years
  3 Three Years (Schedule C)
  (Schedule C) 34%
  21%

  Chart 4B. Shows the percentages of Long Outstanding Financial Statements by number of Audits during 2016/2017 Audit
  Cycle. (Schedule C).

  – 397 –

• Page 434 of 450

• 81.8 STATUS OF AUDITS AS AT 30 JUNE 2017

  As illustrated in Executive Summary Table 1, during July 2016 and June 2017 Audit
  Cycle, a total of 169 audits were undertaken by the Audit Office. Out of 169 audits
  carried out, 105 audit reports were issued. Table 5 and Chart 5 shown below
  provide the details of the Status of Audits during the period July 2016 to June 2017.

  – 398 –

• Page 435 of 450

• STATUS OF AUDITS AS AT 30 JUNE 2017

  Table 5
  Number of Audits
  Status of Audits
  No. 2016/2017 2015/2016
  1 Audits completed and reports issued thereon (Schedules A & E) 105 88
  2 Audits substantially completed (Schedules A & B) 25 37
  3 Audits in progress (Schedules A & B) 39 49
  4 Audits to commence shortly (Schedules A & B) 15 7
  5 Financial Statements not submitted (Schedules A & B) 130 116
  314 297
  Table 5. Shows the Status of Audits as at 30 June 2017 for the 2016/2017 Audit Cycle. (Schedules A&E and A&B).

  Chart 5

  Status of Audits as at 30 June 2017
  Financial
  Statements not Audits completed
  submitted and reports issued
  (Schedules A & B) thereon
  41% (Schedules A & E)
  33%

  Audits in progress Audits substantially
  Audits to
  (Schedules A & B) completed
  commence shortly
  12% (Schedules A & B)
  (Schedules A & B)
  18%
  5%
  Chart 5. Shows the percentages of Audit Status as at 30 June 2017 for the 2016/2017 Audit Cycle (Schedules A&E and
  A&B).

  – 399 –

• Page 436 of 450

• – 400 –

• Page 437 of 450

• 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 11TH AUGUST
  TWO THOUSAND AND SEVENTEEN

  PHILIP NAUGA
  Auditor-General of Papua New Guinea

  – 401 –

• Page 438 of 450

• – 402 –

• Page 439 of 450

• SCHEDULES

  – 403 –

• Page 440 of 450

• Schedule ‘A’

  STATUS OF CURRENT YEAR (2016) AUDIT
  (i) AUDITS COMPLETED AND REPORTS ISSUED THEREON

  No. Section Para. No. Entity No. of Audits
  1 A 2 Bank of Papua New Guinea 1
  2 A 10 Independence Fellowship Trust 1
  3 A 11 Independent Consumer and Competition Commission 1
  4 A 14 Investment Promotion Authority 1
  5 A 15 Kokonas Indastri Koporesen 1
  6 A 15A Papua New Guinea Coconut Extension Fund 1
  7 A 15B Papua New Guinea Coconut Research Fund 1
  8 A 20 National Agricultural Research Institute 1
  9 A 25 National Economic and Fiscal Commission 1
  10 A 30 National Maritime Safety Authority 1
  11 A 33 National Research Institute 1
  12 A 37 National Volunteer Service 1
  13 A 41 Pacific Games (2015) Authority 1
  14 B 63 Kumul Petroleum Holdings Limited 1
  15 B 63A Eda Oil Limited 1
  16 B 63B Kumul LNG Limited 1
  17 B 63C Kumul Petroleum (Development) Limited 1
  18 B 63D Kumul Petroleum (Investments) Limited 1
  19 B 63E Kumul Petroleum (Kroton) Limited 1
  20 B 63F Kumul Petroleum (Pipeline) Limited 1
  20

  (ii) AUDITS SUBSTANTIALLY COMPLETED

  Para.
  No. Section No. Entity No. of Audits
  1 A 17 Legal Training Institute 1
  2 A 56 Tourism Promotion Authority 1
  3 B 63G Kumul Petroleum (Tech and Advisory) Limited 1
  4 B 73 Post (PNG) Limited 1
  4

  (iii) AUDITS IN PROGRESS

  Para.
  No. Section No. Entity No. of Audits
  1 A 4 Civil Aviation Safety Authority of Papua New Guinea 1
  2 A 16 Kumul Consolidated Holdings 1
  3 A 16A General Business Trust 1
  4 A 16B PNG Dams Limited 1
  5 A 16C Port Moresby Private Hospital Limited 1
  6 A 35 National Roads Authority 1
  7 B 62 Air Niugini Limited 1
  8 B 62A Link-PNG Limited 1
  9 B 65 Mineral Resources Development Company Limited 1
  10 B 66 Motor Vehicles Insurance Limited 1
  11 B 69 Papua New Guinea Ports Corporation Limited 1
  12 B 71 PNG DataCo Limited 1
  – 404 –

• Page 441 of 450

• Para.
  No. Section No. Entity No. of Audits
  13 B 72 PNG Power Limited 1
  14 B 74 Telikom (PNG) Limited 1
  15 B 74C Media Niugini Limited (EMTV) 1
  15

  (iv) AUDITS TO COMMENCE SHORTLY

  Para.
  No. Section No. Entity No. of Audits
  National Information and Communication Technology Authority
  1 A 29 (NICTA) 1
  2 A 38 National Youth Commission 1
  3 A 40 Ombudsman Commission of Papua New Guinea 1
  4 A 42 Papua New Guinea Accident Investigation Commission 1
  5 A 57 University of Goroka 1
  5

  (v) FINANCIAL STATEMENTS NOT SUBMITTED

  Para. No. of Last Report Date of
  No. Section No. Entity Audits Issued Report
  1 A 3 Border Development Authority 1 2013 11/23/2016
  2 A 3A Papua New Guinea Maritime Transport Limited 1 2012 10/29/2015
  3 A 5 Climate Change and Development Authority 1 2012 7/25/2016
  4 A 6 Cocoa Board of Papua New Guinea 1 2015 6/15/2017
  5 A 6A Cocoa Pod Borer Project Fund 1 2015 6/15/2017
  6 A 6B Cocoa Stabilisation Fund 1 2015 6/15/2017
  7 A 7 Cocoa Coconut Institute Limited of Papua New Guinea 1 2013 8/9/2016
  8 A 8 Coffee Industry Corporation Limited 1 2013 10/26/2016
  9 A 8A Coffee Industry Fund 1 2013 11/29/2016
  10 A 8B Patana No.61 Limited 1 2013 12/5/2016
  11 A 9 Government Printing Office 1 2014 6/5/2017
  12 A 12 Industrial Centres Development Corporation 1 2015 2/28/2017
  13 A 13 Internal Revenue Commission 1 New Inclusion
  14 A 18 Mineral Resources Authority 1 2013 3/7/2017
  National Agriculture Quarantine and Inspection
  15 A 19 Authority 1 2015 4/14/2017
  16 A 21 National AIDS Council Secretariat 1 2014 10/14/2016
  17 A 22 National Broadcasting Corporation 1 2014 4/11/2017
  18 A 23 National Capital District Commission 1 2013 3/14/2017
  19 A 23A National Capital District Botanical Enterprises Limited 1 2012 5/4/2015
  20 A 23B Port Moresby City Development Enterprises Limited 1 2012 5/4/2015
  21 A 23C Port Moresby Nature Park Limited 1 2013 5/4/2016
  22 A 24 National Cultural Commission 1 2013 8/8/2016
  23 A 26 National Fisheries Authority 1 2014 11/25/2016
  24 A 27 National Gaming Control Board 1 2014 5/16/2016
  National Gaming Control Board Community Benefit
  25 A 27A Fund Trust 1 2014 5/16/2016
  26 A 28 National Housing Corporation 1 2013 4/24/2017
  27 A 31 National Museum and Art Gallery 1 2014 3/27/2017
  28 A 32 National Nacotics Bureau 1 2012 9/22/2014
  29 A 34 National Road Safety Council 1 2015 5/12/2017
  30 A 36 National Training Council 1 2015 1/30/2017

  – 405 –

• Page 442 of 450

• Para. No. of Last Report Date of
  No. Section No. Entity Audits Issued Report
  31 A 39 Oil Palm Industry Corporation 1 2011 9/30/2016
  32 A 43 Papua New Guinea Customs Service 1 2013 11/19/2015
  33 A 44 Papua New Guinea Forest Authority 1 2012 2/19/2016
  Papua New Guinea Immigration and Citizenship
  34 A 45 Service Authority 1 2015 6/13/2017
  35 A 46 Papua New Guinea Institute of Medical Research 1 2014 9/30/2016
  36 A 47 Papua New Guinea Institute of Public Administration 1 2013 5/8/2017
  37 A 48 Papua New Guinea Maritime College 1 2014 3/29/2017
  Papua New Guinea National Institute of Standards and
  38 A 49 Industrial Technology 1 2015 6/7/2017
  39 A 50 Papua New Guinea Sports Foundation 1 2013 3/9/2017
  40 A 51 Papua New Guinea University of Technology 1 2014 4/10/2017
  41 A 51A National Analytical and Testing Services Limited 1 2011 4/4/2016
  Unitech Development and Consultancy Company
  42 A 51B Limited 1 2013 10/22/2015
  43 A 52 Parliamentary Members’ Retirement Benefits Fund 1 2015 2/27/2017
  44 A 53 Public Curator of Papua New Guinea 1 2012 11/30/2015
  45 A 54 Security Industries Authority 1 2014 10/7/2016
  46 A 55 Small Business Development Corporation 1 2012 11/2/2015
  47 A 57A Unigor Consultancy Limited 1 2013 11/30/2015
  University of Natural Resources and Environment
  48 A 58 (Vudal) 1 2014 10/29/2016
  49 A 59 University of Papua New Guinea 1 2013 12/8/2016
  50 A 59A Unisave Limited 1 2011 8/25/2014
  51 A 59B Univentures Limited 1 2011 6/24/2014
  52 A 60 Water PNG 1 2014 4/24/2017
  53 B 64 Livestock Development Corporation Limited 1 2009 10/31/2012
  54 B 67 National Airports Corporation Limited 1 2011 9/27/2016
  55 B 67A Airport City Development Limited 1 New Inclusion
  56 B 68 NCD Water and Sewerage Limited (Eda Ranu) 1 2014 1/19/2016
  57 B 70 PNG Air Services Limited 1 2015 8/8/2016
  58 B 74A DATEC (PNG) Limited 1 2014 6/10/2016
  59 B 74B Kalang Advertising Limited 1 2013 12/7/2015
  60 B 74D PNG Directories Limited 1 2014 6/10/2016
  60

  – 406 –

• Page 443 of 450

• Schedule ‘B’

  STATUS OF AUDITS IN ARREARS (2015 AND PRIOR YEARS)

  (i) AUDITS SUBSTANTIALLY COMPLETED

  Para. No. of
  No. Section No. Entity Year Audits
  1 A 3 Border Development Authority 2014 1
  2 A 13 Internal Revenue Commission 2015 1
  3 A 16 Kumul Consolidated Holdings 2015 1
  4 A 16B PNG Dams Limited 2015 1
  5 A 16C Port Moresby Private Hospital Limited 2015 1
  6 A 17 Legal Training Institute 2014 & 2015 2
  7 A 18 Mineral Resources Authority 2014 1
  8 A 23 National Capital District Commission 2014 1
  9 A 27 National Gaming Control Board 2015 1
  10 A 27A National Gaming Control Board Community Benefit Fund Trust 2015 1
  11 A 38 National Youth Commission 2012 & 2013 2
  12 A 53 Public Curator of Papua New Guinea 2013 1
  13 A 55 Small Business Development Corporation 2013 – 2015 3
  14 A 57 University of Goroka 2015 1
  15 B 71 PNG DataCo Limited 2015 1
  16 B 74A DATEC (PNG) Limited 2015 1
  17 B 74B Kalang Advertising Limited 2014 1
  21

  (ii) AUDITS IN PROGRESS

  Para. No. of
  No. Section No. Entity Year Audits
  1 A 16A General Business Trust 2015 1
  2 A 18 Mineral Resources Authority 2015 1
  3 A 23 National Capital District Commission 2015 1
  4 A 23C Port Moresby Nature Park Limited 2014 & 2015 2
  5 A 26 National Fisheries Authority 2015 1
  National Information and Communication Technology
  1
  6 A 29 Authority (NICTA) 2015
  7 A 44 Papua New Guinea Forest Authority 2013 & 2014 2
  8 A 51A National Analytical and Testing Services Limited 2012 & 2013 2
  9 A 59 University of Papua New Guinea 2014 1
  10 A 60 Water PNG 2015 1
  11 B 62 Air Niugini Limited 2015 1
  12 B 62A Link-PNG Limited 2015 1
  13 B 65 Mineral Resources Development Company Limited 2015 1
  14 B 67 National Airports Corporation Limited 2012 – 2015 4
  15 B 68 NCD Water and Sewerage Limited (Eda Ranu) 2015 1
  16 B 74 Telikom (PNG) Limited 2015 1
  17 B 74B Kalang Advertising Limited 2015 1
  18 B 74D PNG Directories Limited 2015 1
  24

  – 407 –

• Page 444 of 450

• (iii) AUDITS TO COMMENCE SHORTLY

  Para. No. of
  No. Section No. Entity Year Audits
  1 A 7 Cocoa Coconut Institute Limited of Papua New Guinea 2014 & 2015 2
  2 A 9 Government Printing Office 2015 1
  3 A 38 National Youth Commission 2014 & 2015 2
  4 A 42 Papua New Guinea Accident Investigation Commission 2013 – 2015 3
  5 A 46 Papua New Guinea Institute of Medical Research 2015 1
  6 A 51 Papua New Guinea University of Technology 2015 1
  10

  (iv) FINANCIAL STATEMENTS NOT SUBMITTED

  Para. No. of
  No. Section No. Entity Year Audits
  1 A 3 Border Development Authority 2015 1
  2 A 3A Papua New Guinea Maritime Transport Limited 2013 – 2015 3
  3 A 5 Climate Change and Development Authority 2013 – 2015 3
  4 A 8 Coffee Industry Corporation Limited 2014 & 2015 2
  5 A 8A Coffee Industry Fund 2014 & 2015 2
  6 A 8B Patana No.61 Limited 2014 & 2015 2
  7 A 21 National AIDS Council Secretariat 2015 1
  8 A 22 National Broadcasting Corporation 2015 1
  9 A 23A National Capital District Botanical Enterprises Limited 2013 – 2015 3
  10 A 23B Port Moresby City Development Enterprises Limited 2013 – 2015 3
  11 A 24 National Cultural Commission 2014 & 2015 2
  12 A 28 National Housing Corporation 2014 & 2015 2
  13 A 31 National Museum and Art Gallery 2015 1
  14 A 32 National Narcotics Bureau 2013 – 2015 3
  15 A 39 Oil Palm Industry Corporation 2012 – 2015 4
  16 A 43 Papua New Guinea Customs Service 2014 & 2015 2
  17 A 44 Papua New Guinea Forest Authority 2015 1
  18 A 47 Papua New Guinea Institute of Public Administration 2014 & 2015 2
  19 A 48 Papua New Guinea Maritime College 2015 1
  20 A 50 Papua New Guinea Sports Foundation 2014 & 2015 2
  21 A 51A National Analytical and Testing Services Limited 2014 & 2015 2
  22 A 51B Unitech Development and Consultancy Company Limited 2014 & 2015 2
  23 A 53 Public Curator of Papua New Guinea 2014 & 2015 2
  24 A 54 Security Industries Authority 2015 1
  25 A 57A Unigor Consultancy Limited 2014 & 2015 2
  26 A 58 University of Natural Resources and Environment (Vudal) 2015 1
  27 A 59 University of Papua New Guinea 2015 1
  28 A 59A Unisave Limited 2012 – 2015 4
  29 A 59B Univentures Limited 2012 – 2015 4
  30 B 64 Livestock Development Corporation Limited 2010 – 2015 6
  31 B 67A Airport City Development Limited 2012 – 2015 4
  70

  – 408 –

• Page 445 of 450

• Schedule ‘C’

  LONG OUTSTANDING FINANCIAL STATEMENTS
  (2015 & PRIOR YEARS)

  (i) FINANCIAL STATEMENTS OUTSTANDING FOR MORE THAN ONE YEAR
  Para. No. of
  No. Section No. Entity Audits
  1 A 3 Border Development Authority 1
  2 A 21 National AIDS Council Secretariat 1
  3 A 22 National Broadcasting Corporation 1
  4 A 31 National Museum and Art Gallery 1
  5 A 44 Papua New Guinea Forest Authority 1
  6 A 48 Papua New Guinea Maritime College 1
  7 A 54 Security Industries Authority 1
  8 A 58 University of Natural Resources and Environment (Vudal) 1
  9 A 59 University of Papua New Guinea 1
  9

  (ii) FINANCIAL STATEMENTS OUTSTANDING FOR MORE THAN TWO (2) YEARS
  Para. No. of
  No. Section No. Entity Audits
  1 A 8 Coffee Industry Corporation Limited 2
  2 A 8A Coffee Industry Fund 2
  3 A 8B Patana No.61 Limited 2
  4 A 24 National Cultural Commission 2
  5 A 28 National Housing Corporation 2
  6 A 43 Papua New Guinea Customs Service 2
  7 A 47 Papua New Guinea Institute of Public Administration 2
  8 A 50 Papua New Guinea Sports Foundation 2
  9 A 51A National Analytical and Testing Services Limited 2
  10 A 51B Unitech Development and Consultancy Company Limited 2
  11 A 53 Public Curator of Papua New Guinea 2
  12 A 57A Unigor Consultancy Limited 2
  24

  (iii) FINANCIAL STATEMENTS OUTSTANDING FOR MORE THAN THREE (3) YEARS
  Para. No. of
  No. Section No. Entity Audits
  1 A 3A Papua New Guinea Maritime Transport Limited 3
  2 A 5 Climate Change and Development Authority 3
  3 A 23A National Capital District Botanical Enterprises Limited 3
  4 A 23B Port Moresby City Development Enterprises Limited 3
  5 A 32 National Narcotics Bureau 3
  15

  – 409 –

• Page 446 of 450

• (iv) FINANCIAL STATEMENTS OUTSTANDING FOR MORE THAN FOUR (4) YEARS
  Para. No. of
  No. Section No. Entity Audits
  1 A 39 Oil Palm Industry Corporation 4
  2 A 59A Unisave Limited 4
  3 A 59B Univentures Limited 4
  4 B 67A Airport City Development Limited 4
  16

  (v) FINANCIAL STATEMENTS OUTSTANDING FOR MORE THAN SIX (6) YEARS
  Para. No. of
  No. Section No. Entity Audits
  1 B 64 Livestock Development Corporation Limited 6
  6

  – 410 –

• Page 447 of 450

• Schedule ‘D’

  NON OPERATIONAL ENTITIES AND OTHERS
  (i) AUDIT PORTFOLIOS CEASED IN THE 2016/2017 AUDIT CYCLE
  Para. Year of
  No. Section No. Entity Audit
  1 A 41 Pacific Games (2015) Authority 2016

  (ii) NATONAL GOVERNMENT MINORITY SHAREHOLDINGS IN OTHER
  COMPANIES
  Para.
  No. Section No. Entity Remarks
  1 C 76 Bougainville Copper Limited 2016 Audit Report Completed.
  Audited Financial Statement for 2010 – 2016
  2 C 77 Gogol Reforestation Company Limited not Submitted
  PNG Sustainable Development Program Audited Financial Statement for 2012 – 2016
  3 C 79 Limited not Submitted

  (iii) NATONAL GOVERNMENT MAJORITY SHAREHOLDINGS IN OTHER
  COMPANIES
  Para.
  No. Section No. Entity Status of Audit
  1 C 78 Ok Tedi Mining Limited 2016 Audit Report Completed

  – 411 –

• Page 448 of 450

• Schedule ‘E’

  AUDIT IN AREARS (2015 AND PRIOR YEARS) COMPLETED DURING
  2016/2017 AUDIT CYCLE

  2015 AUDITS – COMPLETED DURING 2016/2017
  Para. No. of
  No. Section No. Entity Audits
  1 A 2 Bank of Papua New Guinea 1
  2 A 6 Cocoa Board of Papua New Guinea 1
  3 A 6A Cocoa Pod Borer Project Fund 1
  4 A 6B Cocoa Stabilisation Fund 1
  5 A 10 Independence Fellowship Trust 1
  6 A 12 Industrial Centres Development Corporation 1
  7 A 19 National Agriculture Quarantine and Inspection Authority 1
  8 A 30 National Maritime Safety Authority 1
  9 A 34 National Road Safety Council 1
  10 A 35 National Roads Authority 1
  11 A 36 National Training Council 1
  12 A 40 Ombudsman Commission of Papua New Guinea 1
  13 A 41 Pacific Games (2015) Authority 1
  14 A 45 Papua New Guinea Immigration and Citizenship Service Authority 1
  15 A 49 Papua New Guinea National Institute of Standards and Industrial Technology 1
  16 A 52 Parliamentary Members’ Retirement Benefits Fund 1
  17 A 56 Tourism Promotion Authority 1
  18 B 66 Motor Vehicles Insurance Limited 1
  19 B 69 Papua New Guinea Ports Corporation Limited 1
  20 B 70 PNG Air Services Limited 1
  21 B 72 PNG Power Limited 1
  21

  2014 AUDITS – COMPLETED DURING 2016/2017
  Para. No. of
  No. Section No. Entity Audits
  1 A 9 Government Printing Office 1
  2 A 12 Industrial Centres Development Corporation 1
  3 A 16A General Business Trust 1
  4 A 16B PNG Dams Limited 1
  5 A 16C Port Moresby Private Hospital Limited 1
  6 A 21 National AIDS Council Secretariat 1
  7 A 22 National Broadcasting Corporation 1
  8 A 26 National Fisheries Authority 1
  9 A 29 National Information and Communication Technology Authority (NICTA) 1
  10 A 31 National Museum and Art Gallery 1
  11 A 40 Ombudsman Commission of Papua New Guinea 1
  12 A 41 Pacific Games (2015) Authority 1
  13 A 45 Papua New Guinea Immigration and Citizenship Service Authority 1
  14 A 46 Papua New Guinea Institute of Medical Research 1
  15 A 48 Papua New Guinea Maritime College 1
  16 A 49 Papua New Guinea National Institute of Standards and Industrial Technology 1
  17 A 51 Papua New Guinea University of Technology 1
  18 A 54 Security Industries Authority 1
  19 A 57 University of Goroka 1
  20 A 58 University of Natural Resources and Environment (Vudal) 1
  – 412 –

• Page 449 of 450

• Para. No. of
  No. Section No. Entity Audits
  21 A 60 Water PNG 1
  22 B 62 Air Niugini Limited 1
  23 B 65 Mineral Resources Development Company Limited 1
  24 B 71 PNG DataCo Limited 1
  25 B 74 Telikom (PNG) Limited 1
  25

  2013 AUDITS – COMPLETED DURING 2016/2017
  Para. No. of
  No. Section No. Entity Audits
  1 A 3 Border Development Authority 1
  2 A 7 Cocoa Coconut Institute Limited of Papua New Guinea 1
  3 A 8 Coffee Industry Corporation Limited 1
  4 A 8A Coffee Industry Fund 1
  5 A 8B Patana No.61 Limited 1
  6 A 9 Government Printing Office 1
  7 A 16B PNG Dams Limited 1
  8 A 16C Port Moresby Private Hospital Limited 1
  9 A 18 Mineral Resources Authority 1
  10 A 21 National AIDS Council Secretariat 1
  11 A 23 National Capital District Commission 1
  12 A 24 National Cultural Commission 1
  13 A 28 National Housing Corporation 1
  14 A 29 National Information and Communication Technology Authority (NICTA) 1
  15 A 47 Papua New Guinea Institute of Public Administration 1
  16 A 50 Papua New Guinea Sports Foundation 1
  17 A 51 Papua New Guinea University of Technology 1
  18 A 54 Security Industries Authority 1
  19 A 59 University of Papua New Guinea 1
  20 B 65 Mineral Resources Development Company Limited 1
  20

  2012 AUDITS – COMPLETED DURING 2016/2017
  Para. No. of
  No. Section No. Entity Audits
  1 A 5 Climate Change and Development Authority 1
  2 A 18 Mineral Resources Authority 1
  3 A 28 National Housing Corporation 1
  4 A 42 Papua New Guinea Accident Investigation Commission 1
  5 A 47 Papua New Guinea Institute of Public Administration 1
  6 A 50 Papua New Guinea Sports Foundation 1
  7 A 54 Security Industries Authority 1
  8 B 65 Mineral Resources Development Company Limited 1
  8

  – 413 –

• Page 450 of 450

• 2011 AUDITS – COMPLETED DURING 2016/2017
  Para. No. of
  No. Section No. Entity Audits
  1 A 28 National Housing Corporation 1
  2 A 39 Oil Palm Industry Corporation 1
  3 A 42 Papua New Guinea Accident Investigation Commission 1
  4 A 50 Papua New Guinea Sports Foundation 1
  5 B 67 National Airports Corporation Limited 1
  5

  2010 AUDITS – COMPLETED DURING 2016/2017
  Para. No. of
  No. Section No. Entity Audits
  1 A 50 Papua New Guinea Sports Foundation 1
  1

  2009 AUDITS – COMPLETED DURING 2016/2017
  Para. No. of
  No. Section No. Entity Audits
  1 A 50 Papua New Guinea Sports Foundation 1
  1

  2008 AUDITS – COMPLETED DURING 2016/2017
  Para. No. of
  No. Section No. Entity Audits
  1 A 50 Papua New Guinea Sports Foundation 1
  1

  2007 AUDITS – COMPLETED DURING 2016/2017
  Para. No. of
  No. Section No. Entity Audits
  1 A 50 Papua New Guinea Sports Foundation 1
  1

  2006 AUDITS – COMPLETED DURING 2016/2017
  Para. No. of
  No. Section No. Entity Audits
  1 A 50 Papua New Guinea Sports Foundation 1
  1

  2005 AUDITS – COMPLETED DURING 2016/2017
  Para. No. of
  No. Section No. Entity Audits
  1 A 50 Papua New Guinea Sports Foundation 1
  1

  – 414 –