Report of the Auditor-General Part IV 2017 on the Accounts of Public Authorities and Statutory Bodies

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    Auditor-General's annual report for 2017 on the Accounts of Public Authorities and Statutory Bodies established under the Act of Parliament and Government Owned Companies established under the Companies Act.

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  • Part 4
    Report of the Auditor-General
    2017

    PAPUA NEW GUINEA

    Auditor-General’s Office of Papua New Guinea

  • Page 2 of 293

  • Part IV
    Report of the Auditor-General
    2017

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

    • Public Bodies and their Subsidiaries

    • National Government Owned Companies

    • National Government Shareholdings in Other Companies

    Auditor-General’s Office of Papua New Guinea

  • Page 3 of 293

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

    20 July 2018

    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 20th July 2018 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,

    GORDON KEGA, CPA
    Acting Auditor-General

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

  • Page 5 of 293

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  • 2017 AUDITOR-GENERAL‟S REPORT – PART IV

    TABLE OF CONTENTS

    PARA SUBJECT PAGE
    NO. NO.

    General …………………………………………………………………………………………………………………………. v
    A. Foreword ……………………………………………………… v
    B. A u t h o r i t y t o A u d i t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi
    C. A u d i t o f P u b l i c B o d i e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii
    D. Appointment and use of Authorised Auditors ……………………………………………… viii
    E. E x e c u t i v e S u m m a r y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
    Attachments A – F ……………………………………………………………………………………………………………………. xvii

    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 ………………………………………………………………. 7
    4. Civil Aviation Safety Authority of Papua New Guinea ………………………………………………………………..8
    5. Climate Change and Development Authority ……………………………………………………………………………….. 12
    6. Cocoa Board of Papua New Guinea and its Subsidiaries ……………………………………………………….. 14
    6A Co c o a P o d Bo r e r Pr o je c t Fu n d …………………………………………………… 15
    6B C o c o a S t a b i l i s a t i o n F u n d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
    7. Cocoa Coconut Institute Limited of Papua New Guinea …………………………………………………………… 17
    8. Coffee Industry Corporation Limited and its Subsidiaries……………………………………………………… …18
    8A C o f f e e I n d u s t r y F u n d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
    8B P a t a n a N o . 6 1 L i m it e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
    9. Government Printing Office ………………………………………………………………………………………………………….. 21
    10. Independence Fellowship Trust …………………………………………………………………………………………. 22
    11. Independent Consumer and Competition Commission …………………………………………………………….. 23
    12. Industrial Centres Development Corporation …………………………………………………………………………. 25
    13. Internal Revenue Commission. ………………………………………………………………………………………….. 26
    14. Investment Promotion Authority …………………………………………………………………………………………. 28
    15. Kokonas Indastri Koporesen and its Subsidiaries ……………………………………………………………………. 29
    15A Papua New Guinea Coconut Extension Fund ………………………………………..30
    15B Papua New Guinea Coconut Research Fund …………………………………………31
    16. Kumul Consolidated Holdings and its Subsidiaries …………………………………………………………………. 32
    16A G e n e r a l B u s i n e s s T r u s t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
    16B Kumul Technology Development Corporation Limited………………………………….. 39
    16C P N G D a m s L i m i t e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
    17. Legal Training Institute ………………………………………………………………………………………………………………… 43
    18. Mineral Resources Authority …………………………………………………………………………………………….. 44
    19. National Agriculture Quarantine and Inspection Authority …………………………………………………………. 51
    20. National Agricultural Research Institute ………………………………………………………………………………… 53
    21. National AIDS Council Secretariat ………………………………………………………………………………………………… 55
    22. National Broadcasting Corporation ……………………………………………………………………………………… 57
    23. National Capital District Commission and its Subsidiaries . ……………………………………………………… 58
    23A National Capital District Botanical Enterprises Limited . ……………………………….. 60
    23B Port Moresby City Development Enterprises Limited . …………………………………. 61
    23C Port Moresby Nature Park Lim ited . ……………………………………………… 62

    -I-

  • Page 7 of 293

  • PARA SUBJECT PAGE
    NO. NO.

    24. National Cultural Commission …………………………………………………………………………………………….. 64
    25. National Economic and Fiscal Commission …………………………………………………………………………… 65
    26. National Fisheries Authority ……………………………………………………………………………………………….. 67
    27. National Gaming Control Board and its Subsidiary ………………………………………………………………….. 69
    27A. National Gaming Control Board Community Benefit Fund Trust. …………………………………….. 70
    28. National Housing Corporation and its Subsidiary …………………………………………………………………….. 72
    28A National Housing Estate Limited. …………………………………………………………………………………. 83
    29. National Information and Communications Technology Authority (NICTA) …………………………………… 84
    30. National Maritime Safety Authority …………………………………………………………………………………………………85
    31. National Museum and Art Gallery ……………………………………………………………………………………….. 87
    32. National Narcotics Bureau……………………………………………………………………………………………………………..88
    33. National Research Institute ………………………………………………………………………………………………. 89
    34. National Road Safety Council ……………………………………………………………………………………………………….90
    35. National Roads Authority……………………………………………………………………………………………………………….92
    36. National Training Council …………………………………………………………………………………………………. 94
    37. National Volunteer Service …………………………………………………………………………………………………………….99
    38. National Youth Commission……………………………………………………………………………………………. 100
    39. Oil Palm Industry Corporation ……………………………………………………………………………………….. 105
    40. Ombudsman Commission of Papua New Guinea………………………………………………………………….. 106
    41. Papua New Guinea Accident Investigation Commission ………………………………………………………. 107
    42. Papua New Guinea Customs Service…………………………………………………………………………………. 109
    43. Papua New Guinea Forest Authority ………………………………………………………………………………… 110
    44. Papua New Guinea Immigration and Citizenship Service Authority ………………………………………… 112
    45. Papua New Guinea Institute of Medical Research …………………………………………………………………. 114
    46. Papua New Guinea Institute of Public Administration ………………………………………………………….. 118
    47. Papua New Guinea Maritime College ……………………………………………………………………………… 119
    48. Papua New Guinea National Institute of Standards and Industrial Technology ………………………….. 120
    49. Papua New Guinea Sports Foundation ……………………………………………………………………………… 122
    50. Papua New Guinea University of Technology and its Subsidiaries …………………………………………. 124
    50A National Analytical and Testing Services Limited. …………………………………. 126
    50B Unitech Development and Consultancy Company Limited ………………………. 127
    51. Parliamentary Members’ Retirement Benefits Fund . ………………………………………………………………….. 128
    52. Public Curator of Papua New Guinea …………………………………………………………………………………. 129
    53. Security Industries Authority …………………………………………………………………………………………… 134
    54. Small and Medium Enterprises Corporation……………………………………………………………………….. 135
    55. Tourism Promotion Authority ………………………………………………………………………………………….. 141
    56. University of Goroka and its Subsidiary …………………………………………………………………………….. 144
    56A. Unigor Consultancy Limited ………………………………………………………………………………………. 146
    57. University of Natural Resources and Environment (UNRE) …………………………………………………….. 147
    58. University of Papua New Guinea and its Subsidiaries …………………………………………………………. 149
    58A U n i s a v e L i m i t e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
    58B U n i v e n t u r e s L i m i t e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
    59. Water PNG ………………………………………………………………………………………………………………….. 153

    SECTION B NATIONAL GOVERNMENT OWNED COMPANIES

    PARA SUBJECT PAGE
    NO. NO.

    60. Foreword …………………………………………………………………………………………………………………….. 157
    61. Air Niugini Limited and its Subsidiary ……………………………………………………………………………….. 159
    61A. Link-PNG Limited ……………………………………………………………………………………………………. 169
    62. Kumul Petroleum Holdings Limited and its Subsidiaries ………………………………………………………. 170
    62A E d a O i l L i m i t e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
    62B Ku m u l Ex p l o r a t io n ( As ia ) L im it e d . …………………………………………….. 172

    -II-

  • Page 8 of 293

  • PARA SUBJECT PAGE
    NO. NO.

    62C K u m u l G a s F o r e l a n d 2 3 9 B . V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
    62D K u m u l G a s F o r e la n d 2 6 1 B. V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
    62E K u m u l G a s F o r e la n d 2 6 8 B. V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
    62F K u m u l G a s F o r e la n d 2 6 9 B. V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
    62G K u m u l G a s N i u g i n i B. V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
    62H K u m u l L e n d i n g C o Pt e L im it e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
    62I K u m u l L N G L i m i t e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
    62J Kumul Petroleum (Development) Limited. ………………………………………….. 180
    62K Ku mu l Petr ole u m (In v est m ent s) Lim ite d ………………………………………. 181
    62L Kum ul Petroleum (Kroton) Lim ited. ……………………………………………….182
    62M Ku mu l Petr ole u m ( Pip e lin e) Lim ite d ……………………………………………..183
    62N Kumul Petroleum (Tech & Advisory) Limited. ………………………………………. 184
    62O Kum ul Petroleum M arketing Pte Limited… ……………………………………. 185
    62P K u m u l S e c u r it y A g e n t L i m it e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
    62Q N P C P O il C o m p a n y Pt y L i m it e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
    63. Livestock Development Corporation Limited…………………………………………………………………………. 188
    64. Mineral Resources Development Company Limited ……………………………………………………………… 189
    65. Motor Vehicles Insurance Limited ……………………………………………………………………………………… 190
    66. National Airports Corporation Limited and its Subsidiaries…………………………………………………….. 192
    66A Air po rt Cit y Dev e lop m e nt L imit e d ……………………………………………….193
    66B A ir p o r t s I n v e s t m e n t s L im it e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
    67. NCD Water and Sewerage Limited (Eda Ranu) …………………………………………………………………….. 195
    68. Papua New Guinea Ports Corporation Limited ……………………………………………………………………… 196
    69. PNG Air Services Limited ……………………………………………………………………………………………….. 199
    70. PNG DataCo Limited ……………………………………………………………………………………………………… 200
    71. PNG Power Limited …………………………………………………………………………………………………………………… 202
    72. Post (PNG) Limited ……………………………………………………………………………………………………….. 204
    73. Telikom (PNG) Limited and its Subsidiaries………………………………………………………………………….. 208
    73A DA TE C ( PNG ) L im it e d …………………………………………………………….210
    73B Ka la n g Ad v e r t is in g L im it e d ……………………………………………………….211
    73C M ed ia Niu g ini L im it e d ( EM TV) …………………………………………………….212
    73D P N G D ir e c t o r ie s L i m it e d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213

    SECTION C NATIONAL GOVERNMENT SHAREHOLDINGS IN OTHER COMPANIES

    PARA SUBJECT PAGE
    NO. NO.

    74. Foreword ……………………………………………………………………………………………………………………… 217
    75. Bougainville Copper Limited …………………………………………………………………………………………….. 219
    76. Gogol Reforestation Company Limited ………………………………………………………………………………………… 221
    77. Ok Tedi Mining Limited………………………………………………………………………………………………………………. 222
    78. PNG Sustainable Development Program Limited …………………………………………………………………. 223

    -III-

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  • SECTION D PROBLEM AUDITS (AUDITS IN ARREARS)

    PARA SUBJECT PAGE
    NO. NO.

    79. F o r e w o r d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
    80. A u d i t s i n A r r e a r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
    80.1 General ………………………………………………………………………………………………………………….. 229
    80.2 Responsibility for preparation of Financial Statements ………………………………………………… 229
    80.3 Legislative Requirements ……………………………………………………………………………………………………..230
    80.4 Current Year Audits (2017 Audits) ……………………………………………………………………………… 230
    80.5 Status of Current Year Audits ……………………………………………………………………………………. 232
    80.6 Audits in Arrears (2016 and prior years) ……………………………………………………………………… 234
    80.7 Long Outstanding Financial Statements …………………………………………………………………….. 237
    80.8 Status of Audits as at 30 June 2018……………………………………………………………………………. 240
    Acknowledgements ………………………………………………………………………………………………………………………………243
    Schedule A – Current Year Audits…………………………………………………………………………………………….. 247
    Schedule B – Status of Audits in Arrears…………………………………………………………………………………… 250
    Schedule C – Long Outstanding Financial Statements ……………………………………………………………… 253
    Schedule D – Government Shareholding in Companies ……………………………………………………………. 255
    Schedule E Audit in Arrears (2016 and Prior years) completed during 2017/2018 ……………………. 256

    -iv-

  • Page 10 of 293

  • GENERAL

    A. FOREWORD

    My Annual Report to the National Parliament for the 2017 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 effective delivery of
    government policies and programs particularly by the public sector and their
    contribution through the Medium Term Development Strategies (MTDS) including:

    • Welfare
    • Health
    • Economic Development and Growth
    • Contribution to Nation Building
    • Good Governance
    • Rural Development
    -v-

  • Page 11 of 293

  • General

    • Poverty Reduction
    • Employment
    • Strengthening Public Expenditure
    • Management System including:

    1′ Fiscal Sustainability
    1′ Prioritisation of Resources, and
    1′ Cost effective implementation of programs.

    In addition, my audit findings that have been repeatedly highlighted show 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 risks falling short
    of its objectives.

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

    B. AUTHORITY TO AUDIT

    B.1 Constitution

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

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

    B.2 Audit Act

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

    -vi-

  • Page 12 of 293

  • General

    B.2.1 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.2.2 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.2.3 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.3 Public Finance (Management) (Amendment) Act 2016 (PFMA)

    The submission of the financial statements of statutory bodies for audit is required
    under Section 63(1) and (3) of the Public Finance (Management) (Amendment) Act
    2016. The Section requires each statutory body to prepare and furnish to its Minister
    before end of fourth calendar month from close of a fiscal 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.

    B.4 Companies Act

    I am required to audit National Government owned Companies and their
    Subsidiaries 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 Section 63 of the PFMA and Section 3 of the Audit Act.
    -VII-

  • Page 13 of 293

  • General

    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 holds 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.

    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.

    -VIII-

  • Page 14 of 293

  • 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 2017 to
    June 2018 (2017/2018 Audit Cycle). The Report covers the audits of these entities‟
    financial statements for a number of years, not just 2017.

    In 2017 there were 115 public entities subject to audit by my Office, consisting of
    78 Public Bodies and their Subsidiaries and 37 National Government Owned
    Companies.

    I am also responsible for reporting on the audits of 4 Companies, in which the
    National Government has shareholding. These entities are audited by private
    company auditors and 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 a
    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.

    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.
    -ix-

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  • Executive Summary

    E.3 Submission of current year Financial Statements

    Section 63(1) and (3) of the PFMA requires „…a statutory body to prepare and
    furnish to the Finance Departmental Head before end of fourth calendar month
    from close of a fiscal year, a performance and management report of its operations
    for the year ended 31 December preceding, together with financial statements to
    enable the Finance Minister to present such report and statements to the
    Parliament…‟

    Before submitting the financial statements to the Minister, Section 63(3)(c) requires
    a statutory 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, 63 entities had not submitted their 2017
    financial statements to be audited and overall some 87 financial statements for
    2016 and prior years had not been submitted for audit (Refer Table A). However,
    the situation has deteriorated during this cycle.

    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 2017 (END OF 2017/2018
    CYCLE)

    Audits Audits to Financial
    Audits Substantially Audits in Commence Statements Total Total
    Year
    Completed Completed Progress Shortly not Submitted 2017/2018 2016/2017

    2017 – 14 27 11 63 115 –
    2016 8 24 16 7 34 89 104
    2015 11 21 7 4 21 64 84
    2014 3 13 6 2 13 37 60
    2013 3 5 1 – 10 19 37
    2012 1 2 1 – 5 9 16
    2011 – – – – 2 2 6
    2010 – – – – 2 2 2
    2009 – – – – – – 1
    2008 – – – – – – 1
    2007 – – – – – – 1
    2006 – – – – – – 1
    2005 – – – – – – 1
    Total 26 79 58 24 150 337 314

    -x-

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  • Executive Summary

    Table A above shows that 163 audits were either completed, substantially completed
    or still in progress as at 30 June 2018. The details are graphically depicted in
    Attachment „C‟, which also included the arrears of prior years.

    As shown also in Table A there were no current year audits (2017) issued however,
    41 audits were either substantially completed or were in progress. A further 11 audits
    were to commence shortly. Graphical description of the status of current year 2017
    audits (excluding arrears) is given in Attachment „A‟. The list of entities is at
    Schedule „A‟ (i), (ii), (iii) & (iv).

    A further 40 audit reports were being finalised and awaiting approval at 30 June
    2018. The total reports at finalised stage and issued amounted to 66.

    E.4 Type of Audit Opinions Issued1

    In the period covered (July 2017 to June 2018) by the audit, 26 audit reports were
    issued. Of the 26 audit reports issued, 11 were unqualified, 9 were qualified and 6
    were Disclaimer Opinions. The details are captured in Attachment „D‟.

    Types of Audit Opinions issued for each entity over the period of five years from
    2013 to 2017 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.

    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.

    -xi-

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  • Executive Summary

    E.6 Non-Submission of Financial Statements

    As stated earlier, Section 63(3) of the PFMA requires each statutory body to prepare
    and furnish to its Minister before end of fourth calendar month from close of a fiscal
    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 before 30 April each year for my audit and
    inspection. However, out of 115 public entities only 52 entities have submitted their
    financial statements for 2017 (Refer Schedule A (i), (ii), (iii) & (iv) for my audit and
    inspection up to the time of preparing this Report. A total of 63 entities have failed to
    comply with these provisions (Refer Schedule A (v)). The public entities referred to
    above exclude the 4 Companies with 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.

    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.

    Recommendation

    My Office recommends that there is rigorous 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.

    This recommendation is to help achieve financial management accountability and
    good governance in the public sector.

    During the cycle, 34 entities have audits in arrears totaling to 87. Details of audits that
    have gone into arrears due to non-submission of financial statements from 2010 are
    given below in Table B and Schedule „C‟.

    -xii-

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  • Executive Summary

    Table B
    Financial Statements Not Submitted
    Para. No. of
    No. Section Entity Year
    No. Audits
    1 A 3A Papua New Guinea Maritime Transport Limited 2013-2016 4
    2 A 5 Climate Change and Development Authority 2013-2016 4
    3 A 8 Coffee Industry Corporation Limited 2015 & 2016 2
    4 A 8A Coffee Industry Fund 2015 & 2016 2
    5 A 8B Patana No. 61 Limited 2015 & 2016 2
    6 A 12 Industrial Centres Development Corporation 2016 1
    7 A 18 Mineral Resources Authority 2016 1
    8 A 21 National AIDS Council Secretariat 2016 1
    9 A 22 National Broadcasting Corporation 2016 1
    10 A 23A National Capital District Botanical Enterprises Limited 2013-2016 4
    11 A 23B Port Moresby City Development Enterprises Limited 2013-2016 4
    12 A 24 National Cultural Commission 2015 & 2016 2
    13 A 27 National Gaming Control Board 2016 1
    National Gaming Control Board Community Benefit
    14 A 27A 2016 1
    Fund Trust
    15 A 28A National Housing Estate Limited 2010-2016 7
    16 A 31 National Museum and Art Gallery 2016 1
    17 A 32 National Narcotics Bureau 2013-2016 4
    18 A 34 National Road Safety Council 2016 1
    19 A 39 Oil Palm Industry Corporation 2012-2016 5
    20 A 43 Papua New Guinea Forest Authority 2015 & 2016 2
    21 A 45 Papua New Guinea Institute of Medical Research 2016 1
    22 A 46 Papua New Guinea Institute of Public Administration 2015 & 2016 2
    23 A 49 Papua New Guinea Sports Foundation 2016 1
    24 A 50A National Analytical and Testing Services Limited 2014-2016 3
    Unitech Development and Consultancy Company
    25 A 50B 2014-2016 3
    Limited
    26 A 52 Public Curator of Papua New Guinea 2015 & 2016 2
    27 A 53 Security Industries Authority 2016 1
    28 A 56A Unigor Consultancy Limited 2014-2016 3
    29 A 57 University of Natural Resources and Environment 2015 & 2016 2
    30 A 58A Unisave Limited 2012-2016 5
    31 A 58B Univentures Limited 2012-2016 5
    32 B 63 Livestock Development Corporation Limited 2010-2016 7
    33 B 67 NCD Water and Sewerage Limited (Eda Ranu) 2016 1
    34 B 69 PNG Air Services Limited 2016 1
    87

    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;

    -XIII-

  • Page 19 of 293

  • Executive Summary

    • 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:

    Civil Aviation Safety Authority of PNG;
    – –

    University of Papua New Guinea;
    National Housing Corporation;

    -University of Goroka;
    Internal Revenue Commission;

    -PNG Customs Service; and
    Papua New Guinea University of Technology.

    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. This can only be achieved by timely submission of
    financial statements and cooperation of the entities‟ management to clear the arrears.

    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. Despite these recommendations, 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 and the Constitution. The following state owned entities
    have appointed their own Auditors:

    -xiv-

  • Page 20 of 293

  • Executive Summary

    • Kumul Minerals Holding Limited (formerly Petromin Limited);
    • National Development Bank Limited; and
    • PNG Air Services 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;
    • 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 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.
    -xv-

  • Page 21 of 293

  • Executive Summary

    E.11 Recommendations for Improvement

    &RQisJ}nJ Z IJhEFRP P }nJs ~~ ST}MRXV }aB‟ J5 }SRIJs, EI Z RlX}SRIt 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 my audit recommendations.

    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.

    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).

    -xvi-

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  • Executive Summary

    ATTACHMENT „A

    STATUS OF CURRENT YEAR AUDITS 2017

    No. Status of Current Year Audits Number of Entities
    2017/2018 2016/2017
    1 Audits completed and reports issued thereon (Schedule A) 0 20
    2 Audits substantially completed (Schedule A) 14 4
    3 Audits in progress (Schedule A) 27 15
    4 Audits to commence shortly (Schedule A) 11 5
    5 Financial Statements not submitted (Schedule A) 63 60

    Status of Current Year Audits 2017
    Audits completed
    and reports issued
    Ceased Companies thereon
    (Schedule D) (Schedule A) Audits substantially
    0% 0% completed
    (Schedule A)
    12%
    Audits in progress
    (Schedule A)
    23%

    Financial Statements
    not submitted
    (Schedule A) Audits to commence
    55% shortly
    (Schedule A)
    10%

    6 Ceased Entities (Schedule D) 0 1
    115 105

    Please refer to details in Schedule A on Pages 247 to 249.
    ‘ ’

    -xvii-

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  • Executive Summary

    ATTACHMENT „B‟

    STATUS OF AUDITS IN ARREARS BY NUMBER OF AUDITS
    (2016 AND PRIOR YEARS)

    No. Status of Audits in Arrears by No. of Audits (2016 & prior years) Number of Audits
    2017/2018 2016/2017
    1 Audits substantially completed (Schedule B) 65 21
    2 Audits in progress (Schedule B) 31 24
    3 Audits to commence shortly (Schedule B) 13 10
    4 Financial Statements not submitted (Schedule B) 87 70
    196 125

    Status of Audits in Arrears by number of Audits
    (2016 and prior years)
    Audits substantially
    Financial Statements completed
    not submitted
    (Schedule B)
    (Schedule B)
    33%
    44%

    Audits in progress
    Audits to commence (Schedule B)
    shortly 16%
    (Schedule B)
    7%

    Please refer to details in Schedule ‘B’ on Pages 250 to 252.

    -XVIII-

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  • Executive Summary

    ATTACHMENT „C

    STATUS OF AUDITS AS AT 30 JUNE 2018

    Number of Audits
    No. Status of Audits
    2017/2018 2016/2017
    1 Audits completed and reports issued thereon (Schedules A & E) 26 105
    2 Audits substantially completed (Schedules A & B) 79 25
    3 Audits in progress (Schedules A & B) 58 39
    4 Audits to commence shortly (Schedules A & B) 24 15
    5 Financial Statements not submitted (Schedules A & B) 150 130
    337 314

    Status of Audits as at 30 June 2018

    Audits completed and
    reports issued thereon
    Financial Statements (Schedule A & E)
    not submitted 8%
    (Schedule A & B) Audits substantially
    45% completed
    (Schedule A & B)
    23%

    Audits to commence Audits in progress
    shortly (Schedule A & B)
    (Schedule A & B) 17%
    7%

    Please refer to details in Schedules ‘A’, ‘B’ and ‘E’ on Pages 247 to 249, 250 to 252 and 256 to 267

    -xix-

  • Page 25 of 293

  • respectively.

    Executive Summary

    ATTACHMENT „D

    TYPES OF AUDIT OPINIONS ISSUED

    (i) UNQUALIFIED OPINION
    Para. No. of
    No. Section Entity Year
    No. Audits
    1 A 16 Kumul Consolidated Holdings 2015 1
    2 A 50 Papua New Guinea University of Technology 2015 & 2016 2
    3 A 51 Parliamentary Members’ Retirement Benefits Fund 2016 1
    4 A 55 Tourism Promotion Authority 2016 1
    5 B 61A Link-PNG Limited 2015 1
    6 B 65 Motor Vehicles Insurance Limited 2016 1
    7 B 68 Papua New Guinea Ports Corporation Limited 2016 1
    8 B 72 Post (PNG) Limited 2016 1
    9 B 73A DATEC (PNG) Limited 2015 1
    10 B 73D PNG Directories Limited 2015 1
    11

    (ii) QUALIFIED OPINION

    Para. No. of
    No. Section Entity Year
    No. Audits
    1 A 4 Civil Aviation Safety Authority of Papua New Guinea 2016 1
    2 A 16A General Business Trust 2015 1
    3 A 16C PNG Dams Limited 2015 1
    4 A 18 Mineral Resources Authority 2014 1
    5 A 36 National Training Council 2016 1
    6 A 54 Small and Medium Enterprises Corporation 2013 – 2015 3
    7 B 61 Air Niugini Limited 2015 1
    9

    (iii) DISCLAIMER OPINION
    Para. No. of
    No. Section Entity Year
    No. Audits
    1 A 16B Kumul Technology Development Corporation Limited 2015 1
    2 A 28 National Housing Corporation 2014 1
    3 A 38 National Youth Commission 2012 & 2013 2
    4 A 45 Papua New Guinea Institute of Medical Research 2015 1
    5 A 52 Public Curator of Papua New Guinea 2013 1
    6

    -xx-

  • Page 26 of 293

  • 26

  • Page 27 of 293

  • Executive Summary

    ATTACHMENT „E‟
    COMPARATIVE AUDIT OPINIONS ISSUED (2013–2017)
    Comparative Years
    Para.
    No. Section Entity
    No. 2017 2016 2015 2014 2013

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

    -xxi-

  • Page 28 of 293

  • Executive Summary

    Para. Comparative Years
    No. Section Entity
    No. 2017 2016 2015 2014 2013
    42 A 28A National Housing Estate Limited
    National Information and Communications
    43 A 29 Disclaimer Disclaimer
    Technology Authority (NICTA)
    44 A 30 National Maritime Safety Authority Unqualified Unqualified Qualified Qualified
    45 A 31 National Museum and Art Gallery Disclaimer Disclaimer
    46 A 32 National Narcotics Bureau
    47 A 33 National Research Institute Qualified Unqualified Unqualified Unqualified
    48 A 34 National Road Safety Council Unqualified Unqualified Unqualified
    49 A 35 National Roads Authority Unqualified Qualified Qualified
    50 A 36 National Training Council Qualified Qualified Qualified Qualified
    51 A 37 National Volunteer Service Qualified Qualified Qualified Qualified
    52 A 38 National Youth Commission Disclaimer
    53 A 39 Oil Palm Industry Corporation
    54 A 40 Ombudsman Commission of Papua New Guinea Unqualified Qualified Unqualified
    Papua New Guinea Accident Investigation
    55 A 41
    Commission
    56 A 42 Papua New Guinea Customs Service New Inclusion
    57 A 43 Papua New Guinea Forest Authority
    Papua New Guinea Immigration and Citizenship
    Disclaimer Disclaimer Qualified
    58 A 44 Service Authority
    59 A 45 Papua New Guinea Institute of Medical Research Disclaimer Disclaimer Disclaimer
    Papua New Guinea Institute of Public
    60 A 46 Qualified
    Administration
    61 A 47 Papua New Guinea Maritime College Disclaimer Disclaimer
    Papua New Guinea National Institute of
    62 A 48 Qualified Qualified Qualified
    Standards and Industrial Technology
    63 A 49 Papua New Guinea Sports Foundation Disclaimer
    64 A 50 Papua New Guinea University of Technology Unqualified Unqualified Qualified Qualified
    65 A 50A National Analytical and Testing Services Limited
    Unitech Development and Consultancy Company
    66 A 50B Adverse
    Limited
    67 A 51 Parliamentary Members‟ Retirement Benefits Fund Unqualified Unqualified Unqualified Unqualified
    68 A 52 Public Curator of Papua New Guinea Disclaimer
    69 A 53 Security Industries Authority Qualified Qualified
    70 A 54 Small and Medium Enterprises Corporation Qualified Qualified Qualified
    71 A 55 Tourism Promotion Authority Unqualified Unqualified Unqualified Unqualified
    72 A 56 University of Goroka Disclaimer Disclaimer
    73 A 56A Unigor Consultancy Limited Disclaimer
    74 A 57 University of Natural Resources and Environment Disclaimer Qualified
    75 A 58 University of Papua New Guinea Qualified
    76 A 58A Unisave Limited
    77 A 58B Univentures Limited
    78 A 59 Water PNG Disclaimer Disclaimer
    79 B 61 Air Niugini Limited Qualified Qualified Qualified
    80 B 61A Link-PNG Limited Unqualified
    81 B 62 Kumul Petroleum Holdings Limited Unqualified Unqualified Unqualified
    82 B 62A Eda Oil Limited Unqualified
    83 B 62B Kumul Exploration (Asia) Limited New Inclusion
    84 B 62C Kumul Gas Foreland 239 B.V New Inclusion
    85 B 62D Kumul Gas Foreland 261 B.V New Inclusion
    86 B 62E Kumul Gas Foreland 268 B.V New Inclusion
    87 B 62F Kumul Gas Foreland 269 B.V New Inclusion
    88 B 62G Kumul Gas Niugini B.V New Inclusion
    -xxii-

  • Page 29 of 293

  • Executive Summary

    Para. Comparative Years
    No. Section Entity
    No. 2017 2016 2015 2014 2013
    89 B 62H Kumul Lending Co Pte Limited New Inclusion
    90 B 62I Kumul LNG Limited Unqualified Unqualified Unqualified
    91 B 62J Kumul Petroleum (Development) Limited Unqualified Unqualified Unqualified
    92 B 62K Kumul Petroleum (Investments) Limited Unqualified Unqualified Unqualified
    93 B 62L Kumul Petroleum (Kroton) Limited Unqualified
    94 B 62M Kumul Petroleum (Pipeline) Limited Unqualified
    95 B 62N Kumul Petroleum (Tech and Advisory) Limited Unqualified
    96 B 62O Kumul Petroleum Marketing Pte Limited New Inclusion
    97 B 62P Kumul Security Agent Limited New Inclusion
    98 B 62Q NPCP Oil Company Pty Limited New Inclusion
    99 B 63 Livestock Development Corporation Limited
    Mineral Resources Development
    100 B 64 Disclaimer Disclaimer
    Company Limited
    101 B 65 Motor Vehicles Insurance Limited Unqualified Qualified Qualified Qualified
    102 B 66 National Airports Corporation Limited
    103 B 66A Airport City Development Limited
    104 B 66B Airports Investments Limited New Inclusion
    105 B 67 NCD Water and Sewerage Limited (Eda Ranu) Qualified Qualified
    106 B 68 Papua New Guinea Ports Corporation Limited Unqualified Unqualified Qualified Qualified
    107 B 69 PNG Air Services Limited Qualified Qualified Qualified
    108 B 70 PNG DataCo Limited Unqualified
    109 B 71 PNG Power Limited Disclaimer Disclaimer Disclaimer
    110 B 72 Post (PNG) Limited Unqualified Unqualified Unqualified Unqualified
    111 B 73 Telikom (PNG) Limited Qualified Qualified
    112 B 73A DATEC (PNG) Limited Unqualified Unqualified
    113 B 73B Kalang Advertising Limited Unqualified
    114 B 73C Media Niugini Limited (EMTV) New Inclusion
    115 B 73D PNG Directories Limited Unqualified Unqualified Unqualified

    -XXIII-

  • Page 30 of 293

  • Executive Summary

    ATTACHMENT „F‟
    AUDITS IN ARREARS (2016 AND PRIOR YEARS) COMPLETED
    DURING 2017/2018 AUDIT CYCLE
    Audits
    Audits
    Para. Completed Total Total
    No. Section Entity Substantially
    No. and Reports Units Units
    Completed
    Issued
    1 A 3 Border Development Authority 2014 1
    Civil Aviation Safety Authority of Papua
    2 A 4
    New Guinea 2016 1
    3 A 6 Cocoa Board of Papua New Guinea 2016 1
    4 A 6A Cocoa Pod Borer Project Fund 2016 1
    5 A 6B Cocoa Stabilisation Fund 2016 1
    Cocoa Coconut Institute Limited of Papua
    6 A 7
    New Guinea 2014-2016 3
    7 A 9 Government Printing Office 2015 1
    8 A 13 Internal Revenue Commission 2014 & 2015 2
    9 A 16 Kumul Consolidated Holdings 2015 1 2016 1
    10 A 16A General Business Trust 2015 1 2016 1
    Kumul Technology Development
    11 A 16B 2015 1 2016 1
    Corporation Limited
    12 A 16C PNG Dams Limited 2015 1 2016 1
    13 A 17 Legal Training Institute 2014-2016 3
    14 A 18 Mineral Resources Authority 2014 1
    National Agriculture Quarantine and
    15 A 19
    Inspection Authority 2016 1
    16 A 23 National Capital District Commission 2014 & 2015 2
    17 A 23C Port Moresby Nature Park Limited 2014 & 2015 2
    18 A 24 National Cultural Commission 2014 1
    19 A 26 National Fisheries Authority 2015 1
    20 A 27 National Gaming Control Board 2015 1
    National Gaming Control Board
    21 A 27A
    Community Benefit Fund Trust 2015 1
    22 A 28 National Housing Corporation 2014 1
    National Information and Communications
    23 A 29
    Technology Authority (NICTA) 2015 1
    24 A 31 National Museum and Art Gallery 2015 1
    25 A 35 National Roads Authority 2016 1
    26 A 36 National Training Council 2016 1
    27 A 38 National Youth Commission 2012 & 2013 2 2014-2016 3
    Papua New Guinea Accident Investigation
    28 A 41
    Commission 2013-2016 4
    29 A 43 Papua New Guinea Forest Authority 2013 1
    Papua New Guinea Immigration and
    30 A 44
    Citizenship Service Authority 2016 1
    Papua New Guinea Institute of Medical
    31 A 45
    Research 2015 1
    Papua New Guinea Institute of Public
    32 A 46
    Administration 2014 1
    33 A 47 Papua New Guinea Maritime College 2015 & 2016 2
    Papua New Guinea National Institute of
    34 A 48
    Standards and Industrial Technology 2016 1

    35 A 50 Papua New Guinea University of
    Technology 2015 & 2016 2

    -xxiv-

  • Page 31 of 293

  • Executive Summary

    Audits
    Audits
    Para. Completed Total Total
    No. Section Entity Substantially
    No. and Reports Units Units
    Completed
    Issued
    Parliamentary Members’ Retirement
    36 A 51 1
    Benefits Fund 2016
    37 A 52 Public Curator of Papua New Guinea 2013 1
    38 A 53 Security Industries Authority 2015 1
    39 A 54 Small and Medium Enterprises Corporation 2013-2015 3
    40 A 55 Tourism Promotion Authority 2016 1
    41 A 56 University of Goroka 2015 & 2016 2
    42 A 58 University of Papua New Guinea 2014 1
    43 A 59 Water PNG 2015 1
    44 A 61 Air Niugini Limited 2015 1
    45 A 61A Link-PNG Limited 2015 1
    Kumul Petroleum (Tech and Advisory)
    46 A 62N.
    Limited 2016 1
    47 A 65 Motor Vehicles Insurance Limited 2016 1
    48 A 66 National Airports Corporation Limited 2013-2016 5
    49 A 66A Airport City Development Limited 2013-2016 5
    50 A 66B Airports Investments Limited 2016 1
    Papua New Guinea Ports Corporation
    51 A 68 1
    Limited 2016
    52 A 70 PNG DataCo Limited 2015 1
    53 A 71 PNG Power Limited 2016 1
    54 A 72 Post (PNG) Limited 2016 1
    55 A 73A DATEC (PNG) Limited 2015 1 2016 1
    56 A 73B Kalang Advertising Limited 2014-2016 3
    57 A 73D PNG Directories Limited 2015 1
    26 65

    -xxv-

  • Page 32 of 293

  • -xxvi-

  • Page 33 of 293

  • SECTION A

    PUBLIC BODIES AND

    THEIR SUBSIDIARIES

    -xxvii-

  • Page 34 of 293

  • -xxviii-

  • Page 35 of 293

  • 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 59 of this part of my Report.

    -1-

  • Page 36 of 293

  • -2-

  • Page 37 of 293

  • 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 additional responsibilities to the Bank. These other Acts are:

    -3-

  • Page 38 of 293

  • 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 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 Bank for the year ended 31 December 2017 had been completed and the audit
    reports were being finalised.

    -4-

  • Page 39 of 293

  • 3. BORDER DEVELOPMENT AUTHORITY

    3.1 INTRODUCTION

    3.1.1 Legislation

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

    3.1.2 Objectives of the Authority

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

    3.1.3 Functions of the Authority

    The functions of the Authority generally are to consult with relevant agencies and to
    supervise and co-ordinate all development activities in each of the border provinces
    and, without prejudice to the generality of the foregoing, are:

    • The co-ordination of the planning and implementation of capital works,
    infrastructure and socio-economic programs in respect to:
    – Education, health care, road networks, communications, transport system,
    electricity, water, sewerage and all activities relevant to the improvement of
    basic living standards in the border provinces;
    – Liaison with public bodies, non-government organisations and private
    enterprise in identifying and negotiating sources of funding for short to
    medium-term activities;
    – The co-ordination of the development of specifications for contracts for all
    capital and infrastructure works and the advertising, evaluation and awarding
    of such contracts;
    – The supervision and monitoring of the implementation of all contracts relating
    to such capital and infrastructure works;
    – The transformation of border provinces into agro-financial sectors by
    developing their respective natural resources; and
    – The promotion of investors, both foreign and local, into the border provinces
    and to encourage and facilitate international cross-border and inter-border
    trade.

    • The establishment of programs and regulatory framework for immigration
    including the monitoring of immigrants and immigrant activity along the border
    with respect to:
    -5-

  • Page 40 of 293

  • 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 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 audit
    reports were being finalised.

    The Authority had submitted its financial statements for the years ended 31 December
    2015, 2016 and 2017 for my inspection and audit and arrangements were being made
    to commence the audits shortly.

    -6-

  • Page 41 of 293

  • 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 had not submitted its financial
    statements for the years ended 31 December 2013, 2014, 2015, 2016 and 2017 for my
    inspection and audit despite numerous reminders.

    -7-

  • Page 42 of 293

  • 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 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    4.2.1 Comments on Financial Statements

    My report to the Ministers under Section 8(4) of the Audit Act on the financial
    statements of the Authority for the year ended 31 December 2016 was issued on 21
    August 2017. The report contained a Qualified Opinion.

    BASIS FOR QUALIFIED OPINION

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

    Section 147E of the Civil Aviation Act 2000 stipulates for the NAC and the PNGASL
    to remit a percentage of airport facility charges, security levies and upper airspace
    aeronautical charges to CASA. Given the technical and logistical difficulties, it has
    been difficult for CASA to have independent data to compute its share of the revenue.
    As a result, CASA could not compute the amount of revenue receivable from the two
    entities. The current situation places CASA in a position where it is unable to
    accurately record and collect the income owing by NAC and PNGASL. The income
    and the related receivables from those two entities are material, which can potentially
    affect the financial statements and disclosures of CASA as at the reporting date.

    .8.

  • Page 43 of 293

  • Civil Aviation Safety Authority of PNG

    Due to those limitations, I was not able to verify the completeness and accuracy of
    revenue and receivable balances reported in the financial statements for the year
    ended 31 December 2016.

    Fixed Assets

    In 2010, the former Civil Aviation Authority (CAA) was restructured into three new
    separate entities, namely National Airport Corporation (NAC), PNG Air Services
    Limited (PNGASL) and Civil Aviation Safety Authority (CASA). However, at the
    time of separation there has been disagreement amongst the three entities over the
    ownership of the assets owned by the former CAA. On 29 January 2016, the Minister
    for Civil Aviation allocated the former CAA assets to the three entities through the
    National Gazettal No. G39. Although determination for ownership and use of the
    former CAA assets and properties was done by the Minister, CASA had not
    accounted for its share of the assets in the books in 2016. I also noted that no
    valuation was performed of the assets and properties used in the operations.

    Further, it had not been possible for me to confirm whether all the property assets
    recorded on the fixed assets register at the year end were owned by the Authority.
    Consequently, I was unable to satisfy myself on the completeness, existence,
    valuation, accuracy and ownership of the fixed assets and the related depreciation
    charges for the year ended 31 December 2016.

    QUALIFIED OPINION

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

    (a) the financial statements of Civil Aviation Safety Authority for the year ended 31
    December, 2016:

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

    (ii) the financial statements have been prepared in accordance with the
    Finance Instructions issued under the Public Finances (Management)
    Act, 1995.

    (b) proper accounting records have been kept by the Authority as far as it appears
    from my examinations of those records; and

    (c) I have obtained all the information and explanation that were required.”

    -9-

  • Page 44 of 293

  • Civil Aviation Safety Authority of PNG

    4.2.2 Audit Observations Reported to the Ministers

    My report to the Ministers under Section 8(2) of the Audit Act, on the inspection and
    audit of the accounts and records of the Authority for the year ended 31 December
    2016 was issued on 21 August 2017. The report contained the following observations:

    GST Reconciliation

    CASA had not performed GST reconciliations between the general ledger balances
    JQdIWHTstJteP eQ RIEJFFR)QtfSR QtMQJl 5 IMQ)EI&RP P IWRQ E~5 &LL [&$ 6$ IN
    bRR,TFJlJQFI IRI ~67 Z Js 1 F16,5I T JQaVd ~5 &WMJteP eQt RI JFFR)Qt FJlJQFIfl
    showed K34,125 giving an unreconciled difference of K282,455. Also, penalty for
    late GST payment of K105,280 was imposed by IRC in 2016. I recommended the
    management to lodge GST returns on time to avoid penalties and obtain statement of
    account from IRC for preparation of timely reconciliations.

    The management responded as follows:

    “There is ongoing dialogue with the IRC to address account reconciliation issues
    both for Group Tax and GST. Monthly reconciliations will be done on the basis of
    IRC statement. CASA has opted for GST Accounting Option of “Cash Accounting”
    which will fairly record the GST liability for actual debit output collected.”

    Group Tax payments

    I noted that Group Tax Returns for certain months of 2016 were not lodged within the
    time set by IRC. As a result, K193,387 was charged as penalty by the Internal
    Revenue Commission (IRC). I recommended to the management that group tax must
    be paid to IRC within the prescribed time. The management responded that, “Group
    Taxes are remitted monthly to avoid penalty charges.”

    Bank Reconciliations

    I noted that reconciling items in the monthly bank reconciliation were not corrected in
    a timely manner. These reconciling items included:

    • Cancelled cheques were still shown in the general ledger;
    • Duplicated cheques were noted as outstanding. CASA used both manual and
    system generated cheques in 2016 promoting the duplication; and
    • Cheques cleared by bank not recorded in the general ledger.

    I recommended that management should minimize the issuance of manual cheques to
    avoid cheques duplication and all bank reconciliation should be reviewed and
    approved by the appropriate person other than the preparer.

    – 10 –

  • Page 45 of 293

  • Civil Aviation Safety Authority of PNG

    Management responded that; “the main cause of delayed action on reconciliation was
    maintenance of dual bank reconciliations. The system based bank reconciliation was
    not updated due to its functionalities not being fully understood by finance staff and
    the situation will improve and monthly bank reconciliations maintained. Issuance of
    manual cheques will cease and automated account disbursements will be installed.”

    4.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and
    audit of the accounts and records and examination of the financial statements of the
    Authority for the year ended 31 December 2017 had been completed and the results
    were being evaluated.

    – 11 –

  • Page 46 of 293

  • 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;

    – 12 –

  • Page 47 of 293

  • 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 the 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 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, 2016 and 2017 for my
    inspection and audit despite my numerous reminders.

    – 13 –

  • Page 48 of 293

  • 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.

    6.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and
    audit of the accounts records and the examination of the financial statements of the
    Board for the period ended 30 September 2016 had been completed and the audit
    reports were being finalised.

    The financial statements for the period ended 30 September 2017 had not been
    submitted for my inspection and audit.

    – 14 –

  • Page 49 of 293

  • 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 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 Project
    Fund for the period ended 30 September 2016 had been completed and the audit
    reports were being finalised.

    The Project Fund had not submitted its financial statements for the period ended 30
    September 2017 for my inspection and audit.

    – 15 –

  • Page 50 of 293

  • 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 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 period ended 30 September 2016 had been completed and the audit reports were
    being finalised.

    The financial statements of the Fund for the period ended 30 September 2017 had not
    been submitted for my inspection and audit.

    – 16 –

  • Page 51 of 293

  • 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 STATUS OF FINANCIAL STATEMENTS

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

    The Company had not submitted its financial statements for the year ended 31
    December 2017 for my inspection and audit.

    – 17 –

  • Page 52 of 293

  • 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 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 2014 was in progress.

    The Corporation had not submitted the financial statements for the years ended 31
    December 2015, 2016 and 2017 for my inspection and audit.

    – 18 –

  • Page 53 of 293

  • 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 STATUS OF FINANCIAL STATEMENTS

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

    The Fund had not submitted the financial statements for the years ended 31 December
    2015, 2016 and 2017 for my inspection and audit.

    – 19 –

  • Page 54 of 293

  • 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 STATUS OF FINANCIAL STATEMENTS

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

    The Company had not submitted the financial statements for the years ended 31
    December 2015, 2016 and 2017 for my inspection and audit.

    – 20 –

  • Page 55 of 293

  • 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 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and
    audit of the accounts and records and the examination of the financial statements of
    the Printing Office for the year ended 31 December 2015 had been completed and the
    audit reports were being finalised.

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

    The Printing Office had not submitted its financial statements for the year ended 31
    December 2017 for my inspection and audit.

    – 21 –

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  • 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 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 Trust for
    the year ended 31 December 2017 had been completed and the audit reports were
    being finalised.

    – 22 –

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  • 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 consumers;
    • 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.

    – 23 –

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  • Independent Consumer and Competition Commission

    11.2 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
    Commission for the year ended 31 December 2017 had been completed and the audit
    reports were being finalised.

    – 24 –

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  • 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 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 2016 and 2017 for my inspection and
    audit despite numerous reminders.

    – 25 –

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  • 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 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
    audit report was being finalised.

    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 had been completed and the results were being evaluated.

    The financial statements of the Commission for the years ended 31 December 2016
    and 2017 were submitted and arrangements were being made to commence the audit
    shortly.

    – 27 –

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  • 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 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 2017 had been completed and the
    management responses were being awaited to finalise the audit reports.

    – 28 –

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

    15.1 INTRODUCTION

    15.1.1 Legislation

    The (NEC) through its Gazettal Notice No. G19 abolished the Copra Marketing
    Board Act 1992 on 4 June 2002 and replaced it with Kokonas Indastri Koporesen Act
    2002 which established the Kokonas Indastri Koporesen (KIK). The new Act
    decentralised copra buying and selling in PNG and required KIK to only regulate the
    copra price in PNG.

    The Kokonas Indastri Koporesen Act subsequently established PNG Coconut
    Extension Fund and PNG Coconut Research Fund. Comments in relation to these
    Funds are contained in paragraphs 15A and 15B respectively, of this Report.

    15.1.2 Functions of the Koporesen

    The principal functions of the Koporesen are to regulate and assist in the export and
    marketing of copra in the best interest of the copra producers of PNG and to
    administer the PNG Coconut Extension Fund and the PNG Coconut Research Fund.

    15.2 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 Koporesen for the year
    ended 31 December 2017 had been completed and the audit reports were being
    finalised.

    – 29 –

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  • 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 Kokonas Indastri Koporesen.

    15A.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 Extension Fund for the year ended 31 December 2017 had been
    completed and the audit reports were being finalised.

    – 30 –

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  • 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 Kokonas
    Indastri Koporesen 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 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 Research Fund for the year ended 31 December 2017 had been
    completed and the audit reports were being finalised.

    – 31 –

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  • 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 and all dividends declared by Kumul Consolidated Holdings shall be paid
    into the Sovereign Wealth Fund.

    16.1.2 Objectives of the Corporation

    The objectives of the Corporation are 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;
    • 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;
    • enhance the financial position of the State or State Owned Enterprises; and
    • 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.

    – 32 –

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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 Section (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 of this Report.

    16.1.5 Subsidiaries of the Corporation

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

    – 33 –

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  • Kumul Consolidated Holdings

    16.1.6 Projects of the Corporation

    The Corporation manages 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 AUDIT OBSERVATIONS

    16.2.1 Comments on Financial Statements

    My report to the Minister under Section 8(4) of the Audit Act on the financial
    statements of the Corporation for the year ended 31 December 2015 was issued on 26
    October 2017. The report did not contain any qualification.

    16.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the audit of the
    accounts and records and the examination of the financial statements of the
    Corporation for the year ended 31 December 2016 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 2017 was in progress.

    – 34 –

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  • 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 R f1Jfff7 ~~1~~f
    financial statements for the year ended 31 December 2015 was issued on 15
    November 2017. The report contained a Qualified Opinion.

    “BASIS FOR QUALIFIED OPINION

    Measurement of Unquoted Equity Investments in State Owned Enterprises
    (SOE‟s)

    Note 2(d) to the financial statements of the Trust classifies its investments in
    unquoted equity securities as available for sale financial assets in accordance with
    International Accounting Standards (IAS) 39, Financial Instruments: Recognition
    and Measurement at 31 December 2015. Further, Note 14 to the financial statements
    disclosed K4,781,355,435 as the total Investments under Non-Current Assets of
    which K3,846,815,394 was stated as investments under State Owned Enterprises
    (SOEs).

    – 35 –

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  • General Business Trust

    The fair value increment recorded for the investments in Kumul Technology
    Development Corporation Limited (formerly, Port Moresby Private Hospital
    Limited (POMPH) at a carrying value of K100,145,000 (2014: K79,601,000) and
    recorded a fair value gain of K20,544,000 in the Comprehensive Income for the
    year ended. However, I was unable to obtain sufficient appropriate audit evidence to
    determine the fair value of this investment as at 31 December 2015 and the gain
    recognised in the other comprehensive income for the year then ended.

    Further, the investment in PNG Dams Limited was carried at K304,300,000 (2014:
    K466,500,000) and has recorded a reduction in fair value of K162,200,000 in other
    comprehensive income for the year then ended at 31 December 2015. I was unable
    to obtain sufficient appropriate audit evidence to determine the fair value of this
    investment as at 31 December 2015 and the reduction in fair value recorded in the
    other comprehensive income for the year then ended.

    As such, I was unable to determine whether any adjustments might have been
    required to the carrying value of the Trust‟s Investments for POMPH and PNG
    Dams Limited 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 2015.

    Investments in Lae-Port Project

    Note 14(b) of the financial statements disclosed K278,571,300 as total investments
    in Projects under construction. Included in the above investments was
    K268,950,312 (2014: K230,300,279) as investment made in the Lae-Port
    Development Project (LPDP) as at 31 December 2015. However, I was unable to
    obtain sufficient appropriate audit evidence to determine the completeness of costs
    incurred and monies advanced by the Trust for the LPDP. As a result, I was unable
    to determine whether any adjustments are required to be made to the carrying value
    of the Trust‟s investments in Lae-Port Development Project (LPDP) disclosed at
    K268,950,312.

    Investment in Properties

    Note 2(f) to the financial statements, investment properties are carried by the Trust
    at fair value in accordance with International Accounting Standard (IAS) 40,
    Investment Properties. The POM Fairfax Harbour Investment property is recorded
    at K771,204,508, which reflects its purchase cost including capitalized interest, and
    the Trust has not recorded a fair value gain or loss in the net income for the year
    ended. I was unable to obtain sufficient appropriate audit evidence to support the
    fair value of this investment property at 31 December 2015 and gain or loss
    recognised in net income for the year then ended. Consequently, I was unable to
    determine whether any adjustment to these amounts was necessary for the accuracy
    and measurement of the Trust‟s Projects under construction as at 31 December
    2015.

    – 36 –

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  • General Business Trust

    QUALIFIED OPINION

    In my opinion, except for the effects of matters described in the basis for qualified
    opinion paragraphs above:

    (a) the financial statements of General Business Trust for the year ended 31
    December 2015:

    (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 practice in Papua New Guinea; and

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

    (c) I have obtained all the information and explanations as required. ”

    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 2015
    was issued on 15 November 2017. The report contained the following comments:

    Investment Corporation of Papua New Guinea (ICPNG)

    This Corporation (ICPNG) was vested with KCH (formerly: 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 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 requests to provide the financial statements for the
    years since 2002 were not responded positively by the respective managements in
    place in the years.

    Investments in Niugini Insurance Corporation Limited (NIC)

    This Niugini Insurance Corporation was corporatized and the business was transferred
    to Pacific MMI Insurance limited in 1998 except to keeping the insurance liability and
    assets attached with the liabilities remained with the Corporation. However, in 2010,
    KCH (formerly: 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.

    – 37 –

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  • General Business Trust

    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 this vacant land portion
    1570 (now 2500) was acquired by the Motor Vehicles Insurance Trust Limited
    (MVITL) in 1998 at a cost of K5.0 million, whereas the valuation report of the vacant
    land subsequent to the purchase indicated that the market value was K2.5 million.
    However, since 1999 the value of the land was taken up at K950,000 in the books, by
    which MVITL (now MVIL) has incurred a loss of K4.0 million through this
    investment.

    This company was transferred to KCH (formerly: 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 KCH (formerly: 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.

    KCH (formerly: 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 IPA 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 year ended 31 December 2016 had been completed and the results
    were being evaluated.

    The fieldwork associated with the audit of the accounts and records and the
    examination and inspection of the financial statements of the Trust for the year ended
    31 December 2017 was in progress.

    – 38 –

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  • 16B. KUMUL TECHNOLOGY DEVELOPMENT CORPORATION
    LIMITED (Subsidiary of Kumul Consolidated Holdings)

    16B.1 INTRODUCTION

    16B.1.1 Legislation

    This Company was initially registered under the Companies Act on 1 August 1994
    with a name Negliw No. 81 Limited. On 30 September 1994, Negliw No. 81
    Limited was acquired as a subsidiary by the Motor Vehicles Insurance (PNG) Trust,
    now the Motor Vehicles Insurance Limited and on 20 March 1996 changed its name
    to Port Moresby Private Hospital.

    Port Moresby Private Hospital Limited was later transferred to the General Business
    Trust on 2 August 2002. Subsequently, on 20 April 2016 the Company changed its
    name from Port Moresby Private Hospital Limited to Kumul Technology
    Development Corporation Limited.

    16B.1.2 Objective of the Company

    The objective of Kumul Technology Corporation Limited is to construct, furnish
    and equip a building to operate as a hospital.

    16B.2 AUDIT OBSERVATIONS

    16B.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 25
    October 2017. The report contained a Disclaimer of Opinion.

    BASIS FOR DISCLAIMER OF OPINION

    Fair Valuation of Investment Properties

    Statement of Comprehensive Income of the financial statements disclosed K5.01
    million (2014: K6.92 million) as gain on change in fair value of investment
    properties for the year ended 31 December 2015. 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 K100,145,000 (2014:
    K95,131,000) and the gain on change in fair value as shown in the statement of
    comprehensive income as at 31 December 2015.

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  • Kumul Technology Development Corporation 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 2015 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
    Kumul Technology Development Corporation Limited for the year ended 31
    December 2015. ”

    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 2016 had been completed and the
    results were being evaluated.

    The audit of the accounts and the records and the examination of the financial
    statements of the Company for the year ended 31 December 2017 was in progress.

    – 40 –

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

    16C.1 INTRODUCTION

    16C.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.

    16C.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.

    16C.2 AUDIT OBSERVATIONS

    16C.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 25
    October 2017. The report contained a Qualified Opinion.

    BASIS FOR QUALIFIED OF OPINION

    Limitation of Scope on Opening Balances

    My report for the prior year, 31 December 2014 was a disclaimer of opinion as a
    result of lack of sufficient and appropriate audit evidence to support the fair value of
    the investment properties which are fundamental in the preparation of the financial
    statements. I was unable to obtain the necessary audit evidence on the opening
    balances through other audit procedures. Since these opening balances entered into
    the determination of the results of the financial performance for the year ended 31
    December 2015, I was unable to determine whether any adjustment to the results of
    the operation and changes in financial position might have been necessary for the
    year ended 31 December 2015.

    – 41 –

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    QUALIFIED OPINION

    Certain balances as at 31 December 2014 also entered into the determination of
    financials for the year ended 31 December 2015. Because of the existence of a
    disclaimer of opinion in opening balances as described in the basis for qualification
    above, I am 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 2015.

    In my opinion, except for the matter described in the basis for qualified opinion
    paragraph above, and except for the possible effects of such adjustments, if any, as
    might have been determined to be necessary to the statement of comprehensive
    income had the limitations on the scope of work as described above in the paragraph
    of basis of qualification not existed:

    (a) the financial statements of PNG Dams Limited for the year ended 31
    December 2015:

    (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 Company; and

    (c) I have obtained all the information and explanation as required. ”

    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 2016 had been
    completed and the results were being evaluated.

    The fieldwork associated with the audit of the accounts and records and the
    examination and inspection of the financial statements of the Company for the year
    ended 31 December 2017 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.

    The financial statements for the year ended 31 December 2017 had not been
    submitted by the Institute for my inspection and audit.

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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 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 15
    June 2017. The report contained a Qualified Opinion.

    “ BASIS FOR QUALIFIED OPINION

    Production Levies

    Reported in the statement of comprehensive income is an amount of K21,832,817
    being for production levies (Non-Alluvial) income. During the audit, completeness
    and accuracy of the production levies account could not be verified. I noted that the
    Authority does not have proper controls and procedures to capture all production
    levies.

    Production levies are calculated based on 0.25% of assessable income of producing
    mines. I noted during audit that not all producing mines remit their production levies.

    Additionally, the Authority does 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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  • Mineral Resources Authority

    Unallocated Receipts

    Reported in the statement of financial position is an amount of K1,706,765 being for
    unallocated receipts. During the audit, the nature of these funds received could not be
    determined. Most of the funds were dated back as far as 2009. This could result in
    material misstatements to the revenue and debtor accounts.

    QUALIFIED OPINION

    In my opinion, except for the effect of the matters described in the Basis for Qualified
    Opinion paragraph, the financial statements of the Mineral Resources 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 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.

    Reported on Other Legal and Regulatory Requirements

    Internal Audit

    I have noted non-compliance with the MRA Act, 2005, Section 39 (5) which states that
    MRA is required to appoint an internal auditor who is to provide a written audit report
    not less than quarterly to the Minister and Treasury. My enquiries revealed that whilst
    an internal auditor was appointed, no internal audit work was carried out for the
    financial year ended 31 December 2014.

    Statutory Audit

    The audit of the 2014 Statutory Financial Statements was not finalised by 31 May
    2015 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
    2015.”

    18.2.2 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 15 June 2017. The report contained the following observations:

    – 46 –

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  • Mineral Resources Authority

    OTHER MATTERS

    . 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 2014: Management information are insufficient and
    reconciliations are not performed for items included in the Statement of
    Financial Position and/or reconciliations between the general ledger and sub
    ledgers wh _ ich resulted in significant delays in receipt of information for the I
    audit. I

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

    . Internal Audit Function

    I also noted non-compliance with the Mineral Resources Act (MRA) Act section
    39 (5) which states that MRA is required to appoint an internal auditor who is to
    provide a written audit report not less than quarterly to the Minister and
    Treasury. There was no internal audit work undertaken by an internal auditor.
    Further, my discussions with the internal auditor revealed non existence of
    adequate audit manuals, work programs and written work programs.

    I recommended that management ensure internal audit manuals and work plans
    are___developed to assist the internal audit department in performing tasks against
    a __ set of guidelines and to furnish reports to the Minister and Treasury as
    required by the MRA Act.

    The management responded as follow

    “An internal audit manual is not developed for MRA as yet. Currently we have
    adopted the “Practice Guide for Internal Auditors” being applied as an Internal
    Audit Manual in the Public Sector, issued by the Department of Finance for
    National Departments, Statutory Bodies and Provincial Local Level
    Governments in PNG. Internal Audit Work Plans are incorporated as part of the
    yearly Internal Audit Plan which is endorsed by the Audit Committee. Internal
    Audit written Test Programs are developed for each business unit or branch
    once sanctioned for audit review. Development of audit programs for each
    respective branch are continuing and updated regularly as an ongoing
    process.”

    – 47 –

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  • Mineral Resources Authority

    . Royalty Trust Deeds

    It was noted during my review that the MRA keeps 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, 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 to the 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.”

    . 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 2014. Best practice requires 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 in control
    deficiencies in monitoring the assets existence and condition as the assets may
    not be able to be identified or located or some assets may have been fully
    depreciated and disposed of during the year and not considered in the financial
    statements.

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

    The management responded as follows:

    “Fixed Asset verification is now a regular exercise and the fixed asset register
    continually updated. Monthly depreciation is now being captured in the
    system.”

    – 48 –

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  • Mineral Resources Authority

    . Ineffective Controls in Invoicing

    I noted that all accounts receivable/sales transaction have no (sequential) invoice
    nor 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 testing to address the 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 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.”

    . Acquittal of Staff Advance

    I noted that MRA personnel were not in compliance with the acquittal process as
    stipulated in Section 8.5 of the MRA policy. For the six (6) samples selected for
    testing, no supporting documents were provided for an advance payment of
    K49,700. I was unable to verify that these payments were acquitted because
    100% of the sample tested had no supporting documents. As a result of the
    reconciliation performed after the audit, K102,276 was written off to the
    expense account.

    I recommended that management should reiterate the importance of complying
    with the policy for acquitting funds and also ensure that non-compliance
    measures are effected to avoid such issues in the future.

    The management responded as follows:

    “Taken up in the audit adjustment. All staff advances are now being reconciled
    monthly and recovered by salary deduction through payroll.”

    . PIP Reimbursable

    I noted that MRA had a total of K604,049 that is reimbursable from PIP that is
    classified as a current debtor in the financials. Although we verified that these
    amounts were receivable, we were not certain that these are current (receivable
    within 12 months from 31/12/14). MRA had made a provision of K526,170 for
    this balance.

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  • Mineral Resources Authority

    I recommended that management take into consideration feasible ways of
    ensuring that a written agreement and consensus is reached by both parties (PIP
    & MRA) for any services carried out by MRA to be reimbursed.

    The management responded as follows:

    “Expenditures paid by MRA are now being reimbursed as soon as PIP
    authorised signatories are available. Management is now embarking on
    recovering amounts owed which were all prior to 2014.”

    . Production Levy (Non-Alluvial Income)

    I noted that the production levies are being calculated and remitted by producing
    P iQffsTI(W)sTI fflf-iQYRiFiQJ’LJ TI3 rRd)FtiRQTIlffYiffsTIiQFRP ffTIi~TIF11F)lDtffdTIEDffdTIRQTI
    0.25% of assessable income of producing mines and accounts for almost 70% of
    hffTI$ )~IRTiE~~~TIiQFRP ff. TI7 EffTI$ )tJRriWTIdid QRtTItffstTItJff TIYffiIFityTIRITIMffTI3fflD-
    iQYRiFffd’ TI1ffYffQ)ffTILQ3TIVffTI$ )tJRriWTIdid not maintain a register of mining
    companies that are required to pay these production levies.
    As a result, of the lack of control around the raising of production levy income,
    it is highly likely that not all producing mines are remitting the required
    production levy to the Authority. This causes uncertainty around the
    completeness and accuracy of production levy income recorded.

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

    The management responded as follows:

    “This is now being addressed through a concerted effort whereby our
    regulatory operations compiles the annual data, which is collected every month
    through Form 25 and this forms the basis of determining the production levy
    due (in best approximate value). There will be a small variance and this will be
    due to the underlying fact that this levy is based on all assessable income and
    therefore the Mining Company will have to report all that on top of the
    production levy which will be based production data we (MRA) collect.”
    18.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and
    audit of the accounts and records and the fff IP iQaJiRQTIRITIMffTI$ )~~R~i~v~~TI1iQaQFiIlTI
    statements for the year ended 31 December 2015 was in progress.

    The Authority had not submitted its financial statements for the years ended 31
    December 2016 and 2017 for my inspection and audit.

    – 50 –

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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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    • 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 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
    results were being evaluated.

    The financial statements of the Authority for the year ended 31 December 2017 had
    not been submitted for my inspection and audit.

    – 52 –

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  • 20. NATIONAL AGRICULTURAL RESEARCH INSTITUTE

    20.1 INTRODUCTION

    20.1.1 Legislation

    The National Agricultural Research Institute (NARI) was established by the National
    Agricultural Research Institute Act 1996. This Act came into operation on 10 October
    1996.

    Under this Act, all monies allocated to or standing to the credit of the research
    division of the Department of Agriculture and Livestock and all assets used for
    research and research related functions (other than land held by the State) and
    previously held by the Department of Agriculture and Livestock prior to the
    operationalisation of the Act were transferred to the Institute to become the assets at
    commencement.

    20.1.2 Objectives of the Institute

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

    • Any branch of biological, physical and natural sciences related to agriculture;
    • Cultural and socioeconomic aspects of the agricultural sector, especially of the
    smallholder agriculturalists; and
    • Matters relating to rural development, relevant to PNG.

    20.1.3 Functions of the Institute

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

    • Generate and adapt agricultural technologies and resource management
    practices appropriate to the needs, circumstances and goals of smallholder
    agriculturalists;
    • Promote and facilitate applied and adaptive research in food crops, livestock,
    alternative cash crops, and resource management;
    • Promote the use of appropriate agricultural technologies and provide essential
    technical services to improve the productivity, income, nutritional status and
    food security, resource base and quality of life of rural households and
    communities;
    • Develop and promote ways of improving the output, quality, harvesting, post-
    harvesting, handling and processing, and marketing of food crops, livestock
    produce and alternative crops;

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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 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 Institute for the year ended
    31 December 2017 had been completed and the results were being evaluated.

    – 54 –

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  • 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.

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    21.2 STATUS OF FINANCIAL STATEMENTS

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

    The Council had not submitted the financial statements for the years ended 31
    December 2016 and 2017 for my inspection and audit, despite numerous reminders.

    – 56 –

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  • 22. NATIONAL BROADCASTING CORPORATION

    22.1 INTRODUCTION

    22.1.1 Legislation

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

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

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

    22.1.2 Functions of the Corporation

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

    The Corporation‟s other functions are to:

    • Ensure that the services that it provides, when considered as a whole, reflect the
    drive for national unity and at the same time give adequate expression to the
    culture, characteristics, affairs, opinions and needs of the people of the various
    parts of the country and in particular of rural areas;
    • Do all in its power to preserve and stimulate pride in the indigenous and
    traditional cultural heritage of PNG;
    • Take extreme care in broadcasting material that could inflame racial or sectional
    feelings; and
    • Co-operate with the Government in broadcasting social, political, economic and
    educational programs.

    22.2 STATUS OF FINANCIAL STATEMENTS

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

    The Corporation had not submitted its financial statements for the years ended 31
    December 2016 and 2017 for my inspection and audit.
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  • 23. NATIONAL CAPITAL DISTRICT COMMISSION

    23.1 INTRODUCTION

    23.1.1 Legislation

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

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

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

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

    23.1.2 Functions of the Commission

    The functions of the NCD Commission are to:

    • control, manage and administer the NCD to ensure its welfare and that of the
    persons in its jurisdiction; and
    • ensure that an adequate level of assistance is given towards the successful
    operation of Tabudubu Limited – the Company established by the Motu Koitabu
    Interim Assembly for the Motu Koitabu people of the NCD.

    23.1.3 Subsidiaries of the Commission

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

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    23.2 STATUS OF FINANCIAL STATEMENTS

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

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

    The financial statements of the Commission for the year ended 31 December 2017
    had not been submitted for my inspection and audit.

    – 59 –

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

    23A.1 INTRODUCTION

    The NCD Botanical Enterprises Limited was incorporated under the Companies Act
    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 CRP SI~~ ~ 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, 2016 and 2017 for
    my inspection and audit, despite numerous reminders.

    – 60 –

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  • 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, 2016 and 2017 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). However, no documents were produced to my Office in relation to
    deregistration.

    – 61 –

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  • 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) enjoy 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 PNG;
    • Furthering the appreciation and learning of PNG in relation to the flora, fauna
    and environment of PNG;
    • Promoting the use of the Port Moresby Nature Park to stimulate interest and
    research into PNG flora, fauna and environment and assisting the
    conservation efforts of the Government of PNG 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 PNG more accessible
    to the public of PNG;
    • Promoting, assisting and initiating research in PNG into the study of PNG
    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 PNG on the flora, fauna and
    environment of PNG 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 PNG public in relation to
    the flora, fauna and environment of PNG;
    • 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 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 had been completed and the results were being
    evaluated.

    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.

    The Company had not submitted its financial statements for the year ended 31
    December 2017 for my inspection and audit.

    – 63 –

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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 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
    management responses were being awaited to finalise the audit reports.

    The Commission had not submitted its financial statements for the years ended 31
    December 2015, 2016 and 2017 for my inspection and audit.

    – 64 –

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  • 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.

    – 65 –

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    25.2 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
    Commission for the year ended 31 December 2017 had been completed and the audit
    reports were being finalised.

    – 66 –

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  • 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 to:

    – 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
    – 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.

    – 67 –

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

    26.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the 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 had been completed and the audit
    reports were being finalised.

    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.

    The Authority had not submitted its financial statements for the year ended 31
    December 2017 for my inspection and audit.

    – 68 –

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  • 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 Fund Trust 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 the audit
    reports were being finalised.

    The Board had not submitted its financial statements for the years ended 31 December
    2016 and 2017 for my inspection and audit.

    – 69 –

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  • 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 National Gaming Control Board
    (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 objectives of the Fund Trust are 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;
    • 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
    • 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

    The principal function of the Fund is to provide for and apply the income and
    capital of the fund towards generally charitable purposes, including but not
    exclusive of the following areas:

    – 70 –

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    • provision and improvement of social welfare;
    • development of sports and improvement of recreational facilities;
    • 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 the audit reports were
    being finalised.

    The Fund had not submitted its financial statements for the years ended 31
    December 2016 and 2017 for my inspection and audit.

    – 71 –

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  • 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. Comments in relation to the National Housing Estate Limited are
    contained in paragraph 28A of this Report.

    28.2 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    28.2.1 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 21
    November 2017. The report contained a Disclaimer of Opinion.

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    “BASIS FOR DISCLAIMER OF OPINION

    Management‟s Declaration of Disclaimer on Financial Statements

    The management made a declaration on deficiencies in the preparation and fair
    presentation 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, non-existence of accounting manual, absence of fixed assets
    management and registers and lack of debtors control system.

    The declaration indicates that the Directors and the Management had failed to comply
    with the requirements of the Public Finances (Management) Act 1995 (as amended)
    (PFMA) by not maintaining proper records and books of accounts to enable me to
    conduct the audit in time as required by Section 63(3) (c) of the PFMA.

    Limitation of Scope due to Opening Balances

    My Report for the prior year, 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
    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 2014, I was unable
    to determine whether adjustments to the results of operations and cash flows might
    have been necessary for the year then ended.

    Revenues and Expenses

    The Income Statement reported total revenue of K17,348,235, total expense of
    K18,660,119 and a net loss of K1,311,884 for the year ended 31 December 2014.
    However, I could not confirm these figures 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. Further,
    included in Note 11 of the financial statements was an amount of K10,388,900 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 could not confirm the accuracy and completeness of the
    revenue and operational costs as reported for the year ended 31 December 2014.

    – 73 –

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    Cash and Cash Equivalents (K1,230,351)

    The Cash and Cash Equivalents balance was an overdraft of K1,230,351 as reported
    in the financial statements as at 31 December 2014. There were no bank reconciliation
    statements, cash books and ledgers. I was therefore unable to verify and confirm the
    accuracy and existence of the cash and cash equivalent balance existed as at 31
    December 2014.

    Trade Receivables K-Nil

    The Trade Receivables had nil balance as at 31 December 2014. This was a major
    omission as the Corporation would have debtors while it operates property rentals and
    sales schemes. A proper debtors‟ ledger system has not been maintained from which a
    reliable debtors‟ balance could be obtained.

    Other Debtors K356,277

    Other debtors balance as at 31 December 2014 comprised of Prepayment of K32,936,
    Staff Emergency Assistance Fund of K25,747 and Salary Advance of K297,594. All
    these balances were not supported by schedules and accounting records.

    Fixed Assets K10,981,938

    The carrying value of Properties, Plants and Equipment as at 31 December 2014 was
    K10,981,938 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 reported.

    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 2014.

    Accruals, Provisions and Other Liabilities

    The balance for Accruals, Provisions and Other Liabilities as at 31 December 2014
    was K9,316,484 as stated in the financial statements. According to Note 9 of the
    financial statements this value consisted of Accrued Expenses of (K66,900), GST
    Refund of (K4,822), Group Tax Provision of K9,496,119 and Payroll Liabilities of
    (K107,914).

    – 74 –

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    There was no acceptable accounting records, documentation and schedules available
    to substantiate these balances. As such, I was not able to verify and confirm the
    existence and accuracy of the balances as at 31 December 2014.

    Government Advance

    The financial statements reported a balance of K7,779,200 as Government Advance as
    at 31 December 2014. No acceptable record, document or confirmation was available
    for me 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
    2014. There was no acceptable record, document or confirmation to confirm the
    accuracy and existence of this balance as at year end.

    Retained Earnings

    A value of K1,630,715 was stated as the balance of retained earnings as at 31
    December 2014. I could not rely on the balance due to lack of supporting schedules
    and documentations to confirm the opening balance.

    Historical Balancing

    A value of K31,778,745 (2013: K27,994,279) was reported in the Balance Sheet as at
    31 December 2014. Note 2.3 of the financial statements disclosed that the balance was
    MYOB reconciliation items for posting to correct accounts. The historical balancing
    has 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 2014. ”

    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 year ended 31 December
    2014 was issued on 21 November 2017. The report contained the following
    observations:

    – 75 –

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    Financial Statements

    The Corporation‟s financial statements for the year ended 31 December 2014 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 2014 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:

    i) Accounting System

    The Corporation‟s financial transaction records in the MYOB accounting system
    were not properly maintained and up to date. I noted lengthy time lag between
    the dates of transactions and postings to the cash book and general ledgers. Also,
    the general ledgers maintained in the MYOB accounting system were not
    integrated.

    The cashbook, revenue and expenses, and accounts payable ledgers were
    maintained in the MYOB accounting system while the debtors‟ ledger was kept
    in a standalone database called the “Housing Debtors System”. Payroll was also
    done using another standalone system.

    I noted that lack of skills and training on information technology had
    contributed to the ineffective use of the management accounting system. In
    addition, the Corporation had no accounting manual in 2014.

    I recommended to the management to seriously consider taking appropriate
    actions to improve on management accounting system and general record
    keeping.

    ii) Revenue and Accounts Receivables

    Controls over billing, collection of revenues, and accounting of debtors and
    revenues were very deficient. The Corporation‟s incomes were not properly
    managed and 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.
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    iii) Fixed Assets Management

    The Corporation did not maintain a Fixed Assets Register in 2014. This is a very
    serious internal control lapse. Non existence of Fixed Assets Register poses a
    high risk for loss of its properties. Also, valuation of the properties had not been
    done periodically to establish fair values at any given point of time. I carried out
    property inspection in NCD, Lae, Madang and Goroka and noted that the
    Corporation had in its custody properties with values that could run into
    hundreds of millions of Kina.

    I recommended to the management to maintain a Fixed Asset 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 and Anormalies

    a) The Corporation issued many cashable cheques in 2014 to its staff members and
    other service providers. I advised that issuing cashable cheque promotes fraud,
    abuse and corruption and is not an acceptable business practice;

    b) Segregation of duty was lacking in certain payments. In two instances payments
    totaled K142,000 was made to a company for capital works done dating back to
    2010. I noted that the Managing Director solely approved the purchase
    requisition, direct immediate payment and signed the cheques. There was no
    sufficient documentation to justify the formal contract entered into and work
    done in 2010.

    c) I noted instances of tax evasion in the payment procedures. The Corporation did
    not withhold 10% GST on a payment of K12,446 made to a firm having no
    certificate of compliance from the IRC. I also noted two payments totaled
    KII,III LZT{TLIPflTLR LflLaFFR)QWJ Lfi{IP L~~L“3$ < L&$ 6+’ LZI31R)tL{TtMning
    the 10% GST.

    d) In three (3) instances, payments totaled K36,500 made to consultants did not
    have contract of engagement and detailed terms of reference in the vouchers.
    Further, the consultants were not appointed using proper procurement
    procedures but done at the sole discretion of the Managing Director.

    e) Two (2) payments totaled K89,000 made to a legal firm lacked full and proper
    supporting documentations.

    f) In six (6) instances, officers of the NHC were paid money in lieu of sick leave
    credits totaled K44,835. Payment of money in lieu of sick leave credits is not
    allowed as per provisions of the General Orders.

    – 77 –

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    g) An amount of K80,000 was paid through cheque no. 248696 on 17 March 2014
    to Pacific International Hospital. The payment was stated as “being payment for
    emergency medical services for NHC employees and management”. I was not
    provided with all the necessary documentations including management
    resolution and formal agreement entered into with the hospital.

    h) A payment of K10,000 was made to a senior executive at NHC on a “Pay
    Cash” cheque no. 249415 on 23 October 2014. The amount was to assist him to
    meet medical cost of his spouse. It is compulsory that any salary advance to staff
    member is recoverable through payroll deduction. I was not provided with any
    documentary evidence to indicate the amount was recovered.

    i) In eight (8) instances, monthly rental payments totaled K81,439 were made for
    certain staff members. No documentary evidence was available to confirm
    whether the officers were fully entitled to housing being condition of their
    employment.

    j) Six (6) payments for motor vehicle hires in Port Moresby cost NHC K151,000.
    Most of the vehicle hires were committed by the Managing Director at the rate
    of K1,000 per day. The very high daily rate of K1,000 in big cities like Port
    Moresby had been considered extravagant.

    k) An amount of K34,677 was paid to a firm for construction of billboards. There
    was in-adequate supporting documentation including evidence of three quotes
    obtained and subsequent award of the contract to the firm, nature and scope of
    the work to be undertaken and formal contract agreement.

    l) A former Managing Director
    ‟s final entitlement payout was set at K1,000,000.
    In September 2014, final balance of K619,112 was paid. The amount was
    beyond the authority to pre-commit expenditure limit of K100,000 for any
    CEO. Therefore, Board and Minister‟s approval was necessary.

    There was no evidence of Board authorization for the final payout made. Also,
    I could not obtain all necessary schedules required to determine correctness
    and validity of the provision made for the final entitlement payout.

    m) A special Board meeting (SB 3/2014) was convened in Madang on 22 May
    2014. Total costs incurred valued at K79,014 which comprised of K15,969 in
    airfares and K63,045 in other costs. I noted that the meeting was for one day
    only, however, the Minister, Managing Director and Board Secretary each
    received K5,000 in travelling allowances. Also, the Managing Director had
    taken with him K3,000 as entertainment allowance and K5,000 being
    emergency funds. No acquittals were available as required under the General

    – 78 –

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  • Orders.

    National Housing Corporation

    n) In four (4) instances, stipend payments totaled K115,747 were made to the
    Board members for the first quarter of 2014. Schedules and documentations to
    ensure compliance with Board Fees and Allowance Act were not available.
    The basis used for calculation and accuracy of the payments made could not
    be verified.

    o) A Pay Cash cheque worth K23,100 was raised on 13 May 2014 to meet
    ” ”

    duty travel expenses. The Managing Director, Legal Principal Officer and
    General Manager (properties) were to take official trip to Kerema from 13-14
    May 2014 (two days). However, the allowances calculated were for three days
    at K567 per day. The daily allowance exceeded the required daily allowance
    of K200. Also, the Managing Director received K5,000 as entertainment
    allowance. There were no acquittals for me to ascertain whether the official
    trip had actually taken place.

    p) My review of a number of payments made to the Minister for Housing and
    Urbanization in 2014 revealed irregularities and noncompliance issues as
    detailed below:

    1) On 17 April 2014 a “PAY CASH” cheque no. 559939 for an amount of
    K10,000 was made to the Minister upon his request to personally donate
    it to Paramana United Church. There was no receipt and any form of
    acknowledgement from the church to confirm the payment was actually
    received by the church;

    2) On 25 June 2014 a “PAY CASH” cheque no. 248987 for an amount of
    K60,000 was paid to the Minister as assistance towards his wife‟s
    funeral expense. The amount was so significant and for personal
    expenses which was outside of the normal business operations.
    Therefore, Board approval was necessary. However, the caretaker
    Managing Director alone approved the payment;

    3) The Minister for Housing instructed the Managing Director to make
    available K10,000 to meet protocol expenses for a foreign delegate of
    investors in relation to the Duram Farm Housing Project through his
    memo dated 11 June 2014. A “PAY CASH” cheque no. 248967 was
    raised on 12 June 2014. There was no acquittal to confirm whether the
    money was used for the right purpose;

    4) A “PAY CASH” cheque no. 249447 valued K70,415 was paid to the
    Minister for an overseas trip. The Minister indicated to take with him a
    delegate of six (6) officers from the Corporation. The Managing Director
    while approving the payment narrated that the Prime Minister had
    endorsed the travel.

    – 79 –

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    I could not sight the endorsement letter from the Prime Minister‟s
    Office, and also there was no acquittal to substantiate the travel had
    actually taken place;

    5) Rental arrears for accommodation of the Minister for Housing and
    Urbanization valued K66,328 was paid for by cheque no. 248747 to a
    company on 31 March 2014. Housing allowance and accommodation of
    Members of Parliament were determined by the Salaries and
    Remuneration Commission and provided for through the budget and paid
    through fortnightly salaries. This payment resulted in “double dipping”
    by the Minister;

    6) In five (5) instances, payments totaled K57,307 were made to a security
    firm for security services provided at the residence of the Minister for
    Housing and Urbanization. The payments were in breach of the Salary
    and Remuneration Commission (SRC) determinations;

    7) On 18 August 2014 the Minister for Housing and Urbanization directed
    the acting Managing Director through a memo to provide some funds for
    his trip to overseas for medical treatment. The acting Managing
    Director‟s approval footnote read Approved. Kindly prepare ticket for

    both Minister and wife, including hospital bills and accommodation. I
    suggest we pay K50,000 in total . A “PAY CASH” cheque no. 249228

    was raised on 2 September 2014. The payment was in breach of the
    Public Finance Management Act and Salaries and Remunerations
    Committee determinations;

    8) Two (2) payments totaled K14,666 were made to a company for hire of
    motor vehicles for the Minister‟s electoral use. Per the invoice, the above
    payments were for two days hire of vehicle and for damages caused to
    the vehicle during the period of the hire. Electoral vehicle allowances for
    Members of Parliament are provided for under the SRC determinations
    and paid through Minister‟s fortnightly salary. This expense had been
    extravagant and in breach of the SRC determinations.

    q) In a number of instances, unlawful and irregular payments were made to the
    Managing Director which amounted to double dipping and breach of SRC
    determinations, General Orders and Financial Instructions. These observations
    are detailed as follows:

    1) In eight (8) instances, payments totaled K26,000 were made as
    entertainment allowances to the Managing Director. These payments
    even exceeded the annual entertainment allowances provided for and
    paid through payroll as per the SRC determinations.

    – 80 –

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    The Managing Director did not acquit the business entertainment
    allowances paid to him;

    2) In three (3) instances, payments totaled K24,000 were made to a
    company for production of the Managing Directors portrait. The expense
    was personal in nature and could not use the public funds;

    3) In four (4) instances, payments totaled K20,100 were paid to guards
    escorting the movements of the Managing Director. This was in
    contravention of the SRC determinations and double dipping by the
    Managing Director as security allowances were paid fortnightly through
    his pay;

    4) On 17 April 2014 the Managing Director‟s Office through a memo
    directed a payment of K5,000 donation to Paramana United Church. A
    “PAY CASH” cheque no. 248816 was raised on the same day. There
    was no receipt and any form of acknowledgement from the church to
    confirm the payment was actually received by the church; and

    5) In four (4) instances, “PAY CASH” cheques totaled K4,000 were issued
    to the Managing Director‟s Office for purchase of phone credits. The
    practice was fraudulent in nature as the Managing Director‟s telephone
    allowances are determined by the SRC and paid together in fortnightly
    pays.

    r) In fifteen (15) instances, payments totaled K131,500 were issued as cashable
    cheques to meet various expenses for which acquittals were not made
    available. Most of the payments related to Duram Farm Housing Project
    funded under the Public Investment Program (PIP).

    Sale of Properties

    The Corporation in 2014 sold some of its properties with a total value of K10,388,900
    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.

    – 81 –

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    Governance

    (i) Minutes of Board Meetings

    I was not provided with minutes of all Board meetings held in 2014. Therefore, I
    was unable to determine the implication of the decisions made by the Board on the
    financial statements and affairs of the Corporation.
    (ii) 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 2014 were on ad hoc instructions received from the top
    management.

    The matters contained in this report had been conveyed to the management on 20
    August 2017, however, no responses were received from the management.

    28.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Corporation for
    the years ended 31 December 2015, 2016 and 2017 had been submitted and
    arrangements were being made to commence the audit shortly.

    – 82 –

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  • 28A. NATIONAL HOUSING ESTATE LIMITED (A Subsidiary of National
    Housing Corporation)

    28A.1 INTRODUCTION

    28A.1.1 Legislation

    National Housing Estate Limited (NHEL) was incorporated on 28 September 2007
    under the Companies Act. The incorporation of the company was based on the
    National Executive Council (NEC) Decision No. 304/2006 in accordance with
    Section 27 of the National Housing Corporation Act 1990.

    Subsequently, the NEC Decision No. 70/2007 endorsed its establishment as a
    Special Purpose Company of the National Housing Corporation.

    The Company commenced its normal operations from 1 January 2010.

    28A.1.2 Objective of the Company

    The principal purpose of the company was to manage certain National Housing
    Corporation owned properties for commercial development in Port Moresby, to
    generate income for the National Housing Corporation to deliver its mandate.

    28A.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Company had not provided the financial
    statements for the years ended 31 December 2010, 2011, 2012, 2013, 2014, 2015,
    2016 and 2017 for my inspection and audit despite my numerous reminders.

    – 83 –

  • Page 118 of 293

  • 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
    -[1Ju[{y EL fl[V S[{WRILVFTK RM{1J ~1J~~VISRlIF L~R E 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 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 Authority
    for the year ended 31 December 2015 had been completed and results were being
    evaluated.

    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.

    The Authority had not submitted its financial statements for the year ended 31
    December 2017 for my inspection and audit.
    – 84 –

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  • 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.

    – 85 –

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    30.2 STATUS OF FINANCIAL STATEMENTS

    At the of time preparing this Report, the fieldwork associated with the audit of the
    accounts and records and the examination of the financial statements of the Authority
    for the year ended 31 December 2017 had been completed and the audit reports were
    being finalised.

    – 86 –

  • Page 121 of 293

  • 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 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 Museum
    for the year ended 31 December 2015 had been completed and the audit reports were
    being finalised.

    The Museum had not submitted its financial statements for the years ended 31
    December 2016 and 2017 for my inspection and audit despite my reminders.

    – 87 –

  • Page 122 of 293

  • 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 programs, 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 for the period
    ended 01 January to 12 May 2016. As per Ministerial Determination in National
    Gazette No. G228 of 12 May 2016, the functions of the National Narcotics Bureau
    was transferred to the Department of Justice and Attorney-General. It is unlikely that
    the financial statements for the above period will be submitted to enable me to carry
    out the audit. As such, I intend to dispense the audit of the outstanding financial
    statements for the above mentioned periods in the next audit cycle. The subsequent
    audits and reports will be covered in my Part II Report to Parliament.

    – 88 –

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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 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 Institute
    for the year ended 31 December 2017 had been completed and the results were being
    evaluated.

    – 89 –

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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.

    – 90 –

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    34.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the financial statements of the Council for the
    years ended 31 December 2016 and 2017 had not been submitted for my inspection
    and audit despite my reminders.

    On 5 August 2014, Road Traffic Authority succeeded National Road Safety Council
    but the Authority came into operation only in 2016 as such my next report for
    National Road Safety Council will be issued under the Road Traffic Authority.

    – 91 –

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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 Papua New Guinea.

    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;

    – 92 –

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    • 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 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 statement of the
    Authority for the year ended 31 December 2016 had been completed and the audit
    reports were being finalised.

    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 2017 had been completed and the results were being evaluated.

    – 93 –

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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
    I nstitution‟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.

    – 94 –

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    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 2016 was issued on 28
    February 2018. The report contained a Qualified Opinion.

    “BASIS FOR QUALIFIED OPINION

    Fixed Assets K703,940

    My review of the Fixed Assets Register maintained by the Council revealed that it
    was not properly maintained. The Fixed Assets Register was kept in Microsoft
    Access Database but not updated. As a result, there was a difference of K510,223
    between the general ledger closing balance of K193,717 and the financial statement
    balance of K703,940. Further, I noted that the Council disclosed assets totalling
    K278,960 disposed during the year. However, there was no supporting
    documentations to verify the disposals made. In addition, there was no stock-take
    undertaken by the Council during the year under review. As such, I was unable to
    determine the value, condition and existence of assets totalling K703,940 disclosed
    by way of notes in the financial statements.

    QUALIFIED OPINION

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

    (a) the financial statements of the 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 2016 and the
    results of its operations for the year then ended.

    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 2016
    was issued on 28 February 2018. The report contained the following observations:

    1. Accounting System

    My review of the accounting system maintained by the Council revealed that
    the transactions were manually maintained on excel spread sheets.

    – 95 –

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    The manual recording and accounting was susceptible to errors, omissions and
    lack proper backup for loss of data and information. There was no proper
    accounting system/software used for accounting and reporting purposes.
    Further, the general ledger (cashbook) details were not systematically kept.

    I recommended Management to liase with Finance Department for the use of
    the Integrated Financial Management System (IFMS) as a basis for recording
    transactions and producing reports.

    The Management concurred with my comments and added that they would do
    their best to shop for small suitable accounting software compatible to
    National Training Council.

    2. Personnel Files Management

    My review of the human resources and payroll management revealed that
    most of the personnel files for employees did not contain the following vital
    personnel information;

    • The updated salary/wages declaration forms;
    • Dependants‟ declarations and identifications such as marriage certificates,
    birth certificates for children or statutory declarations for dependants were
    not filed.

    These vital information are needed to properly determine their taxes, rebates
    and leave fare entitlements. Consequently, Section 23.3 of the General Orders
    was breached.

    I recommended Management to ensure that the annual salaries/wages
    declaration forms were completed with proper declaration of dependants and
    timely updated.

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

    3.0 Expenditure Control Weaknesses

    3.1 Travel Advance Register and Acquittals

    My review of the travel and subsistence expenses revealed that the Council did
    not maintain a proper Travel Advance Register with acquittal files. I noted that
    advances totalling K178,472 were not acquitted at year end. Consequently, the
    Council had breached the provisions of Public Finances Management Act,
    Financial Management Manual and the Finance Instructions in relation to
    travel advances.

    – 96 –

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    I recommended Management to take necessary steps to address this issue.

    Management concurred with my comments and advised that necessary steps
    will be taken to address it.

    3.2 Payments Made as “Pay Cash” Cheques

    I noted that on numerous instances cheques were raised as “pay cash” for
    expenses instead of raising cheques in suppliers‟ or person‟s name. Such
    practises create opportunities for malpractices to occur and must be avoided.

    I recommended Management to ensure “pay cash” cheques be limited only to
    petty cash transactions and all cheques be raised in the payee name.

    Management took note of my comments and agreed to ensure compliance.

    3.3 Director‟s Financial Assistance

    I noted that the Training Council had assisted the Director with a total of
    K9,500 as its contribution towards the repatriation of his late father‟s body to
    his village in November 2015. At the same time, a total of K39,500 was split
    and paid in two (2) different pay cash cheques for the same purpose. Again in
    July 2016, the Training Council paid a sum of K38,100 which was also split
    into two (2) different pay cash cheques to meet some traditional obligations
    for his late father bringing the total to K87,100. The expenses were classified
    under other operational expenses.

    Per his contract, such entitlements including costs of repatriation of deceased
    bodies of his declared dependents and his parents were not included or
    provided. In addition, I noted that his contract is between the Secretary for
    Department of Labour and Industrial Relations. As such, the Director can
    approve any request by officers under him within his limits whilst his own
    request should be approved by the Chairperson or the Secretary.

    In my view, the raising of separate cheques for the same purpose was a
    deliberate way to circumvent the proper approval process via splitting
    payments. Finally, with the exception of K9,500, the additional financial
    assistance totalling K77,600 was excessive and considered as abuse of
    procuring procedures and misuse of public funds thus should be fully
    recovered within his contract term.

    – 97 –

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    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 2017 had not been submitted for my inspection and audit.

    – 98 –

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  • 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 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the Service had not submitted the financial
    statements for the year ended 31 December 2017 for my inspection and audit.

    – 99 –

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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 AUDIT OBSERVATIONS AND RECOMMENDATIONS

    38.2.1 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 2012 and 2013 were
    issued on 29 November 2017. The reports contained similar Disclaimer of Opinions,
    hence, only the 2013 report is reproduced as follows:

    “ BASIS FOR DISCLAIMER OF OPINION

    Variances between the General Ledger and Financial Statements

    The general ledger forms the basis of the balances on the financial statements. During
    P EIJvieZ ERT MHI&RP P i~~iRQVIfSH it)cr}taFFR)cQV, fl EREFUIRIMDWHKZ Ril
    significant variances between the general ledger balances and the financial statement
    balances totaled K2,120,817. As such, I was unable to verify the accuracy of these
    balances.
    – 100 –

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    Consequently, I was unable to conclude on the accuracy of the closing balance of the
    Statement of Receipts and Payments disclosed in the financial statements at year end.

    Internal Control Environment

    During my examination of accounts and records and the internal control system of
    the Commission for the year ended 31 December 2013, I noted that the
    Commission‟s overall internal control environment was very weak. The internal
    control processes and procedures were not implemented in the Commission. I also
    noted frequent staff reshuffle and lack of segregation of duties within the Corporate
    Services Division of the Commission. The staff employed by the Commission both
    permanent and casual lacked necessary skills and qualifications to undertake the
    accounting and finance and other tasks allocated to them. I further noted that they
    were not familiar with the Public Finance (Management) Act (1995), General
    Orders and other Financial Manuals and Instructions to strengthen the internal
    control system of the Commission. As such, I was unable to rely on the overall
    internal control system of the Commission during the year under review.
    Consequently, I was unable to place reliance on the Commission‟s financial
    statements for the year ended 31 December 2013.

    Cash at Bank K888,044

    My review of the Commission‟s both Operating and Commonwealth Youth Ministers
    Meeting Fund Account bank reconciliations revealed that the bank reconciliations
    were not prepared, checked and approved by senior finance officers of the
    Commission in the year under review but were prepared in 2014. I was also not
    provided with the independent bank confirmation of the Commonwealth Youth
    Ministers Meeting Fund Account to ascertain the completeness and accuracy of the
    bank account disclosed in the financial statements. As a result, I was not able to verify
    and confirm the accuracy and completeness of the balance nor place reliance on the
    effectiveness of the controls maintained by the Commission over cash.

    Fixed Assets K1,844,988

    My review of the Fixed Assets Register of the Commission for the year ended 31
    December 2013 revealed that the Commission did not maintain a complete Fixed
    Assets Register to record details of all fixed assets worth K1,844,988. There was also
    no physical stock take undertaken by the Commission to confirm the existence of
    assets. The Assets Register provided for my verification was incomplete and did not
    capture all assets purchased during the year. As such, I was unable to conclude on the
    accuracy, valuation, existence and ownership of the fixed assets disclosed by the
    Commission as at 31 December 2013.

    – 101 –

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    Consultancy Fees K812,641

    During my review, I noted that the Commission engaged a number of consultants to
    provide various consultancy services to the Commission. However, there were no
    valid or proper consultancy contracts or terms of references drawn up to engage them
    during the year under review. I further noted that most consultants were engaged on
    engagement letters or notice of engagements without specifying any fee for
    engagements and scope of work to be done. As a result, I was unable to verify the
    validity and correctness of the payments made to the consultants totaled K812,641.

    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 Commission for the year ended 31
    December 2013.’

    38.2.2 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
    2012 and 2013 were issued on 29 November 2017. The reports contained similar
    significant matters, hence only the 2013 report is reproduced:

    Accounting and Administration Procedural Manual

    During my review, I noted that the Commission did not have an accounting and
    administration procedural manual in place for its staff to carry out tasks in accordance
    with the required procedures and guidelines applicable to the Commission. I observed
    that t’H &RP P IVV~RQ~V VtMI Z H}IQRWG’HiQJ ~R t’e SrRTeVVeVMQGFSrRTHGMV R~ t’eI
    Public Finance (Management) Act 1995, General Orders and other Financial
    Manuals and Instructions. As a result, I noted significant internal control weaknesses
    within the Commission during the year under review.

    I drew this to the attention of the management and they responded as follows;

    “The Accounting and Administration Manual has been developed and in its draft
    form, the Management still needs to finalise this Manual before it can be used for the
    operations of the Commission.”

    – 102 –

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    MYOB General Ledger Postings

    My review of the MYOB general ledger account postings and updates revealed that
    the Commission‟s data entry were not done in a timely manner during the year under
    review, but were done after a year in 2014. I further noted that the data entry was
    done by Officers with no experience at all in MYOB. The Officers were on training
    whilst doing data entry into the MYOB. Hence, there were no verifications and
    approvals for account codes and amounts posted to the MYOB system. As a result, I
    observed misclassification and mispostings to wrong accounts almost in all the
    expenditure accounts. The management responded to my query as follows;

    “There was no accounting system in place during this period, the system/software
    that the acting Manager Finance and Administration and the Senior Accounts Officer
    were using was excel. When the MYOB system was installed, the finance officers were
    on in-house training on the MYOB system that was when the time entries were done
    for 2012, thus the accounts for 2012/2013 were entered during that period.”

    Travel Advance Acquittal Register

    During my review, I noted that there was a complete breakdown in the internal
    control system of payments and monitoring of the usage and acquittals of the various
    travel related expenses and advances that were paid to officers of the Commission.
    The Commission provided an incomplete acquittal register. However, these registers
    lacked full supporting documents of hotel receipts/statement of accounts, hire car
    receipts; airline tickets/boarding passes, incidental allowances receipts, and cash
    advance acquittals etc. Most of the duty travels taken were not properly and fully
    acquitted by the concerned officers. As a result, I was unable to trace and authenticate
    travel advances and related expenses amounting to K463,504 during the year under
    review. The management responded that the management through the Corporate
    Services Division had continuously been issuing internal memorandums reminding
    officers of the importance of acquitting, however, it is through ignorance and
    carelessness of officers that this measure was not fully addressed.

    Internal Control Weaknesses

    Following internal controls breakdown and weaknesses were noted during my audit:

    (i) I observed on a number of instances that the Commission did payments without
    obtaining three (3) written quotations from reputable suppliers when making
    payments for expenditure exceeding K5,000 and totaled K134,727. I further
    noted that some payments were executed on quotations and not on the basis of
    official suppliers invoice.

    – 103 –

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    (ii) During my review, I noted some payments had no delivery dockets/consignment
    and other supporting documents attached to confirm if the actual goods
    purchased had been delivered to the Commission for their intended purposes.

    (iii) My review on pay cash payments made to paymaster totaled K172,939 for
    various expenses had no proper acquittals attached to determine or confirm if
    the funds had been utilized for the intended purposes.

    (iv) I noted cheques were issued open for encashment. I further noted that this
    practice was in place in the prior years and continue to exist up to the time of
    audit in 2016. It was the Commission‟s practice to raise pay cash cheques for
    most of its payments and not directly to the suppliers of goods and services. It
    was further noted that these payments were not properly acquitted with proper
    supporting documents. This practice makes the internal control system very
    weak and exposes the Commission to irregularities and malpractices.

    (v) I was unable to comment on the Commission‟s spending on its operational and
    ,

    programs/projects expenditure against its budget due to non-provision of revised
    and approved budgets and annual work plans for 2013.

    (vi) My review of overtime revealed that overtime was claimed by officers who
    occupied positions at grade 10 levels and above. Further, hours claimed on
    overtime sheet were not approved by immediate supervisor or manager to verify
    the hours claimed by staff before payments were made.

    (vii) My review on motor vehicles revealed that one (1) motor vehicle was
    purchased in 2013 and nine (9) in prior years were all not registered under
    government Z plates.

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

    38.3 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the audit of the
    accounts and records and the examination of the financial statements of the
    Commission for the year ended 31 December 2014, 2015 and 2016 had been
    completed and the audit reports were being finalised.

    The financial statements of the Commission for the year ended 31 December 2017
    had been submitted for my inspection and audit and arrangements were being made to
    commence the fieldwork shortly.

    – 104 –

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

    39.2 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 2012, 2013, 2014, 2015, 2016 and 2017
    for my inspection and audit, despite numerous reminders from my Office.

    – 105 –

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  • 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 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.

    The Commission had not submitted its financial statements for the year ended 31
    December 2017 for my inspection and audit.

    – 106 –

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  • 41. PAPUA NEW GUINEA ACCIDENT INVESTIGATION
    COMMISSION

    41.1 INTRODUCTION

    41.1.1 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.

    41.1.2 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.

    41.1.3 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;

    – 107 –

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    ‒ 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.

    41.2 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
    the Commission for the years ended 31 December 2013, 2014, 2015 and 2016 had
    been completed and the results were being evaluated.

    The financial statements of the Commission for the year ended 31 December 2017
    had been submitted for my inspection and audit and arrangements were being made to
    commence the audit shortly.

    – 108 –

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  • 42. PAPUA NEW GUINEA CUSTOMS SERVICE

    42. INTRODUCTION

    42.1.1 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.

    42.1.2 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.

    42.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and
    audit of the accounts and records and the examination of the financial statements of
    the Service for the period ended 21 October 2014 to 31 December 2014 and for the
    years ended 31 December 2015 and 2016 were in progress.

    The Service had not submitted its financial statements for the year ended 31
    December 2017 for my inspection and audit.

    – 109 –

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  • 43. PAPUA NEW GUINEA FOREST AUTHORITY

    43.1 INTRODUCTION

    43.1.1 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).

    43.1.2 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;

    – 110 –

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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.

    43.2 STATUS OF FINANCIAL STATEMENTS

    At the time of preparing this Report, the fieldwork associated with the inspection and
    audit of the accounts and records and the examination of the financial statements of
    the Authority for the year ended 31 December 2013 was completed and the results
    were being evaluated.

    The fieldwork associated with the inspection and audit of the accounts and records
    and the examination of the financial statements of the Authority for the year ended 31
    December 2014 was in progress.

    The Authority had not submitted its financial statements for the years ended 31
    December 2015, 2016 and 2017 for my inspection and audit.

    – 111 –

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