Auditor General massively under funded

Money is leaking out of government institutions at an alarming rate. It has been estimated that as much as 50% of the government’s annual budget is stolen.

Often the rorts are not complex or sophisticated.

There are numerous examples of politicians and bureaucrats paying companies they or their families own for services that are never provided or which are billed at grossly inflated rates. Or failing to acquit extravagant travel expenses, double-dipping by submitting the same claims multiple times, or using ‘professional services contracts’ to avoid payroll taxes.

All very easy to spot – but only if someone is looking.

The Auditor General’s Office is tasked by the Constitution with auditing the financial affairs and activities of the government every year. This includes auditing the financial records of all government institutions at the national provincial and local level – more than 1,400 bodies in total.

The AGO’s huge mandate covers over 1,400 government institutions and programs

Each audit is expected to examine the authenticity of the financial statements, compliance with legal and administrative regulations and make an assessment of the economy, efficient and effectiveness of the entity.

Unsurprisingly, the AGO’s audit reports are littered with examples of all types of fraud.

But the AGO is massively underfunded and can’t do its job.

In its 2018 Annual Report the AGO reveals how dire its situation is.

Funding

In 2018 the Auditor General’s Office received just 55% of the funding it required. The total shortfall was K14.6 million.

This budget deficit meant the AGO was unable to fund its operational requirements and was forced to severely restrict its operations:

“As a result, the conduct of audits was mainly restricted to government entities and agencies based in the National Capital; and the audits in other provinces could not be carried out because of the limited financial resources”.

This is a critical situation.

In total the Provincial Government Audit Division of the AGO is supposed to be responsible for auditing 947 government institutions located outside Port Moresby.

Such is the size of this task, the Organic Law on Provincial and Local-Level Governments requires the Auditor-General to establish an Audit Service and appoint a Provincial Auditor and staff in every Province.

No such Provincial Audit Service exists though, ‘due to funding constraints’.

“These constraints greatly affect my resources and capability to service audit clients based in the provinces”

As a result, with only five exceptions, “the audits of provincial governments, urban local governments, hospital boards and business arms located in other parts of the country have not been undertaken” for 2017 and 2018.

That is more than 900 government institutions or programs that have not been audited for two years!

The pages of PNGi are littered with examples of the high volume of irregular transactions uncovered when the Auditor General has enjoyed the budgetary resources to fulfil its provincial mandate.

Lack of audits

It isn’t only in the Provinces that the AGO has been unable to conduct its audits.

The National Government Audit Division of the AGO is responsible for auditing 63 government departments and treasury offices.

Yet, only 23 are currently the subject of audit checks by the AGO.

The Office of the Governor General, for example, has not been audited since 2015. Neither has the Department of Foreign Affairs. Both have been the subject of allegations of corruption, misappropriation and mismanagement.

Similarly, the Department of Provincial and Local Level Government Affairs, the Department of Labour, the Public Service Commission, the Office of the Electoral Commission, the Department of Environment and Conservation and the Department of Personnel Management have not been audited since 2014 or 2015.

Things are even worse when it comes to government owned companies and other public bodies and programs (government owned companies have been at the centre of numerous high profile misappropriation scandals e.g. COI into the Investment Corporation of PNG, the Administrative Inquiry into the Manumanu land scandal and Kumul Consolidated Holding Limited). There were just 49 audit reports completed and issued in the year to December 2018 by the Statutory Bodies Audit Division. While this was a significant improvement on the even more woeful 26 completed in 2017/18, it was less than half the 105 completed in 2016/2017.

All these numbers though are pitifully low given the Division is supposed to be responsible for auditing 378 government entities in total.

Reporting

The Auditor General is required by the Constitution to report to Parliament every year on the public accounts and the control of public money and assets.

To fulfil this Constitutional responsibly and the requirements of the Public Finance (Management) Act and other legislation, the AGO normally produces four compendium reports each year:

1. Part I – Public Accounts.
2. Part II – National Government Departments and Provincial Treasuries.
3. Part III – Provincial and Local Level Governments.
4. Part IV – Public Bodies and their Subsidiaries.

When audit reports are not produced in a timely manner, when they are not ‘current and relevant’, this reduces their value both to government and to the public and ‘is contrary to the principles of accountability and transparency’.

Yet the Auditors General Office is operating woefully in arrears.

In 2018, the Part I Reports submitted to Parliament were for 2013 and 2014. The Part II Report was for 2013-14.

Even worse, there was no Part III Report submitted to Parliament in 2018.

Failures of financial management

When it does get to offer an audit opinion the AGO is often highly critical of the state of the financial management in the public sector.

In his Annual Report the Auditor General decries the capabilities of staff within government agencies which it finds are often inadequate to deal with the complexities of managing the institutions.

Of particular concern is the lack of proper record keeping. The AGO says its audits are constrained by the lack of records kept by government organisations and the lack of proper financial management systems.

“Often the internal controls that are supposed to prevent breakdowns in financial administration are non-existent.”

The AGO cites some of the basic financial management failures:

1. Lack of bank reconciliations;
2. Poor documentation supporting the transactions;
3. Ineffective internal controls over assets;
4. Lack of periodic physical stocktake of assets;
5. Non acquittal of advances and travel allowances;
6. Non-payment of taxes and allowances; and
7. Ineffective budget controls.
   

This lack of proper financial record keeping means often the AGO is simply unable to offer an opinion on whether the financial statements are correct or not.

Equally concerning is the number of government entities – more than 50% in some cases – that simply don’t bother to submit financial reports.

For example, the Statutory Bodies Audit Division is responsible for auditing 378 government owned companies, subsidiaries, other Public Bodies and donor funded projects. Of these, in 2018, 45% failed to submit their financial statements at all and 54% failed to meet the March deadline.

Undermining democracy

The AGO’s Annual Report says that it is a fundamental democratic principal that an Audit Office must be adequately resourced.

Clearly the government is failing to uphold that principal, and with good reason – there are plenty among our politicians and public servants who don’t want the AGO prying into their secret deals.

With the new government of James Marape pledging to fight corruption, will the Auditor General’s Office now be given the resources it requires to fulfil its Constitutional duties?