Publication of Annual Audit Reports (PNG0012)

Problem/Issue to be addressed The Office of the Auditor General produces four Annual Reports and the reports are based on the timely release of the Financial Statements from State Agencies including Statutory Authorities and State-Owned Enterprises. However, for the last couple of years, those reports have not been produced as required by the Audit Act. The agencies delayed in submitting their financial statements on time. The public fund appropriated to the agencies and used are not reported, published and event tabled on the Parliament through the Parliament Audit Committee.

Main Objective The financial auditing of state agencies including statutory authorities and state-owned enterprises is to ensure that the agencies are accountable to their citizens in the use of public funds. It is also to minimise the misuse of public funds and promote transparency and accountability in the government institutions and state-owned enterprises.

Brief Description of Commitment The commitment basically focuses on the public finance and expenditure report on the fund’s allocation for service delivery in national and sub-national levels and the state-owned enterprises. It is a mechanism in which the Auditor General keeps accountable on the funds being used for both operational and capital investment. OGP through this commitment will facilitate the timely release of the financial statements from departments, statutorily authorities, subnational governments, and state-owned enterprises. The Office of the Auditor General will then use the financial statements to produce four (4) reports; hence reports for: departments, subnational government, statutory authorities, and state-owned enterprises. Through the Commitment will enable the Parliament Accounts Committee to work through which the audit reports will be made available in the Parliament.

OGP Challenge address by the Commitment Government departments/agencies and other subsidiary bodies have not been submitting timely financial statements to the Department of Finance to then submit to the Office of the Auditor General for audit and presentation to Parliament, thus resulting in PNG’s annual audit reports not being made available to the public in a timely manner. Make fiscal data available in an accurate and timely manner so that the citizens and the stakeholder of this country will have to know how money is coming in and how money is going out of the country. This includes having timely annual audit reports made public aware on the AGO website and other gov’t websites (such as Treasury, who publish the in-year reports).

Relevance Briefly describe the way in which this commitment is relevant to further advancing OGP values of access to information, public accountability, civic participation and technology and innovation for openness and accountability. The financial auditing is done in order to know how public funds are managed at the national and sub national levels and the government make better analysis on the next budget for effective service delivery. It is equally important to maintain PNG’s eligibility as a member of the OGP to enable PNG to exercise a leadership role in governance issues in the region.

Ambition Briefly described the intended results of the commitment and how it will either make government more open or improve government through more openness The financial auditing of the use of public funds is an important element of promoting transparency and accountability in the government process. The annual financial auditing and publication of those audit reports will enable agencies that receives public funds to improve on the use of public funds, hence improve accountability.

Milestones Activity Descriptions Start Date End Date

Phase 1 – Release of Financial Statements and Production of Annual Audit Report

1.1 Financial Statements All departments, statutory authorities, subnational governments, and state-owned enterprises to release their financial statements on time for the Office of the Auditor General produce the audit reports April, 2022 and April, 2024 March, 2023 and March, 2024

1.2 Audit Report Produce the four parts of the Audit Reports on an annual basis February, 2023 and February 2024 November, 2023 & November, 2024

1.3 Audit Report accessed by Parliamentary Audit Committee Access the audit report by the Parliamentary Audit Committee October, 2023, October, 2024 End of October & end of October, 2024

1.4 Audit Report tabled in Parliament Table All four Audit Reports on the Floor of the Parliament November, 2022, November, 2023 & November, 2024 November, 2022 & November, 2023

1.5 Publication of Audit Report Publish the annual audit report on the established media outlets December, 2022 & December, 2023 End of December, 2023 & end of December, 2024

Phase 2: Review of the Audit Act 1989

1.1 The Review Committee Establish the Audit Act Review Committee May, 2022 End of May, 2022

1.2 Terms of Reference and Work-Plan & Cash-flow Formulate the ToR and Work-plan & Cash-flow for the Review May, 2022 End of May, 2022

1.3 Review Committee Meetings Conduct Review Committee Meetings Fortnightly from June 2022 - June, 2023 June, 2023

1.4 Consultations and Workshops on the Draft Conduct national and regional consultations and workshops September, 2022 November, 2022

1.5. Certificate of Necessary Letter to State Solicitor for the Certificate of Necessary April, 2023 End of April, 2023

1.6 NEC Endorsement Do a NEC Submission for the Review May, 2023 End of May, 2023

1.7 Certificate of Compliance Letter to the First Legislative Council for the Certificate of Compliance June, 2023 End of October, 2023

1.8 Enactment of the Legislation Table the Audit Bill on the Floor of the Parliament for enactment November, 2023 End of November, 2023

Action Plan Review

5. Timely Production and Publication of Annual Audit Reports

● Verifiable: Yes

● Does it have an open government lens? Yes

● This commitment has been clustered as: Fiscal Transparency (Commitments 5, 9, 10, 11, and 12 of the action plan)

● Potential for results: Substantial

For reference in Papua New Guinea’s 2022-2024 National Action Plan, see Cluster 2, Commitment 1.

Commitment Cluster 5, 9, 10, 11, and 12: Fiscal Transparency

This cluster aims to deliver timely central government budget and financial reports and regular audit reports to Parliament, as well as to open public access to this information through media outlets.

For a complete description of the commitments included in this cluster, see Commitments 2.1, 4.1, 4.2, 4.3, and 4.4 in Papua New Guinea’s 2022-2024 National Action Plan.

Context and objectives:

This cluster aims to make government’s fiscal data available in an accurate and timely manner, enabling improved financial management, regular public disclosure of government expenditure, and greater fiscal accountability. Underpinned by completing the roll-out of the Integrated Financial Management System (IFMS), subnational governments and central government agencies, including statutory authorities and state-owned enterprises, must produce their financial reports in time to allow annual reporting by the Department of Treasury (DOT) and the National Economic and Fiscal Commission (NEFC), and audit by the independent Office of the Auditor General. Over recent years, failure to produce these reports has resulted in no audit reports to Parliament, late fiscal reports on government websites, and incomplete data available for annual budget preparation. This cluster carries forward the fiscal transparency commitments from the previous action plan and widens their scope by introducing additional compliance powers, through revision of the Planning and Monitoring Responsibility Act and the Audit Act. More media outlets and channels are to be used to ensure the reports reach Papua New Guinea’s widely dispersed population successfully. This cluster can address Papua New Guinea’s current non-compliance with OGP Core Eligibility Criteria on fiscal transparency. ^[1] The cluster meets core OGP values of transparency and public accountability and aligns with IRM recommendations to prioritize commitments on fiscal transparency. ^[2]

Under the first action plan’s fiscal transparency commitment, the IFMS roll-out had reached 75 percent of districts by January 2022. However, implementation of the remainder of the commitment faced obstacles including weak ownership by the DOT and Department of Community Development and Religion, as well as funding issues and COVID-19 restrictions. ^[3] Work was not started on auditing public accounts, parliamentary oversight improvements, citizen’s budget, budget tracking, or social auditing at the subnational level. ^[4] No in-year fiscal reports were made available on the DOT website over the past decade, ^[5] and state agencies and statutory bodies lacked the human resources to produce them. ^[6] The April 2022 audit report to Parliament by the Auditor General, covering the 2020 financial year, reports increased numbers of financial statements not submitted, with only 51 of 217 entities (43 percent) submitting their financial statements for that period. The Auditor General states that many organizations continue to indicate they are incapable of managing their financial affairs, and gives his view that the concept of effective, prudent, and efficient financial management is yet to be understood and performed by many Chief Executive Officers. [7]

Potential for results: Substantial

This cluster aims to address major systemic and structural gaps in the country’s budget and audit processes. In 2021, the Open Budget Survey scored Papua New Guinea 0 (out of 100) for public participation, 28 (out of 100) for budget oversight, and 50 (out of 100) for budget transparency, reporting that the Enacted Budget, In-Year Reports, and Audit Report were either not prepared or not publicly available. ^[8] From 2016 to 2021, Transparency International PNG found that 90 percent of government’s agencies (65 of 72 agencies) failed to report on how they spent public funds. [9] The International Budget Partnership noted that countries like Papua New Guinea could improve fiscal transparency by making budget documents publicly available within a timeframe considered meaningful for public participation. ^[10] This cluster‘s work is essential for meeting this recommendation.

It offers a comprehensive package of reforms that, if implemented as planned, would centralize Papua New Guinea’s financial information infrastructure and systems and establish a common reporting, monitoring, and audit cycle that would lay the foundation for fiscal transparency. When the roll-out of the IFMS is completed, the system will store all central and provincial governments’ financial information and provide a common infrastructure for agencies to regularly prepare financial statements and critical budget documents and meet publishing deadlines. The revised Planning and Monitoring Responsibility Act will set up compulsory expenditure reporting and impose penalties for non-compliance, giving the Department of National Planning and Monitoring and the DOT powers to monitor budget implementation and report publicly through Parliament and media outlets. The NEFC will publish subnational government warrant release schedules and cash remittances. The updated Audit Act will reference the technological systems and IT mechanisms that are being rolled out. The Auditor General’s reports to Parliament on the financial statements of more public bodies will be more comprehensive and accessible for public scrutiny.

This cluster has substantial potential to improve Papua New Guinea’s financial transparency, increase public access to government’s financial information, and demonstrate a stronger government commitment to public accountability. Greater efficiencies and more accurate financial estimates, budget planning, expenditure, and reports will be possible. To achieve wide dissemination to a public with low information literacy and internet penetration, use of media outlets to distribute and communicate the reports in a variety of formats will be essential. Independent audit reports will give Parliament and the public reliable and complete data on Papua New Guinea’s financial position. According to Transparency International PNG, ensuring the provision of timely, accessible, accurate audit reports from all agencies is critical for keeping public officials accountable on their performance. [11] A review of international studies on audits’ impacts shows evidence that publication of audits can reduce corruption, especially when their public dissemination is supported by local media [12] - as intended in this cluster. Overall, the Institute of National Affairs considers access to the fiscal information that would be released by this cluster to be a foundational first step facilitating the public’s ability to hold the government accountable on national and provincial expenditure. ^[13] Timely preparation and publication of essential budget documents form the basic building blocks of budget accountability and an open budget system.

Opportunities, challenges, and recommendations during implementation

Skilled financial and technical staff are necessary to complete the IFMS roll-out and raise financial capability across central and provincial governments. The previous commitments faced weak ownership by the DOT and the Department of Community Development and Religion, as well as funding issues and COVID-19 restrictions. ^[14] For this cluster, successful implementation relies on sufficient budget allocation and strong government ownership and leadership. Additionally, reliable financial reports must be shared with the public to raise their trust in government’s financial management. Improved telecommunications and cross-government collaboration with the public and local civic groups will be needed to deliver the reports using radio, in-person meetings at villages, and other mechanisms. The key opportunity and challenge is to reach Papua New Guinea’s population living in rural areas, with a national internet access rate of 18 percent ^[15] and adult literacy rate of 62 percent. ^[16] Ongoing government-funded work with local communities to trial different ways to present this fiscal information successfully will be needed, with resources and funding available during and beyond implementation of this action plan.

Synchronizing the revision of the Planning and Monitoring Responsibility Act with the revisions of the Audit Act and the Public Finance Management Act will create efficiencies for government and easier consultation opportunities. Civic groups can proactively seek involvement. As such, the IRM recommends the following:

• Complete the IFMS roll-out to all provincial governments as soon as possible to ensure timely financial reporting and audit reporting can meet action plan timelines.
• Add actions to formulate, oversee, implement, and monitor budgets and audits. Include the detailed recommendations in the Open Budget Survey 2021 to improve implementation. ^[17]
• Gain ministerial, central, and provincial government support for this project and confirm funding and resources. Consider the Auditor General’s recommendation that renewal of chief executives’ contracts be subject to their submission of financial statements and implementation and maintenance of prudent financial management. [18]

Work with senior officials to gain leadership support, budget, and human resources for the full implementation period.

• Continue to work with international aid organizations on public financial management reform. These organizations can play a role in driving the effort and sequential planning and can dedicate resources to institutionalize these legislative reforms. ^[19]

• Consider amending the Constitution to mandate an independent process for appointing the Auditor General, as recommended by the International Budget Partnership. This could also ensure that the Auditor General is funded and able to perform its duties independently and with integrity. ^[20]
• Modernize the fiscal information programs. Develop a staged program to implement processes and procedures to ensure timely central and provincial government financial reports, a reliable NEFC website, non-internet communication, and staff training to reduce high staff turnover.
• Commence the review of the Audit Act. Address the 2020 International Budget Partnership recommendations to strengthen independent audit and oversight systems: budget, access to official records, high quality audits, enhanced public participation, the role of the legislature, and review and follow-up of audit reports and recommendations. ^[21]
• Invite public participation in the legislative reviews. Public engagement could add value to the update of the Audit Act, Public Finance Management Act and the Planning and Monitoring Responsibility Act.
• Ensure that financial and audit reports are accessibly written. Work with civic society groups to draw up effective ways of communicating these reports to the public. Include executive summaries and simplified key findings in the financial and audit reports to assist with and grow public understanding. Link newly available fiscal information to citizen participation work to inform the budget process under Commitment 4.