In Papua New Guinea the national government has direct interests in 44 public bodies, a majority interest in 15 companies, and indirect controlling interests in another 21 subsidiary companies. At the provincial government level, all 19 provincial governments have formed provincial development corporations. Total employment provided by public enterprises in which the national government has a majority or controlling interest, amounts to about 22,000 full-time employees, compared with about 50,000 employees (including teachers) in the Public Service.
Public enterprises in Papua New Guinea have contributed significantly to the in-frastructural development roles of the economy, particularly major agricultural development projects. In addition to the special roles played by the three wholly-owned financial institutions (Papua New Guinea Banking Corporation.Agriculture Bank of Papua New Guinea and Investment Corporation) most of the remaining public enterprises are scattered across a wide range of different activities, but there is a heavy concentration in the rural sector.
Since national independence in 1975, all departmental enterprises have been established as statutory bodies, either as public bodies established under various statutes other than the Companies Act, or companies established under the Companies Act which are either fully owned or controlled via majority shareholding by the national government. Either of these types of public enterprises may be established by the national or provincial governments.
Public bodies and companies may also set up subsidiary companies. These companies have representatives of the government, the publi bodies or the parent companies sitting on their boards of management to monitor performance, to ensure compliance with official policies and to safeguard the government's .interests generally. Such enterprises carry out numerous functions and activities in supplementary government efforts in national development. They enjoy considerable autonomy and are allowed greater flexibility in managing their resources in a more competitive commercial environment.
In the case of public bodies, procedures for board appointments vary among the enterprises, but increasingly the government is amending parent legislation to increase the degree of uniformity among appointments. The management Board normally comprises the Chairman and a specified number of board members. Representatives from vested ministries and private individuals who have the necessary expertise in the relevant fields are appointed to the Board. The number and composition of the management boards of companies are set out in the memorandum and articles of Association establishing the various companies.
The respective ministers responsible for particular public bodies exercise powers over appointments and removals of board members. For government-owned companies, the procedure is in accordance with the provisions of the Companies Act. The management boards of public enterprises are responsible to the appropriate Minister and, where a company is not wholly owned by the government, additionally to the share-holders. They function quite independently of government although enabling or related statutes confer directive powers on the government. For example, in the case of Air Nuigini the government has direct control over prices, and the Minister for Transport under the Civil Aviation Act must approve route allocations and abandonments and register or deregister aircraft being acquired or sold by domestic carriers. Public bodies are required to adhere to all policy guidelines as laid down by the ministers and, in particular, his approval is also required generally for such matters as investment of surplus moneys other than in approved banks or in any securities guaranteed by the government and for entering into contracts above a specified value. With government-owned companies, the government has typically reserved no legal power beyond the ability to influence corporate policy through the nature of board appointments and its equity participation in the company.
Except for senior appointments, all other categories of staff are recruited by the respective boards of management. Where offers made for appointments in public bodies differ from conditions pertaining in the general public service, they must be approved by the Salaries and Conditions Monitoring Committee in terms of job classifications, rates of pay, localisation requirements and incentives. Since staff are recruited direct and are not obtained from the public service, there is no restriction in movement of personnel between enterprises. Public enterprises are subject to the same labour laws including staff training requirements as applicable to the private sector. There is a National Training Institute which caters for some of the training needs but basically most of the training is done within the enterprise concerned.
Government companies and trading public bodies generally generate sufficient income to meet operating costs. Revenue is mainly from rates, fees and product prices which are fixed by the government.
For example, the prices charged for services rendered by Air Nuigini the Electricity Commission, Post and Telecommunication Corporation and the Harbours Board are approved by Cabinet. Although the basis for determining price levels is unclear, it is acknowledged that there is substantial cross-subsidisation. Air Niugini subsidises unprofitable routes from revenue on other routes, while the Electricity Commission imposes uniform rates even though cost differences exist between hydro and diesel generation and between rural and urban distribution systems.
Non-trading public bodies such as the National Cultural Council and the Institute of Medical Research are supported by grants. Grants are given for specific purposes to meet the cost of operations and to finance development projects. Some public bodies, particularly those engaged in non-trading activities, are given tax exemptions.
Most public bodies can borrow from domestic sources with ministerial approval. Foreign loans must be obtained through the government. Loans obtained from the government are either interest free or are given at preferential rates. Government companies obtain their borrowings at market rates. In cases where loans are obtained through the government or on the basis of a government guarantee, the government must bear the liability for any default in repayment. There have been cases, however, where loan instalments in default have been converted to equity capital in the particular enterprises concerned. Deliberate equity participation by provincial and the national government is with a view to providing initial working capital but in the case of companies the aim is to have control in matters of national interest. Private participation in government-owned companies is encouraged so as to promote corporate attitudes and decision making.
Public bodies which have accumulated large surpluses may utilise these funds for the expansion of their activities or for replacing and modernising equipment. The government can also require public bodies to return part of their surpluses if it so desires. Although there is no stated government policy on dividend obligations, guidelines have been drawn up. In the case of government-owned companies, surpluses are in some instances returned as dividends. The decision to inject additional funds - or to close down an enterprise which has continuous losses - is left to the Minister responsible. If the decision is to wind up, then the assets and liabilities of the public body are taken over by the government and disposed of accordingly. In the case of government companies, these are administered on termination through the normal processes of receivership and liquidation.
In Papua New Guinea individual departments may be required to implement one or more special projects related to its particular sphere of ministerial responsibility. Many of these departmental undertakings are aid-funded development projects which are an integral part of the current medium term development strategy of the Department of Finance and Planning.
The management of each project is vested in a co-ordination committee consisting of representatives of the implementing department involved, and also of the Department of Personnel Management, Department of Works, and Department of Finance and Planning. Technically the Minister of the implementing department is in overall charge of this committee, but responsibility is shared by all ministers of the departments represented. Since the various projects are governed by provisions of a loan agreement, the Minister of the implementing department is not in a position either to control or review the management of the project unless it is done with the concurrence of the donor agency and the other departments involved. Similarly, the Minister of the implementing department has little or no power to vary the objectives of a project, or to determine administrative matters such as staff and finance of the project which are controlled respectively by the Department of Personnel Management and Department of Finance and Planning. However, in practice the implementing department reports on the project to its Minister who in turn reports to the National Parliament.
In the case of public enterprises in the form of public bodies, the extent of ministerial control is dependent on the legislation establishing the particular enterprise. Although the controlling Minister is responsible to Parliament for the affairs of the statutory body, he normally confines himself to policy, reporting and representational matters. Accordingly, the Minister proposes legislative amendments where required, makes major policy statements concerning the operations of the enterprise, presents annual reports including financial statements, and speaks for the enterprise on significant issues which attract parliamentary attention.
Commonly the Minister concerned is responsible for the appointment or dismissal, or making a recommendation for appointment or dismissal, of the members of the particular board, commission or other form of public body. In non-trading public bodiesjegislation provides for the form of the financial statements to be approved by the Minister. However the Minister for Finance and Planning approves significant financial matters affecting the public bodies such as investments, borrowings and contracts over a specified amount.
Where government companies are acquired by the government through the purchase of the entire or major shareholding, or by public bodies acting within the scope of their authority, the extent of direct ministerial control is greatly reduced. In government-owned companies, control is exercised through ministerial appointments to the board of directors. Similarly, in companies established or acquired by public bodies, control is exercised through board members appointed by the public bodies.
Ministerial control over the appointment of staff of public enterprises is strictly limited to the top management of public bodies where, as noted above, the Minister has either direct or indirect authority to appoint or dismiss members. This authority does not extend to companies owned or controlled by the government. In those cases where departments implement special projects, project staff come under the control of the Department of Personnel Management, but individual departmental heads have now been given the authority to recruit, dismiss and discipline their own staff with provision for appeal to the Department of Personnel Management. However the relevant Minister has no jurisdiction over either project or departmental staff.
Ministers do not exercise significant financial controls over public enterprises and, in particular, cannot direct payment of funds to any person or destination. In the case of projects implemented by departments, the Minister concerned has no control over financial matters, which are subject to the provisions of the particular loan agreement and the government's rules and regulations for financial transactions. In the case of public bodies, ministerial control extends to borrowings and (unless empowered by enabling legislation) investments and contracts over a specified amount, but it is not common practice for ministers to exercise detailed financial controls over public bodies. In the case of government owned or controlled companies, financial controls are a matter for the Board of Directors and not the Minister.
The staff employed on projects implemented by departments are one of two categories: those recruited as permanent public servants, and those recruited as casual or temporary staff. As regards the first category, a central agency in the form of the Department of Personnel Management broadly controls the appointment and dismissal of staff and their conditions of service through the administration of the Public Services (Management) Act. Such staff are likely to seek transfer or promotion within the Public Service, while some of the authority in respect of their appointment and dismissal has been delegated to the departmental head concerned.
As regards the second category, their recruitment and dismissal and other conditions of service are determined by the relevant Project Manager. Such staff are not governed by the authority of a common central agency.
The role of the central agency varies in the case of public enterprises in the form of public bodies. In most cases, the relevant provisions of the Public Services (Management) Act are either adopted or used as a guide by the public body when establishing terms and conditions of service. Any variations in these terms and conditions must be approved by the Salaries and Conditions Monitoring Committee. There are also restrictions on the appointment of expatriate staff imposed on public bodies by the Public Employment (Non-Citizens) Act. This legislation, which effectively prohibits the employment of expatriates in certain positions, is also applicable to government owned or controlled companies which, however, have complete autonomy in all other matters affecting their own staff.
Central agency control is also evident in the budgeting arrangements for projects implemented by departments. As far as the permanent staff of these projects are concerned, the implementing department is obliged to request the Department of Personnel Management for new establishment positions and, if approved, to seek the necessary funds from the Department of Finance and Planning. In regard to the casual staff employed on individual projects, the need for such staff and the availability of funds are the limiting factors.
In the case of public bodies which generate operating revenue sufficient to cover operating expenses, there are virtually no central agency controls over their individual budgets. The only exception is where capital investments, financed from sources other than internally generated funds, are undertaken. I njection of additional funds by way of capital advances would always be a matter for the government to decide through the relevant central agency. Major public bodies are required to submit five year plans annually to the National Executive Council.
Those public bodies which depend on the National Budget for funding work in close association with the Department of Finance and Planning. This central agency reviews the estimates of revenues generated and expenditures proposed in order to establish the level of the necessary annual appropriation from the National Budget. No such arrangements characterise the budgets of government-owned or controlled companies which, operating outside the National Budget, are responsible for their own financial planning and budgetary control.
In addition to central agency controls over the personnel and budgets of particular forms of public enterprises, other kinds of external controls may be exercised by central agencies. Depending on the specific provisions of statutes directly or indirectly involved in this area, either individual ministers or the National Executive Council may exercise certain powers in designated circumstances.
Other controls in the case of both public bodies and government owned or controlled companies are fairly minimal. However permanent staff of public bodies are required to join the Public Officers Superannuation Fund to which all permanent staff and the employer body itself must contribute. Similarly permanent staff of government owned or controlled companies are generally required to become members of the National Provident Fund to which all such staff and the companies involved must contribute.
Although most public enterprises in Papua New Guinea are not required by the government to earn a specified rate of return on capital, all enterprises on a commercial basis are expected to operate profitably. Taxation is not an issue with projects implemented by departments, but most revenue generating public bodies are required to pay taxes on profits earned. Government owned or controlled companies pay income taxes or their equivalent in the normal way, and have the same liability for customs, excise and stamp duties as private companies.
Although no subsidies are paid to public enterprises from the National Budget, the government exercises selective controls over the pricing policies of some public bodies. Thus pricing policies, such as electricity tariffs and port charges, are subject to ministerial approval. No such controls operate in the case of government owned or controlled companies.
In general public enterprises do not provide free or discounted services to the government. These services provided to governmental agencies are charged at trie same tariffs applicable to other consumers. Accordingly, air travel is charged to governmental agencies at normal scheduled rates, as are postal and telecommunication services.
Privatisation is not yet a major issue in Papua New Guinea. There are moves to encourage the transfer of the provision of goods and services by public enterprises, and to ensure that goods and services are provided efficiently and effectively by individual enterprises. However privatisation has not occurred through the sale of share capital, sale of assets, or sale by tendering for the purchase of nominated enterprises as going concerns. Therefore, to date, it has not been necessary for external audit checks to be exercised over such sales.
In Papua New Guinea public enterprises - other than projects implemented by individual departments - are controlled by a board, commission or authority. In the case of public bodies, the method of appointment of members varies according to the relevant provisions of the enabling legislation, as there is no standard form, structure or pattern of appointment. Appointment may be made by the Minister concerned, or by the Governor-General in Council. With the superannuation boards and marketing boards, it is common for a specified number of members to be elected by the particular constituency (i.e. contributors or producers) to ensure representation of all interested parties.
As noted previously, in government-owned companies board members are appointed by the relevant Minister. In government controlled companies established by public bodies, these appointments are usually made by the public body concerned.
The remuneration of members is not a matter for individual public bodies. In accordance with the enabling legislation, the terms and conditions of service of members are approved by the Minister. In the case of government owned or controlled companies, however, the relevant board of directors determines these matters.
In general terms, the various public enterprises operate effectively free from political interference. There is neither governmental nor political interference in the affairs of public enterprises provided that they operate within the ambit of the powers conferred upon them by the enabling legislation and also in accordance with the policy directives of the National Executive Council.
Public enterprises in Papua New Guinea have management information systems which, in some cases, are computerised. As regards reporting systems, public bodies are required to furnish annual performance reports along with audited financial statements to the responsible Minister who in turn presents them to Parliament. Similar reports for public enterprises in the form of companies are submitted to the shareholders.
Public enterprises follow the international accounting standards which are accepted by the Papua New Guinea Association of Accountants.
The form of the financial statements of public enterprises is not subject to the approval of the SAI.
The form of the financial statements of trading public bodies government owned or controlled companies, however, does not require ministerial approval, and is determined by the international accounting standards, the provisions of the relevant companies legislation and the accounting policies of the enterprises concerned and generally accepted accounting practice. The SAI does not participate in the preparation of the financial statements of public enterprises. This matter is an internal responsibility of management.
The legislature in Papua New Guinea controls the operations of public enterprises mainly through the annual reporting requirements. All public enterprises (but not government owned or controlled companies) are required to submit annual reports with audited financial statements to the National Parliament through the Minister as soon as possible after the close of the financial year. Some reports are referred to parliamentary committees for investigation.
In addition to parliamentary scrutiny of the reports of public enterprises, the legislature exercises effective control over them through the presence and activities of the Public Accounts Committee. In common with those of other committees, the investigations of the Public Accounts Committee are generally open to the public and media with very few exceptions. A representative of the Supreme Audit Institution (SAI), the Auditor-General of Papua New Guinea, is present at all sittings and assists the Committee by advising on technical matters. The SAI representative participates in the relevant discussions, helps the Committee to formulate its findings, and examines the further replies and clarifications given by the enterprises on the findings in the annual report of the SAI to the legislature. The reports of the Committee are required to be tabled in the Parliament within a prescribed time, and are thereafter discussed and formally adopted. The wide media coverage that is accorded to hearings of the Committee ensures that public enterprises - in common with ministerial departments - either avoid appearing before the Committee or have sound reasons for not implementing the recommendations of the SAI.
The legislature is empowered to review the budgetary bids of public enterprises in those cases where a specific subvention is to be voted by the National Parliament. However the legislature has no control over the borrowings of public bodies and government owned or controlled companies.
The effective accountability of public enterprises is also obtained by the usual processes of parliamentary questions and debate. Members of both Opposition and Government parties in the Parliament may ask ministers questions about any aspect of the operations of a public enterprise. Answers are given either orally or in writing.
Although there is no requirement for government owned or controlled companies to report to the legislature, ministerial and parliamentary accountability are still evident. Thus the relevant Minister exercises control over such a company through board appointments and related measures. The Minister is also provided by the SAI with a report on the accounts and records of the company and a copy of the audit report on the company's financial statements. Further, the financial operations and affairs of the company are reported on by the SAI in his annual report to the Parliament, which is eventually examined and investigated where necessary by the Public Accounts Committee. Accountability of these companies to the Parliament therefore operates substantially through the Public Accounts Committee.
In Papua New Guinea the role of the SAI is that of external auditor of all public enterprises. Under the Constitution of the Independent State of Papua New Guinea which came into effect in 1975 with national independence, the SAI is charged with the responsibility to inspect and audit the accounts, finances and property of all arms, departments, agencies and instrumentalities of the National Government and all bodies established by an Act of the Parliament, or by executive or administrative act of the National Executive for governmental or official purposes, unless some other provision is made by law for their audit. The Public Finances (Management) Act, which came into operation on 2 January 1987,provides for audit by the SAI.
Prior to 2 January 1987, various Acts govrned the audit of public bodies and subsidiaries thereof. Most of the public bodies applied the provisions of the pre-independence Public Bodies (Financial Adminsitration) Act of 1969 which required the SAI to audit and report on the accounts and records of financial transactions, and also on the financial statements of the body concerned. The remaining bodies had similar provisions to those of the public bodies (Financial Administration) Act in their enabling legislation.
The audit of the subsidiaries of public bodies also came within the ambit of the SAI by virtue of the Public Bodies (Subsidiary Companies) Act 1983. The SAI reported on the accounts and records of the financial transactions under the enabling legislation and on the financial statements under the Companies Act.
With the coming into operation of the Public Finances (Management) Act 1986 on 2 January 1987, the above-mentioned "Public Bodies" Acts and a few others were repealed. The audit provision of the new Act overrides similar provisions in any other law and apply to all public bodies and their subsidiaries. Under this Act the SAI is required to audit and report the accounts and records of financial transactions of all public bodies and subsidiaries thereof As well the SAI not only reports on the financial statements of public bodies under this Act but also on those of subsidiaries under the Companies Act.
Since January 1983, the National Executive Council has also expanded the responsibilitiets of the SAI to include the audit of government owned companies and subsidiaries.
The SAI does not act as consultant or adviser to management of public enterprises. Such a role is considered to be an impairment of the independence of the SAI as external auditor. Similarly the SAI is not empowered to correct decisions or issue instructions of any kind to individual managements. However should the circumstances warrant, deficiencies in administration may be corrected by free and frank reporting to the Ministers and the National Parliament, and further enquiries by the Public Accounts Committee.
As noted previously, under the Constitution of the Independent State of Papua New Guinea the SAI is empowered to inspect and audit the accounts, finances and property of all arms, departments, agencies and instrumentalities of the National Government and all bodies established by an Act of the Parliament or by executive or administrative act of the National Executive for governmental or official purposes, unless some other legal provision is made by law for their audit. The audits of all the public bodies and subsidiaries are performed by the SAI under the Public Finances (Management) Act.
In accordance with the scope of the applicable legislation, the approach to the audit of public bodies by the SAI has been to examine the books, records and statements of the respective enterprises, in order to form an opinion on their financial operations and the state of their affairs as at the balance sheet date. Most of Papua New Guinea's public enterprises are requried to follow accounting practices generally accepted in the private sector and, as a minimum, audits follow generally accepted commercial auditing standards.
The types of audits undertaken by the SAI in the audit of public bodies are confined to financial and compliance audits, although the Public Finances (Control and Audit) Act empowers the SAI to perform operational audits of efficiency, economy and effectiveness. Resource constraints have militated against the SAI conducting performance audits of this type but, as qualified and experienced staff become available, the SAI is expected to have an expanded role in the operations area.
Under the provisions of the relevant legislation, the SAI is required to ascertain whether:
In meeting these objectives in the audit of public enterprises, the scope of individual audits by the SAI is sufficiently wide to ensure the accountability of public enterprises to the legislature and electorate. As a general rule, all material audit findings are reported fully and timely to auditees, ministers and the National Parliament.
Although there is no statutory requirement for public enterprises to have an internal audit function, almost all important public enterprises have such a function. This function varies in effectiveness depending on the enterprise involved. A number of enterprises have internal audit sections which operate as effective aids not only to management, but also to the SAI who relies on the work of the internal audit staff wherever practicable. Reliance by the SAI on internal audit within individual enterprises, however, tends to be discounted by the general lack of qualified supervisors, trained staff and establishment problems which characterise the internal audit function throughout the public sector in Papua New Guinea. In more recent years, some in-house training programmes for internal audit staff have been implemented. The SAI has also assisted in training internal audit staff.
In those instances where there are perceived defects and inadequacies in the internal audit function, such shortcomings are usually advised by the SAI to the relevant Minister and to the Parliament as an integral part of the reporting process. A few enterprises have strengthened the internal audit function by establishing audit committees but these are not common. The general pattern has been for individual enterprises to rely on their own limited resources, with no provision for audit committees or assistance in this area from commercial auditors.
The SAI has the power under the Public Finances (Management) Act 1986 to engage commercial auditors on contract to conduct audits of public bodies and their subsidiaries. It is not unusual for the SAI to exercise this power where necessary, subject to comprehensive guidelines which ensure control being maintained by the SAI.
Originally a public body was empowered to appoint a commercial auditor should the SAI fail to carry out an audit within the stipulated period. For example, section 26(4) of the Post and Telecommunication Corporation Act 1982 provided that where, by 1 st April in any year, the Auditor-General or a registered company auditor employed by him has not commenced the inspection and audit in respect of the previous financial year, the Post and Telecommunication Corporation may employ a registered company auditor to carry out the required inspection and audit.
This contingency provision has however been superseded by sections 62 and 63 of the Public Finances (Management) Act 1986 which provide that all public bodies and subsidiary corporations shall, before 30th June in each year, prepare and furnish to the relevant Minister a report of its operations for the year ending 31 st December preceding, together with financial statements in respect of that year audited by the Auditor-General. This mandatory audit now applies to all public bodies and subsidiary corporations notwithstanding any provision to the contrary in any other law. In carrying out this audit the Auditor-General may at his discretion, for the purpose of assisting him in an audit and inspection, employ a registered company auditor who shall act under his direction and on terms and conditions determined by the Auditor-General in his role of SAI.
All audits of public enterprises by commercial auditors appointed by the SAI are under the direct supervision of liaison officers from the SAI, and are carried out in accordance with the provisions of two official publications issued by the SAI:.
Where these types of audits are involved, the SAI in the first instance calls public tenders from eligible commercial auditors who accordingly submit a tender proposal with a suggested audit programme. The various tender proposals and audit programmes are subsequently evaluated by the SAI, and the evaluations with accompanying tender proposals are then submitted for consideration to the Audit Services Supply and Tenders Board consisting of a Chairman (the Auditor General) and two other members - the First Assistant Secretary (Accounting), Department of Finance and Planning and the Executive Head of the particular public body. Once the successful tenderer is selected by the Board, he is appointed by the SAI as the Authorised Auditor to assist in the audit of the public body and its subsidiary.
On completion of the audit, the relevant audit working papers are forwarded by the Authorised Auditor to the SAI for review. Quality control, therefore is a shared responsibility between the Authorised Auditor and SAI, consistent with the professional standards of the International Accounting Standards Committee which are observed by the national professional accounting body, viz. the Papua New Guinea Association of Accountants Inc. Subsequent to the satisfactory clearance of review points, audit reports are issued by the SAI.
The innovation of Authorised Auditors for the audit of designated public bodies, as with other public sector entities, has involved a different and wider approach by the commercial auditors engaged in this work. Instead of an exclusive focus on the expression of an opinion on the fairness with which financial statements present the financial position and operating results in accordance with generally accepted accounting principles, the effective audit of public bodies entails the consideration of much broader criteria in recognition of the extensive responsibilities of the SAI. For example, there is marked emphasis on the compliance aspect, in order to determine whether the activities of particular bodies have been within the limits of the authorities granted by statutes. In confirmation of the progress achieved in this audit reorientation, the Authorised Auditors and SAI have now developed a framework and an understanding which operate effectively using this statutory approach and adopting the concept of shared responsibility.
The principal audit methodology employed by the SAI in the audit of public enterprises is transaction auditing. In general, transactions of enterprises are vouched individually but in greater detail where internal control weaknesses are evident in particular organisations.
The commercial auditors engaged by the SAI, however, employ more modern techniques, particularly systems-based auditing, for large enterprises. Accordingly, systems appraisal questionnaires and flow charts are prepared to cover the major activities of the public bodies subject to this type of audit, while current working paper files provide for noting systems weaknesses and recommendations for their improvement by supervising auditors. Further, attribute sampling tables have been constructed to help auditors select samples for testing systems and audit programmes have been designed to test in depth the selected samples. Analytical review techniques, such as ratio analysis and critical comparisons, are also used.
The audit of public enterprises in Papua New Guinea is undertaken by the Commercial Division of the SAI. This division is responsible for the audits of all public bodies and subsidiaries thereof and government-owned companies.
Although, at present, aspecialstaffinggroupoftheSAI operates for the audit of public enterprises, this position is expected to change in the interests of organisational balance and the wider dissemination of auditing skills and experience. It is envisaged that in the near future, all the three operating divisions of the current SAI establishment will share the total audit portfolio of the SAI.
Specific guidelines have been issued by the SAI for the audit of public enterprises. As mentioned previously, these guidelines are contained in a publication of the SAI titled 'Standards for the Auditing of Public Enterprises, Government Owned Companies and Other Autonomous Bodies', while procedural matters involving engagements of commercial auditors in this area are detailed in another publication of the SAI titled 'Guidelines for Tendering, Contracting, Performance and Acceptance of Work by Private Auditors'.
In common with other areas of audit by the SAI, the recruitment of specially trained and qualified staff for the audit of public enterprises is a continuing problem, exacerbated by marked attrition to the private sector. All professional staff of the SAI are qualified accountants but many members of the various audit teams - as elsewhere - are not professionally qualified and require extensive training and supervision.
The obligation of the SAI to audit and report on financial statements of public enterprises is an annual requirement. Audits of relatively small enterprises are undertaken only after the signed statements are received from the auditees. Audits of larger enterprises are usually conducted in two phases - interim and final. The interim audit covers the examination of accounts and records in conjunction with selected financial systems, while the final audit extends to year end statements. No other audits are carried out.
Under the provisions of the relevant legislation, the SAI is required to report whether:
Reports of the SAI on the financial statements of public enterprises are, unless the enterprise is in the form of a company, addressed to the relevant Minister, i.e. the Minister who has parliamentary responsibility for that enterprise. The Minister is required by law to table the financial statements and the audit report in the Parliament at the first meeting of the legislature following their receipt by the Minister. If the enterprise is in the form of a company, the audit report is addressed to the members of the company. In both cases, however, a summary of the report is included in the annual report of the SAI to the Parliament in the interests of public accountability. As no time limits are placed on the annual reports of public enterprises by the government or Parliament, individual ministers administer the relevant dates.
As mentioned previously, in the case of government owned or controlled companies formed under the Companies Act, the SAI has authority to appoint private audit firms to act as his agents in the performance of audits where necessary. The audited statements of these government companies are not required to be tabled in the legislature. Further, the accounts of any subsidiary companies are not consolidated with those of the parent body.
In addition to the obligation of the SAI to report annually to the Parliament through the relevant Minister, the SAI is also generally required to report to any international organisations which may have made loans to particular public enterprises through the government. Normally the capital funds of public enterprises in Papua New Guinea are wholly provided by the government, but loans of various durations may also be obtained from international organisations such as the World Bank, Asian Development Bank and Overseas Economic Cooperation Fund. The government is the primary borrower in the relevant loan agreements, with funds being on-lent to the public enterprises as sub-borrowers. As the financial covenants of the loan agreements usually require the SAI to submit long form audit reports to the international organisation concerned, detailed reports on the financial statements are forwarded by the SAI to these organisations.
The audit reports of the SAI are followed up by both the Government and Parliament. In the first instance, individual ministers may seek explanations of particular points raised by the SAI in the relevant audit report. Later, the parliamentary Public Accounts Committee may follow up matters of substance in the reports by way of public enquiry. Written explanations are sought from the enterprise concerned and, additionally, senior officials may be summoned to appear before the Committee to answer questions put to them orally. The explanations given by these officials is recorded as formal evidence. The media is usually represented at enquiries of the Committee, so that sensitive issues -particularly those reflecting on the calibre of management - may be subject to press and radio coverage.
The SAI does not participate in the preparation of the financial statements of public enterprises. This matter is an internal responsibility of management.