Chapter - 11
Papua New Guinea


Financial accountability and management in government in Papua New Guinea PNG) stems from the Constitution and Acts of Parliament. The National Government may not raise revenues and loans and impose taxes or provide for the expenditure of public funds unless authorised by parliament on the recommendation of the Head of State acting on the advice of the National Executive Council NEC).

The Public Finances Management) Act 1986 provides for the management of publicjinances and related matters. The Act also allows forthe promulgation of regulations by the Head of State for the "better control and management of public moneys and public property" and forthe issue of Financial Instructions by the Department of Finance and Planning.

Central to the Government Financial Management System is the responsibility of the Minister for Finance and Planning forthe supervision of the finances of the State and public bodies Section 3 of the Act) and the role of the Department of Finance and Planning in the control and direction of all matters relating to the management of the financial affairs of the State subject to specific directions given to the Departmental Head by the Minister. Section 4 of the Act).



The Public Finances Management) Act creates two separate funds for the management and control of Government funds. All revenues and loans except trust moneys) are credited into the Consolidated Revenue Fund CRF). Payment out of the CRF is only authorised by an Appropriations Act. A large part of the expenditure comprises "Special Appropriations" which constitutes such items as the salary of the Governor General, public debt payments and other statutory payments which must be met irrespective of the state of the finances.

The Trust Fund comprises accounts established for such purposes as are directed by the Minister for Finance and Planning and held under Trust Investments or as prescribed by law. Trust Accounts can be broadly classified into three groups:

Group 1   

Money held in trust for persons and authorities, eg. unclaimed moneys,

Group 2 

Commercial trust accounts relating to working accounts covering stores and services, and

Group 3 

Moneys deposited in trust accounts by parliamentary appropriations to meet future expenditure, eg. National Debt Sinking Fund Trust Account.



The Constitution provides for the raising and expenditure of funds including borrowing) by the National Government, subject to authorisation and control by Parliament,

In Section 209 of The Constitution the financial proposals for a fiscal year are required to be presented to the Parliament in the form of a National Budget and appropriations. The Budget sets out the estimates of the revenue to be raised and proposed expenditure of the Government.

Expenditure incurred from the Consolidated Revenue Fund falls broadly into two categories:

Expenditure falling under the first category and included in the National Budget is submitted to Parliament for detailed discussion and approval and is incorporated in the Appropriation Act.

Public debt charges including interest, sinking fund charges, if any, expenses on Public Accounts Committee, pensions to constitutional office holders, and certain grants to Provinces, fall under the second category. This expenditure is set out under separate Divisions in the Estimates submitted to Parliament as part of the annual Budget, but will not be subject to the appropriation procedure, since appropriations for these items are authorised under the respective constituent Acts.

Before the Budget is prepared for submission to Parliament, the National Executive Council consults with the appropriate Permanent Parliamentary Committee. However this does not confer any right or impose any duty of consultation after the initial stages of the preparation of the National Budget.

Parliament does not legislate on taxes, the raising of loans or on expenditure without the recommendation of the Head of State acting on the advice of the National Executive Council. Further, Parliament may reduce, but not increase or re-allocate, the amount or incidence of, or change the purpose of, any proposed taxation, loan or expenditure.


If at the beginning of a fiscal year Parliament has not made provision for public expenditure for that year, the National Executive Council may by an Act of Parliament authorise expenditure from the Consolidated Fund of sums not exceeding one-third of the budgeted expenditure of the preceding year. This authority lapses when Parliament approves the budget. The amounts expended will stand charged against the sums provided in the budget.


New Services: Where there is no appropriation to meet expenditure for a particular service, allocation of funds to meet the expenditure on it is obtained from the Secretary's Advance.

Existing Services: Where there is insufficient appropriation to meet expenditure on services already included in the approved estimates, additional allocation may be obtained either from the savings under other services or from the Secretary's Advance.



The Department of Finance and Planning is responsible for the compilation of the national budget and for carrying out periodical review of budgetary performance and appraisal of projects.

The budget preparation starts well before the beginning of each year. For expenditure on projects, special requirements are set out in the circulars issued by the Department.

The estimates and the Appropriation Bill are discussed in the Parliament and, when approved, the Appropriation Act will provide allocation for the purposes and services set out in a separate schedule. The Minister for Finance and Planning will then authorise the Secretary for Finance and Planning to issue the Warrant Authorities for the release of the funds to the departments. The Department of Finance and Planning is also responsible for ensuring that

proper accounts are maintained and that quarterly and annual statements of accounts are compiled. The Inspection Branch of the Department examines the accounts and records of accounting officers in accordance with approved programs. The other functions of the Department are to:


The Bank of Papua New Guinea the central bank) was established in 1973 principally to promote monetary stability and a sound and efficient financial structure. The central bank's main functions are to arrange for the printing of banknotes and the minting of coins which form the currency denominations of Papua New Guinea; to issue that currency; to regulate banking and credit; to act as banker for the National Government and commercial banks; to manage the country's holdings of international reserves; and to supervise the operations of the banking and financial system within the country.

The Bank of Papua New Guinea administers the activities of Savings and Loan Societies through the Registrar of Savings and Loan Societies, and all expenses of the Registrar are borne by the Bank. It also acts as an agent for the Government for handling domestic loan programs through the Stock Registry where domestic debt is raised through the issue of Government Inscribed Stock and Treasury Bills. The Bank is reimbursed by the Government for the cost of administering the Stock Registry.


The Auditor-General is appointed by the Head of State, acting in accordance with the advice of the National Executive Council given after receiving reports from the Public Services Commission and the Public Accounts Committee.

In the performance of his functions under the Constitution, the Auditor-General is not subject to the control or direction of any person or authority. He

has unimpeded access to accounts, records and information including information storage devices). He may appoint agents to assist him in his work and has autonomy in appointing staff. He is also empowered to report to the public prosecutor persons found to have misused public moneys and properties.

The primary functions of the Auditor-General are to inspect and audit, and to report at least once in every fiscal year to Parliament on the public accounts of Papua New Guinea, and on the management and control of the public moneys and property of Papua New Guinea, and such other functions as are prescribed by law. His responsibilities extend to all departments, agencies and instrumentalities of the National Government which includes Provincial Public Bodies, Provincial Government owned companies and their subsidiaries and to all bodies set up by an Act of the Parliament, or by executive or administrative act of the National Executive, for governmental or official purposes.

In his audit, the Auditor General is required to ensure that:


The Public Accounts Committee PAC) is a permanent committee of Parliament. The primary function of the PAC to examine and report to Parliament on the public accounts of Papua New Guinea and on the control and management of public moneys and property of Papua New Guinea. This function is usually exercised by examining the reports of the Auditor General.

Apart from being an advisor to the Committee on matters raised in his report, the Auditor-General is also responsible for enquiries addressed to him in relation to his departmental activities, for the propriety of expenditure from the votes under his control and for the efficient and economical performance of his department. He has the duty to appear personally before the Committee, if so required by the Committee, and to give evidence in public in relation to departmental activities and expenditures. If the evidence relates to any secret or confidential matter, he may request the relevant proceedings to be conducted in camera.


The Auditing Standards developed to date by the Auditor General's Office relate to General Standards, Field Work Standards and Reporting Standards.

Auditing Standards of the Office are consistent with, and may go beyond, those promulgated by professional accounting bodies. The Auditing Standards recognise the governmental or public environment in which the Office operates, its mandate and comprehensive auditing approach, and its policy of complementing its own human resources with professionals from other organisations who work for the Office on contract.

Compliance with these standards requires the selection of auditing procedures appropriate to the particular circumstances of the audit. Professional judgement is exercised to ensure that the audit is conducted in a cost-effective manner.


The Constitution of PNG states that in order to involve all members in the work of parliament and of the government, there must be established various permanent parliamentary committees which should cover all the major fields of the activities of the National Government. The Chairman and the Deputy Chairman of each permanent parliamentary committee is granted full access to the Minister and head of department of the Ministry for which his committee has jurisdiction and is entitled to be briefed and consulted on major public issues. Parliament may also establish sessional or Select Committees for any purpose.


The National Budget comprises:

  1. The Revenue estimates

  2. The Expenditure estimates

  3. Special Appropriations, such as Departmental Service charges

  4. The Contingency Fund in the form of an advance to the Secretary Department of Finance and Planning for meeting the cost of new services or additional cost of existing services.


The Government of PNG has adopted the program budgeting system in preparing the National Budget. The program budget involves an analytical approach in the allocation of budgetary funds to specific operations, which are identified in the light of sectoral policies to meet national objectives. It also entails establishing suitable indicators for measuring performance of government operations.

Under the program budgeting system, expenditure of an agency or department is organised into a specific structure. The structure is set up by grouping a department's tasks and responsibilities into specific operational categories. The program structure in each department is based on a program hierarchy consisting of main programs, programs, activities and projects. Whereas the programs are considered meeting points between objectives/ policies on one hand and operations on the other, the activities and projects are budgetary cost centres where the programs are translated into measurable operations. A program can consist of recurrent activities, development projects or a combination of the two. In a program-oriented budget system, the program includes both the operating and capital expenditures required to produce the program results.

In order to establish the necessary means for the measurement of management efficiency in government operations, a series of quantitative techniques and procedures are used. The classification of inputs and their related cost items of expenditure) plays an important role in providing information for an analytical budgetary approach. In order to provide the necessary data for expenditure analysis, a new standard expenditure classification was introduced.


There are three main categories of revenue receipts:

  1. Tax and non-tax revenue

  2. Grants from external sources for example-Australian budget support grant)

  3. Internal and external borrowing at concessional or commercial interest rates.

Expenditures are of two categories-one that is rated through the Appropriation Acts Parliament, the general public services, and the judiciary), and the other that has special appropriation by the Parliament i.e. pensions, provincial minimum unconditional grants, and expenditure payments made on the public debt).

On the other hand, with an operating agency such as the Department of Health, the program structure is based on a hierarchy comprising Affairs e.g. Community and Social Affairs), functions e.g. Medical and Health Services), main programs e.g. Health Services), program e.g. Hospital and Clinical Services), activity or project e.g. Urban Clinic Services).

The functional classification is used to indicate the work in which a government agency is engaged. It indicates the main sectors and the areas of government's involvement in the provision of services. Function is a broad category. Whereas the functions are of a permanent nature, the operating agencies under them may be changed, abolished, fragmented or merged with other organisations. In the framework of a function, an operating agency implements main programs, which are defined as a set of related programs intended to achieve the respective objectives of a department. Main programs are considered the highest level of classification of work performed by the government entity.

The main programs are divided into programs as joint service grouping or work-related centres of activities and projects. The department's responsibilities are listed at the institutional and sectoral levels, and utilised for the introduction of departmental programs. The objective and a brief description of the programs are recorded under each program.

The programs are divided into activities reflecting the services of the main responsible units. An activity that includes capital and investment-oriented expenditure is categoried as a project. Each activity/project is shown individually within the program structure of an operating agency.

In order to prevent difficulties in allocating costs of common staff and tasks, standard programs and activities have been introduced to cover the administration, common support and supplementary services in each department. These standard programs/activities are distinguished from the technical/operational programs in each department.

Each activity/project contains: a) expenditure, b) other selective input data and c) operational data designed to enable better control of expenditure. In addition to the expenditure items allocated from internal revenue, all other supplementary financial, in-kind and manpower inputs available to activities and projects through bilateral or international aid donors are recorded. Capital Work components of projects which are implemented by the Department of Works are also recorded under related programs and projects in each department.

A 14-digit coding system has been introduced to identify the level of operational categories and to facilitate reporting of budgetary transactions and accounting systems.


6.1     In the planning stages, the government determines priorities and develops ways of achieving specific goals within the proposed resources in accordance with an overall development strategy. The budget, which is a resource plan in terms of money relating to a particular period, takes the form of annual estimates of revenue and expenditure.

The procedures for the raising of revenues are designed to comply with the requirements of relevant taxation statutes or, in the case of non-tax sources, to satisfy the self-financing needs of the services provided in part or full. Expenditure procedures have to comply with relevant financial provisions and ensure effective administrative control over operations, cost effectiveness and prevention of fraud and thefts.

Control procedures include the implementation of a satisfactory accounting system which will give a true and fair view of the income and expenditure of the government during the year and the state of affairs at the end of each year. Such a system provides the means for economic and financial appraisals of the program operations and facilitates internal and external audits. The control system also includes a review of the annual accounts by the PAC which is empowered to obtain evidence from the departments concerned.


Each department is subdivided into divisions, headed by an Assistant Secretary or First Assistant Secretary FAS). The FAS is responsible for preparing estimates for all activities in his division.

The budget officer collects all divisional estimates and combines them in a single departmental estimate. In order to ensure that the final estimates are submitted in time a departmental budget time table is designed in conjunction with suitable forms for collecting information for budget planning. The budget officer advises heads of divisions on matters relating to budget planning and budget preparation, thus acting as a link between the department and the central agency.


Currently the national budget is prepared in two stages. Phase 1 of the budget is implemented under the supervision and control of the National Planning Committee. The Government objectives and Resource Management Strategy are determined by the National Executive Council NEC) and the details are included in the Planning and Budgeting Strategy document.

The preliminary submissions for the preparation of the budget are made by the various departments and other organisations in April to the Department of Finance and Planning, on the basis of targets and ceilings set by the National Planning Committee. In May the Department of Finance and Planning makes appropriate recommendations on these submissions to the Minister for Finance and Planning and the Resource Management Committee. The Minister and the Resource Management Committee forward the submissions, along with their observations and decisions, to the National Planning Committee which in turn advises the National Executive Council on the total submission.

Phase II of the budget commences in July on the basis of NEC decisions transmitted to departments and provinces to produce detailed budgets within their targets and ceilings. The detailed budget includes public Investment Projects and Recurrent Expenditure details. The draft budget proposals are reviewed again by the Resource Management Committee and the National Planning Committee before they are submitted to NEC for finalisation. The NEC collectively approves the budget. The budget is then presented to Parliament by the Minister for Finance and Planning. The estimates presented in the form of the National Budget and the Appropriation Bill are discussed in the Parliament. The Appropriation Bill, once passed in Parliament and assented to by the Governor-General, becomes law. The Appropriation Act provides for expenditure to be incurred during the yearforthe purposes and services set out in the schedule.


Repayments of principal and interest on borrowings by government agencies and statutory organisations from domestic lenders, foreign governments, and international and bilateral lending organisations are reflected in the budget.



As soon as the Appropriation Act is passed and the Warrant Authority issued, an authority for funds delegation is issued by the Minister Finance and Planning) to his departmental Secretary. This delegation authorises the Secretary to reallocate funds between line items mentioned against the various departments as long as limits under the Appropriation Act are not exceeded.

Individual departments have the responsibility of preparing their own Warrant Authorities in quadruplicate. The original is retained in the department concerned, while the other three copies are sent to the Warrant Control Section of the Department of Finance and Planning. Cashflow projections are attached to the Warrant Authorities to facilitate financial control. Usually departments draw Warrant Authorities quarterly and submit them to the Warrant Control Section of the Department of Finance and Planning in the last month of the quarter preceeding the one to which they are related.

Each Departmental Head appoints officers as Financial Delegates to monitor and control the allocated funds in accordance with their respective activities within the departments. Each Financial Delegate has set commitment control systems CCS). The Cash Fund Certificate raised by the Departmental Head for any purpose is also entered in commitment control ledger cards maintained for each vote. These cards show the positions of obligations incurred in accordance with purchase orders raised or expense forms approved.

Each Departmental Head is responsible for:

The responsibility of a Departmental Head cannot be transferred or reduced by reason of any delegation of functions by him to another person.


In almost every department an Internal Audit Unit has been established to monitor the day-to-day activities of the department. The Internal Auditor reports to the Head of the Department concerned.



After the National Budget is passed, individual departments prepare annual cash flow plans identifying their quarterly funds requirements.

Control of expenditure is exercised at agency level. When the need arises for the purchase of goods or services, a requisition order is submitted for approval by the financial delegate. The expenditure voucher will only be submitted if funds are available under the Cash Fund Certificate issued to the financial delegate. All expenditure and commitments are recorded in the commitments control ledger.

Departmental Heads are empowered to appoint financial delegates to monitor and control allocated funds. These delegates have the responsibility of preparing status reports by the first week of each month. The status reports provide information on the total aggregate funds committed, in addition to facilitating the quarterly budget review by management.

Departmental Heads are required to submit annual financial management reports to the Department of Finance and Planning. These reports include progress reports on investment programs, project implementation and the use of performance indicators for evaluating effectiveness.


9.1     The Constitution of Papua New Guinea provides for the supervision and control of public moneys. Section 2111) of the Constitution states that all moneys of, or under the control of, the National Government shall be dealt with and properly accounted for in accordance with law. The law referred to is the Public Finances Management Act 1986. Financial Instructions are also issued under this legislation for procedures relating to the receipt of public moneys, payment of claims, stores and other related accounting matters, for better control and management of public moneys and public property. This subsidiary legislation specifies more precise details of the accounting system and standard procedures to be observed by all officers in government departments.

All receipts and expenditures are recorded when there are actual movements of cash inflow and outflow within the system of a government organisation. All government revenues and loans are credited to the relevant fund and withdrawals from the fund to meet expenditures are made in accordance with proper authorisations. A separate fund through parliamentary appropriations) is maintained for operations of a quasi-commercial nature that are usually under trustee arrangements). Moneys earned through such operations and paid into the fund are controlled in a similar manner to normal public expenditure.


The government accounting system in PNG is on a cash rather than an accrual basis. Receipts and expenditures shown in the financial statements are amounts actually received and spent in the financial year. Goods or services received in a particular year are brought into account in the actual year of payment.

Similarly, income receivable in one year but received in a subsequent year are brought into account in the actual year of receipt. All refunds have to be set off by charging the expenditure votes. Offshore loans received in 'kina' the national currency) need to be recorded into account both as loans Revenue ledger) and as expenditure. All grants and loans received in cash will be considered as revenue and recorded accordingly. Any grant received in kind is not brought in the accounts.

The Finance Regulations provide that the accounting system and records maintained by the various Departments at the federal and provincial levels, Bureau of Management Services BMS) and cash offices are subsidiary to the accounting system and records of the Department of Finance. There are more than 150 cash offices which are sources of input to the main appropriation

ledger maintained by the Department of Finance and Planning. These sources are overseen by the Department to ensure better control and management of public moneys and property. Cash offices account for their receipts and payments to the various Bureau of Management Services in the provinces. In turn, BMS accounts for their receipts and payments together with transactions of the cash offices to the respective Area Finance Offices.


Generally Accepted Accounting Principles are the basis for the government accounting system in PNG.



Accounting Organisations

The accounting system and records maintained by the various departments are subsidiary to those of the Department of Finance and Planning, unless the accounts are maintained and rendered under a specific enactment which excludes the application of the Public Finances Management) Act 1986.

For accounting purposes, government departments are categorised into three groups:

Self Accounting Departments with their own Drawing Accounts Bank Accounts)-In these departments Defence, Education, Works) approval, authorisation, examination, certification and payments are done by the department itself. Sub- Appropriation Ledgers are also maintained by the department.

Self Accounting Departments without Drawing Accounts-In these departments Health, Minerals and Energy, Transport and Civil Aviation), approval, authorisation, examination and certification are done by the individual departments. The claims are physically retained in the department while an abstract of payment details is forwarded to the Area Finance Office for payment. Cheques are drawn by the Area Finance Office, and forwarded to the department concerned for on- forwarding to the payees. The departments maintain their own Sub- Appropriation Ledgers.

Non-Self Accounting Departments-These departments perform only the approval and authorisation functions, while examination, certification and payment are made by service agencies, viz. Division of Management Services of Provincial Departments, Area Finance Offices and Finance Cashier's Branch. The Sub-Appropriation Ledgers are maintained by the Area Finance Office in respect of these departments.

Periodically, abstracts of the Sub-Appropriation Ledgers are sent by the self accounting departments to the Department of Finance & Planning, where the Main Appropriation Ledger is maintained. All Area Finance Offices and the Finance Cashier's Branch input their information into the computer system which records the information in the Main Appropriation Ledger and the Sub-Appropriation Ledger. Periodically, a hard copy of the Sub-Appropriation Ledger is furnished to the Area Finance Offices and the Finance Cashier's Branch for verification purposes. From the Main Appropriation Ledger, the Department of Finance and Planning prepares the quarterly and annual statements of account.

Service Agencies

  1. Area Finance Offices AFOs)The Department of Finance and Planning has established four Area Finance Offices in Konedobu, Lae, Rabaul and Goroka for the collection, receipt and payment of public moneys. Receivers and Collectors of Public Moneys are located in Area Finance Offices. The Area Finance Offices have bank accounts known as the Receiver of Public Moneys RPM) Accounts. All receipts are entered in cash books and banked daily into the Receiver of Public Moneys Accounts.

A drawing account is also used, in the case of Area Finance Office, Konedobu, for the drawing of cheques on behalf of the Department of Finance and Planning and for those departments without drawing accounts. The Drawing Account is reimbursed through the Waigani Public Account. In the case of other Area Finance Offices, reimbursements to the Offices of the Division of Management Services are made from the RPM accounts. Surplus moneys on the RPM accounts are remitted to the Waigani Public Account, which is controlled by the Department of Finance and Planning When funds are inadequate in the RPM accounts, transfers are made from the Waigani Public Account.

The Department of Finance and Planning has established two additional offices at the same level as the Area Finance Offices. They are:

  1. non self accounting department,

  2. overseas travel for all departments, and

  3. general overheads.

  1. Division of Management Services-The offices of the Division of Management Services are located at the main town or city in each province. These offices have been established to provide a facility for the receipt and payment of public moneys. Each office is given an operating advance by the Area Finance Office to cover approximately a normal fortnight's operation. The Head of the Division of Management Services is required to account for all payments and receipts and to report to the Area Finance Offices on a weekly basis.

  2. Cash Offices-There are about 140 cash offices located throughout the country to provide a facility for the receipt and payment of public moneys in remote areas. These offices operate on a cash advance received from the controlling Area Finance Offices. Cash offices account for their receipts and payment to the various Divisions of Management Services which, in turn, account for their receipts and payments together with transactions of the cash offices to the respective Area Finance Offices.

This information, together with the various receipts and payments of the Area Finance Offices, is recorded in the Sub-Appropriation Ledgers kept at the Area Finance Offices. Balances listed from these sub-appropriation ledgers, and those from the other self-accounting departments, are incorporated in the Main Appropriation Ledger, from which the Annual Statements of Receipts and Expenditure and Statement of Balances are drawn for presentation to the Auditor-General under Section 3 3) of the Public Finances Act.


The scope of the public accounts is as defined in the Public Finance Act. Section 10 of the Public Finance Act states that the Public Account shall consist of the:

  1. Consolidated Revenue Fund; and
  2. Trust Fund.

Moneys belonging to the Public Account are deposited with the Bank of Papua New Guinea or any other Bank approved by the Minister for Finance and Planning. Surplus moneys lying to the credit of the Public Account may with the approval of the Minister be invested in securities, interest-bearing deposits and other approved investments.


The Public Accounts of Papua New Guinea comprise the following statements:

The Public Accounts convey in a highly summarised form an overview of Government's financial transactions and position.


11.1 The SAI of PNG, as external auditor of public sector organisations, has no obligation to the Government for day to day monitoring, supervision and control of public moneys. However, the SAI has a duty to report deficiencies in budget implementation, deviations and discrepencies.


Financial accountability and management in government in PNG is based largely on law. Budget processes and accounting prior to independence were installed by the former administration. These have undergone evolutionary changes and will continue to do so in accordance with the technological changes taking place.