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Chapter - 20
Papua New Guinea

1.    Scope And Extent Of Government Revenues

1.1.    The Government of Papua New Guinea derives its revenue from both direct and indirect taxes. The estimated revenue on direct and indirect taxes for the fiscal year 1995 is given below :-

*    Exchange rate for different currencies vis-a-vis the US $ as on 31st March, 1997 are indicated in Appendix 1

1.2.    The following tax incentives are available to all taxpayers under the Income Tax Act :-

• Export Sales
• Primary Production
• Export Market Development
• Rural Development
• Training

1.3.    The major source of revenue is income tax and other sources are from indirect taxes. Departmental revenues are numerous but of small monetory value. The mining, timber and petroleum sectors provide much of the revenue under company taxation.

2.    Objective Of Audit

2.1.    Under the Constitution, the Auditor-General is empowered to audit the collection of receipt, expenditure or issue of public moneys and to report at least once a year to Parliament. Under the Constitution, only the National Government has the power to levy taxes, except taxes imposed by the Provincial and Local Governments, which are restricted to the following :-

• Sales and Service Taxes
• Fees for the licensing of places where intoxicating liquor is sold
• Fees for licences to operate or carry on gambling, lotteries and games ofchance
• Motor Vehicle registration licences and
• Provincial road users tax.

2.2.    The objective of revenue audit is to examine and evaluate compliance of revenue laws, measures instituted to ensure timely realization of revenue, effectiveness of the internal control and accounting system. The audit of revenue accounts is performed with a view to ascertaining that all earned revenues have been duly recorded and that appropriate classification of revenue has been consistently followed.

2.3.    The general principles governing the audit of revenue are as follows :-

2.3.1.    It generally emphasies on compliance of statutes and regulations. Adequate knowledge of fiscal laws and regulations of government taxes, customs and excise duties, fishing licences, land rental etc. is therefore, very important in revenue auditing. As each case selected may have distinct features or complexities, the auditor should be able to analyse them rationally. Such capacity could be built through constant professional development;

2.3.2.    As all public moneys including moneys received in the form of loans, except moneys payable under any law into or on account of Trust Fund, shall be paid into the Consolidated Revenue Fund, audit should carefully check the accounting system;

2.3.3.    As it is not possible to verify all cases of files of revenue assessment, a judicious system of sampling is required. Sampling should represent all pertinent factors like amount to tax, nature of transaction, risk associated in assessment etc;

2.3.4.    Where charges or fees depend on the cost of services provided, the rate of charges, fees etc. should be reviewed annually. Where the revenue is based on specific rates and not on value, the rate may require revision depending on the movements of the market prices of the products from which the revenue is derived.

3.    Audit Mandate

3.1.    The Audit Act 1989 stipulates that, in addition to other matters, the Auditor-General should satisfy himself that :-

1. All accounts relating to the collection, receipt, custody and disposal of public moneys have been reasonably kept
2. All reasonable precautions have been taken to safeguard the collection and custody of public moneys, and that all applicable laws, directions and instructions have been duly observed and effective check of the assessment and collection of revenue provided.

3.2.    Access is available to all documents (including individual and company files) and information stored in electronic devises. The Auditor-General is entitled to access all accounts, records and documents.

4.    Audit Procedures & Methodologies

4.1.    The major issues to be covered by revenue audit may be classified as follows:

4.1.1.    The efficiency of revenue administration depends largely on timeliness and accuracy of records. It ensures fair treatment to taxpayers and facilitates effective internal control system. The records provide information regarding taxpayer transactions and status of revenue realization and provide significant assistance in decision making. Whatever may be the nature of records, checking their timeliness, accuracy and completeness is considered the basic function of revenue audit. It would not be possible to list all issues to be covered in the audit of all types of revenue. Suffice it to say that such checking should be able to ensure that all the necessary information is available and timely and that no biased attitude prevails in decision making.

5.    Audit Planning

5.1.    An Audit Plan for 1995-1996 has been approved and issued. This document provides vision and direction for the operating staff in that -

1. it provides objectivity
2. it fixes responsibility
3. it sets out targets and time limits with which to get work done
4. it highlights areas of efficiency and effectiveness
5. it sets out parameters for monitoring and controlling quality
6. it is linked with other aspects of human resources management such as training, staff appraisals etc.

5.2.    A guideline on Audit Planning has been issued. The steps adopted in the Audit Planning Package are summarised below -

5.2.1.    Familiarization and preliminary considerations -

• Update in information base
• Scope of audit
• Form of opinion
• Consider Planning Materiality
• Consider Accountable Arrears
• Consider Reliance on Internal Audit
• Others

5.2.2.    Understanding of accounting systems and internal control :-

• Outline systems descriptions
• Preliminary Systems Examination
• Determine Accountable Arrears

5.2.3.    Determine materiality levels

• Estimate most likely errors

5.2.4.    Risk Assessment

• Inherent Risk
• Control Risk
• Detection Risk (Substantive assurance)
• Analytical Review Risk

5.2.5.    Planned Audit Approach

• Direct substantive testing
• System based audit
• Samples size

5.2.6.    Planning Package

• Summary and scope of audit approach

(Outline of activities, significant facts, scope of audit description, accounting principles, materiality level planning, major problems, extent of work to be carried out by other sections e.g. EDP section, estimate of audit fee etc.)

5.2.7.    Administrative Arrangement and Budget

5.2.8. Supporting Working Papers

6.    Audit Reporting

6.1.    The management letter is sent to the head of department and his comments are solicited. His comments will be appraised and included in the Auditor-General's Report to Parliament.

6.2.    The report also pinpoints all internal control weaknesses and suggests remedial action that should be taken by the auditee. The Report is then tabled in the Parliament and discussed by the Public Accounts Committee. (PAC).

6.3.    The final recommendations of PAC are sent to the Department of Finance. Finance instructions to remedy the shortcomings should be issued but in practice this is not done. This results in a break in the accountability cycle.

7.    Information Technology - Audit Techniques

7.1.    A separate computer audit division has been set up and all computerised audits are sent to the division. The section consists of computer trained staff.

8.    Human Resource Management

8.1.    All auditors are trained both in-house and outside. This training includes attachment to the Auditor-General's Office in Australia and to audit establishments in Papua New Guinea.

8.2.    The auditors are also given leave to further their studies in Papua New Guinea and Overseas. They are also sent to attend seminars organised by the INTOSAI and ASOSAI.

9.    Basic Laws Of Taxation

9.1.    All direct taxes are levied by legislation (Income Tax Act). Indirect taxes such as excise duty, customs duty and stamp duty are also covered by legislation (Income Tax Act). A directory of all PNG case laws is published by CCH Publishers. All landmark cases are studied and subordinate staff informed.

10.    Arreas In Collection

10.1.    The assessment and collection of taxes are delayed by the Inland Revenue Commission due to constraints of technical staff and financial resources. In the audit of 1994, the following arrears of taxes have been highlighted :-

10.2.    Shortfalls in Estimated Revenue Due To Delays

In Assessment And Revenue Collection

10.2.    Analysis of Oustanding Balances

11.    Accountability

11.1.    Intra-departmental accountability is enforced through review in internal controls including internal audit. Every year an appraisal is made of the Internal Audit of each department. Training classes are conducted to enhance the knowledge of internal auditors by the Audit Office. Legislative accountability is ensured by annual audit reports to the Parliament and by discussions in the Public Accounts Committee.