Executive Summary
Trust Accounts are a key mechanism used in the Government of Papua New Guinea
(GoPNG) for holding monies on behalf of a third party or setting money aside for specific
tasks and/or projects. In particular, the stated purposes for holding funds in Trust Accounts
are to spread public investment spending over time to manage inflationary and demand
pressures in the economy; and to provide time for implementing agencies to properly
design implementation strategies.
In order to clarify the extent of Trust Accounts in use within PNG, the objectives of
this performance audit on the management and reporting of Trust Accounts were to:
- identify the category, number and balance of public monies held in Trust Accounts managed or controlled by GoPNG entities;
- determine the party responsible for the management and reporting of these Trust Accounts and their subsequent compliance with these requirements; and
- assess the effectiveness of the monitoring arrangements of Trust Accounts within the GoPNG.
The category, number and balance of Trust Accounts in use could not be reliably identified.
The Public Finances (Management) Act 1995 (PF(M) Act) outlines specific
legislative responsibilities associated with the establishment and on-going management of
Trust Accounts. Notwithstanding these legislative responsibilities, the audit found that
there is no authoritative source of information that can be relied upon to enable the specific
number of Trust Accounts in operation in the GoPNG to be determined. This relates to the
number of current Trust Instruments as well as the number of specific bank accounts that
are open in relation to the operation of a Trust Account.
As the actual quantum of Trust Accounts cannot be established, the mix of the
type of accounts in existence also cannot be reliably identified. Further, while a minimum
estimate of the balance of funds held in Trust Accounts at a point in time can be
determined, the extent of the error of this figure cannot be readily calculated, particularly
when the balance of subsidiary accounts are not always captured through the various
reporting activities and the sources of published data differ. For example, as at 31
December 2012 the balance of Trust Accounts as calculated from bank balances was
K2.37 billion; yet the 2014 Budget had the balance for the same point in time as
K2.26 billion. This equates to a difference of K110 million.
Given the different possible definitions of a Trust Account, and the variations
amongst the ‘authoritative’ sources of information, the AGO could not confidently state the
number of Trust Accounts in operation across the GoPNG at a specific point in time, nor
their type or balance of funds.
The identification of responsible entities is incomplete given the absence of an authoritative
source of Trust Accounts. The overall compliance with legislative requirements is poor.
In regards to the management and administration of Trust Accounts, the PF(M) Act
sets out a clear distinction in roles between the overarching coordinating responsibilities of
the Secretary of Finance in regards to all Trust Accounts in the Trust Fund, and the specific
roles of a Departmental Head responsible for the administration of an individual Trust
Account.
In its role as overarching coordinator, since 2004 Finance has been rationalizing the
Trust Accounts within the Trust Fund. For example, some 660 National Government Trust
Accounts were revoked in 2004 and 2005. In addition to formally revoking many Trust
Instruments, in 2006 Finance wrote to the relevant banks instructing them to review and
close a number of associated trust bank accounts. Banks were also directed to transfer any
funds remaining in bank accounts associated with the revoked trusts to the Waigani Public
Account in accordance with the requirements of the PF(M) Act.
While many Trust Accounts have been revoked since 2006, due to poor record
keeping practices and limited staff availability within the Trust Accounting Branch in
Finance, the AGO has been unable to examine revocation notices nor the advice to the
bank(s) to close the associated accounts. Further, while accounts have been revoked,
some continue to be operated and are repeatedly included in Statement ‘C’ of the Public
Accounts
During the course of the audit, instances were also identified where administering
departments provided the required information to Finance yet it either did not make it to
the Trust Accounting Branch or were not reflected in the oversight records held by the
Branch.
The repeated advice from Finance that it is unable to do its role effectively as a
coordinating body due to monthly reconciliation reports not being submitted by
administering departments is valid. However, Finance itself is the department most
responsible for the administration of individual Trust Accounts and no reconciliation reports
were noted as ever having been received by the Trust Accounting Branch for these
accounts. Had the reconciliation reports been done and submitted for the accounts that
Finance is personally responsible for, there would have been a strong start to addressing
the deficiencies within the system more broadly. The Trust Accounting Branch should be
leading by example.
The monitoring of Trust Accounts is vastly incomplete and consequently is of minimal
effectiveness.
In addition to minimal monthly reconciliations being provided to Finance, there is no
mechanism/ practice/ behaviour within the Trust Accounting Branch to consolidate the
information provided into a useable form for broader analysis and tracking. As a
consequence, minimal effective monitoring of Trust Accounts takes place.
It should also be noted that the extent of any monitoring relates to the accounting
side of Trust Accounts. There is no regular reporting or overarching coordination of the
outcomes of funds held in trust, nor of the delivery of projects or programs as envisaged
when the Trust Account(s) were established.
In order to address such fundamental issues in relation to the management and reporting of
Trust Accounts, the audit report makes six recommendations directed at the Department of
Finance.
The audit report also covered the location of Trust Accounts, the reporting of
interest earned on Trust Accounts and the adoption of the 2001 Government Financial
Statistics. These topics warrant further investigation once the fundamental issues
surrounding the management and reporting of Trust Accounts are addressed.