Public Disclosure Authorized AUDIT PAPUA NEW GUINEA L'O 0FFICE ' V" Phone: (+675) 3012200 Fax: (+675) 325 2872 Email: agopng@ago.gov.pg Website: www.ago.gov.pg Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized INDEPENDENT AUDIT REPORT ON THE ACCOUNTS OF THE ROAD MAINTENANCE & REHABILITATION PROJECT II, IDA CREDIT NO: 4931 - PNG & IDA 5404 PNG) FOR THE FISCAL YEAR ENDED 31 DECEMBER 2016. To the Secretary, Department of Treasury I have audited the Project Financial Statements of Receipts and Payments., and the accompanying notes of Road Maintenance and Rehabilitation Project IL1 IDA Credit No. 4931 - PNG and JDA Credit No, 5404 PNG as at 31 December 2016. The preparation of this Project Financial Statement is the responsibility of the Project Implementation Unit (PIU). My responsibility is to express an opinion on these Financial Statements based on my audit. Responsibility for the Financial Statements The Departmental Head overseeing the Project Implementation Unit (PIU) at the Department of Works and Implementation is responsible for the preparation of the Financial Statements for the Project which should give a true and fair presentation of the financial position and performance of the Road Maintenance & Rehabilitation Project II and to submit to mie for audit in compliance with Section 63(4) of the Public Finances (Management) Act, 1995. The Departmental Head is also responsible for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial statements. Responsibility of the Auditor-General I have conducted an independent audit in accordance with the Audit Act, 1989 (as amended) in order to express an opinion to you. My audit has been planned and performed in accordance with International Standards on Auditing as promulgated by the International Federation oj Accountants to obtain reasonable assurance whether the financial statements are free of material misstatement. The audit procedures include examination, on a test basis, of evidence supporting the amounts and disclosures in the Financial Statement. My audit also includes assessing the accounting principles applied and significant accounting estimates made by management, as well as evaluating the overall statement presentation. I believe that my audit provides a reasonable basis for my opinion. The nature of an audit is influenced by factors such as the use of professional judgment, including the assessment of the risks of material misstatements in the financial statements, whether due to fraud or error. I have considered the risks, based on those assessments, on the internal controls relevant to the preparation and fair presentation of the financial statements in designing audit procedures considered appropriate in the circumstances. Audit procedures were performed to assess whether, in all material respects, the financial statements present fairly. in accordance with the Public Finances (Management) Act, 1995, Accounting Standards and other mandatory financial reporting requirements, a view which is consistent with my understanding of the Project's financial position and the policy on the management of the project is to prepare the accompanying project financial statement in accordance with International Accounting /standards (IAS) as adopted by the Accounting Standards Board of Papua New Guinea and the requirements of the loan agreement of the Road Maintenance & Rehabilitation Project II, IDA Credit No. 4931- PNG dated June 9, 2011 and IDA Credit No. 5404 PNG dated April 10, 2014 and of its performance as represented by the results of its operations and cash flows, Level 6 PO Box 423 TTqA TnvImnf Haim WAIC.ANT NCfl
I believe that the audit evidence obtained is sufficient and appropriate to provide a basis for this report. UNQUALIFIED AUDIT OPINION In my opinion:- the Statement of Cash Receipts and Payments were fairly presented, in all material respects, the Statement of Cash Receipts and Payments of the Road Maintenance & Rehabilitation Project 11 for the financial period ending 31 December 2016 are based on proper accounts and records; and in accordance with cash receipts disbursements basis of accounting. HILIP NA A Auditor-General 27 June 2017
Department of Works Road Maintenance and Rehabilitation Project II Statement of Cash Receipts and Payments and Statement of Comparison of Budget and Actual Amounts For the year ended 31 December 2016
Table of Contents Audit Opinion Page............ 2 Statement of Cash Receipts and Payments...4...... 4 Statement of Comparison of Budget and Actual Amounts - Original Financing.... 5 Statement of Comparison of Budget and Actual Amounts - Additional Financing... 6 Notes to the Statement of Cash Receipts and Payments and Statement of Comparison of Budget and Actual Amounts...... 7
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Department of Works Road Maintenance and Rehabilitation Project 11 Notes to the Statement of Cash Receipts and Payments and Statement of Comparison of Budget and Actual Amounts For the year ended 31 December 2016 1 Accounting Policies 1.1 Basis of Preparation The Project's Statement of Cash Receipts and Payments and Statement of Comparison of Budget and Actual Amounts have been prepared in accordance with International Public Sector Accounting Standard (IPSAS): Financial Repoffing under the Cash Basis of Accounting. This is also in line with the Government of Papua New Guinea's accounting conventions. The accounting policies have been applied consistently throughout the period. 1.2 Project Information The World Bank is providing assistance to the Government of Papua New Guinea (GoPNG) through the Road Maintenance and Rehabilitation Project 2 (RIVIRPII) ("the Project") via two International Development financing agreements: 4931-PG for SDR 27.4 million; and 5404-PG for SOR 82.4 million. The Project is managed by the GoPNG Department of Works with the assistance of the Employer's Project Manager which is currently under contract to Cardno Emerging Markets (Australia) Pty Ltd. 1.3 Reporting Currency The Statement of Cash Receipts and Payments and Statement of Comparison of Budget and Actual Amounts are prepared in Kina (K), which is the Project's functional and presentation currency, All values are rounded off to the nearest Kina, unless otherwise indicated. Funds are received into and expenses paid out of the Project's trust accounts. Foreign currency payments are recorded at the exchange rate at the date of payment. 2 Other Receipts The Project requested receipts from the Word Bank during 2016 which had not been received at the reporting date. The receipts were for part payment of Withdrawal Application 43 for PGK1,008,351. The funds were received on 22 February 2017. Interest earned on project bank accounts is recorded in the Project's financial management system as GoPNG contributions. There was PKG 31,819 in interest earned during the reporting period and recorded as GoPNG contributions. 3 Authorisation Date Statement of Cash Receipts and Payments and Statement of Comparison of Budget and Actual Amounts for the 12 months' period ended 31 December 2016 are authorised for issue by the Secretary of Department of Works on the date indicated on Note 9. 7
Department of Works Road Maintenance and Rehabilitation Project II Notes to the Statement of Cash Receipts and Payments and Statement of Comparison of Budget and Actual Amount For the year ended 31 December 2016 4 Comparison of Actual and Budget Amounts Material variances between actual amounts and the final budget amounts are explained below in Sections 4.1 and 4.2 below. 4.1 Original Financing Agreement 4391-PG 4.1.1 The variation of 6% of actual Original Financing over the final budgeted amount is because Original Financing was used to partially fund two civil works contracts initially budgeted under Additional Financing (Note 4.2.3) This expedited full draw down of the Original Financing loan. 4.1.2 Although restructuring of the loan meant counterpart funds were not budgeted for as they were not required, however GoPNG funds of PGK 5,000,000 were received of which PGK 2,000,000 was allocated to Original Financing. Counterpart funding given by GoPNG for Original Financing in 2015 and interest earned on this fund amounts to PGK 15,000,000 and PGK 4,640, respectively. 4.1.3 Two civil works contracts initially budgeted under additional financing (Note 4.2.3) were partly paid under Original Financing to expedite full draw down of the Original Financing loan. 4.1.4 Employers Project Manager. The EPM consultancy was extended by a further 12 months to 31 July 2017 within the same budget ceiling which resulted in an underspend of PGK 4,732,780. 4.1.5 The overspend variation of 12% for the Socio-Economic Survey contract is due to the accepted bid exceeding the scoped estimate. 4.1.6 Bank Fees were lower than anticipated due, in part, to delays in processing foreign currency payments. 4.1.7 Financial Management System (FMS). Expenditure for the FMS software amendments was less than the scoped estimate. 4.1.8 The additional Cardno consultancy was not completed in 2016 as anticipated. 4.2 Additional Financing Agreement 5404-PG 4.2.1 World Bank Reimbursements were impacted by lower than anticipated expenditure. There is a direct correlation between contract expenditure and reimbursement with award of 3 major contracts delayed and hence expenditure delayed. The World Bank Advance was obtained because of the restructuring of the finance agreement whereby the World Bank now fund 100% of all contracts. 4.2.2 Although restructuring of the loan meant counterpart funds were not budgeted for as they were not required, however GoPNG funds of PGK 5,000,000 were received of which PGK 3,000,000 plus interest was allocated to Additional Financing. Counterpart funding given by GoPNG for Additional Financing in 2015 and interest earned on this fund amounts to PGK 7,000,000 and PGK 6,550, respectively. 4.2.3 Restoration Civil Works. The spend of 11% of final budget was due to a number of factors including: * Two civil works contracts were partly paid under Original Financing to expedite full draw down of the Original Financing loan. * Two civil works contract commencements were delayed due to problems with their performance security bank guarantees. * The extension of the EPM contract resulted in a delay in full roll out of the works program. 4.2.4 The Performance based maintenance contract was delayed due to ongoing revisions of the bid document which delayed the bid and award. 8
Department of Works Road Maintenance and Rehabilitation Project II Notes to the Statement of Cash Receipts and Payments and Statement of Comparison of Budget and Actual Amount For the year ended 31 December 2016 4.2.5 Bank fees were impacted by payments continuing to be made from Original Financing and thus not incurred from Additional Financing. 4.2.6 Financial Management System (FMS). The budget for FMS software amendments for Additional Financing 2 (AF2) was not required as AF2 has not commenced. 4.2.7 Audit fees were impacted by payments continuing to be made from Original financing and thus not incurred from Additional Financing. There were no other material differences. 5 Additional Disclosures The Bank of Papua New Guinea has imposed restrictions on foreign currency payments due to low reserves. Until November 2016 the restriction was a daily threshold limit of PGK 25,000 per day. In November 2016 the Bank of South Pacific (BSP) advised the restriction has changed to a prioritisation basis determined by BSP's Treasury Department. This change has further slowed the processing of foreign payments. At the end of the reporting period the Employers Project Management Consultancy was impacted by these currency restrictions. Expenditure would have been higher in 2016 if all foreign payment requests submitted to the bank had been processed. At reporting date the following had been submitted to the BSP and remained unpaid: Payable Submitted to BSP AUD Amount PGK Amount* Cormmnts 29-August-2016 89,092.81 204,022.53 Unpaid 10-October-2016 80,867.01 185,185.45 Unpaid 14-October-2016 34,118.24 78,130.77 Paid 9/03/2017 14-October-2016 11,941.41 29,349.49 Paid 25/01/2017 Total 216,019.47 496,688.25 'The PGK Amount for unprocessed payables has been estimated using the World Bank exchange rate at 31 December 2016 of AUD1.00 = PGK 2,29 9
Department of Works Road Maintenance and Rehabilitation Project II Notes to the Statement of Cash Receipts and Payments and Statement of Comparison of Budget and Actual Amount For the year ended 31 December 2016 6 External Assistance 6.1 External Assistance External assistance was received in the form of loans from the World Bank via two International Development financing agreements: 4931-PG for SDR 27.4 million; and 5404-PG for SDR 82.4 million. The following amounts received in 2016 are as follows: 2016 Amount Local currency Equivalent in Equivalent in Receipt (PGK) (SDR) (US$) IDA Credit Number 4931-PG January 1,921,501 468,043 648,506 February 1,668,376 406,794 565,204 April 5,003,196 1,156,822 1,629,499 May 2,958,231 675.467 949,592 June 2,668,655 605.026 856,638 July 2,933,134 675,459 941,536 August 3,490,048 800,538 1,118,560 September 5,082,293 1,127,905 1,578,052 October 1,786,551 416,874 572,590 November 1,770,307 413,783 567,383 December 8,223,110 1,945,061 2,631,395 Total 37,505,400 8,691,774 12,058,956 IDA Credit Number 5404-PG August 31,000,000 7,089,594 Grand Total 68,505,400 15,781,368 9,935,500 21,994,4 z 2015 Amrount Local currency Equivalent in Equivalent in Receipt (PGK) (SDR) (US$) IDA Credit Number 4931-PG March 1,475,235 407,888 565,753 April 2,450,607 668,544 925,104 May 2,625,591 692,210 983,284 June 2,399,193 634.648 891,300 July 2,421,604 636,972 889,939 August 2,337,276 614,020 854,274 September 2,537.491 653,648 917,303 October 1,990,734 496,460 700,738 November 2.461,122 611,744 850,318 Total 20,698,853 5,416,134 7,578,013 IDACredit Number 5404-PG Grand Total 20,698,853 5,416,134 7,578,013 10
Department of Works Road Maintenance and Rehabilitation Project II Notes to the Statement of Cash Receipts and Payments and Statement of Comparison of Budget and Actual Amount For the year ended 31 December 2016 6.2 Undrawn External Assistance Undrawn external assistance loans at the reporting date are amounts specified in financing agreements which relate to funding for projects currently under development, where conditions have been satisfied, and their ongoing satisfaction is highly likely, and the project is anticipated to continue to completion. The undrawn closing balance in the currency of the financing agreements in Special Drawing Rights (SDR) as at 31 December 2016 was: IDA Loan 2016 (SDR) 2015 (SDR) 4931 - PG 255,816 8,947,590 5404 - PG 75,269,275 82,358,870 Total 75,525,091 91,306,460 7 Available Funds for the Year Details of available funds for the years is as follow: 2016 2015 (PGK) (PGK) Cash balance as at 1 January 32,932,470 19,915,876 Movement during the year Net surplus 5,338,408 13,016,594 Cash balance as at 31 December 38,270,878 32,932,470 The Project's cash in banks earn interest based on the banks' average deposit rates. Interest income earned during 2016 and 2015 amounted to K31,818 and Ki1,190, respectively. 8 Subsequent Events From 31 December 2016 to the date on which this report was authorised for issue, there were no material subsequent events. 11
9 Authorisation Department of Works Road Maintenance and Rehabilitation Project II Notes to the Statement of Cash Receipts and Payments and Statement of Comparison of Budget and Actual Amount For the year ended 31 December 2016 The Annual Statement of Cash Receipts and Payments aid Statement of Comparison of Budget and Actual Amounts of the Project for the year ended 31 December 2016 are aulhorised for issue as follows Laim Moses Project Director (World Bank Projects), Department of Works 06/06/2017 David Werh Secretary, Department of Works 06/0612017 12