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THE CONTROLLER AND CHIEF AUDITOR’S

REPORT TO THE LEGISLATIVE ASSEMBLY

FOR THE PERIOD 1 JULY 1997

TO 30 JUNE 1999

1 Pursuant to Article 99 of the Constitution of Samoa, I have the honour to present before the Legislative Assembly my report on the performance of the functions of the Audit Office since I took Office on 30 March 1998.

2 This is my first report to the Legislative Assembly. I am herein continuing on as from the last Audit report of 5 December 1997, in the interest of historical continuity of audit work performance, and in particular, to highlight throughout this report by comments, the effect of the change in Government strategic plan towards maximising budgetary performance, to achieving public accountability and transparency.

3 This report will deal with the Public Accounts and Special Funds related thereto, Government Departments and Statutory Corporations that have been audited.

I expect in my second report to deal with most, if not all, Government Departments and also Government Corporations and Statutory Bodies, whose audits are in progress as this report goes to print.

(a) Article 97 of the Constitution of the Independence State of Samoa establishes the Office of the Controller and Chief Auditor and Clause 3 states that the incumbent “shall hold Office until he reaches the age of 60 years,” and in Clause 4 “he may at any time resign his Office by writing to the Prime Minister …”

This Article 97 was amended by Section 2 of the Constitution Amendment Act 1997 whereby the new Article 97(2) states that “the Controller and Chief Auditor shall hold Office for a term of three years but shall be eligible for re-appointment.”

(b) I am the first Controller and Chief Auditor appointed under the new Constitutional Amendment for a three-year term.

From the Audit Office perspective, the change from sixty years of age to a set term in Office is quite appropriate and is contemporarily ideal. However, the three year term in Office of the Controller and Chief Auditor as against the five-year tenure of Members of Parliament, is ethically imbalance and professionally awkward. It is unfortunate that after his three years in Office, the Controller and Chief Auditor leaves before he has fully reported on the performance of the functions of the Audit Office on what Government has done in its five years term of governance. Accountability and transparency of governance in terms of the work of the outgoing Controller and Chief Auditor will not be truly reported on.

(c) In our neighbouring countries like Australia, the Controller and Chief Auditor (the Auditor General) holds Office for a term of eight years as against the four year term of Office of Members of Parliament.

The eight years in Office give ample overlapping time to the Auditor General to properly perform its statutory functions as a ‘watchdog’ for the public, on the stewardship by Government of the country’s affairs during its full term of governance. This overlapping of term emphasizes furthermore the independence of Office of the Auditor General in terms of his existence, without being influenced by the election of Members of Parliament, and change of Government.

(d) I appreciate the new Constitutional Amendment to specify a set term in Office of the Controller and Chief Auditor, but the security of his three year term against the five year term of Government, needs be considered.

Preferably the practice in other Pacific countries very close to our own system of Government, as in Australia, can demonstrate for us the ideal security balance, in that the Controller and Chief Auditor’s term is twice the term of Office of any ruling government. However, the ten(10) years in Office of the Samoa Controller and Chief Auditor may be too long, as our political term is five years. Nevertheless, if the Office of the Controller and Chief Auditor is to be secured from any political interference, the ideal term of ten years in Office is quite relevant.

I recommend re-consideration of the Constitutional Amendment of Article 97, to give emphasis to the independence of the Controller and Chief Auditor towards extending his term of Office from three(3) to ten years to cover the full term of governance by the Executive and Administrative Authority. This will give statutory security to his Office and the Controller and Chief Auditor will perform his duties without fear or favour and in particular he has ample time to properly carry out his audit mandate.

The present restructuring of the Audit Office was set by the Public Service Commission and approved by Cabinet on 25 November 1995 and updated in March 1998. It resulted in the following set up:

The Professional staff in total is 23. However, there are 8 vacant positions in the professional sector and one in the Administration as this report goes to print. The Commission has however kindly approved the filling of these positions and are included in the Estimates for the year 2000/2001 Budget.

There will always be vacant positions in the Audit Office because of the salaries offered are not competitive enough to attract the professional resources desperately needed to perform audit functions. At times, we rely on returning graduates to bridge this gap but regrettably, salaries offered cannot detain the turnover of staff lured to positions of better remuneration and attractive benefit packages.

The Controller and Chief Auditor cannot do anything about it as his Office is controlled by the Public Service Commission and Treasury for staff recruitment and salaries offered. His independence of Office will never be realised unless the Audit Office achieves a statutory administrative autonomy under preferably a Statutory Audit Commission of Parliament through an Amendment of the Audit Office Act.

A review however of the Audit Office Organisational Structure is being proposed which will be submitted to the Public Service Commission for their favourable consideration before it is presented to Cabinet for approval and implementation if possible.

The re-structuring proposal creates new positions and widens the scope for an audit career structure. The salaries grading proposed are set in par with remuneration offered to similar professional positions outside and inside the service. For an internal auditor in a Government Department to receive nearly twice the salary paid to an auditor in the Audit Office is incredible and unethical.

To enable the Audit Office therefore performing its statutory functions, it has to acquire adequate professional resources and this acquisition can only be possible if the salaries offered are attractively compensatory to work performed. It is hopeful that the Public Service Commission will grant favour to our proposal.

Since I took Office in March 1998 the staff establishment consisted of 11 professionals, comprising of 2 Assistant Controller and Chief Auditors, 3 Senior Auditors, 3 Auditors and 3 Audit Examiners. In terms of the approved establishment there were 11 vacant technical positions, confronted with mounting arrears in outstanding audit ranging from seven to two years in Government Department audits, and in some Government Corporations and Statutory Bodies. I had to seek favour and assistance of the Public Service Commission and sanction of Cabinet to urgently fill the vacancies to enable the Audit Office meet the challenge of audit backlog.

The Public Service Commission responded favourably and recruited 3 Audit Consultants locally and one New Zealand Audit Adviser seconded through AusAID under PACTAF. However, the two Assistant Controller and Chief Auditors left the Office, one retired and the other resigned on medical grounds. A senior auditor resigned, one auditor took up a senior position in a Government Corporation and one auditor’s service was terminated. However, we recruited 6 audit examiners, two of which were returning University Graduates from Australia. An audit Consultant and a Senior Auditor were promoted to fill two Assistant Controller and Chief Auditors’ positions and two Auditors were promoted to Senior Auditors. At the time of this Report, the staff establishment stood at fourteen(14) professional staff - made up of 2 Assistant Controller and Chief Auditors, 2 Audit Consultants, 2 Senior Auditors, 2 Auditors and 6 Audit Examiners which is 6 short of the approved staff strength.

In order to keep up with the current technology and to align the Samoa Audit Office with modern International Auditing trends, 4 auditors attended the International Organisation of Supreme Audit Institutions (INTOSAI) sponsored Regional Audit Training in the Cook Islands and in Fiji. Two received INTOSAI Audit Training Diplomas from these advanced programs. Furthermore, AusAID sponsored and conducted locally 2 Audit Training Seminars in August 1998 and November 1999 with specialists from Australia on topics ranging from Financial Auditing, Performance Auditing and Environmental Auditing. We were indeed thankful to the AusAID in that all our technical staff were fully exposed to these specialised Audit Trainings which only one or two privileged would have received overseas had not these Trainings were brought home.

The Controller and Chief Auditor had himself exposed and involved in conferences on International Organisation of Supreme Audit Institutions (INTOSAI). I attended the South Pacific Association of Supreme Audit Institutions (SPASAI) Conference held in Suva, Fiji, in September and in early November 1998, and I attended for the first time the International Congress of Supreme Audit Institutions (INCOSAI) in Uruguay. I was also offered and sponsored by the Australian Government, an observation visit in March 1999, to major Audit Offices in some states of Australia. In April 2000, I was elected as sole representative of SPASAI to present a paper at the INTOSAI Seminar in Vienna, Austria. The international participation of the Samoa Audit Office in these International Forums of Audit Institutions has contributed tremendously to the new image of our Audit Office and had subsequently reflected on the impact of our work performance.

Regular surprise cash counts were carried out in Government Departments in order to assess the state of revenue collection, recording and handling public funds in the service, and particularly to alert the service of the presence of audit.

Noticeable in these cash counts were delayed banking, bankings were held back 2 to 3 days and in some instances banking were made up after a month. Reasons given for these delays were the officer responsible was sick or that they were too busy to have time for daily lodgements.

Realised also from these surprised cash checks were substantial amount outstanding in trade debtors, and in one Corporation current debtors for a month covered in these surprised checks came to $337,573.

From these cash checks, a fair idea of priorities for audit was drawn up, to facilitate our audit program for the year.

8.1 Section 36(1) Public Moneys Act 1964 provides for the Financial Secretary to prepare and send to the Audit Office for auditing statements of the Public Accounts within four months after the year ends.

The Audit Office received the following Public Accounts for auditing in the order as follows:

The Audit Office had to re-arrange its audit program by recouping its technical staff engaged in other assignments in order to clear the audit of the Public Accounts as received.

The audit of the 1993 Public Accounts was completed on 10 June 1998, the delay was due to audit queries and adjustments which, Treasury had to clear and made before the Audit Opinion was appended thereon.

Audit qualified its opinion on these 1993 Public Accounts on the grounds that financial and accounting records were incomplete and not available and that, internal control systems in operation at the Treasury and most of the Government Departments were ineffective and unreliable.

This qualification persists for all the Public Accounts audited to 30 June 1999, except that the 1999 Public Accounts have shown considerable improvements from past years in that systems and procedures adopted are now strictly followed and adhered to. However, there is still a need to improve Treasury Total Corporate System (Computer) in order to easily identify the audit trail, to forestall audit having to go through at least four destinations, to obtain the audit balance at year end, the source document, the type of transaction entries and period balances for some accounts.

The 2000 year Public Accounts as I am advised by Treasury, will be completed by September 2000 and for the first time in many years, Parliament will be able to discuss current Public Accounts before the end of the ensuing year. This is something that audit has been reporting on in the past that financial accounts to be of any value must be produced in time and Treasury has responded well in updating all the backlog of Public Accounts in arrears.

Audit is hopeful that Treasury will persist in providing Public Accounts in time so that, Parliament will be able to receive them while they are current and for Audit to report on them, for Parliament’s information on how public revenues and other public funds as approved were used, and whether Parliament appropriations of expenditures were properly and lawfully spent.

It is quite noticeable that throughout the seven(7) years covered in the audit, an increasing trend in capital deficit from $46.6 million in 1993 to $93.2 million in 1995, this increase tapered off in 1996 to $38.8 million tala down to $29.1 million tala in 1999.

1993 Capital Deficit $46.6 million

The deficit realised in all these years was the net result of excess of departmental expenditures over receipts and material amounts transferred from proceeds of Project Loan Funds and losses on Foreign Currency.

Audit feels that whilst external factors affecting capital transfers cannot be controlled, the deficit in actual Departmental receipts and payments could be minimised. The persistent shortfall in actual Customs duties, Inland Revenue taxes and other major receipts for the years under examination appear to be attributable to unrealistic projection of receipts and ineffective collection procedures.

For Customs to have a shortfall of $10.8m in duties in 1993 annual estimates compared to a surplus of $10.1 million tala in taxes collected against tax estimates projection for the same year leaves much to be expected of good budget management controls.

Whilst audit examination of accounting records and supporting documents for these Bank Account Balances appeared in order, there were a number of outstanding bank reconciling items such as, unpresented cheques, deposits in transit, unidentified bank credits and debits, absence of bank direct payment advice, etc., that should have been cleared before the balances are carried forward to the following financial year.

Included in the Schedule of Cash Balances are Bank Accounts administered by the Customs Department and the Inland Revenue Department. These accounts are for deposits, in lieu of Customs duties pending assessment of actual duties payable on procurement of invoices for landed shipments. As for the Inland Revenue Department, there are two(2) Bank Accounts for Income Tax Refunds and VAGST Refunds. All these accounts at the Inland Revenue Department have never been reconciled with Treasury ledger, as a result, Treasury ledger balances exceed the Account balances shown in the Bank Statements for the year.

The implication is not satisfactory in view of substantial amounts of refunds paid out of the accounts at the Inland Revenue Department.

These are debts arising from loans made from foreign lenders to fund various development projects in Samoa. The movement of this item in the Public Accounts for the years examined is as follows:

For the seven years from 1993 to 1999 the average Foreign Term Debt liability stands at $377.5 million tala. However, Servicing charges average at $11.2 million tala. This is quite favourable for Samoa if viewed against the persistent annual deficit in Parliament appropriations. The significant contributing factor to this favourable position realised by the country as against a relatively large amount of foreign debt liability carried is the soft term nature of loans accorded Samoa from major overseas lenders.

Aid funds are public funds generated from various International Organisations and countries having close diplomatic relationships with Samoa to fund projects within Government Departments and Statutory Organisations or within the Private Sector.

Treasury records show that as at 30 June 2000, there were 267 Development Aid Projects in operation. Forty four (44) of these have debt balances totaling $9,549,605, as against 223 accounts with credit balances amounting to $14,931,942. The net balance as per Schedule 13 in the Public Accounts for the year at 30 June 2000 is $5,382,337.

Of the 44 Project Accounts with debit balance totalling $9,549,605, one account 7074 EEC Stabex Public Works Department has $6,328,433 appeared spent and yet no funds had been received from the Project donor. Similarly, Account 7073 EEC Stabex Agriculture Sector Projects has a credit balance of $4,643,021, which appeared that so much funds had been received since 1992 yet not spent for the purpose for which the money was sought in the first place.

This state of affairs is indeed incredible. These aid funds were given for specific purposes as requested by Government, the beneficiary, and surely these funds must be utilised and spent.

Some Government Departments and Private Organisations seemed to be unaware of the account balances relating to projects administered in their respective offices. This indicates poor co-ordinations and administration by Treasury of financial resources channeled for development projects sought by Government.

So long as Treasury fail to monitor the timely preparation of financial statements of grants received and expenditures incurred for auditing of Project accounts, there will always be this confusion whether the Aid Funds received were in fact received and properly used for the purposes the Aid Funds were given for.

Total contingent liabilities of Government as at 30 June 2000 was $171.5 million tala. Sixty seven percent (67%) of it represent Government’s uncalled capital in International Organisations such as ADB, IARD, IDA and Multilateral Investment Guarantee Agency.

The balance, 33% of these contingent liabilities are loans guaranteed by Government for the following Institutions:

9. OTHER MATTERS

9.1 Authority to write off debts

Section 72 for Irrecoverable losses, Public Moneys Act 1964 gives the authority to Parliament alone to write off debts appearing irrecoverable.

Audit has questioned the authority of management of some Statutory Corporations in particular the Development Bank of Samoa, the National Provident Fund, the Electric Power Corporation, etc., in writing off debts against the Corporation funds without the sanction of Parliament.

Audit has expressed the opinion that Statutory Corporations are fully funded by Government from funds granted in terms of Sections 63 and 65, Public Moneys Act 1964, and such funds are public funds in terms of Article 90 of the Constitution, and any debt arising from the non-recovery of money lent out to clienteles of those Corporations, should not be easily written off by those Statutory Corporations, without the approval of Parliament. Such action in the Audit’s view reflects a breach of a statutory obligation by management of these Statutory Corporations. The mere writing off of these loans gives an adverse reflection on the efficiency, effectiveness and capability of management.

Audit has raised with National Provident Fund management the authority for writing off $290,243 doubtful loans in 1998 and 1999, and also $5,018,571 being doubtful loans in 1996 to 1999 written off in Development Bank of Samoa.

If public funds injected by Government into those statutory Corporations can easily be written off without the approval of Parliament as prescribed in Section 72 Public Moneys Act 1964, then considerable amounts of public funds would be lost, and questions as to why such huge sums of public funds appeared irrecoverable under the direct stewardship of management of those Corporations would never be raised and properly accounted for if they are not subject to the provisions of Public Moneys Act 1964 in particular, Section 75.