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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

11.10            Public Trust Office - 1995 To 1999

(a)            Ineffective Management/Poor Record Keeping

Poor record keeping and non-performed staff has been on going problems between 1995 and 1997.  The same problems were highlighted in the previous audit report.

Inefficient Management operating style contributed to the poor accounting and internal control procedures.  Consequently, timely availability of information to aid management decision-making was not in place.

Contrary to assurances from the then Finance Manager, the recommendations contained in previous audit reports have never been implemented and most of the serious deficiencies to 1998 were attributable to management inaction to audit findings and recommendations.

(b)            Loans

Of the total loans $8,885,916 at 30 June 1999 recovery of about 66% ($5,905,588) are considered doubtful. More than half of the total loans outstanding are classed as unsecured due to significant repayment arrears which have exceeded the value of securities available.

In November 1995, Cabinet issued instructions to cease all lending by the Public Trust Office.  However, the then Public Trustee continued to issue loans totaling $412,283 between December 1995 and July 1997.  Most of these loans were without proper mortgage documents or securities.  None were approved by resolution of the Board.

Loan write-offs totaled $187,837 were made without the sanction of the Public Trust Investment Board.

(c) Staff Advances

Unsecured staff advances, unsecured staff loans and unauthorised donations to Management, reflect poorly on management administration policies.  Significant loans outstanding to previous Public Trustees and senior officers were noted.

(d)            Inability to meet financial obligations

As at 31 December 1999, the Public Trust Office owed $4,657,085 to NPF, $3,650,000 to Treasury and $1,279,752 to Estates.  Without budgetary assistance from taxpayer funds, the Public Trust Office would be unable to repay the above debts.

It is understood that corrective measures are currently being implemented to clean up the mess at this Office.

11.11            Samoa Airport Authority - 1994 to 1999

Basic systems of internal control and checks have been lacking consistently during the above period.  Payments without supporting documents or proper senior officer authorisation, were noted.

There has been failure to lodge receipts promptly and some receipt books were missing.  Short-bankings in October and November 1997 of $5,524.00 were noted.  In 1999, short banking of $20,193 was written off.  Bank reconciliation was not subject to final checks by senior officers and reflected poor management control of the revenue collection.

(a)            VAGST

The Authority has failed to file any VAGST returns in the past three years.  Likewise, refunds for withholding taxes totalling $40,247.92 from term deposits have not been claimed for the above period.

(b)            Trade Debtors

The level of trade debtors on an average is on the high side.  Consequently the provision for doubtful debts has increased by $275,352 from 1994 to 1999.

(c) Staff Advances

Similar to trade debtors, staff advances have increased by $46,218 between 1994 and 1999.  The provision for doubtful debts was increased by $47,496 representing 78% of the total.  These increases reflected yet again the failure of management to exercise proper recovery action.

(d)            Electricity Bills

Between October 1997 and May 1998, a total of $12,644.20 discount was missed due to late payments.  Some staff members who have been residing in the Authority compound have had their electricity bills paid for by the Authority and yet not part of their entitlements.

(e)            Donations

A donation policy should be established as donations made seem to favour only certain sporting bodies.

11.12   Samoa Life Assurance Corporation - 1997 to 1999

The 1997, 1998 and 1999 accounts were certified by the Audit Office on 17 November 1998, 31 July 1999 and 17 October 2000 respectively.

The Corporation Act 1976 (Section 36 and 37) require that the accounts should be ready for audit by 30 April each year and annual reports should reach the Minister of Finance by 30 June each year.  The 1997 accounts were given for audit in August 1998, which is not complying with the relevant provision of the Corporation Act 1976.

The audit examination was done without any material problem except for matters as mentioned hereunder which need action to strengthen the systems of internal control.

(a)            Buildings constructed from loan funds not insured

Insurance is enforced on buildings constructed from loan funds.  However, we have noted that insurance on some buildings funded from mortgage loans have not been renewed and updated.

We recommend that management must ensure that insurance on buildings constructed from loan funds are current and that concerned borrowers are advised of their responsibilities under loan conditions.

(b)            Delinquent loans

From a review of the loans portfolio, we have noted that some problem loans have shown very little improvement.  Total loan balances in arrears as at year end was $665,943, which represents 25% of total value of mortgage loans outstanding.

We recommend that Management and Board continue to place high priority in the recovery of delinquent loan repayments especially for the problem loans.

(c)            Preparation of Deed of Mortgage by Lawyers

We have noted that security documents for one of the loans which is long overdue have not been received from the borrower’s legal representative.

Foreclosure proceedings can not take place unless proper legal documents of the security are available

(d)            Non-accrual interest on delinquent loans

The Corporation charges interests on delinquent loans despite poor servicing.  Interest is calculated at beginning of year and charged to loans.  The Corporation has no policy for placing delinquent loans interest on non-accrual basis.

We suggest that the Corporation assess and implement a policy for the non-accrual of interest for loans which are considered doubtful.  The treatment of interest will also have an impact on the Corporation’s income tax liability.

(e) Matching of General Ledger with Reconciliation

From review of staff advances and agents commission advances reconciliation, we noted that there are differences between general ledger balances and actual reconciliation.  The fact that reconciliation balances do not agree with the general ledger indicates a lack of finalising and clearing action for these discrepancies.

Management is now aware of the problem and had assured that the details of postings will be checked before postings are made to individual advance and agents commission, and reconciliation will be checked by a person independent of those involved in the posting.

(f)            Shares in other Companies

The Corporation’s investment with Morris Hedstrom showed a slight improvement in 1999.  However, the Corporation was recommended that the carrying value of the investment in that company be received in the light of the continued accumulated losses of that company.

11.13            Samoa Polytechnic - 1996

The last audited accounts for the above Institution was for period ending 30 June 1996.  These were completed in 1998.  Accounts for period ending 30 June 1997,1998 and 1999 are outstanding.

Similar to the NUS, funding for the Polytechnic is appropriated annually from the Government Budget and their annual accounts therefore should be prepared and audited promptly.  Other than the delay in the preparation of financial accounts, the operation of the Polytechnic for above period was satisfactory.

11.14   Special Project Development Corporation (SPDC)  1990 to 1994

This Corporation had most of the primary records such as receipts, vouchers etc., missing.  About 70% of payment vouchers did not have supporting documents.

From the outset, the operation of SPDC has been inefficient and lacks the appropriate consideration for proper management of Government assets.

Minutes of Board Meetings were unavailable which reflected the poor and ineffective management even at Board level.

The Assets of the Corporation were not properly registered and it was impossible to verify amounts and physical existence of assets.

Annual financial statements were not prepared between 1995 and 1999.  The Corporation ceased operation in 1999.  It owed about $1.9 million in debts to various creditors including Government departments.  On the other hand, total debtors of about $0.5 million were doubtful.

11.15            Samoa Trust Estates Corporation (STEC) - 1996–1999

(a)            Vaipapa Poultry

In 1996 the Corporation Management paid to Pacific Holdings Limited which acted as liquidator for the Vaipapa Poultry Corporation, a fee of $26,174 which was beyond the limited liability of the Vaipapa Poultry Corporation.  The Vaipapa Poultry Corporation went into liquidation with a debt of $492,314.00 in 1996.

(b) Amount owing to Samoa Lands Corporation(SLC)

STEC is in debt to Samoa Land Corporation by $2.5 million tala and there is no proper repayment arrangement made to settle this long outstanding debt.  Given its financial capabilities Samoa Trusts Estates Corporation is unable to repay this amount in the near future.  There is no lease agreement for the occupation of the Sogi buildings by the Samoa Lands Corporation.

(c)            Plantations

Most of the plantations are neglected, unproductive and very few new developments have taken place.  Most of the livestock have either been sold or disappeared.

The Corporation has been incurring considerable losses annually.  Its future financial sustenance is begging.

11.16            Samoa Water Authority – 1996 to 1999

(a)             The Audit Office was unable to obtain all the necessary information and explanation required for the purposes of expressing an opinion for 1996, 1997 and 1998 financial Statements for the following reasons:

(i)              Inadequate records and incomplete supporting documentation which made it impossible to verify balances which appeared in the financial statements;  and

(ii)            The significant uncertainties as to the treatment of material balances in the financial statements in particular the $8 million tala Saudi Loan.  For the 1999 accounts it is pleasing to note that some improvement is shown in accounting records in that payments are being supported and proper documentation being provided.

(b)            The Authority is not complying with Part VIII – Assets and Finance of the Water Authority Act 1993/94 by establishing the statutory accounts under the headings of General Accounts, Maintenance Reserve Account and a Development Account.  These specific Accounts are clearly defined as per Section 68 General Account, Section 69 Maintenance Reserve Account and Section 70 Development Account;

(c)             Saudi Loan $8.5 million tala

For the years under review to 30 June 1999, Saudi Loan of $8,470,000 appears in the Authority’s Balance Sheet as a long term liability.  This loan was raised in 1986 while waterworks were controlled and managed by Pubic Works Department.  However, since the establishment of the Samoa Water Authority under Section 3 the Water Authority Act 1993/94 this loan was transferred in total to the Authority in 1994 which is almost eight (8) years of the loan.  Hence the Authority is still uncertain as to who is actually responsible for servicing of the loan.

The Samoa Water Authority has requested Treasury for confirmation of the loan and who is to service it.  Apart from the $8.5 million tala Saudi Loan appearing in the Balance Sheet, the Water Authority has never made any payments towards servicing the loan.  As at 30 June 1999, the said loan is shown in the Treasury Public Accounts under Foreign Term Debts in Schedule 11 as $5.0 million tala.

This illustrates further the fact that Treasury is not strictly monitoring the application and utilization of public funds generated from foreign lenders.  The Authority must settle the treatment of servicing of this loan;

(d)            Revaluation and accounting of Fixed Assets:

(i)              The revaluation was done by a team of independent professional valuers which encompass all assets that were omitted in the transfer from Public Works Department. 

As at 30 June 1999 the net balance of $24,163,774 was added to Government equity in the Authority;

(ii)            Fixed Assets Register:

There is still no Fixed Assets Register and the control and accounting of fixed assets without this control mechanism is inciting irregularities and mal-practices.

(e)             VAGST

The VAGST debtor in the balance sheet shows an amount of $536,933 still not received.  The Authority has expressed confidence of the full amount being collectable from the Inland Revenue Department.;

(f)              Other matters

(i)              Miss-posting and double posting errors

There were mis-posting errors between pump stations.  While this did not affect the total cost of  all pump stations, it does distort the true cost of individual pump stations.  Furthermore, there are electricity charges posted twice to some pump stations. 

The Authority has been advised of these accounting errors for proper adjustments so that correct charges are made for the various pump stations affected;

(ii)            Electricity charges not in General Ledger

For the period from 8 January 1999 to 7 June 1999 these electricity charges not yet accounted for in the Utilities Expense Account in the General Ledger for the following pump stations:

Salamumu Pump Station       $11,431.26

Nofoalii Pump Station       $10,817.82

Faleasiu Pump Station       $12,710.52

Fasitootai       $11,424.24

(iii)          Fixed Assets Insurance

It was noted that fixed assets are not insured.  Because of the material value of these assets, Audit suggests that the Authority carries out a cost benefit analysis of insurance and formally adopts an insurance policy in this area.

11.17            Televise Samoa Corporation 1996 To 1999

The audits of the Televise Samoa Corporation for the years ending from 30 June 1996 to 30 June 1999 were completed on 23 February 2000.

(a)            Incomplete accounting records:

The accounts for the financial years from 1996 to 1999 were not supported by completed general ledgers and trial balances.  Journal entries were not used making it difficult to establish audit trails and the audit work was time consuming as significant adjustments were necessary to correct errors because of the poor maintenance of the accounting records, posting errors as well as the absence of proper reconciliation;

(a)             Debtors

The listings of debtors provided was not aged and the individual balances could not be supported because there is no subsidiary ledger maintained and the individual debtor files did not contain enough information to determine actual balances.  It is recommended that this problem should be rectified as soon as possible by keeping proper and up to date records.  Furthermore, an aged debt analysis is a useful management tool to aid the identification of old debts requiring action.

(b)            Work in Progress

(i)              The Corporation signed an agreement on 2^nd March 1995 with a local supplier, Telecomptronics Ltd., for the purpose of extending television coverage to all parts of Samoa.  The cost of the Project is AUD480,000 or ST$879,604, and was for six(6) months from the date of signing.  We have not sighted any evidence of tender procedures required by the Tenders Board and as directed by Cabinet policy;

(ii)            According to payments made by the Corporation from the date of inception in 1995 up to 30 June 1999 the Corporation has paid more to complete the Project.  The Project cost has exceeded the approved amount and has extended beyond the time allowed in the agreement.  A copy of the agreement has not been made available for review.  The limited information we obtained was from a review of correspondences and the Minutes of the meetings of the Board.

Below is the summary of additions and balances as at the end of each financial year.

(iii) It is necessary that major works of this kind where significant sums of money are involved should be supported by proper contracts and monitoring procedures.  To date we have not been able to review any signed contract for the work or whether variations calling for further funds were evidenced by formal contract agreements.  We have not sighted any evidence of tender procedures for this contract as directed by Cabinet and as required by the Tenders Board.

(c)             Statutory Requirements Part VIII Assets and Finance, Televise Samoa Corporation Act 1993/1994

The Corporation has failed to comply with the following Sections of the Televise Samoa Corporation Act 1993/1994:

·                 Under Section 39, the Corporation shall take necessary steps to ensure income exceeds expenditure and that the Profit and Loss Statement does not show a deficit.

·                 Under Section 40, the Corporation shall at all times keep full and correct records of accounts of money received and expended by the Corporation and of all transactions, assets, liabilities and funds.

·                 Under Section 40, sub-section 2, the Corporation shall within four(4) months after the end of each financial year, prepare a balance sheet, income and expenditure statement and such other statements of accounts as necessary to show fully the financial position of the Corporation and the financial results of its operations during the year.

·                 Section 40, sub-section 4, the Corporation shall within two(2) weeks of the completion of the audit shall cause to be delivered to the Minister a report of activities of the Corporation during the preceding financial year together with a copy of the accounts and the auditors report.

Unless the Corporation puts in some real efforts to managing its affairs there will always be financial problems encountered in the future because of the absence of proper effective internal control procedures.

Treasury should assist Televise Samoa in instituting proper accounting and information control systems as Treasury is the chief financial adviser and accountant for the Government.