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ACCOUNTABILITY IN THE PUBLIC SECTOR THROUGH QUALITY AUDIT SERVICES REPORT OF THE AUDITOR GENERAL OF THE REPUBLIC OF FIJI Audits of Government Commercial Companies, Commercial Statutory Authorities Entities, Off-Budget State Entities - December 2009 , Majority Owned ACCOUNTABILITY IN THE PUBLIC SECTOR THROUGH QUALITY AUDIT SERVICES REPORT OF THE AUDITOR GENERAL OF THE REPUBLIC OF FIJI Audits of Government Commercial Companies, Commercial Statutory Authorities, Majority Owned Entities, Off-Budget State Entities - December 2009 REPUBLIC OF FIJI File: 102 22nd December 2009 Commodore Josaia V. Bainimarama Prime Minister and Minister for Finance PO Box 2353 Government Buildings SUVA Dear Sir REPORT OF THE AUDITOR GENERAL Audits of Government Commercial Companies, Commercial Statutory Authorities, Majority Owned Entities and Off-Budget State Entities In accordance with section 7(7) of the State Services Decree 2009, I am pleased to transmit to you my report on the audits of accounts of the above mentioned entities that were completed during the 2nd half of 2009.
Tevita Bolanavanua Acting Auditor - General OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Introduction This report covers the results of financial audits of 4 Government Commercial Companies (GCC), a Majority Owned Entity (MOE) and an Off Budget State Company (OBSE) completed during the 2nd half of 2009.
Overall the audits of 11 entities which include 6 that were reported on 2nd July were completed in 2009.

The following table summarizes the status of all audits in the above categories to date: Government Entity Audit Completed Audit Opinion Remarks Commercial Broadcasting Government Company (GCC) Airport Fiji Limited Fiji Limited Fiji Ships & Heavy Industries Limited (Subsidiary of Fiji Ports Corporation w.e.f.
June 2009) Food Processors Limited Corporation Fiji Ports Corporation Limited Post Fiji Limited Rewa Rice Limited Unit Trust of Fiji (Management) Viti Corp 2008 2007 2007 2006 2008 2008 2007 2008 2004 Unqualified Unqualified 2008 audit is being finalized.

Unqualified 2008 audit is in progress.

Qualified 2007 account yet to be submitted for audit.

Unqualified Ports Terminal a subsidiary of FPSL has also been audited up to 2008 and was issued an unqualified opinion.
Unqualified Unqualified 2008 accounts yet to be submitted for audit.

Unqualified Unqualified Audit of 2005 account is in progress.

10 Yaqara Pastoral Company 11 Fiji Public Trustee Corporation 2007 2006 Unqualified 2008 audit is being finalized.

Unqualified Audit of 2007 account will be Limited contracted out.
Commercial Statutory Authority (CSA) Public Rental Board Housing Authority Fiji Electricity Authority Fiji Meat & Industry Board Majority Owned Entities (MOE) Pacific Fishing Company Limited Fiji Hardwood Corporation Fiji Shipping Corporation 2007 2007 2008 2007 2007 2006 2007 Unqualified 2008 account yet to be resubmitted.

Unqualified 2008 audit is being finalized.

Unqualified Qualified 2008 account is being finalized.

Unqualified 2008 audit is in progress.

Unqualified 2007 audit in progress by G. Lal.


Unqualified 2008 audit is in progress.

Off Budget State Entity (OBSE) Fiji Development Bank 2009 Unqualified 1 2 3 4 1 2 3 1 GCC, MOE and OBSE operate purely on commercial basis while a Commercial Statutory Authority (CSA) has both social and commercial function.
All types of entities are established and governed by their respective legislations and some have specific provisions on dates for the submission of their accounts and are meeting them satisfactorily.

Others which have not shown any improvement may have been affected by the requirement of the Fiji Institute of Accountants to comply with International Financial Reporting Standards (IFRS) from 1/1/07.
Report of GCC, CSA, MOE & OBSE – December 2009 2 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Only 5 entities have been audited up to 2008/2009 while the audits of 2008 accounts for another 8 entities are being finalized or in progress.

Some audits have fallen behind but these will be updated as soon as accounts are submitted to this Office for audit.
Out of the 19 entities reported in the above table, 17 were issued unqualified audit opinions during their last audits while 2 entities were qualified.

An unqualified opinion is issued when the financial statements give a true and fair view (or are presented fairly in all material respects) in accordance with the identified financial reporting framework.
A qualified audit opinion is issued when the overall financial statements are fairly stated but that either the financial data indicated a failure to follow applicable accounting standards or there was a significant uncertainty concerning certain financial data.

The report of each entity has 2 sections.

Section 1 covers the financial information and section 2 includes control issues identified during our audit.
Financial information summarizes the financial statements of each statutory authority and control issues represent our audit findings, recommendations and the management comments.

Readers will note that some audit findings raised in this report had no management comments.

This implies that none was received from that respective statutory authority.
Report of GCC, CSA, MOE & OBSE – December 2009 3 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Table of Content 1.4 1.5 2.1 2.2 2.3 2.4 2.5 2.6 2.7 SECTION 1: FIJI PUBLIC TRUSTEE CORPORATION LIMITED ............................................................. 6 FINANCIAL INFORMATION .................................................................................................... 6 PART A – AUDIT OPINION ..................................................................................................................................... 6 1.1 ABRIDGED INCOME STATEMENT ........................................................................................................... 6 1.2 ABRIDGED BALANCE SHEET ................................................................................................................. 6 1.3 PART B – CONTROL ISSUES............................................................................................................................ 7 VAT AND FEES RECONCILIATION ......................................................................................................... 7 INTEREST INCOME ................................................................................................................................. 8 SECTION 2: REWA RICE LIMITED............................................................................................................... 9 PART A - FINANCIAL INFORMATION .......................................................................................................... 9 AUDIT OPINION ..................................................................................................................................... 9 STATEMENT OF FINANCIAL PERFORMANCE........................................................................................... 9 STATEMENT OF FINANCIAL
 POSITION.................................................................................................. 10 PART B - CONTROL ISSUES .......................................................................................................................... 10 SHAREHOLDERS ADVANCE – GOVERNMENT GRANT........................................................................... 10 GOING CONCERN ................................................................................................................................. 11 ALLEGED ABUSE OF OFFICE................................................................................................................ 11 UNPAID PAYE TAX ............................................................................................................................ 12 SECTION 3: UNIT TRUST OF FIJI (MANAGEMENT) LIMITED ............................................................ 13 PART A - FINANCIAL INFORMATION ........................................................................................................ 13 AUDIT OPINION ................................................................................................................................... 13 ABRIDGED STATEMENT OF FINANCIAL PERFORMANCE ....................................................................... 13 ABRIDGED STATEMENT OF FINANCIAL POSITION ................................................................................ 14 PART B - CONTROL ISSUES .......................................................................................................................... 14 OUTSTANDING RECEIVABLES TO BE FOLLOWED UP ............................................................................. 14 BAD DEBTS WRITTEN OFF TO BE APPROVED......................................................................................... 15 SECTION 4: POST FIJI LIMITED .................................................................................................................. 16 PART A – FINANCIAL
 INFORMATION ....................................................................................................... 16 AUDIT OPINION ................................................................................................................................... 16 ABRIDGED STATEMENT OF FINANCIAL PERFORMANCE ....................................................................... 16 ABRIDGED STATEMENT OF FINANCIAL POSITION ................................................................................ 17 PART B – CONTROL ISSUES.......................................................................................................................... 17 INVENTORY COSTING .......................................................................................................................... 17 VARIANCES IN INVENTORY COUNT ..................................................................................................... 18 INTERNAL AUDIT................................................................................................................................. 18 STATIONERY CONTRACT................................................................................................................. 19 DEBTORS CONTROL............................................................................................................................. 20 EXCESSIVE CASH HOLDING................................................................................................................. 20 TENDER IRREGULARITIES .................................................................................................................... 21 EXCESSIVE AND NEGATIVE ANNUAL LEAVE....................................................................................... 22 GENERAL PROVISIONING..................................................................................................................... 22 TRUST
22 TRUST ACCOUNT................................................................................................................................. 23 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 3.1 3.2 3.3 4.1 4.2 4.3 3.4 3.5 Report of GCC, CSA, MOE & OBSE – December 2009 4 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ 5.1 5.2 5.3 5.4` 5.5 5.6 5.7 5.8 5.9 5.10 5.11 SECTION 5: FIJI HARDWOOD CORPORATION LIMITED..................................................................... 24 PART A – FINANCIAL INFORMATION ....................................................................................................... 24 AUDIT OPINION.................................................................................................................................... 24 STATEMENT OF FINANCIAL PERFORMANCE......................................................................................... 24 ABRIDGED BALANCE SHEET ............................................................................................................... 25 PART B – CONTROL ISSUES.......................................................................................................................... 25 FOREST ASSETS................................................................................................................................... 25 LITIGATIONS CLAIMS .......................................................................................................................... 26 FIXED ASSETS REGISTER..................................................................................................................... 27 EMPLOYMENT BENEFITS ..................................................................................................................... 28 PAYE DEDUCTIONS AND ACCRUALS .................................................................................................. 28
28 INVENTORIES....................................................................................................................................... 29 CREDIT CONTROL PROCEDURES.......................................................................................................... 30 CONTRACTUAL PROVISIONAL TAXES.................................................................................................. 31 SECTION 6: FIJI DEVELOPMENT BANK.................................................................................................... 32 PART A – FINANCIAL INFORMATION ....................................................................................................... 32 AUDIT OPINION 2009 .......................................................................................................................... 32 ABRIDGED STATEMENT OF FINANCIAL PERFORMANCE ....................................................................... 32 ABRIDGED STATEMENT OF FINANCIAL POSITION ................................................................................ 33 PART B – CONTROL ISSUES.......................................................................................................................... 33 LOANS AND ADVANCES ...................................................................................................................... 33 INTERNAL AUDIT................................................................................................................................. 35 REVIEW OF ASSETS ............................................................................................................................. 37 6.1 6.2 6.3 6.4 6.5 6.6 Report of GCC, CSA, MOE & OBSE – December 2009 5 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ SECTION 1: FIJI PUBLIC TRUSTEE CORPORATION LIMITED Programme Statement The corporation was established through the Fiji Public Trustee Corporation Act 2006.
The principal activity of the corporation is to act as a custodian and provide administrative services to estates of those persons who are deceased, of unsound mind or persons incapable of conducting their own affairs.

PART A – FINANCIAL INFORMATION The Fiji Public Trustee Corporation Ltd was established in April 2006.

The financial statements for the year ended 31 December 2006 is the first audited accounts of the corporation.
1.1 Audit Opinion The audit of the financial statements of the Fiji Public Trustee Corporation Ltd for the nine months ended 31 December 2006 resulted in the issue of an unqualified audit report.
1.2 Abridged Income Statement Year Ended 31 December Revenue Other Revenue Total Revenue Administration Expenses Marketing Expenses Other Operating Expenses Total Expenditure Operating profit Before Income Tax Income Tax Expense Net Operating Profit After Tax 2006 $ 580,566 73,198 653,764 289,400 4,143 47,303 340,846 312,918 97,090 215,828 The Corporation recorded a net operating profit after tax of $215,828 in 2006.
The major sources of revenue for the Corporation are fees raised from estates and trusts and interest earned on investments.
1.3 Abridged Balance Sheet As at 31 December Cash and cash equivalents Receivable from Estate and Trust Investments in Estate and Trust 2006 $ 284,721 602,941 7,864,629 Report of GCC, CSA, MOE & OBSE – December 2009 6 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ As at 31 December 2006 $ Other Receivables Prepayments Property, Plant and Equipment Future Income Tax Benefit Total Assets Accruals and Other Payables Deferred Income Payable to Estate and Trust Provision Provision for Income Tax VAT Payable Total Liabilities Net Assets Total Shareholders Equity 17,490 5,300 87,956 17,172 8,880,209 6,868 264,006 213,160 55,392 114,337 16,294 670,057 8,210,152 8,210,152 The net assets of the Corporation totalled $8,210,152 as at 31 December 2006.
The major component of the assets is made up of investments of the Corporation’s funds in the trust.

PART B – CONTROL ISSUES 1.4 VAT and Fees Reconciliation From our review of the VAT and fees reconciliations, we noted the following: Particulars Total fees as per VAT Returns Total fees as per financials Variance Amount ($) 18,602 235,044 216,442 The variance implied that fees were understated in the VAT Returns.
Such discrepancies could lead to potential tax queries from the Fiji Island Revenue and Customs Authority (FIRCA).

Recommendation We strongly recommend that the Corporation liaise with FIRCA to resolve the variances noted.

Corporation’s Comments We note the discrepancies above and amended VAT Returns for 2006 are being finalized and will be lodged with the VAT Unit.

We will also be meeting with the staff from VAT Unit to sort out the VAT 2006 issues and request waiver of penalties.
Report of GCC, CSA, MOE & OBSE – December 2009 7 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ 1.5 Interest Income Audit could not obtain all investment certificates and statements.
Therefore from the available information, it was noted that there was a variance of $179,307 in the interest income as per the investment certificates and statements and the interest income reflected in the financial statements.

Recommendation Fiji Public Trustee Corporation Ltd should keep a separate file for all investment made in respective organisation.

Reconciliation should be performed for interest income received from each investment.
Corporation’s Comments The Corporation keeps a separate file of all investments and provides monthly investment report to the Board and advises on investment plans.

However, management notes that a monthly reconciliation of all interest received should also be on file for each investments.
Report of GCC, CSA, MOE & OBSE – December 2009 8 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ SECTION 2: REWA RICE LIMITED The Rewa Rice Limited (RRL) is a limited liability company incorporated on 8 March 1960. it is 100% owned by the Government of the Fiji Islands.

The shareholders are the Permanent Secretaries for Finance and Public Enterprises.
RRL is a government commercial company with the principle objective of operating as a successful business and to be profitable and efficient as comparable businesses which are not owned by the state.

The company also has a community service obligation of helping promote the local rice industry by ensuring that there is a market for all paddy produced by farmers.

The principal activities of the company are purchases, milling and distribution of quality rice and associated products in Fiji.
RRL aims to be the leading provider of quantity nutritious rice at prices consumers can afford.

PART A - FINANCIAL INFORMATION 2.1 Audit Opinion The audit of the financial statements of Rewa Rice Limited for the year ended 31 December 2007 resulted in the issue of an unqualified audit report however management’s attention was drawn to the following issues: At 31 December 2007 there is an overall excess of liabilities over assets of $4,905,577 (2006: $4,799,200).
Accordingly there is significant uncertainty as to whether the company will be able to continue as a going concern and whether it will be able to pay its debts as they become due and payable and realize its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the Financial Statements.

The company’s amounts advanced will not be demanded in due course.
The Financial Statements do not include any adjustments relating to the recoverability or classification of recorded asset amounts or to the amounts or classification of liabilities that might be necessary should the entity not be able to continue as a going concern.

 There was general lack of internal control over receipt, custody and banking of company funds.
2.2 Statement of Financial Performance As at 31 December Revenue Sales Cost of Sales Gross Profit Other Income Total Revenue Expenditure Depreciation and Amortization 2007 $ 2006 $ 484,279 (565,443) (81,164) 264,011 182,847 436,767 (330,408) 106,359 231,282 337,641 (34,678) (59,837) Report of GCC, CSA, MOE & OBSE – December 2009 9 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ As at 31 December Personnel Expenses Operating and Administration Expenses Total Expenditure Loss after income Tax 2007 $ (53,303) (201,243) (289,224) (106,377) 2006 $ (132,057) (202,108) (394,002) (56,361) Rewa Rice Limited recorded a loss of $106,377 in 2007 compared to a loss of $56,361 in 2006.
The loss is directly attributed to the increase in cost of sales by 71%.
2.3 Statement of Financial Position As at 31 December Current Assets Cash on hand and at bank Other current assets Inventories Total Current Assets Non - Current Assets Property Plant and Equipment 2007 $ 2006 $ 74,454 46,460 151,093 272,007 85,576 57,106 167,149 309,831 1,705,172 1,755,106 Total Assets 1,977,179 2,064,937 Current Liabilities Trade & Other Payables Provisions Total Current Liabilities Non-Current Liabilities Advances from Shareholders Loan from Government of Fiji Total Non-Current Liabilities Total Liabilities 154,597 2,777 157,374 4,825,382 1,900,000 6,725,382 6,882,756 137,257 1,498 138,755 4,825,382 1,900,000 6,725,382 6,864,137 Net Assets Shareholders’ Deficiency (4,905,577) (4,905,577) (4,799,200) (4,799,200) Rewa Rice Limited recorded a net deficit balance in net assets of $4,905,577 in 2007 compared to $4,799,200 in 2006.
The deficit balance recorded was a result of advances from shareholders and a loan from the government totaling $6,725,382 that had remained outstanding for sometimes.

PART B - CONTROL ISSUES 2.4 Shareholders Advance – Government Grant On 07/09/04, Cabinet made a decision to convert $4.6 million of the shareholders advance to Government grant.
However, Rewa Rice Limited has requested that the decision be changed and the 10 Report of GCC, CSA, MOE & OBSE – December 2009 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ amount be converted to equity as the Company is unable to pay the VAT component of the grant which amounts to $575,000.

There has been no decision made by Cabinet to date as to how the $4.6 million is to be treated.
There will be an increase in the net deficiency in net assets since there will be a decrease in cash balance by the VAT component of $575,000.

The implication of the Government’s decision to convert the advance into equity however will improve the deficiency in net assets significantly.
Recommendation Rewa Rice Limited should take action to reopen the issue with Cabinet and emphasise on the importance of the issue and that the decision must be made to convert the grant into equity to ensure that the operations of the entity can continue in the future years.

Company’s Comments Cabinet Paper already prepared to be tabled this month, RRL is hoping for favourable response.

2.5 Going concern Audit noted that as at 31/12/07, a deficiency in net assets of $4,905,577 was recorded.
We also noted that the company has incurred a loss of $106,377 out of which $34,678 is depreciation recorded in the books for 2007.

The net loss less depreciation shows net cash inflow of $4,799,200.

This is not sufficient to meet the daily needs of the company.

Further, as the entity faces competition, government assistance is needed to ensure that it remains in operation in the future.
This shows that the company is not able to meet its short term-debts as they are payable therefore the long term operation of the company is at risk.

Therefore going concern of the company is an issue that exists.

Failure to improve the company position will have an adverse impact on the future operations of the entity.

Recommendation The entity needs to seek government assistance to ensure that it operates in the future.
Company’s Comments Submissions have been made to seek government assistance on mill repair and maintenance.

2.6 Alleged Abuse of Office Discussions with the Accountant reveled that the Manager had requested that an Attaché, to be paid on an hourly wage of $2, and not the usual Attaché pay of $10/day.

The Accountant believes that the Manager may have had personal ties with the Attaché.

This shows that there is no control over the compliance of company policies and this could give rise to fraud.
Report of GCC, CSA, MOE & OBSE – December 2009 11 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Recommendation The Company needs to ensure that policies on employment or any other duty is carried out free from biasness.

Company’s Comments The manager is under police investigation for his doings and has been suspended from his duties with RRL.
2.7 Unpaid PAYE Tax Discussions with client’s Accountant, the Manager had advised the accounts staff not to pay his PAYE tax.

The Manager had mentioned that since he was a pension holder he was not liable for tax.

Accounts staff had, therefore, not made the necessary tax deductions which totals to $1,304 from September 2007 to December 2007.

If FIRCA were to conduct a spot audit, RRL may be found to be liable.
Recommendation The Company needs to take ensure that it meets its statutory obligation for PAYE.

Company’s Comments Manager /Board member gave instruction to the pay clerk not to deduct as the manager claimed to be a retired pension holder and retired people were not qualified to pay PAYE.
Report of GCC, CSA, MOE & OBSE – December 2009 12 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ SECTION 3: UNIT TRUST OF FIJI (MANAGEMENT) LIMITED The Unit Trust of Fiji (UTOF) was established in 1976, and launched on April 25, 1978.
It was based on an idea floated by the Fijian Affairs Board (FAB) and the Native Land Trust Board (NLTB) for an investment vehicle for ‘the man on the street’, particularly Fijian people.

Since then it has grown from strength to strength to what it is today.

Since its establishment in 1978, UTOF has offered an attractive investment opportunity for individuals, companies and other types of investors.
It continues to invest in the shares of profitable companies, bonds and other securities to provide the returns required by unit holders.

In addition to returns on their investments through cash dividends, unit holders also benefit from the capital growth of the Trust Investment portfolio.

Unit holders can only realise this growth when they sell their units.
The UTOF gives small investors in Fiji an opportunity to own shares and other investments while at the same time spreading their risks and leaving the management of their investments in the hands of experts.

It also assists the Government’s policy of promoting wider participation by residents in the future development of Fiji.
PART A - FINANCIAL INFORMATION 3.1 Audit Opinion The audit of the financial statements of the Unit Trust of Fiji [Management Limited] for the year ended 30 September 2008 resulted in the issue of an unqualified audit report.
3.2 Abridged Statement of Financial Performance Year Ended 30 September 2008 $ 2007 $ Revenue Operating Revenue Other Operating Income Total Operating Revenue 1,538,312 1,567,510 3,603 1,545,977 1,571,113 7,665 Expenditures Personnel Expenses Other Operating Expenses Depreciation Total Operating Expenditure 465,858 634,811 76,032 570,719 585,720 81,821 1,176,701 1,238,260 Profit before Income Tax 369,276 332,853 Income tax expenses 132,898 103,199 Net profit for the year 236,378 229,654 The Trust recorded a net profit of $236,378 in 2008 compared to $229,654 in 2007.
Report of GCC, CSA, MOE & OBSE – December 2009 13 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ 3.3 Abridged Statement of Financial Position As at 31 December Current assets Cash at bank and on hand Investment – held to maturity Receivables Total current assets Non current assets Plant and equipment Unamortized interest Total non current assets Total assets Current liabilities Bank overdraft Borrowings Creditors and accruals Provision for income tax Total current liabilities Non current liabilities Deferred income tax liability Total non current liabilities Total liabilities Net assets Shareholders’ equity Share capital Retained earnings Total shareholders’ equity 2008 ($) 2007 ($) 5,479 49,073 3,879,057 3,933,609 273,055 - 273,055 4,206,664 1,378,771 - 1,615,150 83,317 3,077,238 8,261 8,261 3,085,499 1,121,165 50,000 1,071,165 1,121,165 1,156,459 49,073 2,326,691 3,532,222 289,659 2,938 292,597 3,824,819 - 12,112 2,832,208 88,038 2,932,359 7,673 7,673 2,940,032 884,787 50,000 834,787 884,787 Net assets increased by 27% as a result of increased in receivables by 67%.
Receivables consisted of manager’s remuneration, repurchases, dividend reinvestment, reimbursement receivable for the Fiji wai project, agency sales and prepayments.

PART B - CONTROL ISSUES 3.4 Outstanding receivables to be followed up The review of records revealed that a substantial amount of account receivables were outstanding as at 30 September 2008.

The balances outstanding were mostly from the previous financial period and in some instances back dating up to the early months of the financial year.
These balances have been accumulating over the months due to the failure of the company to make constructive follow – ups on the outstanding amounts.

Refer to the table below for details.
Description of receivables Reinvestment # 57 Reinvestment # 58 Manager’s remuneration Outstanding accumulated since: 30/09/07 30/09/07 21/10/07 Amount ($) 482,275.54 788,468.85 682,264.23 Report of GCC, CSA, MOE & OBSE – December 2009 14 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ The findings clearly indicate ineffective controls and lack of regular follow – up in the Accounts Section.
This could be a contributing factor towards negative cash inflows from operation recorded for the financial year.

Recommendation The internal control procedures in the Accounts Section should be strengthened in order to identify the outstanding debtors and regular follow – ups should be performed to recover all the overdue balances.
Management’s Comments The findings, comments and recommendations are noted and we confirm that the outstanding receivables have been cleared subsequent to the balance sheet date.

The receivables - reinvestment of dividends and manager’s remuneration were due from Unit Trust of Fiji (Trustee Company Limited and these were the inter-company transactions.
The re-investment of dividends and manager’s remuneration were not cleared on a timely manner due to low balance in the Unit Trust of Fiji’s (“UTOFs” bank account - Income Account.

This situation came about when Muainarewa Resorts Limited (Momi Bay Investment did not pay the interest payment on UTOF’s $12m Loan during the year and the interest income was accrued and formed part of the total income that was declared as dividend for the above period.
All the accrued income on Muainarewa Resorts Limited loan was written off at the end of the financial year ended 30th September 2008.
3.5 Bad debts written off to be approved The responsible authority for an off-budget state entity is responsible for the maintenance of an effective system of internal control for money and property.1 Verification of the records revealed that an account associated to reimbursement receivables totalling $92,857.61 relating to legal fees paid by the company for the loan provided by the Trust to a project was written off without any formal board approval.
The reversals of receivables of a substantial amount such as that highlighted in the issue above could raise potential avenues for misappropriation and fraud since these would be unauthorized.

Recommendation All material adjustments relating to significant balances of receivables especially related party balances should be formally approved by the board of directors.

Management’s Comments Any major write off is always approved by the Board.
The receivable was expensed off because recovery of funds from Muainarewa Resorts Limited was not possible.

However, even in the current year, all the expenses related to Muainarewa Resorts Limited is being expensed and any recovery in future will be accounted as “Other Income” in Management books.
1 Part 6 Division 1 Section 37 Financial Management Act 2004 Report of GCC, CSA, MOE & OBSE – December 2009 15 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ SECTION 4: POST FIJI LIMITED The Department of Posts and Telecommunications was established through the first Postal Act passed by the first Legislative Assembly of the Fiji Government in 1871.
The status of the company has changed over the years from a Government Department to a Government Commercial Company.

On 1 July 1996, Post Fiji Ltd began operation as a Government Commercial Company and is registered and incorporated under the Companies Act as a private company with the shareholding wholly owned by the Government.

The company is managed by a Board of Directors, appointed by the Government.
The core activities of the company include message communication in letters and distributing courier and parcel items.

It also provides stamps, financial transactions, telegram services, data processing and mail production services.

Over the years, the company has also diversified its revenue earning activities to include Post Shops and agency services.
PART A – FINANCIAL INFORMATION 4.1 Audit Opinion The audit of the financial statements of the Post Fiji Ltd for the year ended 31 December 2008 resulted in the issue of an unqualified audit report.
4.2 Abridged Statement of Financial Performance Year Ended 31 December 2008 $’000 2007 $’000 Revenue Sales Other Operating Revenue Total Revenue Expenditure Cost of Sales Administration and Operating Expenses Selling, Marketing and Distribution Expenses Other Operating Expenses Finance Costs Total Expenditure Profit/(Loss) before Income Tax Income Tax Benefit/Expense Net Operating profit after Income Tax 12,718 16,405 29,123 10,849 16,523 603 67 428 28,470 653 (285) 368 16,387 16,832 33,219 14,602 15,975 876 77 544 32,074 1,145 (401) 744 The company’s operation in 2008 realized a net profit after income tax of $368,252 compared to a net profit of $743,844 in 2007.
The decrease in sales revenue by 22% in 2008 contributed the decline in net profit.
Report of GCC, CSA, MOE & OBSE – December 2009 16 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ 4.3 Abridged Statement of Financial Position As at 31 December 2008 $’000 2007 $’000 Cash and Cash Equivalent Trade and Other Receivables Inventories Other Current Assets Property, Plant & Equipment Other Non-Current Assets Total Assets Trade & Other Payable Interest Bearing Borrowings Employee Entitlements Other Non-Current Liabilities Total Liabilities 4,058 5,402 5,415 1,732 12,048 481 29,136 9,540 5,369 931 846 16,686 4,698 5,775 3,906 554 12,507 2,008 29,448 9,782 5,566 880 767 16,995 Net Assets 12,450 12,453 Total Shareholders’ Equity 12,450 12,453 No significant change was noted in the company’s statement of financial position.
PART B – CONTROL ISSUES 4.4 Inventory Costing International Accounting Standard (IAS) 2 – Inventories allows the use of both first-in-first-out (FIFO) and the weighted average method for inventory costing.

The costing practiced by Post Fiji Ltd is last-in-first-out (LIFO).

Under IAS 2 LIFO as a cost formula is prohibited.

The LIFO method treats the newest items of inventory as being sold first, which is generally not a reliable representation of actual inventory flows.
The current inventory system at Post Fiji Limited does not have costing modules for FIFO or weighted average method for inventory costing.

When the price is adjusted to the latest price for a product code, the latest price is overwritten on the old prices.

Incorrect valuation of inventory at year end using LIFO method of valuation may result in the overstatement of inventory.
Recommendation It is recommended that the company liaise with its IMAS programmers to change/upgrade the costing in the inventory module to comply with the International Accounting Standard 2.
Report of GCC, CSA, MOE & OBSE – December 2009 17 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Management comments Your point is noted and management is trying to work out a way of tracking the costing of stock in line with IFRS and the company policy 4.5 Variances in Inventory Count There had been considerable variances noted in the stock take figures and the balances reflected in the stock listing produced by the Inventory System for the Postshops.
The surplus and shortages are aggregated to come to a net surplus or shortage.

The quarterly stock take figures are not reconciled to the General Ledger.

There is no evidence of investigations conducted by the company to verify these variances.

In addition, audit also noted that the Post Fiji Ltd did not perform a stock take at the end of financial year 31 December 2008.

Inadequate controls over inventory at Postshops increases the risk of misappropriation of assets by staffs.
Furthermore the non-reconciliation of stock take figures to the General Ledger on a quarterly basis increases the risk of inaccurate financial reporting of stock valuations.

Recommendation It is recommended that the quarterly stock take variances against perpetual records are properly investigated for theft, error in accounting or recording.

Management comments From 2009, quarterly reconciliation are being done for stock take figures and variances are investigated.
Quarterly reconciliation being filed by Finance.

We do not agree with the 3rd paragraph of stock take being done on the 31st Dec. To be removed 4.6 Internal Audit The Internal Audit Section doest not operate under an approved audit plan and lacks proper planning and auditing.

The work carried out by the Section focus on stock and cash holdings in different Post Offices and special investigations requested by management.
During the year, there was no internal audit performed on Finance, Payroll, Human Resource and Marketing.

In addition, we noted that risk assessment was not performed by the Internal Audit Section to prepare a risk register, audit program and timetable.

High risk areas such as procurement, tenders, payments, receipts and banking, payroll and general ledger reconciliations were not audited frequently.
The non performance of risk assessment increases the risk of errors and fraud being undetected on a timely manner.

Recommendations • Management should ensure that risk assessment is performed and a risk register prepared.
Report of GCC, CSA, MOE & OBSE – December 2009 18 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ • The risk register, audit programs and timetable of the internal audit should be prepared before the beginning of the year and approved by the Board.
Management Comments To discuss with the auditors 4.7 Stationery Contract After perusing the minutes of the Postshop Business Committee meeting, we established the following: i. ii.

iii.

On 5 June 2008, the committee had resolved that the tender for exercise books was to be on consignment basis.

On 29 July 2008, the committee awarded two companies the contract to supply exercise books for the Warwick and Viti brand respectively.
Company A had agreed for Post Fiji Limited to be the sole distributor of Warwick exercise books and as such, policing of this exclusivity clause would be carried out by Post Fiji.

Since the contract document with Company A could not be located during the audit, we could not ascertain whether the purchase of Warwick exercises books were on consignment basis or outright purchase.

Upon further inquires it was revealed that the Warwick exercise books were purchased outright by Post Fiji Limited.
However, we could not determine the cost to Post Fiji Ltd of the outright purchase of Warwick exercise books.

These exercise books are stored in level 3 of the GPO building in Suva.

The disadvantage of outright purchase is that Post Fiji Limited will incur additional storage cost as well as the likely risk of damages to the exercise books.

Recommendations • Management should ensure that companies who have been awarded contracts through the • tender process should comply with the terms of the contract.
It is recommended that an investigation be carried out on why the terms of the contract with Company A in relation to the provision of Warwick exercise books were not complied with.

Management Comments The outright purchase was made because it was easier to account for this in our books given the many outlets that we have.

We understand the issue of the cost of storage being associated with outright purchase.
We have tried to minimise the purchases in 2009 and order when required instead of overstocking Report of GCC, CSA, MOE & OBSE – December 2009 19 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ 4.8 Debtors Control Our review of the Debtors listing revealed the following anomalies: i. ii.

iii.

Sixty seven percent 67% or $3,642,454 of debts were over 90 days, which is due to laxity in debt collection.
Credit sales were still extended to some customers who have not settled their long outstanding debts.

No evidence of review of credit limits or credit assessment performed on these debtors before credit was offered.

iv.

Debtor turnover days were 110 days.

There is a risk that the debts would not be recovered, which could have an impact on the company’s cashflow.
Recommendations • Management should take appropriate actions and implement strategies to improve debt • collections, specifically, for long outstanding debts.

It is recommended that the company not consider extending credit to those debtors who still owe money to the company.

The company should continuously review the application of its credit policies.

• The company should urgently review its credit policy and make relevant changes to safeguard its interest.
Management Comments • • The $3.6m also includes overseas debtors which was totalling $2,426,186 at the end of 2008.

The overseas debtors are recovered in the following year and are normally under 90 days and over.

Your points are noted for the credit terms and debtors turnover.

For the local debtors, the team have been more aggressive in collection in 2009 in trying to recover debts 4.9 Excessive Cash Holding We noted that some Post Offices were holding cash on hand above the reserve amount.
The amount held also exceeded the amount that is insured for cash.

The company maintains an insurance cover over cash with an Insurance Company as follows: Suva and Ganilau House- limited to $200,000 each section All other locations- limited to $50,000 each section However, as at 31 December 2008, the Post Offices listed in the table below were holding cash which were more than both the reserved amount and the insured amount.
Report of GCC, CSA, MOE & OBSE – December 2009 20 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Station Insured Amount Reserve amount Cash held Ba Labasa Lautoka Suva Nadi $50,000 $50,000 $50,000 $50,000 $50,000 $3,000 $20,000 $8,000 $20,000 $4,000 $69,480 $149,252 $35,166 $215,003 $52,097 Excess $66,480 $129,252 $27,166 $190,003 $48,097 Holding excessive cash increases the risk of fraud and theft and in the event of theft, the company would not be in a position to recover the excess money held.
Recommendation Management should ensure that cash held in the Post Offices does not exceed the reserved limit.

Management Comments Excess cash is held at the end of the month to cater for social welfare payments which normally exceeds $1m a month.

However your point is noted and there is a team working on reviewing the cash holding for each post office.
The insurance will be done accordingly 4.10 Tender Irregularities Our review of the tendering process and documentation revealed the following irregularities: • • • Tender documents are not kept intact in the tender file.

Examples are: T03/08 Renovation of Nasinu Post Office, T05/08 Web design, T06/08 Supply of corporate uniform, T07/08 Supply of Point of sale equipments, T08/08 Security and T09/08 Back to school; Successful tender could not be verified for T07/08 Supply of Point of Sale equipments.
For tender “T09/08 Back to school”, tender date was 28/07/08.
However, the date written on the “Tender opening form” was 23/07/08; For tender “ T08/08 Security”, the previous/current provider was awarded the contract despite their hourly charge rate of $2.80 being higher than three other tenders whose hourly charged rates ranged from $2.00 to $2.50; • • The list of tenders received and signed off by the tender committee was not in the file for T03/08 Renovation of Nasinu Post Office; • Unsuccessful tenders were not notified through writing.
Non compliance with the tendering process and proper documentation increases the risk of fraud and error.

Lack of compliance with the guidelines set out in the Corporate Manual exposes the company to risk of loss and overpayments.

Recommendation Management should ensure that the company’s approved tender process and documentation requirements be strictly adhered to.
Report of GCC, CSA, MOE & OBSE – December 2009 21 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Management Comments Management will address this matter to ensure that this is not repeated.

4.11 Excessive and Negative Annual Leave From our review of the provision for annual leave, we noted several instances of annual leave days in excess of 10 days being carried forward.
As per the Policies and Procedures manual of Post Fiji, a maximum of 10 working days can be carried forward to the next financial year.

The current practice is in contradiction to the policies set for the company.

Some examples of large and negative annual leave carried forward by staff are as follows: Employee No.
Annual leave balance at year end Value ($) 47856 53116 45291 16667 53432 7626 7521 7543 120 147 133.5 127 85 (8) (8) (22) 24,923 23,746 23,106 21,981 14,385 (238) (238) (516) Carrying forward excessive leave to the next financial year would potentially increase the liability of the company when employees take leave.

When an employee takes annual leave in future, the payout to the employee may be higher than if the leave were utilised in the current year.

This is due to possible salary increases.


Carrying negative leave increase the risk of losses to the company when the staff leaves the company.

Recommendation We recommend that the company adheres to the policies pertaining to the leave balances.

Management Comments For those with excessive leave, we are ensuring that this will be fully utilised before the revision of any salary.

For negative annual leave, our HR will be strictly monitored.
4.12 General Provisioning Post Fiji Limited recognizes a general provision for stock obsolescence equivalent to about 1% of total inventory.

This contravenes paragraph 29 – 30 of the International Accounting Standard 2 – Inventories, which states that only specific provisioning is allowed.

Proper calculations were not performed to support the amount provided.

As a consequence, net inventory disclosed in the financial statement at year end may be over/under stated.
Report of GCC, CSA, MOE & OBSE – December 2009 22 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Recommendation It is recommend that regular ageing of its inventories is performed to determine slow moving stock which could then be used as a benchmark for the provision for stock obsolescence.

Management Comments Point noted.


4.13 Trust Account Bill pay and deposit money received from customers are banked into the Post Fiji operating account.

Under the Trust Act, Post Fiji Ltd needs to hold these funds in a trust account and not in its operating account.

Trust funds may be used by the company if banked with its operating funds.

Recommendation It is recommended that management consider setting up a trust account to hold funds separately for trust deposits.
Management Comments • • It is very difficult for Post Fiji to implement this.

Our post offices and outlets collect bills on behalf of corporate customers, and some require us to settle the collections on the very next day, for instance, Telecom Fiji.

In these cases, Post Fiji uses its own money from its main bank account to remit to the corporate customers.
The same also goes for Social Welfare payments which are done monthly and Post Fiji bills and collects from the Social Welfare Department subsequent to a month end.

With this arrangement, we believe that there is no risk of Post Fiji using the clients money for some other purposes.

There is also the problem of having no access to banking facility for some of our remote stations available.
However, we understand the issue raised and will try to work out a practical way of us maintaining a separate bank account Report of GCC, CSA, MOE & OBSE – December 2009 23 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ SECTION 5: FIJI HARDWOOD CORPORATION LIMITED The Fiji Hardwood Corporation was established to administer the Government’s hardwood plantations, located on Viti Levu and Vanua Levu, on commercial basis.
The principal activities of the company during the year ended 31 December 2006 were the business management of forest plantations, timber growers and the sale of trees and timber.

During 2006 financial year the company was also engaged in processing of logs into sawn timber.

Apart from the above there were no significant changes in the nature of activities of the company during the year.
PART A – FINANCIAL INFORMATION 5.1 Audit opinion The audit of the financial statements of the Fiji Hardwood Corporation Limited for the year ended 31 December 2006 resulted in the issue of an unqualified audit report.

However attention was drawn to the following matter.

• The audit report for the year ended 31 December 2005 reported the inability to ascertain the accuracy and reliability of the books of accounts maintained for the year ended 31 December 2005.
There is uncertainty that income, expenditure, assets and liabilities that were brought into account were disclosed accurately and therefore unable to ascertain the impact of this on the financial position, results and cash flows for the year ended 31 December 2006.
5.2 Statement of Financial Performance Year Ended 31 December 2006 $ 2005 $ Revenue Sales Other Income Total Revenue Expenditure Cost of sales Distribution Personnel Expense Operating Expense Total Expenditure Profit/(Loss) from operations Finance cost Loss before tax Income tax expense Loss after tax 14,116,675 166,841 14,283,516 11,615,245 622,214 1,195,339 6,600,687 20,033,485 (5,749,969) 1,041,951 (6,791,920) - (6,791,920) 14,255,212 189,569 14,444,781 8,992,368 753,040 1,677,343 4,486,269 15,909,020 (1,464,239) 600,494 (2,064,733) - (2,064,733) Report of GCC, CSA, MOE & OBSE – December 2009 24 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ The loss recorded by the Corporation increased by $4,727,187 or 229% compared to 2005 as a result of the increase in cost of sales, personnel and operating expenses.
5.3 Abridged Balance Sheet As at 31 December Current Assets Cash and cash equivalents Other current assets Total current assets Forest Assets Property, plant & equipment Non – Current Assets 2006 $ 2005 $ 809,278 3,588,576 4,397,854 159,605,955 7,237,018 166,842,973 139,118 5,189,600 5,328,718 159,605,955 7,403,533 167,009,488 Total Assets 171,240,827 172,338,206 Current Liabilities Bank overdraft Borrowings Trade payables Employee Entitlements Other Liabilities Total Current Liabilities Non Current Liabilities Borrowings Non-Current Liabilities Total Liabilities Net Assets Total Equity - 1,478,323 1,719,534 159,493 2,930,017 6,287,367 111,502 22,923 1,623,839 68,371 3,094,903 4,921,538 15,810,321 15,810,321 22,097,688 11,481,609 11,481,609 16,403,147 149,143,139 155,935,059 149,143,139 155,935,059 The Corporation’s net assets had declined by $6,791,920 or 4% in 2006 compared to 2005.
This was due to increase in liabilities by $5,694,541 or 35% in 2006.

PART B – CONTROL ISSUES 5.4` Forest Assets Audit noted that the standing forest resources of $159,605,955 comprised of approximately 54,115 hectares of mahogany plantations, which range from young plantations to plantations that are 40 year old.
Report of GCC, CSA, MOE & OBSE – December 2009 25 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ It is also noted that there is a natural addition to the forest plantation in every year.

However, the quantum cannot be determined until proper assessment or valuation is carried out.
The corporation’s directors have resolved not to amortise forest assets for the year ended 31 December 2006 as they are of the view that the increase in the value of forest assets due to increase in age offsets the decline in these assets from harvesting, since the corporation is at present harvesting at approximately 50% of sustainable capacity.

As a result no amortisation or additions to plantation costs have been recorded.
Audit is of the view that the forest assets should be amortised based on logs harvested.

The basis and amount of amortisation should be based on sound and robust methodology and subject to annual review.

Moreover no valuation report has been obtained for the year 2006.

Therefore, the fair value of the forest assets can not be ascertained.
Recommendations • The corporation should review its amortisation policy of forest assets and consideration should be given to develop sound robust amortisation methodology and amortise the forest assets based on logs harvested.

Internal assessment on an annual basis to be carried out in the absence of independent valuation in order to present fair and reasonable value of the forest assets in the financial statements.

• Management Comments The Directors’ assertions above are based on a sound background.
The basis is the increase in the value of the forest asset due to the maturing of forests, and the harvesting being below 50% of sustainable capacity.

This justification has been confirmed by the increase in the value of the forest asset as per the valuation done as at year 2007.

5.5 Litigations Claims Reviewing the solicitors’ confirmation received, we noted the following litigation cases currently being pursued against the corporation: Case No.
303/2002 294/2003 HBC 74/2006 43/06 271/2003 552/2005 Potential Losses Loss of mahogany Plantation on Vugalei plantation lease Loss of mahogany Plantation in Naimasimasi, Tailevu Loss of profits derived from supply of logs.

$215,000 in unpaid contributions.

Loss of lease over NLC Lot 15.

Loss of profits derived from logging on Koronovo leased land.
Whilst disclosures have been made as contingent liability, provision of $250,000 has also been made for the potential liability that may arise out of the above claims including litigations.
Report of GCC, CSA, MOE & OBSE – December 2009 26 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Audit noted that the corporation terminated the contract of former CEO for which provision of $50,000 has been made in the books of account.
The standard practice requires assessment of each case by the management and directors together with historical trend on litigation settlements, and based on this, provision should be made for potential liability.

Subsequent to balance date on 8 November 2007, the Native Land Trust (Leases and Licenses) (Amendment) Regulations 2007 were gazetted.

The effect of these regulations is that all Court cases against the corporation claiming invalidity of the mahogany 99-years leases do not have legal ground.
Recommendations • The progress of all litigation cases should be reviewed periodically and detail calculations and adequate provisions should be maintained wherever considered necessary.

• All the provision should be made in accordance with the FAS 37.

Management Comments The Board of directors review the legal cases every month and are of the view that there is no necessity to make any provisions for any of the litigation claims.
This is further confirmed by the retrospective legislation passed by the Government, as stated above.

The provision for $250,000 was an entry passed for the financial year 2005, as per a Board of Directors’ decision, to accommodate any unrecorded liabilities that may arise during the subsequent years.

This has proved to be prudent as evidenced in the adjustments passed during the subsequent years.
5.6 Fixed Assets Register Audit review of the corporation’s fixed assets noted that the corporation did not maintain a detailed fixed assets register for the manufacturing division.

The current list of fixed assets which were purchased from two suppliers, shows only totals for different asset categories.

Since it is difficult to identify individual assets, it will be more difficult, in future periods to identify additions and disposals and to assign the correct depreciation rates to individual assets.
By maintaining a detailed register, which is updated regularly, it will be easier to maintain effective control and keep an accurate record of total movements, balances and depreciation.

Recommendation The corporation should create a fixed asset register providing individual asset with details.
Management Comments The above comments are noted Report of GCC, CSA, MOE & OBSE – December 2009 27 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ 5.7 Employment Benefits The staff members of the corporation receive travel allowances, housing benefits and transportation facilities.

However, audit noted that the value of this employment benefits have not been considered for PAYE deductions.
From our review of VAT returns, we also noted that VAT output on the benefits has not been accounted for.

As per the provisions of the Income Tax Act and Inland Revenue Guidelines, allowances given to employees are considered as additional emolument derived by the employee, and accordingly additional PAYE deductions are required to be made.
Also, where a registered person provides employee benefits, which are also liable to income tax there is a deemed taxable supply of the fringe benefit, and VAT output tax is payable.

The taxable amount for income tax purposes, less any benefits provided which are zero-rated or exempt supplies for VAT purposes, is the deemed supply for VAT purposes By excluding of the above from PAYE deductions and VAT exposes the corporation to additional taxes and penalties.
Recommendations • The corporation should comply with the provisions of the Income Tax Act and make additional PAYE deductions pertaining to all employment benefits.

• The corporation should take appropriate corrective measures to account for VAT output on employee benefits such as motor vehicles.

Management Comments PricwaterhouseCoopers has reviewed the Payroll System and the benefit being processed therein and their recommendations have been implemented since late 2007.
5.8 PAYE Deductions and Accruals Personnel files were not updated with all updates on a regular basis.

Furthermore, audit noted that while calculating the taxable income of management staff, benefits provided to the staff members were not considered for the PAYE tax calculations.

Moreover the benefits provided to management staffs were not disclosed in the PAYE Annual Summary.

The corporation was subjected to tax investigation by FIRCA for which non payment of PAYE was identified.
From our review of the Statement of PAYE account, we noted the PAYE liabilities amounting to $291,588 were under accrued by the corporation.

This was subsequently booked by way of audit adjustment.

Report of GCC, CSA, MOE & OBSE – December 2009 28 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Recommendations • The payroll calculations should be checked by independent personnel.
The management should ensure that all benefits are considered while calculating the taxable income and PAYE tax of the employees and necessary tax should be deducted at source.

• The changes in the rates of pay, etc.

should be properly authorised and adequately documented.

A copy of all such updates should be kept in the personnel files.

• All the benefits should be disclosed in the PAYE Annual Summary.

Management Comments PricewaterhouseCoopers recommendations have been implemented from late 2007.
Further, we now have a HR officer who is responsible for updating the personnel files of all employees.

5.9 Inventories From our review of the inventories of the corporation, audit noted the following: 1.

Stock on hand for Forest account amounting to $23,460.85 was being carried forward from prior years.

No details were provided to us in relation to this balance.

2.

The corporation values its sawn timber inventories at lower of cost or net realisable value (NRV).
To determine the NRV, the management took the selling price as an indication of NRV without considering the selling costs.

3.

Subsequently, after adjusting for the selling cost, inventories were written down by $108,310 by way of audit adjustment.

Moreover, the following differences in the physical inventories as per the valuation report and the monthly movement report were noted.
Location Navutu Nasinu Waivunu Total difference As per valuation report (m³) 2,764.940 - 329.348 As per monthly movement report (m³) Difference (m³) 2,758.811 5.710 313.423 6.13 (5.71) 15.93 16.34 Based on average cost price, the impact of the above difference would be approximately $9,000.

Since the amount involved was immaterial, no adjustment entries were proposed.
• Audit noted that for the valuation of sawn timber using cost method, various borrowing costs were included for costing and valuation purposes.

This is a departure from FAS 23 – Borrowing Costs, as the relevant inventories do not fall under the category of qualifying asset.

• Quantity of sawn timber as per stock obsolescence totalled to 3,376.404 m³ as compared to 3,528.215 m³ as per valuation report.
The difference of 151.811 m³ remains un-reconciled at the Report of GCC, CSA, MOE & OBSE – December 2009 29 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ date of this report.

Therefore, we are unable to determine if provision for stock obsolescence has been correctly accounted.

We further noted a difference of $7,676 between the provision for stock obsolescence and the trial balance.
This was subsequently rectified by way of audit adjustment.

Recommendations • The corporation should maintain complete details of inventory balances.

Further, adequate supporting should be kept and made available for the audit.

• To value inventories at net realisable value (NRV), the selling costs or point of sale costs should also be considered to determine the correct NRV.
• Physical inventory balances should be properly reconciled with the year end closing • inventory schedules to ensure completeness and accurate valuation of the same.

Stock valuation should be verified by a senior person ensuring that proper costing is carried out and stock valuation report updated on a regular basis.

Management Comments All the above recommendations have already been applied from the year 2007.
The details for observations items 1, above was given to the auditors during the course of the audit.

This was for logging equipment.

5.10 Credit Control Procedures A review of the year-end debtors and advances balances revealed that a large percentage of year end debtors were long overdue.

Credit control procedures in relation to receivable balances require significant improvements.
Poor collection of debtor balances contributes to cash flow difficulties and gives rise to high levels of working capital.

Additional interest expense will be incurred as further borrowing become necessary to support the day to day cash flow requirements of the corporation.

The absence of timely and effective credit control procedures increases the likelihood that the debtor balance will prove uncollectible.
Furthermore audit noted that, additional provision for doubtful debts amounting to $2,567,199 was made by the corporation during the year.

Recommendations • The management implement strict credit control procedures with a view to minimise the outstanding debtors balance at any point in time.

The ageing and collection statistics should be included as part of monthly management reporting.
• Customers whose accounts are in excess of the agreed credit terms and are overdue should be reviewed periodically and necessary corrective action should be taken to ensure that receivable balance is collected as per the credit terms.

Management Comments From 2007, stringent credit control procedures are in place, which are closely monitored by Management and the Board of Directors.

All old debts are adequately provided for, as evidenced by the large provision of $2,567,199 mentioned above.
Report of GCC, CSA, MOE & OBSE – December 2009 30 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ 5.11 Contractual Provisional Taxes Under the Income Tax Act, any person making payment under a contract for services (other than employment which is subject to PAYE tax deductions) to a resident person or entity is required under the relevant income tax regulations to make a deduction for provisional tax of 15% of the gross amount for services rendered and pay the same to Inland Revenue unless the service provider holds a certificate of exemption.
Inland Revenue may seek the payment of all provisional taxes before allowing any deduction for expenditure which is subject to provisional tax.

Alternatively, Inland Revenue may recover the provisional tax together with the penalty from the corporation.

From our review of Statement of Provisional Tax Account, we noted that provisional tax was not deducted on all contractor payments.
Recommendation The corporation should ensure that a deduction of provisional tax of 15% of the gross amount is made from payments to service providers and paid to Inland Revenue unless the service provider holds a certificate of exemption.

Management Comments Noted.

Systems and procedures were put in place from mid 2007.
Report of GCC, CSA, MOE & OBSE – December 2009 31 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ SECTION 6: FIJI DEVELOPMENT BANK The Fiji Development Bank is an autonomous statutory body that was established on 1st July 1967 to provide finance for projects that contribute to the development of Fiji’s economy as well as improving the quality of life of its people.
The Bank’s operations are controlled by a Board of Directors appointed by the Minister of Finance.

Until recently, the Fiji Development Bank depended on Government to finance its operations.

Apart from guaranteeing lines of credit for the Bank, Government also provided annual capital grants until the mid-nineties.
Although capital grants have been infrequent since, Government continues to support development projects/plans and special assistance programs administered by the Bank vide interest subsidies and guarantees annually.

The Bank has now diversified its portfolio to include commercial products and services which also assist in sustaining the Bank’s core business of financing higher risk development projects.
The Fiji Development Bank’s function is to facilitate and stimulate the promotion and development of natural resources, transportation, and other industries and enterprises in Fiji, and in the discharge of these functions the Bank gives special consideration and priority to the economic development of the rural and agricultural sectors of the economy of Fiji.
PART A – FINANCIAL INFORMATION 6.1 Audit Opinion 2009 The audit of the financial statements of the Fiji Development Bank for the year ended 30 June 2009 resulted in the issue of an unqualified audit report.
6.2 Abridged Statement of Financial Performance For the year ended 30 June Income Interest from Loans Fees Other Income Total Income Consolidated The Bank 2009 $ 2008 $ 2009 $ 2008 $ 39,240,723 2,188,065 3,209,839 44,638,627 45,029,126 7,822,482 10,771,948 63,623,556 39,239,174 2,188,065 3,190,989 44,618,228 45,027,583 7,822,482 10,771,667 63,621,732 Expenses Interest and other borrowings expenses Operating expenses Employee costs Total Expenses 14,668,517 3,893,045 6,387,920 24,949,482 20,496,744 5,579,258 7,474,643 33,550,645 14,668,517 3,889,693 6,387,920 24,946,130 20,496,744 5,553,427 7,474,643 33,524,814 Operating profit before provisions 19,689,145 30,072,911 19,672,098 30,096,918 Provisions 16,196,258 26,273,475 16,196,258 26,273,475 Operating profit before income tax 3,492,887 3,799,436 3,475,840 3,823,443 Report of GCC, CSA, MOE & OBSE – December 2009 32 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ For the year ended 30 June Consolidated The Bank 2009 $ 2008 $ 2009 $ 2008 $ Income tax expense --- --- --- --- Operating profit after income tax 3,492,887 3,799,436 3,475,840 3,823,443 A decline in operating profit after tax to $3,492,887 was recorded by the bank for 2009 compared to $3,799,436 in 2008.
This was a result in decreases in the bank’s income by 30% however the bank was also able to reduce its expenditure by 31% in 2009 compared to 2008.
6.3 Abridged Statement of Financial Position For the year ended 30 June Consolidated The Bank 2009 $ 2008 $ 2009 $ 2008 $ Cash Current loans and advances Other current assets Property, plant & equipment Other non-current asset Total Assets Current borrowings Other current liabilities Non current borrowings Total Liabilities Net Assets 108,389,055 99,332,168 108,365,258 99,325,418 Capital Reserves Accumulated Profits Total Capital and Reserves 56,050,636 11,187,562 41,150,857 108,389,055 56,050,636 5,623,562 37,657,970 99,332,168 56,050,636 11,187,562 41,127,060 108,365,258 56,050,636 5,623,562 37,651,220 99,325,418 The increase in the net assets by $9,056,887 or 9% in 2009 compared to 2008 was attributed to decreases in short term liabilities.
PART B – CONTROL ISSUES 6.4 Loans and Advances The audit noted several internal control deficiencies within the loans and advances cycle.

These issues noted are recurring issues reported in prior year audits.
The loan cycle consists of: Report of GCC, CSA, MOE & OBSE – December 2009 33 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Prequalification; • • Appraisal, approval and disbursement; and • Monitoring and supervision.

Some of the deficiencies in controls noted are: 1.


Prequalification It was noted that there were instances when the prequalification requirements were not properly filed or met loan requirements.

These include: Wrong application fee collected.

The application fee should have been $100 but $50 was receipted (Account #401262); Pac In Solution Limited was in liquidation and could not enter into contract with customer (Account # 2194) to buy the company.
The loan was initially approved but after FDB became aware of the legal status of Pac In Solution, the legal department advised the loan officer to decline the loan offer.

This shows that proper due diligence was not performed at the initial stage of the loan processing; A customer (Account # 45357) does not have business and accounting skills to run a business.

Loan was declined initially but later approved.


The loan has now gone bad with Security Reserve Valuation inadequate to cater for loan; 2.

Appraisal, approval and disbursement The following issues were noted for appraisal, approval and disbursement: Security items include fibreglass boat, outboard engine, dive tanks, chainsaws, tools laptop, generator, ropes etc.

No valuation on these items in the file.

These items were estimated at market price by loan officer.
The bills of sale over these items are weak as these items can be sold to third parties.

This is because there is no need of title change for these type of assets (Account # 401116); There were a lot of duplicate copies of documents like photocopies of application forms, mortgage papers, security progress reports, valuation reports, loan agreement and customer details and so on with originals also in file.

This increase files size and duplicated information.
Documents not filed systematically for easy reference; and 3.

Monitoring and supervision Most loans were in arrears and did not make repayments in a timely manner.

 Audit noted that some loans were not properly appraised, proper search performed on person applying for loan or business plan or evidence of funds, etc.

However, the bank approved the loans in prior years to customers.
The Loan Procedures Manual requires policy and standards must never be compromised because of the desire to meet the expectations of a customer, colleague or sale target.

(Account # 113269).

Non-adherence to approved policies and procedures increases the risk of financial losses to the Bank.
Report of GCC, CSA, MOE & OBSE – December 2009 34 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Recommendation Management should ensure that policies and procedures are strictly enforced.
Management comments Prequalification Management has taken note of these and have carried out remedial actions where necessary: Account # 401262 – The customer has been advised of the incorrect application fee charged and has paid an additional $50.00 (receipt no.4016939).

 Account # 2194 – Credit checks were conducted for the applicant company but not for the vendor company during the approval process.

In future, credit checks will also be conducted on vendors to avoid such problems.
Account # 45357 – The decision to reconsider, and approve the loan was however based on: the projects capacity to service its debt with DSC 1.8:1 at COGS of 80%; raising $12K to meet deposit (28%) evidence satisfactory commitment upfront; proven credit history on existing farm account; income source from cane proceeds exists.

Bank may pursue this to service proposed debt should project fail.
Furthermore, the client’s 5-year experience as a sales assistant, coupled with his wife’s association to retail business added merit to the loan approval.

Appraisal, approval and disbursement Account # 401116 – Bill of sale is taken over moveable items, which is a normal and acceptable mode of security for banks.

For the BOS securities provided for this loan, the purchase price of the items were taken as their security value, based on the nature of the items.
Management has taken note of the duplication of documents on file and has advised the network to ensure that proper filing is maintained.

Monitoring and supervision Of the total portfolio, 77% were performing loans, of which 58% were not in arrears and the balance of 19% were within the acceptable arrears age for performing loans.
The, high arrears are due to the following factors: • bank does not have trading accounts, thus repayments cannot be deducted at source; • bank’s nature of business in catering for high-risked loans.

; • these customers also have erratic cash flows due to delayed crop maturity/project completions and fluctuating weather patterns; the current global condition and its effect on the national economy; and the effects of the January 2009 flood.
• • In spite of the above constraints, the Bank is making all efforts to contain the current arrears at acceptable levels.

 Account # 113269 – Management has noted the comments and is in agreement that approved policies and procedures must be adhered to.

For the cited account, management is of the view that proper procedures were followed.

This loan was approved in April 2005.


This proposal was also supported by the Ministry of Fisheries and Forests under SCARF fishing scheme, as per their feasibility/viability study dated 16th December 2004.

As technical professionals, the Fisheries Department’s opinion on the viability of the project played an integral part in the Bank’s decision to proceed with funding.
6.5 Internal Audit The audit noted that the internal audit team did not complete all projects set out in its plan for the financial year.

11 programs out of the 21 were not completed.

Out of the 11, 6 were in the process of report finalization, 1 was in progress and 4 outstanding.
Report of GCC, CSA, MOE & OBSE – December 2009 35 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Audit review of the internal audit reports reveal that issues raised for Bank branches are recurring issues from prior years.

There seems to be lack of corrective action by staff.
The function of Internal Audit would not be effective unless the issues highlighted in the internal audit reports are addressed by staff.

It was noted that management responses to audit findings were slow.
The audit program and the status of the audit reports are as follows: Number Audit area SME Corporate Agriculture New Products Nausori Sigatoka Nadi Lautoka Rakiraki Ba Savusavu Labasa Seaqaqa AMU Legal Division Finance HRM MIS Training Properties R & M Target month July 2008 July 2008 July 2008 July 2008 August 2008 August 2008 August 2008 August 2008 September 2008 September 2008 September 2008 September 2008 September 2008 December 2008 January 2009 January 2009 February 2009 March 2009 March 2009 April 2009 May 2009 Status/Date of report October 2008 September 2008 November 2008 November 2008 Finalising report November 2008 November 2008 November 2008 Finalising report January 2009 January 2009 Finalising report Outstanding Current working on this Finalising report Finalising report Finalising report Outstanding Outstanding July 2008 Outstanding The delays in internal audit work increases the risk of issues not being identified and corrected on a timely basis.
Recommendation Management should ensure that Internal Audit’s work programs are strictly adhered to.

There should also be timely reporting to the Board.

The Board should take appropriate action for continuous breach of policies and procedures by staff.

Management comments Comments are noted.

Because of lack of experienced staff and high staff turnover, Internal Audit couldn’t have completed its work programs.

New staff had to be trained on the job and this delayed normal work flow.
A number of other special assignments, which included investigation of highly suspicious transactions and hindsight reviews) may have also interrupted the achievement of the work program.

We have since put in another staff in the department.

Reporting to the Board Audit Sub-Committee has been lacking particularly during this reporting period.

We have noted to strictly adhere to the scheduled quarterly meeting that had been approved by the Board Audit Sub- Committee.
Report of GCC, CSA, MOE & OBSE – December 2009 36 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ We have noted to take stronger disciplinary measures against staff that have continuously breached policies and procedures.

6.6 Review of Assets A board of survey was conduced by Properties department in 2009 to confirm the existence of assets.
However, Properties’ Fixed Asset Register (FAR) does not reconcile to Account’s FAR as Properties’ FAR maintains all fixed assets of the Bank.

The board of survey report is in the process of being finalised.

During the board of survey, a lot of computer equipment were identified for write off but the equipment could not be matched to the Account’s FAR, so the recording of these disposals have been put on hold.
The non reconciliation of Properties’ FAR to Account’s FAR increases the risk of overstatement in assets in the accounts.

The lack of a proper reconciliation of records by the custodian and listing used to prepare accounts increases the risk of errors in the accounting of assets.

Recommendation Management should ensure that Finance and Properties reconcile their FAR and accounts be adjusted accordingly to the Board of survey carried out.

Management comments The Comments are noted.


Management will complete the Board of Survey Report by 31.12.2009 with a detail reconciliation statement.

Management is also in the process of reviewing its existing property manual that includes the acquisition, recording, managing and disposal of fixed assets and the same will be completed by 31.12.2009.

Report of GCC, CSA, MOE & OBSE – December 2009 37