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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 and Commercial Statutory Authorities – June 2009 ACCOUNTABILITY IN THE PUBLIC SECTOR THROUGH QUALITY AUDIT SERVICES REPORT OF THE AUDITOR GENERAL OF THE REPUBLIC OF FIJI Audits of Government Commercial Companies and Commercial Statutory Authorities - June 2009 REPUBLIC OF FIJI File: 102 2nd July, 2009 Commodore Josaia V. Bainimarama Prime Minister and Minister for Finance P O Box 2353 Government Buildings SUVA Dear Sir REPORT OF THE AUDITOR GENERAL Audit of Government Commercial Companies and Commercial Statutory Authorities 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 Government Commercial Companies and Commercial Statutory Authorities that were completed during the 1st half of 2009.
Tevita Bolanavanua Auditor - General OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Introduction This report presents the results of financial audits of 5 Government Commercial Companies (GCC) and a Commercial Statutory Authority (CSA) completed during the 1st half of 2009.

Financial audits of GCC and CSA that are in progress will be reported in December 2009.
The following table summarizes the status of all audits in the above categories to date: Government Entity Audit Completed Audit Opinion Remarks GCC Airport Fiji Limited Fiji Broadcasting Corporation Limited 2008 2007 Unqualified Unqualified Fiji Ships & Heavy Industries Limited 2007 Unqualified Food Processors Limited 2006 Qualified Fiji Ports Corporation Limited Post Fiji Limited Rewa Rice Limited 2008 2007 2006 Unqualified Unqualified Qualified Unit Trust of Fiji (Management) 2007 Unqualified Viti Corp Yaqara Pastoral Company 2007 Unqualified 11 Fiji Public Trustee Corporation Limited 12 1 2 3 4 Ports Terminal Limited CSA Public Rental Board 2008 Unqualified 2007 Unqualified Housing Authority 2007 Unqualified Fiji Electricity Authority Fiji Meat & Industry Board 2008 2007 Unqualified Qualified 2008 account yet to be submitted for audit.
A subsidiary of Fiji Ports Corporation Limited from June 2009.

2007 account yet to be submitted for audit.

is being Audit of 2008 account is in progress.

2007 account yet to be submitted for audit.

Audit of 2008 account finalized.

Leased to Dairy operative Fiji Limited.

2008 account yet to be submitted for audit.

Audit of 2006 account finalized.

farmers Co- is being 2008 account yet to be submitted for audit.

2008 account yet to be submitted for audit.

2008 account yet to be submitted for audit.


GCC operate purely on commercial basis while CSA has both social and commercial functions.

Both types of entities are established and governed by their respective legislations.

Some have specific provisions on dates for the submission of their accounts and are meeting them satisfactorily while others have not shown any improvement since they were last reported.
The 6 entities reported were all issued unqualified audit opinions which implies that their financial statements give a true and fair view (or are presented fairly in all material respects) in accordance with the identified financial reporting framework.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 2 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ 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 and control issues represent our audit findings, recommendations and the management comments.

Readers will note that some audit findings raised in this report have no management comment.

This implies that none was received from that respective statutory authority.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 3 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Table of Contents 1.4 1.1 1.2 1.3 2.1 2.2 2.3 2.4 2.5 2.6 2.7 SECTION 1: AIRPORTS FIJI LIMITED .......................................................................................................... 6 PART A – FINANCIAL INFORMATION ......................................................................................................... 6 AUDIT OPINION ..................................................................................................................................... 6 ABRIDGED INCOME STATEMENT ........................................................................................................... 6 ABRIDGED BALANCE SHEET ................................................................................................................. 7 PART B – CONTROL ISSUES............................................................................................................................ 8 PASSENGER SCREENING CHARGES ........................................................................................................ 8 SECTION 2: FIJI SHIPS & HEAVY INDUSTRIES LIMITED ...................................................................... 9 PART A – FINANCIAL INFORMATION ......................................................................................................... 9 AUDIT OPINION ..................................................................................................................................... 9 ABRIDGED INCOME STATEMENT ........................................................................................................... 9 ABRIDGED BALANCE SHEET ............................................................................................................... 10 PART B – CONTROL
10 PART B – CONTROL ISSUES.......................................................................................................................... 10 BUSINESS PERFORMANCE – SUBSTANTIAL LOSSES ............................................................................. 10 VAT AND SALES RECONCILIATION ..................................................................................................... 11 VAT RECONCILIATION........................................................................................................................ 11 BREACH OF LOAN AGREEMENT........................................................................................................... 12 SECTION 3: YAQARA PSTORAL COMPANY LIMITED .......................................................................... 13 PART A – FINANCIAL INFORMATION ....................................................................................................... 13 AUDIT OPINION ................................................................................................................................... 13 ABRIDGED INCOME STATEMENT ......................................................................................................... 13 ABRIDGED BALANCE SHEET ............................................................................................................... 14 PART B – CONTROL ISSUES.......................................................................................................................... 15 INCORRECT TAX RETURN.................................................................................................................... 15 15 LEASE ROYALTY INCOME .
SECTION 4: FIJI PORTS CORPORATION LIMITED ................................................................................ 16 PART A – FINANCIAL INFORMATION ....................................................................................................... 16 AUDIT OPINION ................................................................................................................................... 16 ABRIDGED INCOME STATEMENT ......................................................................................................... 16 ABRIDGED BALANCE SHEET ............................................................................................................... 16 PART B – CONTROL ISSUES.......................................................................................................................... 17 MARITIME PORTS AUTHORITY OF FIJI DEBT ....................................................................................... 17 VAT RECEIVABLE............................................................................................................................... 17 SECTION 5: PORTS TERMINAL LIMITED ................................................................................................. 19 PART A – FINANCIAL INFORMATION ....................................................................................................... 19 AUDIT OPINION ................................................................................................................................... 19 ABRIDGED INCOME STATEMENT ......................................................................................................... 19 ABRIDGED BALANCE SHEET ............................................................................................................... 20 PART B – CONTROL ISSUES.......................................................................................................................... 20 FIJI PORTS CORPORATION LIMITED DEBT
 ........................................................................................... 20 .................................................... 5.1 5.2 5.3 3.1 3.2 3.3 4.1 4.2 4.3 3.4 3.5 4.4 4.5 ........ 5.4 Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 4 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ 6.1 6.2 6.3 SECTION 6: FIJI ELECTRICITY AUTHORITY .......................................................................................... 21 PART A – FINANCIAL INFORMATION ....................................................................................................... 21 AUDIT OPINION ................................................................................................................................... 21 ABRIDGED INCOME STATEMENT ......................................................................................................... 21 ABRIDGED BALANCE SHEET ............................................................................................................... 22 PART B – CONTROL ISSUES.......................................................................................................................... 22 INVENTORY SUBSIDIARY SYSTEMS AND CONTROLS............................................................................ 22 DEBTORS RECONCILIATION................................................................................................................. 23 ELECTRICITY DEBTORS – UNALLOCATED DEBITS AND CREDITS......................................................... 23 LONG OVERDUE RECEIVABLES ........................................................................................................... 24 CAPITAL PROJECTS AND BORROWINGS ............................................................................................... 24 FINANCIAL INSTRUMENTS AND RISKS
 ................................................................................................. 25 IMPAIRMENT OF ASSETS...................................................................................................................... 25 BANK COVENANTS.............................................................................................................................. 26 INTERNAL AUDIT................................................................................................................................. 26 ACCOUNTING PROCEDURES MANUAL ................................................................................................. 27 FIXED ASSETS ..................................................................................................................................... 27 LAND TITLES....................................................................................................................................... 28 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 6.14 6.15 Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 5 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ SECTION 1: AIRPORTS FIJI LIMITED Airports Fiji Limited (AFL) is a wholly government owned government commercial company.
It was established on 12 April 1999 as a result of the re-organisation of Civil Aviation Authority of Fiji (CAAF) into separate commercial and regulatory authorities under the Public Enterprises Act, 1996.

AFL operates 15 public airports in the Fiji Islands.

These include two international airports – Nadi and Nausori, and 13 outer island airports.

AFL also provides air traffic management (ATM) in the Nadi Flight Information Region (FIR).
The Nadi FIR includes the air spaces of Fiji, Tuvalu, New Caledonia, Kiribati, and Vanuatu covering an area of 6.1 million square kilometres.

The ATM operation is currently contracted to a private company, Strategic Air Services Limited (SASL) PART A – FINANCIAL INFORMATION 1.1 Audit Opinion The audit of the financial statements of the Airports Fiji Limited for the year ended 31 December 2008 resulted in the issue of an unqualified audit report.
1.2 Abridged Income Statement YEAR ENDED 31 DECEMBER REVENUE Air Navigation Charges Airport Security/Development Fee Concessions Landing And Parking Fees International Passenger Service Charge Rental- Offices And Warehouses Other Operating Income TOTAL REVENUE EXPENDITURE Contract Costs Depreciation Salaries & Wages Utilities Other Operating Expenses TOTAL EXPENDITURE PROFIT FROM OPERATIONS 2008 $ 2007 $ Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 6 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ AFL recorded a profit from operations of $5,253,488 in 2008 compared to $783,568 in 2007 as a result of an increase in total revenue by 9%.
Significant increases were noted for: passenger service charges increased by $141,815 or 4.8% due to the increase in the number of international passenger; landing and parking fees international increased by $1,071,555 or 13.6% due to increase in the landing charges for aircrafts and the emergency landing of the airbus in December 2008 which weighs about 540 tonnes; air navigation charges increased by $639,636 or 7% due to the charges of $2 per tonne for the services provided by the control tower which was not charged previously; and On the other hand, total expenses decreased in 2008 by $834,944 or 2.1% mainly due to decrease in interest expense by $1,047,795 or 35.4% while industrial disputes decreased by $1,000,000 or 100%.
1.3 Abridged Balance Sheet As at 31 December Current assets Cash and cash equivalents Receivables Other assets Total current assets Non current assets Deferred tax asset Property, plant and equipment Total non current assets Total assets Current liabilities Accounts payable Borrowings Other current liabilities Total current liabilities Non current liabilities Borrowings Deferred tax liability Other non current liabilities Total non current liabilities Total liabilities Net assets Shareholders’ equity Share capital Retained earnings Total shareholders’ equity 2008 ($) 2007 ($) The company’s net assets increased by $14,035,686 or 13% in 2008 compared to 2007 mainly due to the following: Increase in cash and cash equivalents by $1,354,189 or 8.6% due to an increase in short term deposits.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 7 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Accounts payable declined by $8,109,109 or 58% due to the decreased in land rental by $9,611,371 or 99%.

Borrowings declined by $6,400,316 or 17.7% due to repayment of ANZ bank loan.
Decline in employee benefits by $539,259 since the implementation of arbitration award was done in 2007; and Decline in deferred tax liability by $1,886,457 or 11%.

PART B – CONTROL ISSUES 1.4 Passenger Screening Charges We note that Air Pacific Limited has disputed the passenger screening charges totaling approximately $1.08m.

The balance outstanding as at the 31 December 2007 amounted to $824,830.
The company has been advised by their solicitors that the passenger screening charges are recoverable and accordingly management is following up to ensure the overdue amounts are collected.

However, as a prudent measure, the management has made an allowance for doubtful debts amounting to $1.08m for the year ended 31 December 2008 and is also pursing this matter for recovery.

Recommendations We recommend that the management should take necessary action to recover the above amount.
Further, the allowance for doubtful debts should be reviewed on an annual basis and appropriate adjustments should be made, when required.

Management Comments The matter is before the Court of Appeal.

AFL’s position comes from the amended Civil Aviation securities act and the CAAFI Civil Aviation security program regulations.

Allowance for doubtful debts is as per finance policy manual.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 8 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ SECTION 2: FIJI SHIPS & HEAVY INDUSTRIES LIMITED FSHIL was registered under the 1983 Companies Act as a Private Company Limited by Shares.

The company commenced operation in May 2001 under the name of Fiji Shipbuilding Corporation Limited.
Its incorporation was the result of the government’s acquisition of the assets of the former company, Shipbuilding (Fiji) Limited, which has been in receivership since December 1999.

With effect from January 2003 the company name has been changed to Fiji Ships and Heavy Industries Limited.
The mandate as stipulated in the Memorandum of Association states the following objectives: to develop the shipyard and slipway that was acquired by Government; to carry on the business of slipway operators including ship repair and maintenance, heavy and civil engineering construction and the building of new vessels for the local and international markets; to provide a viable commercial facility to achieve a minimum 10% annual return on the shareholders’ investments over the planning period to provide maximum employment opportunities in the ship repair/ship building industry and the civil and heavy engineering construction industry.
PART A – FINANCIAL INFORMATION 2.1 Audit Opinion The audit of the financial statements of the Fiji Ships and Heavy Industries Limited for the year ended 31 December 2007 resulted in the issue of an unqualified audit report.
2.2 Abridged Income Statement Year Ended 31 December Revenue Operating Income Direct Costs Gross Profit Other Operating Income Operating Expenses Other Operating Expenses Loss from Operations Finance Costs Loss before income tax Income tax (expense)/ benefit Net Loss for the year after Income Tax 2007 $ 2006 $ 1,390,004 (1,037,842) 352,162 159,102 (952,943) (520,411) (962,090) (152,660) (1,114,750) (84,294) (1,199,044) 2,700,656 (1,412,681) 1,287,975 88,475 (939,197) (866,196) (428,943) (111,911) (540,854) 87,681 (453,173) The company recorded a net loss of $1,199,044 in 2007 compared to a net loss of $453,173 in 2006 because of decline in income received from slipway and shipyard revenue by $1,310,652 or 49%.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 9 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ 2.3 Abridged Balance Sheet As at 31 December Current Assets Cash and Cash Equivalents Trade Receivable Inventories Other Current Assets Total Current Assets Non - Current Assets Property, Plant and Equipment Deferred Tax Assets Intangible Assets Total Non –Current Assets Total Assets Current Liabilities Trade Payables and Accruals Interest Bearing Debt Provisions Total Current Liabilities Non-Current Liabilities Interest Bearing Debt Total Liabilities Net Assets Total Equity 2007 $ 2006 $ Net assets decreased by $1,199,044 or 18% in 2007 compared to 2006 due to decreases in cash and cash equivalents, trade receivables, inventories, property, plant and equipment and deferred tax assets.
PART B – CONTROL ISSUES 2.4 Business Performance – Substantial Losses The company has recorded a substantial net operating loss of $1,114,750 for the year ended 31 December 2007.

In 2006, the operating loss was $540,854.

If this is not dealt with in a timely manner it will create financial difficulties.

Recommendation FSHIL should prepare individual boats Income and Expenditure statement when repairing work is being carried out in order to identify the basis for loss arising.
Management Comments Currently, manual records are maintained and used to monitor and evaluate the financial results of individual ship repair projects, i.e.

whether the company makes a profit or loss from each project.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 10 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ We replaced the IDL computerized accounting system with a MYOB package from January 2007.

The MYOB package has a “Job costing” sub-system which was specifically designed to provide financial performance reports for each project.
However, this job costing system has not been able to integrate all the necessary data from the other relevant sub-systems (payroll, purchase and inventory) due to cabling and networking problems.

Work will commence soon to re-run the cabling works and re-configure our networking system, at the end of which we will then be able to have an all-inclusive financial reporting system for individual projects.
2.5 VAT and Sales Reconciliation Audit noted that there was a variance in the sales as per the financial statements and sales as per VAT Returns.

Particulars Total sales as per vat returns Total sales as per financials Variance Amount ($) 1,652,833 1,535,842 (116,991) This implies that sales are overstated in the VAT returns.

Such discrepancies could also lead to potential tax queries from the Fiji Islands Revenue and Customs Authority.
Recommendation FSHIL should lodge amended vat returns with correct sales figure for the respective months if necessary.

Management Comments No comments provided 2.6 VAT Reconciliation Audit noted that there was a variance in the vat payable as per the financial statements and VAT refund as per Vat Reconciliation.
Particulars Vat Refund as per vat Reconciliation Vat Payable as per Financial Variance Amount ($) (88,412) 66,888 (155,300) The variance exists because of the amended VAT returns lodged for the year 2006 may not have been corrected in the MYOB data This implies that VAT liability is overstated in the financial statement.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 11 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Recommendation FSHIL should investigate the reasons for variance and incorporate necessary adjustments in the financial statements.

Management Comments The 2007 financials show, at Note 15, the sum of $66,888 as ‘Other Payables’.
This amount is made up of two components as follows: Vat Payable Clearing Accounts $63,708 $ 3,180 $66,888 At this stage, we believe that the sum of $63,708 is correct.

However, we have been reconciling the figures for 2006 and 2007 to allay the concerns raised in your letter.

Any adjustments that might be required will be done in 2008 financials.
2.7 Breach of Loan Agreement Audit noted that one of the financial covenants stated in a bank loan agreement, requires the Company to have a debt service ratio of 1.25:1.

However, FSHIL had a debt service ratio of 0.73:1 as at 31 December 2007.

Further, the company does not maintain a schedule of loan covenants.

The company is in breach of the bank loan covenants and could be subjected to redress.
Recommendation The Company should take appropriate action in order to maintain a relationship with the banker.

Management Comments In view of recurring losses, it is inevitable that the company has not been able to meet its loan covenants with the Bank.

Meetings and discussions over the telephone are held with bank officials from time to time and they are aware of the company’s predicament.
The Bank has, however, not taken any drastic action so far as, we believe, the company has been able to meet its monthly commitment for loan repayments.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 12 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ SECTION 3: YAQARA PSTORAL COMPANY LIMITED The Yaqara Pastoral Company Limited (YPCL) is a 100% Government owned commercial company.
Since 1999, YPCL has been placed under the portfolio of the Ministry of Public Enterprises and Public Sector Reforms whereby the Ministry responsible appoints the Board.

YPCL is the major producer and supplier of quality beef and currently its market share is around 10% of the annual slaughter amount in Fiji.

YPCL also produces quality breeding bulls to be distributed to small holder beef farmers around Fiji.

YPCL is the only such breeder in Fiji today.


YPCL business activity has primarily two divisions; • Livestock Division • Crops Division YPCL has the Caboni Centre for genetic improvement covering and area of about 2,500 acres.

This station is responsible for breeding two distinct breeds, Santa Gertrudis and Limousine.

From the station selected offspring’s’ are distributed to the commercial herd or the Ministry Agriculture’s livestock division or directly to farmers.
On average, 20 prime bulls are distributed to farmers through the MASLR’s subsidies programme whereas 80% of the total herd forms the commercial herd.

The company also has horse, sheep, and goat rearing programmes.

In the Crops Division, YPCL has been planting sugarcane and also produces honey.

PART A – FINANCIAL INFORMATION 3.1 Audit Opinion The audit of the financial statements of the Yaqara Pastoral Company Ltd for the year ended 31 December 2007 resulted in the issue of an unqualified audit report.
The financial statements were prepared in accordance with the International Financial Reporting Standards as required by the Fiji Institute of Accountants.
3.2 Abridged Income Statement Year Ended 31 December Revenue Cost of sales Gross profit on trading Other operating income Total Income Administrative expenses Selling and distribution Other operating expenses Total Operating Expenditure 2007 $ 791,814 47,714 839,528 2,646,969 3,486,497 837,087 2,809 137,373 977,269 IFRS Restated 2006 $ 1,360,380 (81,535) 1,278,845 1,578,949 2,857,794 1,109,600 5,110 126,256 1,240,966 Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 13 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Year Ended 31 December Operating profit from operations Finance costs Operating profit before income tax Income tax expense Profit after income tax 2007 $ 2,509,228 1,099 2,508,129 970,496 1,537,633 IFRS Restated 2006 $ 1,616,828 3,125 1,613,703 743,374 870,329 Total profit after tax increased by $667,304 or 77% compared to 2006.
This was a result of the increase in revenue, specifically, royalty income.

The royalty is paid to the company at a rate of 1.5% on the monthly turnover by the water bottling company.

The decrease in total expenditure by $265,723 or 21% also contributed to the high net profit earned by the company in 2007.
3.3 Abridged Balance Sheet As at 31 December Cash on hand and at bank Trade receivables Other debtors and prepayments Biological assets Held-to-maturity investments Inventories Property, plant and equipment Deferred tax assets Deferred expenditure Total assets Creditors and accruals Provision for annual leave Deferred income - grants Deferred tax liabilities Deferred income - grants Total liabilities Net Assets Total equity 2007 $ 753,401 772,134 271,372 2,412,857 1,549,756 8,342 6,872,040 55,845 36,455 12,732,202 76,770 13,157 31,949 349,390 106,681 577,947 12,154,255 12,154,255 IFRS Restated 2006 $ 1,086,835 265,764 86,366 2,348,013 515,129 7,759 7,190,050 83,661 88,687 11,672,264 98,700 10,879 32,015 396,983 132,052 670,629 11,001,635 11,001,635 Net assets increased by $1,152,620 or 10% in 2007 compared to the previous year.
The increase in net assets is attributed mainly to the increase in total assets, specifically, trade receivables and held-to- maturity investments.

The decrease in total liabilities was a result of decrease in creditors and accruals, deferred tax liabilities and deferred income-grants.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 14 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ PART B – CONTROL ISSUES 3.4 Incorrect Tax Return During our review of the tax return lodged and the notice of assessment for the year ended 31 December 2006, we noted that the amortization of leasehold land expenses amounting to $247,483 was been added back twice in the Return of Income.
As a result, the company incurred additional tax expenses amounting to $76,720.

We also noted that the error was not been detected by the company to date.

Recommendations • We recommend that the company lodge an amended Income Tax Return for the year ended 31 December 2006 and seek amended assessment from the Inland Revenue.
• Appropriate due care must be exercised while compiling the Return of Income so that errors and omissions are avoided and the company is not un-necessarily burdened with additional income tax or penalties.

3.5 Lease Royalty Income As per the Agreement between the lessee and Yaqara Pastoral Company Limited (YPCL), the royalty is paid to YPCL at a rate of 1.5% monthly turnover.
The audit noted that the turnover certificate from the lessee has not been obtained by the YPCL to confirm the total royalty receivable.

It was also noted that withholding taxes on the royalty payments to Yaqara Pastoral Company Limited was deducted.

Audit is of the view that the company should obtain a valid Certificate of Exemption from Inland Revenue and advise the lessee not to deduct withholding taxes.
Recommendations • An audit certificate confirming the lessee's turnover should be requested as provided in the Agreement to confirm the royalty income.

• The company should make an application to the Inland Revenue seeking Certificate of Exemption for the royalty receipts from the lessee.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 15 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ SECTION 4: FIJI PORTS CORPORATION LIMITED The Fiji Ports Corporations Limited was incorporated in 2004 to take over the operations of the Maritime Ports Authority of Fiji.
The principal activities of the company in the course of the financial year were provision and managing of ports services and facilities.

The company conducts its business within the legal framework of the Companies Act, VAT Decree, Income Tax Act, Sea Ports Management Act and the Public Enterprises Act.
The company has a subsidiary trading as Ports Terminal Ltd. PART A – FINANCIAL INFORMATION 4.1 Audit Opinion The audit of the financial statements of the Fiji Ports Corporation Limited and subsidiary for the year ended 31 December 2008 resulted in the issue of an unqualified audit report.
4.2 Abridged Income Statement As at 31 December Operating Revenue Other Revenue Total Revenue Administration Expenses Operating Expenses Finance Expenses Total Expenditure Net Surplus for the year before income tax 2008 $ 36,000,156 1,385,780 37,385,936 5,726,648 26,683,704 2,997,994 35,408,346 1,977,590 2007 $ 34,517,125 3,118,672 37,635,797 2,523,227 26,181,075 3,065,592 31,769,894 5,865,903 Net surplus declined in 2008 by $3,859,358 (45%) because of increase in administration expenses by $3,638,452 (11%).
4.3 Abridged Balance Sheet As at 31 December Cash and Cash Equivalents Trade and other Receivables Investments Other Current Assets Property, Plant and Equipment Investment Property Deferred Tax Assets Total Assets 2008 $ 8,795,058 2,170,286 3,000,000 2,308,562 126,959,065 3,530,433 5,411,343 152,174,747 2007 $ 4,681,224 2,093,407 2,202,292 1,524,777 131,642,144 3,557,882 4,513,481 150,215,207 Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 16 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ As at 31 December Trade and other Payables Interest Bearing Borrowings Income Tax Liability Intangibles Deferred Tax Liability Other Liabilities Total Liabilities Net Assets Shareholders’ Equity Share Capital Accumulated Profits Total Shareholders’ Equity 2008 $ 4,422,998 60,488,172 1,200,863 1,643,101 1,178,290 840,483 69,773,907 82,400,840 73,154,852 9,245,988 82,400,840 2007 $ 3,344,766 58,942,671 960,543 1,643,101 1,604,623 1,049,588 67,545,292 82,669,915 73,154,852 9,515,063 82,669,915 Net assets decreased by $269,075 in 2008 compared to 2007 as a result of a decrease in property, plant & equipment by 4%.
PART B – CONTROL ISSUES 4.4 Maritime Ports Authority of Fiji Debt Included in the balance sheet is a balance of $261,097 as Maritime Ports Authority of Fiji (Ports Terminal Ltd) debtor, which is fully provided for.

The amount is inclusive of $40,000 negative balances which have also been outstanding for a long time.

Carrying forward of debtors which may not exist has resulted in incorrect financial reporting.
Recommendation The above debts including those that have been long outstanding and cannot be verified should be followed up and written off.

FPCL Comments Management is aware of this issue and has recently employed a person to specifically look for the information from the old MPAF files and its reconciliation.

We are targeting November 2009 for its clearance.


4.5 VAT Receivable Included in the general ledger is a VAT Receivable balance of $117,963.58, carried forward from Maritime Ports Authority of Fiji (MPAF), which is now the Ports Terminal Ltd. No refunds have been received to-date.

The “Statement of VAT Accounts” for MPAF revealed that there were no refunds.

Audit also noted that sales declared in the VAT Returns were $977,236 more than the sales recorded in the general ledger.
A proper reconciliation has not been prepared.

Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 17 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ The Corporation has recognized an asset that may not exist.

The lack of sales reconciliation increases the risk of incorrectly declaring revenue in the VAT Returns.
Recommendation The company should prepare sales as per VAT Return to sales as per the Trial Balance on a monthly basis.

FPCL’s Comments Management is aware of this balance.

We are currently finalizing our reconciliation and submit to the board our final recommendations.

In recognition of the unlikely receipt of these refunds, this balance was fully provided for in the accounts.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 18 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ SECTION 5: PORTS TERMINAL LIMITED The Ports Terminal Limited (PTL) started operating as a government commercial company in 1998 and was entrusted with the provision of the pilotage within ports and all coastal areas; stevedoring and cargo handling; warehousing and the operations of part of the local wharf in Suva and Lautoka.
The Fiji Government being a shareholder of the company endorsed the re – organization charter of the Maritime and Ports Authority of Fiji (MPAF) and PTL.

In 2004 the Fiji Ports Corporation Limited took over the operations of PTL and MPAF with key provisions for PTL to become 100% subsidiary of FPCL.

The company conducts its business within the legal framework of the Companies Act, VAT Decree, Income Tax Act, Sea Port Management Act 2005, Public Enterprise Act, Accounting Standards and FIMSA Act.
PART A – FINANCIAL INFORMATION 5.1 Audit Opinion The audit of the financial statements of the Ports Terminal Limited for the year ended 31 December 2008 resulted in the issue of an unqualified audit report.
5.2 Abridged Income Statement As at 31 December Revenue Handling Pilotage Other Revenue Total Revenue Expenditure Administration Expenses Selling, Marketing and Distribution Expenses Finance Expenses Total Expenditure Operating profit before income tax 2008 $ 2007 $ 13,324,265 152,836 495,176 13,972,277 2,051,601 9,423,323 35,460 11,510,384 2,461,893 11,888,951 360,645 498,980 12,748,576 1,973,323 8,361,416 57,825 10,392,564 2,356,012 The company recorded an increase in operating profit before income tax of $105,881 or 4.5% in 2008.
This was due to increases in revenue from stevedoring, cargo handling and warehousing.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 19 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ 5.3 Abridged Balance Sheet As at 31 December Cash and cash equivalents Trade and other receivables Other current assets Property, plant and equipment Deferred tax asset Total Assets Trade and other payables Interest bearing borrowings Provision for income tax Employee Entitlement Deferred tax liability Total Liabilities Net Assets Shareholders’ Equity 2008 $ 2,113,252 2,356,451 1,902,857 5,616,893 63,179 12,052,632 1,276,744 398,153 385,601 122,102 668,313 2,850,913 9,201,719 9,201,719 2007 $ 1,681,062 2,685,135 1,167,724 5,606,723 45,362 11,186,006 914,069 1,031,423 255,625 98,984 637,452 2,937,553 8,248,453 8,248,453 Net assets increased by $953,266 or 12% in 2008 compared to 2007 as a result of increases in assets, specifically, cash and cash equivalents and other current assets.
The substantial decrease in the company’s interest bearing borrowings from Fiji Ports Corporation Ltd also contributed to the increase in net assets.

PART B – CONTROL ISSUES 5.4 Fiji Ports Corporation Limited Debt Included in the company’s balance sheet is an amount of $1.4 million receivable from Fiji Ports Corporation Limited.

The amount was recorded in 2005 after a change in the shareholding and structure of the company.

No development has occurred since 2005 on the recoverability of this amount.
The company’s assets may be overstated.

Recommendation The company should review the recoverability of this amount and ensure that it is recorded at realisable value.

PTL Comments In the consolidated accounts, the balance is recognised as goodwill on consolidation with the transfer of PTL’s assets to FPCL.

This is explained further in Note 1.23 in the financial statements.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 20 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ SECTION 6: FIJI ELECTRICITY AUTHORITY The Fiji Electricity Authority (FEA) is established, incorporated and constituted under the provisions of the Electricity Act of 1966 and began operations from 1 August that year.
The Authority is governed under the Public Enterprise Act 1996.

The principal activity of the FEA is to provide and maintain a power supply that is viable, economically sound and consistent with the required standards of safety, security and quality of power supply.

The Authority aims to provide clean and affordable energy solutions to Fiji and the Pacific and to provide all energy through renewable resources by 2011.
The FEA is entrusted with enforcing the Electricity Act and regulations, setting standards, examining and registering electricians, and is empowered to approve and license suppliers to serve certain areas.

PART A – FINANCIAL INFORMATION 6.1 Audit Opinion The audit of the financial statements of the Fiji Electricity Authority for the year ended 31 December 2008 resulted in the issue of an unqualified audit report.
6.2 Abridged Income Statement Year Ended 31 December 2008 $’000 2007 $’000 Revenue Operating Revenue Other operating income Total Revenue Expenditure Personnel expenses Fuel costs Lease and Rent Expenses Electricity purchases Depreciation Other operating expenses Total Expenditure (Loss)/profit from operations Finance Costs Share of profit of joint venture Operating profit before income tax Income tax (expense)/ credit Net Profit for the year after Income Tax 159,439 24,778 184,217 17,310 89,250 1,905 12,984 29,013 27,303 177,765 6,452 (8,439) 717 (1,270) 3,745 2,475 147,768 20,258 168,026 15,550 60,016 2,662 9,969 27,400 30,850 146,447 21,579 (7,275) 352 14,656 (4,078) 10,578 Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 21 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ The Authority recorded an operating profit after tax of $2,475,000 in 2008 compared to $10,578,000 in 2007.
The significant decline in operating profit was largely due to high fuel cost, personnel expenses and purchases of the electricity.
6.3 Abridged Balance Sheet As at 31 December Current Assets Cash and cash equivalents Receivables and prepayments Other current assets Total Current Assets Non Current Assets Property, plant and equipment Other non current assets Total Non Current Assets Total Assets Current Liabilities Interest bearing borrowings Other current liabilities Total Current Liabilities Non-Current Liabilities Interest bearing borrowings Deferred tax liabilities Other non current liabilities Total Non Current Liabilities Total Liabilities Net Assets Total Capital and Reserves 2008 $’000 2007 $’ Net assets increased by $6,884,000 or 1.8% in 2008 compared to 2007 because of increases in property, plant and equipment by $94,941,000 or 16.84%.
PART B – CONTROL ISSUES 6.4 Inventory Subsidiary Systems and Controls Audit noted that the Authority does not maintain inventory ageing report.

Audit advised that all stock are useable and the Authority has written off all obsolete and damaged stocks, and accordingly no additional provision was required as at balance date.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 22 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Recommendation The Authority should prepare inventory ageing report as it is one of the important management tools in identifying slow moving/ obsolete inventory and based on which appropriate write off or provision could be made.
6.5 Debtors Reconciliation From our review of electricity receivables reconciliation, we noted that the receivables listing showed a balance of $12,356,737 as against balance of $12,073,953 in the general ledger.

Full reconciliation and explanation has not been provided for our review.
We further note that differences over the years in this aspect have been as follows: 31 December 2008 31 December 2007 31 December 2006 31 December 2005 31 December 2004 31 December 2003 $282,784 $839,720 $555,198 $378,048 $304,664 $180,000 The difference between the subsidiary and control accounts over the last few years is of concern as it indicates that the two systems are not integrated properly and indicates a breakdown in internal controls.
Recommendations • The above difference should be immediately reconciled and adjustments, if any, should be processed in the respective ledgers.

• The Authority should review its system and introduce immediately the necessary corrective measures.

6.6 Electricity Debtors – Unallocated Debits and Credits From our review of electricity receivables for the year ended 31 December 2008, we noted the following amounts of unallocated debits and credits are shown separately as part of the electricity receivables.
PARTICULARS Unallocated credits Unallocated debits AMOUNT ($) 1,195,734 176,925 Full details and reconciliation were not provided for our review.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 23 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Recommendation The management should take necessary action to investigate the unallocated balances and assign these amounts to individual debtor account.

These balances should be monitored regularly and cleared on a timely basis.
6.7 Long Overdue Receivables From our review of electricity debtors ageing report, we noted significant balances in long outstanding receivables as at 31 December 2008.

We provide the following details: PARTICULARS 61-90 days 90 days and above 31/12/2008 ($) 101,904 472,052 Audit further noted that the normal credit period for all electricity debtors is 30 days.

Recommendations • The Authority should take appropriate steps to vigorously follow up for recovery of the long • outstanding debts.
It is further recommend that the Authority should review provision for doubtful debts on a periodical basis and make adequate provision against the debts that are considered doubtful of recovery.

6.8 Capital Projects and Borrowings Audit noted significant increase in interest bearing borrowings during the past two years.

We also noted significant increase in borrowing costs during past 12 months.

These borrowings were for capital projects and, in particular, renewable power sector development projects.
Audit noted that certain recent project undertakings such as the Nadarivatu Hydro Power Project would require further borrowings for the purpose of further developments on the projects.

We also note that these capital projects are currently not generating any income.

The increased borrowings will lead to higher interest cost and repayment commitments.
Furthermore, given that significant borrowings are denominated in US dollars and given the recent devaluation of Fiji dollar, there will be increased repayment commitments.

Furthermore, in accordance with provisions of the Income Tax Act, interest cost relating to long term capital projects is generally not deductible for tax purposes until the project starts generating income.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 24 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Recommendation The Authority should continue monitoring the increasing level of borrowings, interest costs and repayment commitments, and its impact on the Authority’s activities, and ensure that adequate funding is available to meet all its commitments as and when they fall due.
6.9 Financial Instruments and Risks International Financial Reporting Standards require all entities to disclose information that enables users of financial statements to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed.

The standards require qualitative as well as quantitative disclosures.
Such disclosures would cover wide range of risks, including: Interest rate risk Foreign currency risk • • • Credit risk • Liquidity risk The best practices require business executives and directors to carryout detailed review of all its operations focusing on financial transactions and balances, identify all financial risks, and formulate policies and procedures to manage such risks.

Risk management is recognized as an integral part of best management practices.
Recommendations: • The Authority should carry out detailed review of all its operations focusing on financial transactions and balances, identify all financial risks, and formulate policies and procedures to manage such risks.
• The Authority should review its current disclosures in the financial statements with the objective of improving further disclosures to provide more information that will enable users of the financial statements to evaluate the nature and extent of risks arising from financial instruments to which the Authority is exposed.

6.10 Impairment of Assets The Authority has significant investment in property, plant and equipment.

Works are in progress to upgrade the transmission equipment.
In view of this, impairment of assets test needs to be considered by the Authority.

International Financial Reporting Standards and best accounting and reporting practices require that adequate provision for impairment to the assets be maintained as soon as impairment in value is identified.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 25 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ Based on the trend in technological development and prevailing economic situation, the Authority should continuously review the current value of all assets and in particular transmission equipment ensuring that these assets are not over stated.
Recommendations • The management review the carrying value and remaining useful life of all assets ensuring that the carrying values do not exceed the recoverable amount.

• The Authority should assess at each balance date whether there is any indication that an asset has been impaired.

Where a risk of impairment exits, the Authority should re-assess the asset’s carrying value and process appropriate necessary adjustments.
6.11 Bank Covenants The audit noted that as at 31 December 2008, the Authority has breached certain financial covenants as stipulated by ANZ Banking Group.

Following details are provided.

FINANCIAL RATIO Debt service cover Debt to EBITDA ANZ NORM Not below 1.2 times Not to exceed 5 times ACTUAL 0.94 6.5 Breaches in the financial covenants imposed by the bank may affect the Authority’s borrowing terms and conditions including interest rates.
Recommendation The management of the Authority should continuously review the bank covenants and appropriate steps should be taken to ensure that the financial covenants of the bank are not breached.

6.12 Internal Audit Audit is of the view that the scope and coverage of internal audit function appears to be inadequate in relation to the size of the Authority and nature of its business.
More specifically, the internal audit function does not include the high risk areas, such as revenue, fixed assets, supply chain division, payroll and payments.

In view of the increased risk in the area of work place frauds, we are of the view that the internal audit focus should be extended and should be more focused towards identifying workplace frauds.
Recommendations The Authority place more emphasis and commitment in the internal audit functions as this will further strengthen the internal controls and governance environment.
The internal audit function should: Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 26 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ i) Enhance its scope to include all the accounting and finance areas and more specifically to test the internal controls in relation to revenue and expenditure cycles thereby adding greater potential benefit to the business.
ii) Suggest improvements in the existing systems and internal control procedures and follow up on the recommendations made in the internal audit reports.

6.13 Accounting Procedures Manual The Authority does not have accounting procedures manual for the Finance Department.

The relevant policies and procedures required for processing and recording transactions are communicated to the staff by “word of mouth”.
Although there are usually two or more people who have knowledge of how a job is performed, the loss of staff due to resignation or leave may pose problems for the accurate and efficient functioning of this department if the policies and procedures are not communicated properly to the concerned staff.

Recommendation Accounting policies and procedures should be documented for the Finance Department.
6.14 Fixed Assets From our review of the fixed asset schedule for the year ended 31 December 2008, we noted the following exceptions: (i) Although the Authority maintains fixed asset schedule, it does not reflect the location of the items of fixed assets.

We also noted that the fixed assets schedule in few cases does not show year of purchase, property title numbers, etc.

(ii) Complete physical count of the items of fixed asset was not conducted during the year.
(iii) Only one general ledger account (account no.

85110) is maintained for accumulated depreciation for all fixed assets categories.

Recommendations • To maintain effective control over the Authority’s fixed assets, we suggest that computerized fixed asset register be maintained and regularly updated for all fixed assets showing for each asset name, the cost, date of purchase, identification number, and other relevant details.
• Regular physical stock take of fixed assets coupled with a reconciliation of the fixed assets register to the general ledger should be carried out to assist management in exercising proper physical control over fixed assets.

• Accumulated depreciation in the general ledger should be split into separate account heads for each class of fixed assets.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 27 OFFICE OF THE AUDITOR GENERAL – REPUBLIC OF FIJI ______________________________________________________________________________________________________ 6.15 Land Titles From our review of the fixed assets schedule, we noted that the Authority has a number of freehold land and leasehold land.
However, land titles could not be matched to the fixed assets schedule as no land title numbers are disclosed in the fixed assets schedule.

Furthermore, we noted that due to caveats placed on the land title in respect of the acquisition of land at Kinoya, land title has not yet been legally transferred to the Authority.

The above has been disclosed appropriately in the financial statements.
Also, agreement for Monasavu lease has been prepared and lease titles will be formally executed and issued once the land survey is completed.

Recommendations • All freehold or leasehold land owned by the Authority should be included in the fixed assets schedule and should be supported by land title under the name of the Authority.

• The Authority follows up on all the transfer of the land titles on an urgent basis.
Report of Government Commercial Companies and Commercial Statutory Authorities – June 2009 28