AUDITL 14FNFRAL'S OFFICE PAPUA NEW GUUNEA Poe: (+6 75 1 301220 ax ( ) 325 2872 Emal: ag: q ag.o g Webs t1 g p Our Reference: 30-96-4 The Honourable Dr. Lino Ton, MP Minister for Health and HIV/AIDS Office of the Minister PO Parliament Haus WAIGANI National Capital District INDEPENDENT A UDIT REPORT ON PNG CO VID 19 EMERGENCY RESPONSE PROJECT (IDA CREDIT NUMBER 6614-PG) FOR THE YEAR ENDED 31 DECEMBER 2021 ADVERSE OPINION I have audited the financial statements of Papua New Guinea COVID 19 Emergency Response Project (IDA Credit Number 6614-PG) for the year ended 31 December 2021, which comprise the Statement of Cash Receipts and Payments, Statement of Cash Receipts and Payments by Project Cost Component, Statement of Comparison of Actual and Budget plus Outstanding Commitments , Statement of Comparison of Actual and Budget by Project Cost Component, Statement of Comparison of Budget and Actual amounts for the Project to date and notes to the financial statements, including a summary of significant accounting policies. In my opinion, due to the significance of the matters discussed in the Basis for Adverse Opinion paragraphs below, the accompanying financial statements do not give a true and fair view of the PNG Covid-19 Emergency Response Project for the year ended 31 December 2021 in accordance with the International Public Sector Accounting Standards-Cash basis of Accounting including the Generally Accepted Accounting Principles. T -- Audit Report on Covid-19 Emergency Response Project for the year ended 31 December2021 BASIS FOR ADVERSE OPINION Understatement of Project Payments and Overstatement of Cash Position due to the Project's Expenditure Recognition Policy The Project has adopted an expenditure recognition policy that requires a contractor to submit an acquittal document for the entire contract amount and for the duration of the Project. The policy also requires that the COVID-19 team approve the acquittal document including approvals from the National Department of Health and the World Bank before an expenditure could be recognized in the financial statements. The application of this policy is inconsistent with the International Public Sector Accounting Standards-Cash basis of Accounting where expenditure should be recognized as and when funds are disbursed. Further, the Generally Accepted Accounting Principle requires that transactions be reported by specific accounting periods usually for 12 months and cut off principle requires that transactions relating to different accounting periods be reflected in those periods. This requirement has not been complied with. As a result of the expenditure recognition policy adopted by the Project, the following have been noted during my review of the acquittal documents and related records; * Material amounts of payments made relating to project activities and deliverables are not reflected in the financial statements. These include: * Payments worth K22,721,765 made by United Nations International Children's Fund (UNICEF) from the allocated Advance of K1I7,082,330. From this I have also noted an overspending of K5,639,435; and * Payments worth K12,251,805 made by United Nations Office for Project Services (UNOPS) from the allocated advance of K36,172,892. * The Project has reported cash at year-end as K45,893,065 and is comprised of advances totalling K17,082,330 and K28,723,224 provided to UNICEF and UNOPS respectively and cash at bank of K87,510. UNICEF has provided project payment acquittals and consequently all of the cash advances it received has been utilized. Similarly, UNOPS has provided project to date payment acquittals of K19,701,473 which is comprised of the reported payment balance of K7,449,668 and the unreported audited balance of K12,251,805. UNOPS acquittals indicates that as at 31 December 2021, the balance of unspent cash advance was USS4,776,714 equivalent to K16,471,420. However, the closing UNOPS cash advance balance disclosed in the financial statement was K28,723,225 a material variance of K12,251,805 was noted as a result of the expenditure recognition policy. The application of the Project's expenditure recognition policy has had material and pervasive effects on the recognition and measurement of the Project Expenses and the Cash Position and is a departure from the International Public Sector Accounting Standards- Cash basis of Accounting including the Generally Accepted Accounting Principles. Audit Report on Covid-19 Emergency Response Project for the year ended 31 December 2021 Accordingly, I do not intend to place reliance and conclude on the accuracy, completeness, valuation and existence of the balances of payments and cash stated in the Project's financial statements as at 3 1 December 2021. Insufficient Supporting Documents- Commitments The Project Management Unit has not provided sufficient and appropriate evidence relating to commitments made against the project budgets as at the year end to justify the value of commitments presented in the financial statements. As a result, I was not able to confirm the accuracy of the allocation of funds and commitments against the project budgets and deliverables set out in the financing contracts. INDEPENDENCE I conducted my audit in accordance with International Standards on Auditing and the Audit Act, 1989 (as amended). My responsibilities under those standards are further described in the Auditor- General's responsibilities for the audit of the financial statements section of my report. I am independent of the PNG Covid-19 Emergency Response Project in accordance with the ethical requirements that are relevant to my audit of the financial statements in Papua New Guinea, and I have fulfilled my other ethical responsibilities in accordance with these requirements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. EMPHASIS OF MATTER Basis of Accounting and Restriction on Distribution I draw attention to Note (]A) to the financial statements which describe the basis of accounting. The financial statements have been prepared to assist the entity in connection with the requirements set out in the IDA financing and grant agreements IDA Credit No. 6614-PG. As a result, the financial statements may not be suitable for any other purpose. My report is intended solely for the Independent State of Papua New Guinea and World Bank and should not be distributed for use by other parties. My opinion is not modified in respect of this matter. Responsibilities of the Project Management and those charged with Governance for the Financial Statements The Departmental Head overseeing the Project Management Unit (PMU) at the Department of Health is responsible for the preparation and fair presentation of the financial statements submitted under Section 63(3) of the Public Finance (Management) Act, 1995 (as amended) in accordance with the Cash Basis of Accounting as stated in Note (IA) of the financial statement in compliance with relevant provisions set out in the Financing Agreement IDA Credit No. 6614-PG and for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. Page 3 4 5 ,1id it Report oni Covid-1 9 Emergency Response Project ]br the year eunded 31 December 2021 Those charged with governance are responsible for overseeing the Papua New Guinea COVID- 19 Emergency Response Project's financial reporting process. Auditor-General's Responsibilities for the Audit of the Financial Statements My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial statements. As part of an audit in accordance with International Standards on Auditing, I exercise professional judgement and maintain professional scepticism throughout the audit. I also; * Identify and assess the risks of material misstatement of the statement of cash receipts and payments, whether due to fraud or error, design and perform audit procedures responsible to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Project's ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my audit report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my report. However, future events or conditions may cause the Project to cease to continue as a going concern. * Evaluate the overall presentation and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manriner that achieves fair presentation. P49- 4 oq 5 Audit Report on Covid-19 Emergency Response Project for the year ended 31 Decemtber 2021 I communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit. GORDON KEGA MBA, CPA Auditor-General 02 November, 2023 Pare5 4 5