Financial Audit Report 2018 PACIFIC AVIATION SAFETY OFFICE FINANCIAL STATEMENTS PO Box 139 Port Vila Contents Page General Manager’s Report 2 Auditors’ Report 4 Statement of Comprehensive Income 6 Statement of Changes in Equity 7 Statement of Financial Position 8 Statement of Cash Flows 10 Notes to the Financial Statements 12-18 Auditors’ Disclaimer 19 Detailed Income & Expenditure Statement 20-21 Auditors’ Report – World Bank Project 22-23 Income & Expenditure Account – World Bank 24 PACIFIC AVIATION SAFETY OFFICE GENERAL MANAGER'S REPORT TO THE COUNCIL OF DIRECTORS FOR THE YEAR ENDED 31 DECEMBER 2018 Your General Manager presents this report on the financial statements of the Organisation for the year ended 31 December 2018. The following held offices in the Council of Representatives at the date of this audit report: Delegate Position Appointed Resigned Wilson Sagati, Papua New Guinea Chairman 2003 Joseph Niel, Vanuatu Co-deputy Chairman 2011 Afamasaga P. Onesemo, Samoa Co-deputy Chairman 2016 2018 Andrew Valentine, PASO General Manager 2016 Ned Howard, Cook Island Member 2013 2018 John Hosking, Cook Island Member 2018 Dennis Hoskins, Cook Island Alternate Member 2017 Mitateti Mote, Kiribati Member 2018 Aako Teikake, Kiribati Alternate Member 2016 Melaney Bill, Nauru Member 2011 Remus Capelle,Nauru Alternate Member 2017 Bill MacGregor, Niue Member 2006 Andre Siohane, Niue Alternate Member 2015 Sonya Talagi, Niue Alternate Member 2015 Michael Terrim, Papua New Guinea Alternate Member 2016 Nanai Saaga, Samoa Alternate Member 2014 2018 Brian Halisanau, Solomon Island Member 2017 Ringo Kalahuni Faoliu, Tonga Member 2018 John Wycliffe Havea, Tonga Alternate Member 2018 Dr Tapugao Falefou, Tuvalu Member 2017 Uigaese Paelate, Tuvalu Alternate Member 2011 Michelle McShane, Australia Member 2017 Nisha Lad, Australia Alternate Member 2010 Tracey Wong, Fiji Member 2017 Netava Waqa, Fiji Alternate Member 2014 2018 Mark Everitt, New Zealand Member 2013 Adam Linnell, New Zealand Alternate Member 2018 State of affairs The result of the organisation's operations for the financial year was a surplus of AUD 560,645 (2017: surplus AUD 37,897). Activities The principal and continuing activity of the organisation is the conduct of aviation oversight and safety in the Pacific Region. Property, plant and equipment During the financial year, the organisation purchased AUD 19,519 worth of plant and equipment (2017: AUD 2,945). Events subsequent to balance date There does not exist at the date of this report any other contingent liability or any charge on the organisation's assets securing the liability of any other person, which has arisen since 31 December 2018. No contingent or other liability has become enforceable on or before the date of this report which, in the General Manager's opinion, will or may substantially affect the ability of the organisation to meet its obligations as and when they fall due (2017: Nil). PACIFIC AVIATION SAFETY OFFICE GENERAL MANAGER'S REPORT TO THE COUNCIL OF REPRESENTATIVES FOR THE YEAR ENDED 31 DECEMBER 2018 Loan and Grant covenants The following have been produced in accordance with: (i) Section 4.02 of the ADB Loan Agreement (ii) Section 3II .B. 3 of the WB Financing Agreement IDA-H883 (iii) Article 24 of the Government Hosting Agreement (iv) Dedicated Bank accounts (a) In Australian Dollars for the ADB loan related funds (b) In USD Dollars for WB Grant funds (v) Audited financial statements have been furnished to ADB no later than 6 months following the end of the financial year; and (vi) Furnish ADB such other information concerning such accounts and financial statements and the audit thereof. Other circumstances At the date of this report, the General Manager is not aware of any circumstances that would render any amount stated in the accounts misleading. Place of business The Pacific Aviation Safety Office is a non-profit International Organisation set up under the Pacific Islands Civil Aviation Safety and Security Treaty and operated for the benefit of member states. PASO is currently headquartered in Port Vila, Vanuatu. Distributions Any surpluses are used in the furtherance of its objectives and no distributions are made to members. Signed on behalf of the Council of Representatives. 22/05/2019 .............................................. .............................................. Mr Andrew Valentine Date General Manager 22/05/2019 .............................................. .............................................. Mr Wilson Sagati Date Chairman Independent Auditors’ Report To the Council Representatives of Pacific Aviation Safety Office We have audited the accompanying financial statements of Pacific Aviation Safety Office which comprise the statement of financial position as at 31 December 2018, the statement of comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes set out on pages 6 to 18. Council of Representatives’ responsibility for the financial statements The Council of Representatives of the Organisation are responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards (IPSAS). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the Organisation’s preparation and fair presentation of the financial statements 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 s. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the financial statements have been properly prepared in accordance with the provisions of the Charitable Associations (Incorporation) Act [CAP 140] and give a true and fair view of the financial position of the Organisation as at 31 December 2018, and of its financial performance and its cash flows for the year then ended in accordance with International Public Sector Accounting Standards. Emphasis of matter Without variation to the opinion expressed above, we draw attention to Note 2 to the financial statements concerning the preparation of the financial statements on a going concern basis. Our opinion is not modified in respect of this matter. Port Vila, 22 May 2019 Martin St-Hilaire, CA, CPA, MBA AJC, Chartered Accountants (Qualified auditors under Section 130 of the Companies Act No.25 of 2012 of the Republic of Vanuatu). PACIFIC AVIATION SAFETY OFFICE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 INDEPENDENT AUDIT REPORT TO THE MEMBERS Audit Findings In addition to our opinion on the statutory audit, as auditors of PASO we are required to form an opinion for the following items: (a) Repayment of ADB Loan Funds In our opinion PASO fully utilised ADB funds for purposes as indicated in the loan agreement, as at 31 December 2018 and currently conforms with the repayment schedule. (b) Compliance with Specific and Financial ADB Covenants In our opinion, PASO has complied with the Particular Covenants set out in Article IV of the loan agreement. In our opinion PASO has adhered to the requirements of the Financial Covenants in Schedule 5 paragraphs 13, 14, 18 - 20 of the loan agreement, except that PASO has not complied with paragraph 21 of the loan agreement which requires PASO to ensure its member countries to provide, in a timely manner, all necessary counterpart funds and in-kind contributions for successful project implementation. The main reason for PASO not being able to comply with this particular covenant is due to the failure by some member countries to comply with their treaty obligations with regards to payment of subscriptions and consulting services. (c) Utilisation of Designated Funds under the WB Grant Funds In our opinion, PASO was compliant with the operation of the Designated Account as indicated in the Finance Agreement. (d) Statement of Expenditure Procedures We are unable to form an opinion on the Statement of Expenditure (SOE) Procedures, as they are not currently applicable to PASO. (e) Conformity with WB Procurement Guidelines In our opinion, PASO adhered to the WB Procurement Guidelines. PACIFIC AVIATION SAFETY OFFICE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2018 Expressed in Australian dollars 2018 World Bank Note Operations Project Consolidated Revenue Operating revenue 2,234,773 696,170 2,930,943 Interest income 5,798 - 5,798 Total revenue 3 2,240,571 696,170 2,936,741 Expenses Operating expenses 3 (1,679,926) (696,170) (2,376,096) Net surplus 560,645 - 560,645 2017 World Bank Note Operations Project Consolidated Revenue Operating revenue 1,509,951 525,838 2,035,789 Interest income 2,062 - 2,062 Total revenue 3 1,512,013 525,838 2,037,851 Expenses Operating expenses 3 (1,474,116) (525,838) (1,999,954) Net surplus 37,897 - 37,897 The income statement is to be read in conjunction with the notes to the financial statements set out on pages 12 to 18. PACIFIC AVIATION SAFETY OFFICE STATEMENT OF MOVEMENTS IN EQUITY AS AT 31 DECEMBER 2018 Expressed in Australian dollars 2018 World Bank Operations Project Consolidated Accumulated deficit at the (1,381,826) (1,381,826) beginning of the financial year - Net surplus for the financial year 560,645 - 560,645 Accumulated deficit at the end of the financial year (821,181) - (821,181) 2017 World Bank Operations Project Consolidated Accumulated deficit at the (1,419,723) - (1,419,723) beginning of the financial year Net surplus for the financial year 37,897 - 37,897 Accumulated deficit at the end of the financial year (1,381,826) - (1,381,826) The statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on pages 12 to 18. 7 PACIFIC AVIATION SAFETY OFFICE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018 Expressed in Australian dollars Operations World Bank Consolidated Note 2018 Project 2018 2018 CURRENT ASSETS Cash 4 750,258 623,744 1,374,002 Receivables 5 303,624 - 303,624 Other assets 6 8,542 - 8,542 TOTAL CURRENT ASSETS 1,062,424 623,744 1,686,168 NON-CURRENT ASSETS Property, plant and equipment 7 32,302 - 32,302 TOTAL NON-CURRENT ASSETS 32,302 - 32,302 TOTAL ASSETS 1,094,726 623,744 1,718,470 CURRENT LIABILITIES Payables 8 92,891 - 92,891 Prepaid subscriptions - - - Provisions 11 14,997 - 14,997 Deferred revenue 19 282,420 - 282,420 Loan – ADB 10 93,221 - 93,221 Other Creditors 9 14,395 1,843 16,238 TOTAL CURRENT LIABILITIES 497,924 1,843 499,767 NON-CURRENT LIABILITIES Provisions 11 38,356 - 38,356 Loan – ADB 10 1,379,626 - 1,379,626 Vanuatu Govt Hosting Grant - - - WB Revolving Fund 18 - 621,901 621,901 TOTAL NON-CURRENT LIABILITIES 1,417,982 621,901 2,039,883 TOTAL LIABILITIES 1,915,906 623,744 2,539,650 EXCESS OF LIABILITIES OVER ASSETS (821,181) - (821,181) Accumulated deficit (821,181) - (821,181) TOTAL ACCUMULATED DEFICIT (821,181) - (821,181) _______________________ _________________________ Mr Wilson Sagati Mr Andrew Valentine Chairman General Manager 22/05/2019 Date The statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 12 to 18. 8 PACIFIC AVIATION SAFETY OFFICE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017 Expressed in Australian dollars Operations World Bank Consolidated Note 2017 Project 2017 2017 CURRENT ASSETS Cash 4 265,992 317,742 583,734 Receivables 5 460,959 - 460,959 Other assets 6 1,354 - 1,354 TOTAL CURRENT ASSETS 728,305 317,742 1,046,047 NON-CURRENT ASSETS Property, plant and equipment 7 27,424 - 27,424 TOTAL NON-CURRENT ASSETS 27,424 - 27,424 TOTAL ASSETS 755,729 317,742 1,073,471 CURRENT LIABILITIES Payables 8 4,547 - 4,547 Prepaid member subscriptions 335,431 - 335,431 Provisions 11 6,829 - 6,829 Deferred revenue 19 249,090 - 249,090 Loan – ADB 10 84,544 - 84,544 Other Creditors 9 8,864 - 8,864 TOTAL CURRENT LIABILITIES 689,305 - 689,305 NON-CURRENT LIABILITIES Provisions 11 32,637 - 32,637 Loan – ADB 10 1,430,005 - 1,430,005 Vanuatu Govt Hosting Grant (14,392) - (14,392) WB Revolving Fund 18 - 317,742 317,742 TOTAL NON-CURRENT LIABILITIES 1,448,250 317,742 1,765,992 TOTAL LIABILITIES 2,137,555 317,742 2,455,297 EXCESS OF LIABILITIES OVER ASSETS (1,381,826) - - - - Accumulated deficit (1,381,826) - (1,381,826) TOTAL ACCUMULATED DEFICIT (1,381,826) - (1,381,826) The statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 12 to 18. 9 PACIFIC AVIATION SAFETY OFFICE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2018 Expressed in Australian dollars Operations World Bank Consolidated Note 2018 Project 2018 2018 Cash flows from operating activities Cash receipts in the course of operations 2,168,363 948,637 3,117,000 Cash payments in the course of operations (1,616,292) (642,635) (2,258,927) Interest received 5,798 - 5,798 Interest expense (12,383) - (12,383) Net cash provided by operating activities 12(b) 545,486 306,002 851,488 Cash flows from investing activities Purchase of property, plant and equipment (19,518) - (19,518) Proceeds on sale from property, plant and equipment - - - Net cash used in investing activities (19,518) - (19.518) Cash flows from financing activities Movement in borrowings (41,702) - (41,702) Net cash used in financing activities (41,702) - (41,702) Net cash increase 484,266 306,002 790,268 Cash and cash equivalents at the beginning of the financial year 265,992 317,742 583,734 Cash and cash equivalents at the end of the financial year 12(a) 750,258 623,744 1,374,002 The statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 12 to 18. 10 PACIFIC AVIATION SAFETY OFFICE STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2017 Expressed in Australian dollars Operations World Bank Consolidated Note 2017 Project 2017 2017 Cash flows from operating activities Cash receipts in the course of operations 1,564,191 488,222 2,052,413 Cash payments in the course of operations (1,589,135) (548,814) (2,137,949) Interest received 2,062 - 2,062 Interest expense (25,277) - (25,277) Net cash provided by / (used in) operating activities 12(b) (48,159) (60,592) (108,751) Cash flows from investing activities Purchase of property, plant and equipment (2,945) - (2,945) Proceeds on sale from property, plant and equipment - - - Net cash used in investing activities (2,945) - (2,945) Cash flows from financing activities Movement in borrowing 116,285 - 116,285 Net cash provided by financing activities 116,285 - 116,285 Net cash increase/(decrease) 65,181 (60,592) 4,589 Cash and cash equivalents at the beginning of the financial year 200,811 378,334 579,145 Cash and cash equivalents at the end of the financial year 12(a) 265,992 317,742 583,734 The statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 12 to 18. 11 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Expressed in Australian dollars 1. Statement of significant accounting policies Pacific Aviation Safety Office is a non-profit International Organisation set up under the Pacific Islands Civil Aviation Safety and Security Treaty and operated for the benefit of member states. The significant policies which have been adopted in the preparation of these financial statements are: (a) Statement of compliance The financial statements of the organisation are drawn up in accordance with International Public Sector Accounting Standards (IPSAS) adopted by the International Public Sector Accounting Standards Board (IPSASB) and the requirements of the Charitable Associations (Incorporation) Act [CAP 140]. (b) Basis of preparation They are prepared on the basis of historical costs and do not take into account changing money values or, except where stated, current valuations of non-current assets. The financial statements are presented in Australian dollars (AUD). The accounting policies are consistently applied and, except where there is a change in accounting policy, are consistent with those of the previous year. There were no changes in accounting policies during the current financial year. (c) Revenue recognition Grant revenue Grants are recognised in the income statement principally on an accrual basis. Grants that compensate the organisation for expenses paid are recognised as revenue in the income statement in the same periods in which the expenses are incurred. Service revenue Incomes from services are recognised in the income statement upon completion of the service. (d) Foreign currency Transactions Foreign currency transactions are translated to Australian dollars at the rates of exchange ruling at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are translated at the rates of exchange ruling on that date. Exchange differences relating to amounts payable and receivable in foreign currencies are brought to account in the profit and loss account in the financial year in which the exchange rates change. (e) Property, plant and equipment Acquisitions Items of property, plant and equipment are recorded at cost and depreciated as outlined on the next page. 12 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Expressed in Australian dollars Disposal of assets The gain or loss on disposal of assets are calculated as the difference between the carrying amount of the assets at the time of disposal and the proceeds on disposal, and is included in the result in the year of disposal. Depreciation Depreciation is charged on a straight line basis and the following rates are used:  Office furniture 20%  IT and office equipment 20%  Motor vehicles 20% Assets are depreciated from the date of acquisition. (f) Employee entitlements Wages, salaries and annual leave The provision for employees’ entitlements to wages, salaries and annual leave represents the amount that the organisation has a present obligation to pay resulting from employees’ services provided up to balance date. The provision has been calculated at nominal amounts based on current wage and salary rates and includes related on-costs. Severance allowance Severance allowance is calculated at the rate of a month’s salary for ea ch year of service. It is assumed that employees will remain in the organisation employment for the period necessary to qualify for the respective entitlements. Vanuatu National Provident Fund Contributions to the Vanuatu National Provident Fund are recognised as an expense in the income statement in the period in which they are incurred. (g) Receivables Receivables are stated at nominal values, less write-downs for any amounts expected to be irrecoverable. (h) Value Added Tax (VAT) Under the Host State Agreement between the Government of the Republic of Vanuatu and the Organisation, its assets, income and property, owned or occupied in Vanuatu shall be exempt from all forms of taxation including Customs duties and Value Added Tax. (i) Impairment The carrying amounts of the company’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. 13 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Expressed in Australian dollars (j) Comparatives Where necessary, comparative information has been reclassified to achieve consistency in disclosure with current financial year amounts and other disclosures. (k) Foreign currencies Transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are re-translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. 2. Going concern The financial statements of the organisation have been prepared on a going concern basis, which assumes continuity of normal business activities and the settlement of liabilities in the ordinary course of business. The Council representatives consider the going concern principle to be applicable in the preparation of these financial statements given the ongoing financial support provided by the organisation’s aid donors and member nations’ utilisation of its services in generating income as well as yearly subscriptions of each member nations. 3. Net surplus 2018 2017 Net surplus has been arrived at after including: Operating revenue Service revenue 746,137 758,891 Members subscriptions 335,211 335,246 Grant Income – Vanuatu government hosting 157,799 164,170 Grant Income – MFAT NZ 530,398 123,987 USOAP funding 200,812 - General administration funds 244,743 140,577 Interest income 5,798 2,062 Net foreign exchange gain – unrealised 19,673 (12,986) Proceeds on sale of fixed assets - 66 Total operating revenue 2,240,571 1,512,013 Operating expenses Depreciation 14,641 14,454 Wages and salaries 527,981 334,267 Other expenses 1,137,304 1,125,395 Total operating expenses 1,679,926 1,474,116 Net surplus 560,645 37,897 14 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Expressed in Australian dollars 4. Cash 2018 2017 Petty cash 249 226 Cash in bank – AUD account 358,764 227,126 Cash in bank – AUD ADB account 294,562 14,590 Cash in bank – Vatu account 48,371 7,546 Cash in bank – NZD account 48,312 11,254 750,258 260,742 Term deposits Term deposit – AUD - 5,250 750,258 265,992 5. Receivables Trade debtors – AUD 147,076 277,223 Trade debtors – VUV 108,738 207,643 Trade debtors – NZ 47,810 - Less: Provision for doubtful debts - (63,864) 303,624 421,002 Sundry debtors - 39,957 Total receivables 303,624 460,959 6. Other assets Bonds 5,608 - Prepayments 2,934 1,354 8,542 1,354 7. Property, plant and equipment Office furniture At cost 27,307 14,397 Less: Accumulated depreciation (13,649) (12,623) 13,658 1,774 IT and office equipment At cost 157,869 151,260 Less: Accumulated depreciation (145,658) (141,693) 12,211 9,567 Motor vehicles At cost 48,248 48,248 Less: Accumulated depreciation (41,815) (32,165) 6,434 16,083 Total property plant and equipment - at net book value 32,302 27,424 15 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Expressed in Australian dollars 7. Property, plant and equipment (cont’d) Movement in property, plant and equipment Opening net book value 27,424 38,933 Additions 19,519 2,945 Depreciation (14,641) (14,454) Closing net book value 32,302 27,424 8. Creditors Trade creditors - AUD 43,948 1,236 Trade creditors - VUV 5,682 1,039 Trade creditors - NZD 43,260 2,272 92,891 4,547 9. Other payables Accrued expenses 8,737 8,864 Staff payables 5,658 - 14,395 8,864 10. Borrowings Current Loan - Asian Development Bank 93,221 84,544 Non-current Loan - Asian Development Bank 1,379,626 1,430,005 Bank loan details The loan from Asian Development Bank is for a Special Project, the objective of which is to ensure that the Pacific Aviation sector meets all international requirements for safety and security regulation and oversight. The loan facility is for USD1,500,000. PASO has fully exhausted its loan from ADB as at 31 December 2010 resulting in no drawdowns for the current year ended 31 December 2018. An interest rate of 1.5% per annum is charged on the amount of the loan withdrawn on the loan account and outstanding from time to time. 11. Provisions 2018 2017 Current Employees’ entitlements 14,997 6,829 Non-current Employees’ entitlements 38,356 32,637 16 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Expressed in Australian dollars 12. Notes to the statement of cash flows (a) Reconciliation of cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents includes cash on hand and at bank, net of outstanding bank overdrafts. Cash and cash equivalents as at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the balance sheet as follows: 2018 2017 Cash in bank and on hand 750,258 265,992 (b) Reconciliation of net surplus to net cash provided by operating activities Net surplus 560,645 37,897 Non-cash items - Depreciation 14,641 14,454 - Provision for doubtful debts (63,864) - Net cash provided by operating activities before change in assets and liabilities 511,422 52,351 Change in assets and liabilities during the financial year - Decrease / (Increase) in receivables 221,199 41,254 - (Increase) /Decrease in other assets (7,188) 415 - Increase (Decrease) in payables 88,344 (113,855) - (Decrease) / Increase in deferred revenue 33,330 (33,199) - Decrease / (Increase) in hosting grant 14,392 - - (Decrease) / Increase in other payables (329,900) - - Increase / (Decrease) / increase in provisions 13,887 4,875 Net cash provided by operating activities 545,486 (48,159) 13. Principal activities Pacific Aviation Safety Office’s primary activity is providing technical services for aviation safety in compliance with international requirements for safety and security regulation and oversight within the 13 member South Pacific nations. The organisation receives income as follows: (a) Annual subscription fees from member nations and income from services rendered to various Civil Aviation Authorities. (b) Grants from the Government of Vanuatu, the New Zealand Ministry of Foreign Affairs and Trade and other organisations. (c) A soft term loan from the Asian Development Bank. 17 PACIFIC AVIATION SAFETY OFFICE NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018 Expressed in Australian dollars 14. Auditors’ remuneration 2018 2017 Amounts received or due and receivable by the auditors of the company for: Auditing the financial statements (WB Reform 1,843 - Project) Auditing the financial statements (PASO) 7,984 8,552 15. Contingent liabilities The Council of Representatives are aware of no contingent liabilities as at the date of signing the General Manager’s report (2017: Nil). 16. Post balance sheet events No events have occurred since the balance sheet date, which would require adjustments or disclosure in the financial statements (2017: Nil). 17. Employees The number of full time permanent employees as at 31 December 2018 was 8 (2017: 6). 18. WB Revolving Fund 2018 2017 Movement in WB Revolving Fund Opening balance 317,742 378,334 Add: Receipts (increase) 948,637 488,222 Less: Funds utilised during the year (decrease) (642,635) (548,814) Less: Accrued audit fee (decrease) (1,843) - Closing balance 621,901 317,742 19. Deferred Revenue NZ MFAT Grant 282,420 249,090 282,420 249,090 In 2017 the New Zealand Government, through its international aid and development programme managed by the Ministry of Foreign Affairs and Trade (MFAT), provided a one-off contribution of AUD372,000 towards future operational expenditures of PASO. In 2018 another funding agreement was signed for NZD 1.5 million over 3 years to support the implementation of the Pacific Regional Aviation Safety and Security project. The unspent portion of the grant is treated as deferred revenue in the balance sheet of PASO 18 PACIFIC AVIATION SAFETY OFFICE AUDITOR’S DISCLAIMER The additional financial data presented on pages 20 to 21 are in accordance with the books and records of the Organisation which have been subjected to the auditing procedures applied in our audit of the Pacific Aviation Safety Office for the year ended 31 December 2018. It will be appreciated that the additional financial data is provided for management information purposes only and does not form part of the audited financial statements presented on pages 1 to 18. Accordingly, we do not express an opinion on the additional financial data. Port Vila, 22 May 2019 Martin St-Hilaire, CA, CPA, MBA AJC, Chartered Accountants (Qualified auditors under Section 130 of the Companies Act No.25 of 2012 of the Republic of Vanuatu). 19 PACIFIC AVIATION SAFETY OFFICE INCOME AND EXPENDITURE ACCOUNT - OPERATIONS FOR THE YEAR ENDED 31 DECEMBER 2018 Expressed in Australian dollars 2018 2017 Income Members subscriptions 335,211 335,246 Service revenue 746,137 758,891 Grant income – Vanuatu Government 157,799 164,170 Grant income – MFAT 530,398 123,987 USOAP Funding 200,812 - Travel reimbursement 240,270 140,577 Sundry income 4,472 66 2,215,099 1,522,937 Other income Foreign exchange gain/(loss) - unrealised 19,673 (12,986) Interest received 5,799 2,062 Total Income 2,240,571 1,512,013 Expenditures Consultancy expenses 444,640 574,666 Travel 258,301 301,750 USOAP Service Fees & Travel Costs 223,129 - Salaries and wages - Administration 329,295 276,687 Salaries and wages - Operations 119,305 57,580 Severance 5,718 35,337 Council expenses 30,177 30,193 Rent 43,243 28,635 Staff recruitment and relocation 33,796 25,425 Interest paid 12,283 25,277 Depreciation 14,641 14,454 Staff entitlements – Operations 17,230 13,454 ICT support 14,725 13,225 Light and power 12,643 11,291 Office expenses 10,812 11,027 Auditor's remuneration 7,984 8,552 Communication expenses 12,044 8,259 Insurance 6,441 5,397 Bank charges 6,203 5,051 Advertising and promotion 378 - Printing and stationery 3,953 4,800 Provision for doubtful debts (63,864) - Annual leave - Administration 5,995 4,797 Annual leave – Operations 2,172 3,850 Superannuation 3,452 3,312 Motor vehicle expenses 4,820 2,901 Staff subsidy – Operations 11,018 2,232 Miscellaneous expense 8,303 2,840 Office improvements 26,655 1,823 Entertainment expenses 3,583 761 Postage and freight 451 210 Transport – taxi/bus 457 330 20 PACIFIC AVIATION SAFETY OFFICE INCOME AND EXPENDITURE ACCOUNT - OPERATIONS FOR THE YEAR ENDED 31 DECEMBER 2018 Expressed in Australian dollars 2018 2017 Legal consultant 67,472 - Implementation of Annual Business Plan 1,340 - Production of Annual Reports 1,131 - Total expenses 1,679,926 1,474,116 Net Surplus 560,645 37,897 21 Independent Auditors' Report To the Council of Representatives of the Pacific Aviation Safety Office We have audited the statement of income and expenditures (“the Financial Statements”) for the Pacific Aviation Safety Office Reform Project (“The Project”) as set out on page 24, for the year ended 31 December 2018. These financial statements are the responsibility of the Council of Representatives. Council of Representatives’ responsibility for the financial statements The Council of Representatives of the Organisation are responsible for the preparation and fair presentation of these financial statements in accordance with International Public Sector Accounting Standards (IPSAS). This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal controls relevant to the Organ isation’s preparation and fair presentation of the financial statements 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 controls. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 22 Unqualified Opinion In our opinion:  The financial statements present fairly, in all material respects, the actual expenditure incurred and funds received by the Project for the period 1 January 2018 to 31 December 2018 in conformity with the applicable contractual conditions; and  The funds provided by the World Bank have, in all material respects, been used in conformity with the applicable contractual conditions. Port -Vila 22 May 2019 SAINT HILAIRE & ASSOCIATES AJC Chartered Accountants (Qualified auditors under Section 130 of the Companies Act No.25 of 2012 of the Republic of Vanuatu) 23 PACIFIC AVIATION SAFETY OFFICE INCOME AND EXPENDITURE ACCOUNT – WORLD BANK GRANT FOR THE YEAR ENDED 31 DECEMBER 2018 Expressed in Australian and United States dollars Note 2018 2018 2017 2017 AUD USD AUD USD Income Grant income – World Bank 696,170 520,597 525,838 393,118 696,170 520,597 525,838 393,118 Expenditures A.02 Financial Sustainability Analysis - - 224,678 169,218 A03.2 W/Shop PASO State – A07 (a) - - (10,474) (7,793) A06.0 Recruitment of New Staff 2,447 1,845 1,720 1,209 A07.0 Training 169,718 127,313 - - A08.0 Project Implementation Support (TFSU) 100,789 75,000 60,132 45,000 A08.2 Project Manager 77,076 57,723 45,313 34,176 A08.2.1 Project Manager – 3 9,571 6,900 - - A09 PASO steering committee 36,277 26,880 29,417 22,263 A010 Stakeholder Engagement 72,149 53,693 29,460 22,390 A11.4 Stakeholder Engagement – AF2 22,127 16,688 - - A11.5 Strategic Engagement 789 595 - - B.01.1 Regulatory Specialist - - 2,997 2,280 B06 PIDP Training 14,205 10,713 - - Audit Fee 1,843 1,305 - - Training for Council Members 50,081 37,648 - - AO.8.3 Project IOC 9,965 7,186 43,557 32,303 C.01 Design PASO quality system - - 72,416 52,200 C.02 PASO Net 45,494 34,030 26,622 19,872 D02 – VSAT 52,408 39,526 - - D04.1 RPAS Working Group 31,231 23,554 - - Total Expenses 696,170 520,597 525,838 393,118 Net Surplus - - - - Notes (a) Negative expenditure amounts are due to the reclassification of incorrect expenditure allocations in previous years. 24