Auditor-General disappointed with level of unauthorized spending, calls for robust monitoring and improvement of government systems

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The Controller and Auditor-General of New Zealand John Ryan in his report to the Niue Assembly highlighted a number of ‘key matters’ identified during the audit including his disappointment at the level of unauthorized over-expenditure in breach of the Constitution, by the Niue government.

The report to the Niue Assembly provided an update on the status of the audits of the Government of Niue and its subsidiaries was tabled at the sitting of the Fono Ekepule on July 31st and was referred to the Public Accounts Select Committee.

After tabling the Audit report at the Assembly on Monday, Premier Dalton Tagelagi in a press release said that “Niue Cabinet endorses the Auditor-General’s recommendations that we can now focus on implementing improvements to current systems, processes, and practices to ensure that financial reporting continues to be timely, and the overall quality of the reporting is improved”

The 37 page report identified several matters specified by the Auditor-General that are not new and similar to the audit findings in his previous reports to the Niue Assembly and includes the responses from the Government of Niue on each of the matters raised.

Some of the key matters raised by the Auditor-General include concerns over Financial sustainability, Capability and capacity for robust financial management, Donor funds and aid money management, unauthorized expenditure, Control environment and internal controls, Documentation of decisions, and the significant number of previous audit findings and recommendations that have not been addressed by the government.

The Niue governments financial results for the five year period ending 30th June 2021 reported a $15.3 million deficit with the understanding that the 2022 and 2023 financial years are expected to be in deficit as well.

The Auditor-General emphasized as he did in his previous report the Niue government’s disclosure in relation to its reliance on the New Zealand government’s ongoing support.

Additionally the fact that a significant portion of the government’s financial support comes from New Zealand and other donor countries which means the government is reliant on financial support from other countries to meet its operational costs and for ongoing development and maintenance of infrastructure.

He acknowledged the governments’ implementation of some improvement to financial budgeting and management including increased parliamentary scrutiny with the Public Accounts committee.

The Auditor-General said that it is pleasing that there has been some improvements but emphasizes timely reporting as critical “It is critical that the government makes changes so it can sustain up to date financial information and reporting. Timely reporting assists in effective and transparent monitoring by the Cabinet, the Public Accounts Committee and the Assembly of the government’s financial position”.

In response the Niue government said that the budget deficit and reliance on financial support from the New Zealand government was brought about due to the challenges of the Covid-19 pandemic. “These deficits have been necessary to ensure that operational costs of the Government in delivery goods and services to the public, the welfare and needs of the people of Niue are met as well as to support the private sector”.

The government expects that these deficits will reduce over time, but did not address reliance on the New Zealand government or if it had considered austerity measures to reduce spending.

The report dated 6th June 2023 addressed to the Speaker of the Niue Legislative Assembly provides an update on the audit of the Niue government and entities for the period ended 30th June 2021.

BCN noted the concerns of the Auditor-General about the deficit between the total funds received from donors for specific projects and the balance outstanding for projects.

According to the report this represents a cash deficit for donor projects of $9.5 million for the period reported from 2017 to 30th June 2021 and for the year 2016 this figure was $2.4 million.

“The government had provided representation to us that donor cash has been used for recurrent (operational) expenditure”.

The Auditor-General continue to recommend as he had in previous reports that the donor funds are not utilized for any other purpose than that for which they have been provided for.

He cautioned that this practice of using donor funds for recurrent expenditure will create future cashflow issues and insufficient funds to complete projects, but that it will impact on trust of donors and expose the government to potential request for repayment of funds by donors.

In response the Niue government stated “Niue is a country that is financially dependent on donor funding and it is important that systems and processes are in place to that donor funds are only used for their intended purpose”. The government said that this is a priority for the government to work on.

With regard to unauthorized expenditure, the Auditor-General said that while he understands the financial difficulties of the government, it is disappointing that there is a level of unauthorized expenditure incurred, recommending implementation of robust monitoring and systems to ensure that budget is adhered to by the government and department responsible for the spending and appropriation each year.

The report revealed that a performance of a high level assessment by auditors from the Office of the Auditor-General of Treasury and subsidiaries environments concluded “We therefore concluded that no reliance could be placed on the controls in terms of completing our audit work. We believe that the alternative audit evidence, which included an increase in substantive and sampling of transactions, has provided us with sufficient and appropriate information to provide a basis for our opinion”, noting that this is not an efficient and cost-effective audit approach.

The assessment found that “There also continues to be a significant number of previous audit findings and recommendations that have not been addressed by the government or the relevant subsidiary.

These include improvement is asset management, procurement policy and practices and revenue verification.

Overall, the Auditor-General’s report paints a grim and bleak future for the government of Niue if they don’t act soon to change bad old habits and practices.

In a press statement the government has indicated that there are processes in place to address the recommendations.

Since becoming Minister of Finance Crossley Tatui in June 2020, he has been instrumental in pushing for assistance to improve the capacity of the Treasury, updating regulations and working on introducing new policies for state-owned enterprises.

The government also received assistance from the Asian Development Bank in producing a Public Expenditure and Financial Accountability (PEFA) Performance Assessment which provided recommendations on how the government can improve in its financial management.

Meanwhile, Premier Dalton Tagelagi in a press statement said ““I thank officials and advisers and the Office of the Auditor-General and Audit New Zealand, for their work. “It is especially pleasing ahead of the 50th anniversary of Niue’s Constitution next year, to be able to table the audited financial statements before the Assembly and to have a positive comment from the Auditor-General about the progress made, noting at the same time the issues the Auditor-General has raised and which the Government agrees need to be addressed” says Premier Tagelagi.

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