Legislation for Budget Implementation Transparency (PNG0016)

Problem/Issue to be addressed The country’s expenditure reporting is very weak. The successive Governments have failed to improve the Budget Expenditure Reporting in the country. There is a fragmented reporting system. There is no legislation that empowers the agencies such as Departments of National Planning and Monitoring and Treasury to legally demand the agencies to report on their expenditures. The financial expenditures have not been disclosed for public access and the political leaders and the head of agencies were not held accountable. The monetary value of goods and services have not reflected the monetary value. The agencies that receive capital investment budget failed to report on their spending. Even though there are suspicious of misuse but there is lack of comprehensive investigations.

Main Objective The objective of the Commitment is to improve transparency and accountability in the budget implementation and reporting processes. This is to making sure leaders being accountable to the citizens. The discloser of expenditure report is important to ensure there is correspondence between the money budgeted and spent in that budgeted item.

Brief Description of Commitment This commitment will enable the Department of National Planning and Monitoring and the Department of Treasury to monitor the implementation of the Budget (both capital and operational) and report to the citizen through the National Parliament and publication through media outlet annually. This will be enabled by the enactment of the Planning and Monitoring Responsibility Act which calls for all state agencies to report on the implementation of their respective programs and the projects. Those reports will be consolidated and published annually through media outlets.

OGP Challenge address by the Commitment The compulsory expenditure reporting will enable agencies to:
• Improve weakness in budget expenditure reporting mechanisms
• Make leaders and head of agencies accountable to the citizens
• Improve service delivery
• Improve weakness in the Governance process
• Promote performance-based budgeting
• Ensuring value for money is reflected on the ground

Relevance Briefly describe the way in which this commitment is relevant to further advancing OGP values of access to information, public accountability, civic participation and technology and innovation for openness and accountability. The commitment will enhance the agencies’ capacities to accurately and timely report on the budget implementation. The reported expenditure reports will then be published after tabling on the Floor of the National Parliament. This process promotes Good Governance, Accountability, transparency, Government integrity and making Government responsive to citizens’ needs which are the objectives of the OGP.

Ambition Briefly described the intended results of the commitment and how it will either make government more open or improve government through more openness This commitment aims to promote monitoring and reporting on the budget expenditure that makes Government accountable and build investor confidence. This commitment will lead to improving financial management practices within Government departments/agencies.

Milestones Activity Descriptions Start Date End Date

Phase 1: Enactment of Planning and Monitoring Responsibility Act

1.1 Certificate of Necessary (CoN) Letter to the State Solicitor for the Certificate of Necessary May, 2022 End of May, 2022

1.2 NEC Policy Submission Do the Cabinet Submission for NEC endorsement on the Bill and direct it to the First Legislative Council for the Certificate of Compliance June, 2022 June, 2022

1.3 Certificate of Compliance (CoC) Submit a letter with NEC Decision Paper, CoN, and other necessary documents to get the CoC July 2022 July, 2022

1.4 Enactment of the Bill to Act Table the Planning and Monitoring Responsibility Bill 2021 on the Floor of the Parliament for enactment September, 2022 November, 2022

1.5 Awareness Awareness and Workshops conducted for the implementation of the Act and its paneities for non-compliance December, 2022 May, 2023

Phase 2: Reporting and Publication reporting

2.1 Demand letter sent for reporting The demand letter is sent to agencies to send their budget implementation report on a quarterly basis July, 2022 July, 2022

2.2 Publications of Reports The reports from agencies will be consolidated and published for public consumptions. December, 2022 June, 2023

2.3 Investigations If there is a suspicious of misuse and mismanagement, the investigation team will be sent for investigation. January, 2023 August, 2023

2.4 Imposition of Penalties Those found guilty will be referred to the prosecuting agencies for prosecution February, 2023 September, 2023

Action Plan Review

9. Monitoring and Reporting on the Budget Expenditure

● Verifiable: Yes

● Does it have an open government lens? Yes

● This commitment has been clustered as: Fiscal Transparency (Commitments 5, 9, 10, 11, and 12 of the action plan)

● Potential for results: Substantial

For reference in Papua New Guinea’s 2022-2024 National Action Plan, see Cluster 4, Commitment 1.

Commitment Cluster 5, 9, 10, 11, and 12: Fiscal Transparency

This cluster aims to deliver timely central government budget and financial reports and regular audit reports to Parliament, as well as to open public access to this information through media outlets.

For a complete description of the commitments included in this cluster, see Commitments 2.1, 4.1, 4.2, 4.3, and 4.4 in Papua New Guinea’s 2022-2024 National Action Plan.

Context and objectives:

This cluster aims to make government’s fiscal data available in an accurate and timely manner, enabling improved financial management, regular public disclosure of government expenditure, and greater fiscal accountability. Underpinned by completing the roll-out of the Integrated Financial Management System (IFMS), subnational governments and central government agencies, including statutory authorities and state-owned enterprises, must produce their financial reports in time to allow annual reporting by the Department of Treasury (DOT) and the National Economic and Fiscal Commission (NEFC), and audit by the independent Office of the Auditor General. Over recent years, failure to produce these reports has resulted in no audit reports to Parliament, late fiscal reports on government websites, and incomplete data available for annual budget preparation. This cluster carries forward the fiscal transparency commitments from the previous action plan and widens their scope by introducing additional compliance powers, through revision of the Planning and Monitoring Responsibility Act and the Audit Act. More media outlets and channels are to be used to ensure the reports reach Papua New Guinea’s widely dispersed population successfully. This cluster can address Papua New Guinea’s current non-compliance with OGP Core Eligibility Criteria on fiscal transparency. ^[1] The cluster meets core OGP values of transparency and public accountability and aligns with IRM recommendations to prioritize commitments on fiscal transparency. ^[2]

Under the first action plan’s fiscal transparency commitment, the IFMS roll-out had reached 75 percent of districts by January 2022. However, implementation of the remainder of the commitment faced obstacles including weak ownership by the DOT and Department of Community Development and Religion, as well as funding issues and COVID-19 restrictions. ^[3] Work was not started on auditing public accounts, parliamentary oversight improvements, citizen’s budget, budget tracking, or social auditing at the subnational level. ^[4] No in-year fiscal reports were made available on the DOT website over the past decade, ^[5] and state agencies and statutory bodies lacked the human resources to produce them. ^[6] The April 2022 audit report to Parliament by the Auditor General, covering the 2020 financial year, reports increased numbers of financial statements not submitted, with only 51 of 217 entities (43 percent) submitting their financial statements for that period. The Auditor General states that many organizations continue to indicate they are incapable of managing their financial affairs, and gives his view that the concept of effective, prudent, and efficient financial management is yet to be understood and performed by many Chief Executive Officers. [7]

Potential for results: Substantial

This cluster aims to address major systemic and structural gaps in the country’s budget and audit processes. In 2021, the Open Budget Survey scored Papua New Guinea 0 (out of 100) for public participation, 28 (out of 100) for budget oversight, and 50 (out of 100) for budget transparency, reporting that the Enacted Budget, In-Year Reports, and Audit Report were either not prepared or not publicly available. ^[8] From 2016 to 2021, Transparency International PNG found that 90 percent of government’s agencies (65 of 72 agencies) failed to report on how they spent public funds. [9] The International Budget Partnership noted that countries like Papua New Guinea could improve fiscal transparency by making budget documents publicly available within a timeframe considered meaningful for public participation. ^[10] This cluster‘s work is essential for meeting this recommendation.

It offers a comprehensive package of reforms that, if implemented as planned, would centralize Papua New Guinea’s financial information infrastructure and systems and establish a common reporting, monitoring, and audit cycle that would lay the foundation for fiscal transparency. When the roll-out of the IFMS is completed, the system will store all central and provincial governments’ financial information and provide a common infrastructure for agencies to regularly prepare financial statements and critical budget documents and meet publishing deadlines. The revised Planning and Monitoring Responsibility Act will set up compulsory expenditure reporting and impose penalties for non-compliance, giving the Department of National Planning and Monitoring and the DOT powers to monitor budget implementation and report publicly through Parliament and media outlets. The NEFC will publish subnational government warrant release schedules and cash remittances. The updated Audit Act will reference the technological systems and IT mechanisms that are being rolled out. The Auditor General’s reports to Parliament on the financial statements of more public bodies will be more comprehensive and accessible for public scrutiny.

This cluster has substantial potential to improve Papua New Guinea’s financial transparency, increase public access to government’s financial information, and demonstrate a stronger government commitment to public accountability. Greater efficiencies and more accurate financial estimates, budget planning, expenditure, and reports will be possible. To achieve wide dissemination to a public with low information literacy and internet penetration, use of media outlets to distribute and communicate the reports in a variety of formats will be essential. Independent audit reports will give Parliament and the public reliable and complete data on Papua New Guinea’s financial position. According to Transparency International PNG, ensuring the provision of timely, accessible, accurate audit reports from all agencies is critical for keeping public officials accountable on their performance. [11] A review of international studies on audits’ impacts shows evidence that publication of audits can reduce corruption, especially when their public dissemination is supported by local media [12] - as intended in this cluster. Overall, the Institute of National Affairs considers access to the fiscal information that would be released by this cluster to be a foundational first step facilitating the public’s ability to hold the government accountable on national and provincial expenditure. ^[13] Timely preparation and publication of essential budget documents form the basic building blocks of budget accountability and an open budget system.

Opportunities, challenges, and recommendations during implementation

Skilled financial and technical staff are necessary to complete the IFMS roll-out and raise financial capability across central and provincial governments. The previous commitments faced weak ownership by the DOT and the Department of Community Development and Religion, as well as funding issues and COVID-19 restrictions. ^[14] For this cluster, successful implementation relies on sufficient budget allocation and strong government ownership and leadership. Additionally, reliable financial reports must be shared with the public to raise their trust in government’s financial management. Improved telecommunications and cross-government collaboration with the public and local civic groups will be needed to deliver the reports using radio, in-person meetings at villages, and other mechanisms. The key opportunity and challenge is to reach Papua New Guinea’s population living in rural areas, with a national internet access rate of 18 percent ^[15] and adult literacy rate of 62 percent. ^[16] Ongoing government-funded work with local communities to trial different ways to present this fiscal information successfully will be needed, with resources and funding available during and beyond implementation of this action plan.

Synchronizing the revision of the Planning and Monitoring Responsibility Act with the revisions of the Audit Act and the Public Finance Management Act will create efficiencies for government and easier consultation opportunities. Civic groups can proactively seek involvement. As such, the IRM recommends the following:

• Complete the IFMS roll-out to all provincial governments as soon as possible to ensure timely financial reporting and audit reporting can meet action plan timelines.
• Add actions to formulate, oversee, implement, and monitor budgets and audits. Include the detailed recommendations in the Open Budget Survey 2021 to improve implementation. ^[17]
• Gain ministerial, central, and provincial government support for this project and confirm funding and resources. Consider the Auditor General’s recommendation that renewal of chief executives’ contracts be subject to their submission of financial statements and implementation and maintenance of prudent financial management. [18]

Work with senior officials to gain leadership support, budget, and human resources for the full implementation period.

• Continue to work with international aid organizations on public financial management reform. These organizations can play a role in driving the effort and sequential planning and can dedicate resources to institutionalize these legislative reforms. ^[19]

• Consider amending the Constitution to mandate an independent process for appointing the Auditor General, as recommended by the International Budget Partnership. This could also ensure that the Auditor General is funded and able to perform its duties independently and with integrity. ^[20]
• Modernize the fiscal information programs. Develop a staged program to implement processes and procedures to ensure timely central and provincial government financial reports, a reliable NEFC website, non-internet communication, and staff training to reduce high staff turnover.
• Commence the review of the Audit Act. Address the 2020 International Budget Partnership recommendations to strengthen independent audit and oversight systems: budget, access to official records, high quality audits, enhanced public participation, the role of the legislature, and review and follow-up of audit reports and recommendations. ^[21]
• Invite public participation in the legislative reviews. Public engagement could add value to the update of the Audit Act, Public Finance Management Act and the Planning and Monitoring Responsibility Act.
• Ensure that financial and audit reports are accessibly written. Work with civic society groups to draw up effective ways of communicating these reports to the public. Include executive summaries and simplified key findings in the financial and audit reports to assist with and grow public understanding. Link newly available fiscal information to citizen participation work to inform the budget process under Commitment 4.