Financial accountability and management in government in Papua New Guinea takes its authority from the Constitution and Acts of Parliament.
The National Government cannot raise revenues, negotiate loans and impose taxes or provide for the expenditure of public funds unless it is authorised by Parliament.
Of late, we have seen a disturbing trend where public monies amounting to tens of millions of kina have been processed outside of Parliament’s sanction. This has occurred in the case of settlements approved by the Attorney-General and Finance and by way of trust accounts.
A commission of inquiry is presently investigating alleged abuses of process in the process of payments approved by the Attorney-General and Finance Department. Trust accounts, numbering some 2,500, continue to operate and through them, public monies are leaking like sieves.
We have mentioned in this space before and we repeat that there are far too many trust accounts for the public accounting system of the country to take note of. Many of these accounts operate outside of trust guidelines.
Trust accounts are supposed to follow strict and tested guidelines which basically stipulate that monies in the account are held for the benefit of somebody else and that certain trustees are elected to oversee their safe keeping. Yet, certain trust accounts are today used as operating accounts by trustees.
The Public Finances Management Act 1986 provides for the management of public finances in PNG. It creates two separate funds for the management and control of Government funds. All revenues and loans, except trust monies, are credited into the Consolidated Revenue Fund (CRF).
Payment out of the CRF is only authorised by an Appropriations Act approved by Parliament. Much of this comprises “Special Appropriations” which constitutes such items as the salary of the Governor-General, public debt payments and other statutory payments. These expenditures must be met regardless of the state of the finances.
The trust fund comprises accounts established for such purposes as are directed by the ministers for Finance and Planning and held under trust investments or as prescribed by law.
Trust accounts are generally classified into three groups – monies held in trust for persons and authorities; commercial trust accounts relating to working accounts covering stores and services; and trusts where money is deposited by parliamentary appropriations to meet future expenditure. An example is the National Debt Sinking Fund Trust Account.
Trust accounts have played a significant role in absorbing revenues from resource developments which by their nature are volatile. Since the PNG economy depends largely on revenues from mineral and hydrocarbon and other resources, trust accounts have helped absorb the volatility of revenue streams.
They become like dams which take in excess liquidity off the market so that it does not create inflation and eases up on the valve to release much needed cash to stimulate the economy in times of low prices or dire economic circumstances.
The most important example of this kind of trust was the Mineral Resources Stabilisation Fund (MRSF) which was created after the commencement of Panguna copper mine in 1974. It received all Government revenue derived from mining taxes rather than having them flow directly onto the Budget. The fund then distributed these revenues to smoothen the economy in times of flux or of dry periods.
The concept was good but its implementation, like most great ideas in PNG, fell far too short. And so despite promising starts, the MRSF was often mismanaged to the extent that it eventually was drawn down around 1999 and the account closed.
But the concept of the MRSF lived on. Over the years more and more trust accounts were created to the extent that at last count, the figures supplied by the Finance Department and the office of the Auditor-General were at odds with each other.
As mentioned earlier, there are some 2,500 trust accounts and the Parliamentary Public Accounts Committee in one of its reports to Parliament remarked that almost all of these trust accounts are abused.
Government has paid little attention to this running tap which is draining so much public funds. There appears to be little processes and policies relating to the use of funds held in trust accounts.
It is imperative that guidelines, processes and policies are set in place or that trust accounts are all closed and all monies sent to consolidated revenue.
This running tap must be turned off once and for all.