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Auditor General's Annual Report 2009 - Office of the Auditor

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					Office of the Auditor General




Report of the Auditor General

on the accounts of the government for the year 2009

and the results of the audit of ministries, departments and offices




November 2010
Victoria,
Republic of Seychelles
Office of the Auditor General

Our vision
To help ensure accountability and propriety of public funds and promote changes
conducive to enhancing good practices in the public sector.
Our mission
To provide an integrated professional audit service to the National Assembly, the
government and general public. To add value to government financial reporting and
provide independent assurance, information and advice.
About us
Headed by the Auditor General, the Office performs the external audit function of
public funds on behalf of the National Assembly. The Constitution and the Auditor
General Act provide a broad framework for the role and responsibilities of the
Auditor General. The Office is independent of the executive arm of the government.
The independence of the Auditor General entrenched in the Constitution is a vital
factor in the value and credibility that the public can place on the Office’s work. Our
purpose is not just to identify and report upon shortcomings but also assist and advise
managers throughout the government on how to improve financial performance and
introduce good practice in government financial operations.
Our products
 Annual report to the National Assembly including independent audit views,
  comments, assurances, information and advice on all public accounts examined by
  the Auditor General.
 Audit opinions expressed on the accounts of the government, statutory bodies and
  funded projects/programmes.
 Management letters issued on completion of the audits of ministries, departments,
  statutory bodies, etc providing details of audit findings, comments and
  recommendations.
 Reports prepared on the results of special reviews which discuss issues from a
  wider perspective to help shape formulating government policy and direction on
  selected functions, such as transport, assets, IT and programmes.
 Ad-hoc memorandums to interested parties providing opinions, advice and
  information on matters of their interest and/or concern.
Contact us
Postal address:
Office of the Auditor General
P.O. Box 49, Victoria, Republic of Seychelles
Telephone: (248) 610360
Fax: (248) 610365
E-mail: auditgen@oag.sc
Website: www.oag.sc
The Honourable Speaker of the National Assembly




In accordance with Article 158 (5) of the Constitution of the Republic of
Seychelles, I have the honour to submit the report on my examination of
the accounts of the Seychelles government for the year ended 31
December 2009 and other matters arising from various audits.




Marc Benstrong                             Office of the Auditor General
AUDITOR GENERAL                            Victoria, Seychelles
                                           November 2010
Acknowledgements

I wish to record my personal gratitude to members of my staff who carried out
their duties willingly and satisfactorily despite certain constraints. I also
acknowledge the assistance and co-operation given by officers of ministries
and departments, and in particular, Accounting Officers who appreciate the
role of my office and recognise the valuable contribution it makes in ensuring
and enhancing accountability of public funds and promoting good practice
across government.
Finally, I express my appreciation to the Finance and Public Accounts
Committee (FPAC) of the National Assembly who reviews my report and
makes appropriate recommendations to the government for improvements.
                                     Overview

Included in this report are some of the matters arising from the audit inspections
conducted in a number of ministries, departments and offices during the audit cycle
April 2009 to March 2010. The contents of this report are selective as they are the
matters being brought to the attention of the National Assembly as per my reporting
requirements.

Most of the audits examined the system of controls and the accounting records of the
entities. A number of financial statement audits were also carried out in respect of
some statutory bodies and socio-economic projects/programmes funded by various
multilateral aid agencies whose findings are not included in the report but brought to
the attention of the respective bodies and authorities concerned.

The audits have been aimed at identifying deficiencies in financial systems and
records and reporting thereon with appropriate recommendations for remedial action
with a view to bring about improvements in procedures and practices. The audit
findings are discussed with the ministry/department concerned during the course of
the audit and at an exit meeting. Many issues get resolved during these discussions
but in some cases, however, a resolution is not possible immediately and in such cases
the matters are conveyed through a management letter. The ministry/department is
required to provide a reply including comments on audit findings and any remedial
action taken or proposed within 28 days of receipt of the management letter. When
compiling the annual report, the selected audit observations are once again
communicated to respective Accounting Officers for confirmation of facts and advice
on remedial action. The nature, extent and findings of the audits are outlined where
appropriate, so are the comments of the ministries/departments and other bodies
concerned.

The report includes a brief update on the current status of the audits of some entities
subject to my audit either by statute, appointment or arrangement and a synopsis of
the matters arising from various audits, some of which had been reported previously
but remained unresolved.

The report is arranged to reflect the ministerial portfolios existed at the end of 2009
and in the order they appeared in the budget document. Provided at the end of the
report is my opinion on the several statements of accounts of the government for the
year ended 31 December 2009. To gain a comprehensive view of the government
financial operations and transactions, reference should be made to the complete set of
annual statements of accounts published by the Ministry of Finance while reading this
report.
                              Table of contents
Chapter 1

Introduction                                              1

Chapter 2

Audit comments on the accounts of Government              7

Chapter 3

Audit of statutory bodies                                 21

Chapter 4: Audit of ministries, departments and offices

Department of Environment                                 31

Ministry of Finance                                       34

Concessionary Credit Agency                               37

Law Office                                                41

Registration Division                                     44

Ministry of Education                                     47

Family Tribunal                                           56

Ministry of National Development                          59

Department of Police                                      62

Department of Community Development                       69

Immigration Division                                      70

Judiciary                                                 72

National Assembly                                         74

Seychelles Revenue Commission                             77
                                                  Report of the Auditor General

    Chapter 1
    Introduction
    Mandate of the Auditor General
1   Article 158 of the Constitution requires the Auditor General to audit the
    accounts of the Cabinet Office, the National Assembly, all government
    departments and offices, all courts and those related to moneys withdrawn
    from the Consolidated Fund, all the accounts of any statutory corporation
    or such other body as may be specified by or under an Act and report to
    the National Assembly within twelve months of the end of the
    immediately preceding financial year drawing attention to irregularities in
    the accounts audited and to any other matter which in the opinion of the
    Auditor General should be brought to the notice of the Assembly.
2   Section (5) of the Audit Act, 1972 required the Auditor General to satisfy
    himself that:
    1. all reasonable precautions have been taken to safeguard the collection
       of revenue, and that the acts, directions and instructions relating thereto
       have been duly observed;
    2. that all moneys which have been appropriated by the National
       Assembly and disbursed have been applied to the purposes for which
       they were so appropriated and that the expenditure conforms to the
       authority which governs it;
    3. all public moneys other than those which have been appropriated by
       the National Assembly have been dealt with in accordance with proper
       authority; and
    4. all reasonable precautions have been taken to safeguard receipt,
       custody, issue and proper use of government property, including
       stamps, securities and stores and that the regulations and instructions
       relating thereto have been duly observed.
3   A number of other Acts provide for the audit of accounts and records of
    various funds and persons by the Auditor General. In addition, the Auditor
    General is the appointed auditor of a number of entities receiving and/or
    dealing with public funds.
4   Over the years, the mandate remained confined to the transactions of
    ministries and departments and those bodies and authorities where specific
    provision for audit by the Auditor General exists. Consequently, the
    accounts of public corporations, companies and a number of other
    statutory bodies receiving grants or other form of assistance from the
    Consolidated Fund are not subject to audit by the Auditor General.



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Report of the Auditor General

5         The Audit Act was replaced by the Auditor General Act, 2010 which while
          retaining some of the provisions of the Audit Act provides for the conduct
          of performance audits in public authorities and submitting special reports
          to the National Assembly on any matter of importance or urgency. The
          new Act also established the Office of the Auditor General with certain
          financial and administrative autonomy from the government and a
          requirement for producing an annual report including financial statements.
          Another significant provision in the new Act is the Finance and Public
          Accounts Committee of the National Assembly having to consider the
          annual estimates of the expenditure prepared by the Office of the Auditor
          General.
          Audit methodology
6         At the core of the external audit function is the responsibility to ensure
          accountability of public funds. This responsibility is discharged through
          the conduct of regularity audits by obtaining evidence supporting
          compliance with applicable laws, regulations and procedures; compliance
          with applicable accounting standards and practices; evaluation of system
          of control in place; and financial statement items with a view to express an
          opinion on the accounts. In order to provide an independent and
          professional audit service, the Office of the Auditor General adheres to the
          International Organisation of Supreme Audit Institutions (INTOSAI)
          auditing standards for guidance.
7         The Office of the Auditor General prepares an annual audit programme
          including all audits identified to be undertaken during a twelve month
          period, known as audit cycle. The programme is reviewed periodically in
          the light of changing circumstances. Except in the case of certification
          audits required to be undertaken on an annual basis, the selection of
          entities to be included in the audit programme is influenced largely by the
          materiality of the entity’s annual expenditure or the amount of revenue the
          entity is required to raise. Other relevant factors such as, known audit
          risks, previous experience and the relative significance of operations of an
          entity are also taken into account in audit programming. The principal
          objective of an audit is to carry out sufficient audit work to provide a basis
          for the Auditor General to form an opinion on the accounts and records of
          an entity. In determining the extent of work to be undertaken in each audit,
          a critical assessment is carried out of the strengths and weaknesses of
          internal control systems in operation, the nature of the transactions
          involved and the type of opinion required to be expressed.
8         The audits are, however, intended to provide an overall assurance of the
          general accuracy and propriety of the government financial and accounting
          transactions, and, as such, although undertaken in accordance with
          prescribed standards, practices and methods, they do not guarantee

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                                                  Report of the Auditor General

     absolute accuracy of the accounts, nor the detection of every accounting
     error, financial irregularity and loss through fraud or otherwise.
     The government’s accounting framework
9    The government’s accounting framework is based on the requirement to
     ensure proper accounting of funds appropriated by the National Assembly
     or by other statutory provision and provide necessary information for the
     production of annual statements of accounts. For the purpose of
     maintaining accounts, the government may be defined as an entity
     comprising ministries, departments and offices coming under the direct
     financial administration of the government.
10   In terms of Section 151 of the Constitution, all revenue and other moneys
     raised or received for the purposes or on behalf of the government are paid
     into the Consolidated Fund. Payments out of the Fund, other than those
     charged by the Constitution or any other Act, are required to be authorised
     by the National Assembly through an Appropriation Act. Spending
     authority granted in the Appropriation Act lapses at the end of the year for
     which it is granted. Revenue and expenditure accounting is on a cash basis,
     meaning that arrears of revenue are not reflected in the Statement of Assets
     and Liabilities and payments are included in the accounts only if actually
     incurred before the end of the financial year.
11   The Constitution provides for crediting revenues or other moneys into a
     fund established under an Act for a specific purpose. Accordingly, moneys
     received for the purpose of any development scheme, project or
     programme are paid into the Development Fund in terms of Section 7(2) of
     the Public Finances Act, 1996.
12   Pursuant to Section 7(4) of the Public Finances Act, authority for making
     payment out of the Development Fund in respect of any approved scheme,
     project or programme is given by way of warrants issued by the Minister
     of Finance. Financial warrants issued for capital expenditure lapse at the
     end of the financial year. A fresh warrant is issued each year for the
     unspent balance of previous warrant and additional sum approved for the
     project in that year. The accumulated balance in the Development Fund is
     disclosed in the Statement of Assets and Liabilities.
13   The government financial transactions are classified as receipts,
     expenditure (both of which are further subdivided into recurrent and
     capital), other statutory transactions chargeable to the Consolidated Fund
     and non-budgetary below-the-line transactions. The last type mainly
     involves the acquisition or disposal of financial claims or the creation or
     discharge of financial obligations which are disclosed on a net basis in the
     Statement of Assets and Liabilities. The receipts and expenditure balances
     shown in the accounts are net of refunds and recoveries that might be

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Report of the Auditor General

          payable under a legal provision or an administrative arrangement. In view
          that the collection of revenue arrears and settlement of prior years’
          financial obligations arising from procurement of goods and services are
          not accounted for separately, many above-the-line accounts do not always
          reflect an accurate outcome as compared to the approved budget estimates.
14        Short term borrowings by the government and lending by way of general
          and parastatal advances are consolidated in the accounts without the
          associated interest payments and income being accrued. Apart from the
          GIT and LIT accounts involving the Development Fund, the financial
          statements include a large number of suspense accounts termed as general
          and trading/operating accounts which are actually operated by various
          ministries and departments for specific purposes. Funds not forming part
          of the Consolidated Fund but held by various public officers under the
          provision of the Public Finances Act are included in the statements under
          deposits.
15        Public debt in the form of long term loans, which constitutes the bulk of
          government’s liabilities, is not consolidated but shown separately in the
          Public Debt statement attached to the accounts. The government’s
          investment in public corporations, companies and other entities are
          expensed and disclosed separately by way of a statement attached to the
          accounts. The value of fixed assets held by the government is neither
          consolidated in the statement of assets and liabilities nor disclosed by way
          of a foot note to the accounts. In view of the cash basis accounting adopted
          for the preparation of financial statements, the statement of assets and
          liabilities of the government does not reflect the net worth of the
          government for any given period, but various account balances in the
          Treasury ledger.
          Submission of several statements of accounts
16        In order to enable the Auditor General to comply with Article 158 of the
          Constitution, the Minister for Finance is required under Section (11) of the
          Public Finances Act, 1996 to transmit the following statements within six
          months after the close of each financial year; (a) the accounts of the
          Consolidated Fund, Contingencies Fund, Development Fund and other
          funds established under this Act giving full particulars of all receipts and
          expenditure of moneys accounted for in those funds during the financial
          year; (b) a statement of outstanding guarantees and other financial
          liabilities of Seychelles at the close of the financial year; and (c) as far as
          practicable, a statement of assets and liabilities of Seychelles at the end of
          the financial year and the manner in which the assets are invested or held
          at the close of the financial year.
17        The first draft of various statements of accounts required by the Public
          Finances Act was submitted to Audit in March 2010. Further drafts and
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                                            Report of the Auditor General

additional statements were received and the certification of the same was
completed in November 2010. My opinion on the government statements
of accounts for the year ended 31 December 2009 may be seen in
Appendix 1. Although the statement of assets and liabilities, abstract
accounts of revenue and expenditure and notes thereon are attached to this
report following my opinion, the readers are advised to refer to the
complete set of various statements of accounts published by the Ministry
of Finance to gain a comprehensive understanding of the government
accounts.




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                                                    Report of the Auditor General

    Chapter 2
    Audit comments on the several statements of accounts
    Recurrent revenue
1   Revenue derived from various sources including direct and indirect taxes,
    fees and charges and dividends on behalf of the Republic are credited to
    the Consolidated Fund as per the Constitution. The government agencies
    responsible for the collection of revenue are given targets in terms of
    approved estimates for each fiscal year. Revenue figures included in
    annual accounts of the government are actual receipts, net of refunds,
    some of which may not necessarily relate to the current financial year.
    Similarly, revenue debts relating to previous years are accounted for as
    current revenue in the year of collection.
    Revenue collection more than previous years
2   The revenue collection in the past five years has recorded a general
    upward trend continuing into 2009. This is mainly attributable to increases
    in trades tax, GST, business tax and other indirect taxes, income from rent
    and royalties and other income, of which the latter is a new head in 2009.
    Dividends and interest have fluctuated significantly from one year to
    another. Stamp duty, reclassified from fees and fines to other indirect taxes
    in the year, has shown a decrease in actual revenues from R74.5m to
    R38.1m between 2008 and 2009. Other indirect taxes have benefited
    overall from increased foreign fishing licenses resulting from the payment
    of excess catch for the years 2005 to 2007 which had been settled in the
    year 2009.
3   The 2009 increase in trade-related taxes has substantially followed the
    depreciation of the local currency resulting from the floating of the rupee
    on 1 November 2008.
    Figure 1                                                             R(m)
               Head           2005       2006      2007      2008      2009

    Transfers from SSF         325.0       125.0     125.0     135.0      50.0
    Trades Tax                 280.4       225.5     265.2     409.6     437.1
    Goods and Services Tax     615.3       649.6     801.0     953.4   1,347.8
    Income/Business Tax        277.5       297.0     360.8     521.1     800.9
    Other Indirect Taxes       116.9       153.4     136.6     200.6     349.5
    Fees and Charges           165.1       141.1     191.7     215.1     182.1
    Rents/Royalties            127.4       144.1     146.7     203.0      23.5
    Income-Public Service        8.8         9.2      10.2      11.1      56.9
    Dividends/Interest         136.8       312.2      95.8     239.8     214.9
    Reimbursements              33.6        39.7      45.4      46.3       0.1
    Miscellaneous               25.8       221.8       6.7       6.7       4.0
    Other                        0.0         0.0       0.0       0.0     213.8
    Total:                   2,112.6     2,318.6   2,185.1   2,941.7   3,680.6


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Report of the Auditor General

4         From a five year perspective, the year under review can be seen to have
          outperformed against the previous years in that the revenue collection
          increased significantly, chiefly for the reasons mentioned above. Against
          the approved budget, however, the actual collections fell short of estimates
          by R278.4m.
              Figure 2                                                    R(m)
                                 2005      2006      2007       2008      2009
          Budget                 1,983.7   1,923.7   2,362.2    2,532.1   3,959.0
          Actual                 2,112.6   2,318.6   2,185.1    2,941.7   3,680.6
          Surplus/(Shortfall):     128.9     394.9   (177.1)      409.6   (278.4)

          Actual collection less than estimates
5         The year 2009 recorded a significant overall shortfall in revenue collection
          as compared to the budget.
          Figure 3                                                    R(m)
                          Head                 Estimate    Actual      Variance
           Transfers from SSF                      352.0       50.0       (302.0)
           Trades Tax                              575.0      437.1       (137.9)
           Goods and Services Tax                1,442.0    1,347.8        (94.2)
           Income/Business Tax                     551.0      800.9         249.9
           Other Indirect Taxes                    213.5      349.5         136.0
           Fees and Charges                        165.1      182.1          17.0
           Rents/Royalties                          45.1       23.5        (21.6)
           Income-Public Service                     3.1       56.9          53.8
           Dividends/Interest                      193.9      214.9          21.0
           Reimbursements                            0.1        0.1           0.0
           Miscellaneous                             2.9        4.0           1.1
           Other                                   415.3      213.8       (201.5)
           Total:                                3,959.0    3,680.6       (278.4)
6         Closer examination of performance under individual heads reveals
          however that this was chiefly the result of a transitional effect in the 2009
          budget preparation process whereby transfers from the Social Security
          Fund were projected on the basis of gross social security contributions
          collected which did not equate to amounts remitted to the government by
          the Social Security Fund. The introduction of personal income tax in 2010
          resolves this situation. Other heads reflected gains and losses many of
          which can be attributed in part to the difficulties involved in predicting
          revenue performance following the liberalisation of the rupee at the end of
          2008. The head of other income reflected a disappointing performance in
          2009 as a direct result of a number of expected major land deals having
          failed to materialise.
          Statement of revenue arrears
7         It has been mentioned in many reports before that a statement of
          revenue arrears may be appended to the several statements of accounts
          of the government for not only providing more complete and relevant

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                                                       Report of the Auditor General

       information in relation to revenue but also facilitating better budget
       preparation and recovery action. The Ministry of Finance is yet to
       consider this suggestion and take the necessary action for the eventual
       preparation of the statement on an annual basis.
       Recurrent expenditure
8      Withdrawals from the Consolidated Fund must be by annual appropriation
       or under provision of other law. The annual spending limits are included in
       a budget document under various heads. The accounts and records relating
       to expenditure out of budgeted funds are maintained by the respective
       Accounting Officers while Treasury has responsibility for effecting
       payments other than petty cash on behalf of the organisations concerned
       and to maintain the general ledger of the government.
9      In a similar way to the collection of revenue, financial transactions in
       respect of payments for goods and services are accounted for in the year
       the payments are effected rather than as and when transactions occur.
10     Due to the classified nature of the activities involved, an independent audit
       examination of the expenditures incurred in the year 2009 of the
       Information Reward Fund of the Police has not been undertaken. However,
       the Accounting Officer for the account concerned has provided written
       representation to the effect that all payments effected were properly
       authorised, and that adequate controls existed over the making of these
       payments.
       Expenditure - Five year perspective
11     For the purpose of this analysis, total expenditure includes recurrent
       expenditure of ministries, departments and offices, centralised payments
       and public debt servicing cost but excludes any expenditure which might
       have been posted directly to the GRB account and any suspense accounts.
12     Total expenditure has been increasing substantially over the past five years
       for a variety of reasons but mainly in view of varying debt servicing cost
       and also centralised payments including subventions and various forms of
       grants to governmental and non governmental bodies and then in 2009
       with the impact of the liberalisation of the rupee.
      Figure 4                                                      R(m)
                              2005           2006      2007      2008       2009
     Total Expenditure         2,530.8       3,188.0   3,116.9   3,307.4    5,022.3
     Increase (Decrease):      (647.5)         657.2    (71.1)     190.5    1,714.9

       Operational costs
13     For the purpose of this analysis, the operational cost of various ministries,
       departments and offices includes personal emoluments, office running
       costs, repairs and maintenance, transportation costs, other costs, specific

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Report of the Auditor General

          costs and minor capital outlays. The funds required for these outlays are
          appropriated by the National Assembly through annual budgets. In the
          year 2009 supplementary appropriations were also presented on three
          occasions to the National Assembly for approval totalling R422.9m. These
          included sums in respect of the operational costs of various ministries,
          departments and offices as well as centralised payments, development fund
          expenditures and net lending.
14        The actual operational cost expenditures are compared to the approved
          appropriations for the period from 2005 to 2009 in Figure 5.
          Figure 5                                                     R(m)
                                    2005       2006      2007       2008      2009
           Appropriated               761.5     834.7      932.7   1,036.1    1,360.9
           Actual                     856.4     952.2   1,010.0    1,079.7    1,312.9
           Saving/(Overspending):    (94.9)   (117.5)     (77.3)     (43.6)      48.0
15        During the year 2009, twenty-four entities received appropriations
          totalling R1,360.9m against which actual spending was R1,312.9m,
          resulting in the net saving of R48.0m.
16        In contrast to previous years of budget overruns, the year 2009 recorded an
          overall surplus for the first time. Compared to the previous year none of
          the entities (as opposed to 12 in 2008) registered overspending against
          their budget. This change is largely attributable to improved administrative
          efficiency in handling the demands for additional funds in good time. As
          mentioned above a total of some R422.9m of additional funding was
          approved by the National Assembly at various stages during the year 2009.
          The larger sums of additional funds approved in 2009 included extra
          amounts allocated of R34.6m for the Ministry of Health and Social
          Development, R34.4m for the Ministry Environment, Natural Resources
          and Transport, R27m for the Department of Defence and R14.5m for the
          Department of Police.
17        However, the approval of lump sum totals under supplementary
          appropriations in line with the estimates as tabled in 2009, but without
          actually scheduling additional funds under individual budget heads as is
          the case with the original budget document, in Audit view led to certain
          problems. For example, the Ministry of Finance allocated a sum of R9.8m
          to the Department of Police (Foreign consultancy fees) out of the lump
          sum additional funds approved respectively for the Ministry of Finance,
          Seychelles Revenue Commission, Ministry of National Development and
          the Department of Defence.
          Centralised payments
18        The centralised payments votes include other wages and salaries costs
          (including some charges to the Consolidated Fund), other goods and
          services costs, social programmes of central government, others, provision

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                                                   Report of the Auditor General

     for arrears, contingency and transfers to public sector in the form of
     regulatory bodies, parastatals and other bodies. They are the responsibility
     of designated accounting officers to whom the financial warrants are
     issued following appropriations. The actual spending for the year 2009
     was R305.7m less than the total provision of R1,333.0m, resulting largely
     from savings of R297.2m under the contingency vote. The spending under
     centralised payments is illustrated in Figure 6.
     Figure 6                                                     R(m)
              Description                Estimate      Actual      Variance
     Wages and salaries                        169.2     292.2       (123.0)
     Goods and services                         10.7      10.7           0.0
     Social programmes of central
     government                                411.7      301.3        110.4
     Others                                     20.7       20.7          0.0
     Provision for arrears                     226.1      219.6          6.5
     Contingency                               300.0        2.8        297.2
     Transfers to public sector                194.6      180.0         14.6
     Total:                                  1,333.0    1,027.3        305.7
19   During the year 2009 a total of R219.6m was disbursed under the
     centralised payments head ‘provision for arrears’. This included a number
     of payments in relation to the following organisations.
        payments amounting to R70,226,996 made to SMB creditors at the
         request of SMB;
        payments amounting to R23,082,864 made in respect of settlement of
         STB creditors;
        R25m made directly to PUC in respect of IOT arrears being settled by
         Government; and
        payments to SPDF totalling R3.5m.
20   Audit is of the view that the use of the head ‘provision for arrears’ in
     general defeats the purpose of budgetary controls and transparency in the
     spending of budget funds. The payments to SMB creditors under an
     expenditure head rather than the use of a below the line account, when it is
     under liquidation, on the other hand, will result in a non disclosure of the
     full financial support extended by Government to SMB and the financial
     outcome of the liquidation. Audit is of the view that the use of ‘provision
     for arrears’ head created to accommodate foreign exchange liabilities in
     the past due to shortage of foreign exchange should now be reviewed in
     the light of the improved foreign exchange situation.
     Withdrawals requiring supplementary appropriation
21   According to the Constitution, withdrawals of monies from the
     Consolidated Fund should be authorised by an appropriation act or by
     other law. The principle vehicles for the appropriation of budgeted funds
     for ministries and departments and centralised payments are the annual


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Report of the Auditor General

          appropriation act or supplementary appropriations approved by the
          National Assembly thereafter. During the year 2009, three such
          supplementary appropriations were approved. Other significant charges on
          the Consolidated Fund include approved public debt servicing costs, i.e.
          debt repayments and interest payments in connection with financial
          instruments undertaken by government, and the approved costs of
          constitutional appointments. At the time of writing, withdrawals totalling
          R204.2m have been effected from the Consolidated Fund without
          appropriation during the year 2009. These have taken various forms, see
          Figure 7, and remained to be regularised through further supplementary
          appropriation, at the time of writing.
                     Figure 7                             R(m)
                             Particulars              Amount
                    Centralised Payments                  122.7
                    Suspense Accounts                       8.0
                    GRB                                    48.9
                    Servicing of loans without SI          24.6
                    Total:                                204.2
          Consolidated Fund
22        The Consolidated Fund is established in accordance with Article 156 of
          the Constitution and credited with all revenue collected on behalf of the
          Republic and debited with withdrawals by annual appropriations and
          charges under the provision of law. The debit balance on the Consolidated
          Fund, as reflected in the statement of assets and liabilities, represents the
          accumulation of deficits over the years up to the end of 2009.
          Recurrent deficit
23        For the purpose of this analysis, the recurrent deficit is the excess of
          expenditure incurred, including public debt repayments and interest
          payments, over revenue receipts. The approved budget for the year 2009
          including supplementary appropriations projected a deficit of R4,009.9m
          yet the actual product is a deficit of some R1,341.7m which is R2,668.2m
          under the projection. This is the net effect of a revenue budget under-
          performance (R278.4m) and lesser expenditure (R2,946.6m) incurred
          against the budget, which was due to the under servicing of public debt
          and savings under the centralised payments contingencies vote. The actual
          budget outcome has been at variance with the projected one as it has for
          recent years now indicating an on-going dependence on borrowings,
          although in this case mainly local short term borrowings, for plugging the
          recurrent deficit.




                                          12
                                                        Report of the Auditor General

        Figure 8                                                          R(m)
                              Estimates        Actual     Variance     Variance
                                                                          %
         Revenue                    3,959.0   3,680.6        (278.4)       (7.0)
         Expenditure                7,968.9   5,022.3        2,946.6        37.0
         Surplus/(deficit):       (4,009.9) (1,341.7)        2,668.2
24   An adjustment to allow for the exclusion of the amortisation of loan
     principals would reverse the deficit into a surplus of R656.9m as illustrated
     below.
                Figure 9
                                            R(m)      R(m)
            Revenue                                    3,680.6   (a)
            Expenditure                     5,022.3
            Less:
            Debt principal
            repayments                      1,998.6     3,023.7 (b)
            Surplus (a ) - (b):                           656.9
     Total deficit
25   The recurrent deficit discussed above and reflected in the abstract account
     is exclusive of transactions posted to the General Revenue Balance (GRB)
     account being maintained to account for such transactions as exchange rate
     variations, bank charges, reimbursements relating to previous years, write-
     off of outstanding balances and other adjustments. Further, the
     Contingencies Fund is also funded from the Consolidated Fund. It is
     necessary, therefore, to consider these types of transactions in the
     calculation of the total deficit debited to the Consolidated Fund. Loan
     finance may also be raised under the understanding that it is required to be
     accounted for under the Consolidated Fund but this is not considered
     inclusive in the calculation of the total deficit for the year. Computed on
     this basis, Figure 10 shows a total deficit of R1,552.3m for the year 2009.
26   The major write-offs debited to GRB account include (a) R69.8m in
     respect of Specialised Treatment Fund (STF) accumulated over the recent
     years (including R11.5m incurred in the current year without an
     appropriation). It was explained in previous years that the outstanding
     balance would be recovered from the Fund; and (b) R25.5m in connection
     with a bank deposit account of which the existence was queried by Audit
     in previous years yet a resolution was not found. This balance resulted
     from the use of an accrual basis accounting in 2006 for revenue and related
     to unrealised statutory transfers from the Social Security Fund.
27   Other amounts include payments totalling R12m made to an individual
     (and stated to have been in respect of the Plantation Club) and a balance of
     R25,374,020 in respect of SIVA Ltd, both charged to exchange rate
     variations. In the absence of any supporting documents explaining the
     nature of these transactions, Audit could not ascertain the correctness of

                                       13
Report of the Auditor General

          the transaction and its accounting treatment. Furthermore, these amounts
          are pending supplementary appropriation at the time of the report.
28        The Consolidated Fund had an accumulated deficit of R13,445.5m at the
          end of 2009, as illustrated below.
              Figure 10
                                                             R(m)     R(m)
            Deficit brought forward 01.01.09                          11,893.2
            Recurrent deficit for the year                        (a) 1,341.7
            Net GRB balance                                       (b)    210.6
            Total deficit for the year 2009 (a)+(b)                    1,552.3
            Accumulated deficit 31.12.09:                             13,445.5
          Sources of deficit financing
29        The total deficit of R1,552.3m for the year 2009 was largely financed
          through increased short term borrowings and net repayments of advances
          as opposed to a surplus in the Development Fund as has normally been the
          case over the years. Figure 11 illustrates the sources and application of
          funds in relation to deficit financing of the Consolidated Fund.
              Figure 11
                                                          R(m)
             Increase during the year in:
             Short term borrowing                            955.1
             Deposits                                          0.8
             Suspense accounts                               300.6
             Sinking Fund                                     66.1
             Decrease during the year in:
             Cash and bank balances                           83.3
             Advances                                        319.5
                                                           1,725.4     (a)
             Less:
             Increase during the year in:
             Remittances                                         4.2
             Investments                                         0.1
             Imprest                                             0.2
             Decrease during the year in:
             Other Funds                                       0.1
             Contingency Fund                                  4.1
             Development Fund                                164.4
                                                             173.1 (b)
             Total deficit for the year 2009 (a)–(b):      1,552.3
          Advances
30        There is no provision in the Public Finances Act, 1996 for making
          advances out of the Consolidated Fund. However, some advances
          comprising general and parastatal advances have been made over the years
          under Section 17 (1) of the previous Public Finances and Management
          Act, of which the closing position at the end of 2009 is as discussed in the


                                            14
                                                   Report of the Auditor General

     following paragraphs. Others have been made under or will now require
     supplementary appropriation.
31   General advances: The car loans and general purpose loans (GPL)
     made to public servants over the years, net of repayments, amounted to
     R7.5m at the end of 2008, a reduction of R9.2m over the previous year.
     A number of other general advances brought forward from 2008, which
     could have been better classified as parastatal advances in that year, were
     reclassified during 2009 under parastatal advances.
32   Parastatal advances: The parastatal advance balances at the beginning of
     2008 included advances made in respect of SMB, expected to be recovered
     on finalisation of the liquidation, totalling R33.4m and financial support to
     SEPEC totalling R654.2m. These figures changed during the year 2009 to
     R80.0m and R349.9m respectively. The increase in the balance in respect
     of SMB has resulted from the incorporation of three balances previously
     reflected under suspense accounts. The reduction in the SEPEC balance
     has flowed from repayments received in respect of the advanced sums. It is
     noted that the closing figure for recorded advances of R349.9m to SEPEC
     has not yet been reconciled with confirmed figures from SEPEC by the
     Ministry of Finance.
33   Other balances now appearing as parastatal advances include R56.8m
     (2008 R52.5m) in respect of Coetivy Prawns Ltd and R25.6m (2008
     R96.8m) extended in respect of the Seychelles Trading Company. An
     amount of R30m was also extended to Air Seychelles during the current
     year under approved appropriation.
     Suspense Accounts
34   The Treasury maintains a number of suspense accounts for various
     purposes. These are categorised into (a) general; (b) trading/operating and
     (c) grants/loans in transit (GIT/LIT).
35   General suspense accounts: The general suspense accounts had a net
     credit balance of R50.4m at the end of 2009, which is a movement of
     R304.6m against the previous year’s debit balance of R254.2m. This is the
     result of a number of major balances commented upon under suspense
     accounts in previous years having been cleared and others accounted for in
     more appropriate accounts. However, the tax unidentified items suspense
     account (a clearing account), which should have a credit balance, if not a
     nil balance, again showed a net adverse debit balance of R8.0m at the end
     of 2009 due to the posting of some unrelated transactions thereto. These
     transactions include expenditure which should have been charged to
     various recurrent expenditure accounts and thus required to be included in
     supplementary appropriation estimates at the time of writing.



                                    15
Report of the Auditor General

36        Trading/operating accounts: The net credit balance of all
          trading/operating accounts fell to R10.9m at the end of 2009 from R14.9m
          in 2008.
37        GIT/LIT accounts: The grants in transit (GIT) and loans in transit (LIT)
          accounts forming part of the Development Fund had a net credit balance of
          R15.6m at the end of 2009. A typical GIT/LIT account should have a
          credit balance; however, a small number of accounts had debit balances
          totalling R1.9m at the end of the year denoting some problems in the way
          the accounts had been maintained.
          Contingencies Fund
38        As per the legal provisions governing the Contingencies Fund, advances
          are allowed up to a maximum of R25m. Where any advances are made
          from the Fund such advances are to be included in a supplementary
          appropriation bill as soon as practical and laid before the National
          Assembly for the replenishment of the Fund.
39        At the time of this report, a sum of R7,312,704 advanced out of this Fund
          remained to be replaced with the approval of the National Assembly.
          Sinking Fund
40        The Sinking Fund had a closing balance of R89.5m at the end of 2009
          having been debited with some R2.6m and credited with some R68.7m
          representing proceeds from the sale of assets undertaken during the year.
          As mentioned in previous reports, the Sinking Fund which was opened in
          the year 2005 was not established by law and there has been no action
          taken to remedy the situation as of this report. Audit is of the view that all
          proceeds should have been created to the Consolidated Fund as per Article
          151 of the Constitution. Hence, the Consolidated Fund is understated by a
          net sum of R66.1m.
41        It is said that this account has been maintained with the ultimate intention
          of financing public debt servicing costs from the proceeds of sale of assets
          and disinvestment by Government in parastatals and other organisations.
          Development Fund
42        The Development Fund, established under Section 7 (1) of the Public
          Finances Act, is credited with the receipts from grants and loans raised for
          the purpose of any development scheme, project or programme. According
          to Section 7 (3) of the Act, withdrawals from the Fund shall be for the
          purpose of defraying the costs of a development scheme, project or
          programme for which monies were received and for which provision is
          made under the National Development Plan for Seychelles referred to in
          the Development Loans Act and approved by the President. The


                                         16
                                                  Report of the Auditor General

     grants/loans in transit (GIT/LIT) suspense accounts maintained in the
     Treasury ledger form part of the Development Fund.
     Movements during the year
43   Overall, the Development Fund decreased from R11,371.8m to
     R11,207.4m by the end of 2009. Receipts credited to the Fund during the
     year 2009 totalled R448.6m, comprising the proceeds of grants received
     and borrowings made. One of the main sources of finance included under
     the Fund took the form of budget support under a loan from the African
     Development Bank worth R119.9m. Whereas according to the relevant
     Statutory Instrument this source of finance was to be accounted for under
     the Consolidated Fund, the Ministry of Finance chose to account for this
     under the Development Fund as it was recognised that certain elements of
     the loan receipts were to be utilised for development purposes. In fact, the
     costs incurred in connection with the implementation of various projects
     and programmes and development grants to 3 parastatal organisations
     during the year were R613.0m resulting in a deficit on the fund of
     R164.4m. This is a significant reversal over the trend in previous years
     where surpluses on the fund had been applied towards the financing of
     recurrent deficits.
     Irregular withdrawals
44   Section 7 (3) of the Public Finances Act, 1996 requires financial warrants
     authorising withdrawals from the Development Fund to be issued under
     the Minister’s hand. However, withdrawals from the Fund over the years
     have been made on the basis of financial warrants issued by various
     finance officers. Despite audit comments against the practice that the Act
     did not provide for delegation of authority and the Ministry of Finance
     assurance to remedy the situation through an amendment to the Act, a total
     of R613.0m was withdrawn from the Fund during the year 2009 in breach
     of the above provision.
45   Furthermore, withdrawals amounting to some R465.0m made from the
     Fund during the year were to be presented by the Ministry of Finance to
     the President for retrospective approval in line with Section 5 (1) of the
     Development Loans Act, 1977 and Section 7 (3) (b) of the Public Finance
     Act, 1996.
     Public debt
46   The public debt statement shows the particulars of outstanding long term
     external and internal loans. While external loans are raised from bilateral,
     multilateral and commercial sources, the internal loans are raised through
     the sale of development stocks, Treasury bonds and banking institutions.
47   The accounting policy for long and short term borrowings by the
     government differs in that long term borrowings are not accounted for as a
                                    17
Report of the Auditor General

          liability in the Statement of Assets and Liabilities, but are included in the
          public debt statement. On the other hand, short term borrowings
          comprising Treasury Bills, advances from the Central Bank of Seychelles
          and deposits made with the government by various governmental and
          private entities are included as liabilities in the Statement of Assets and
          Liabilities but not included in the public debt statement.
          Legislative framework for public debt
48        The Public Debt Management Act 2008 revised and consolidated the laws
          relating to loans and guarantees and provides for the establishment of a
          National Public Debt Management Committee. Consequently, this Act
          repealed the Local Loans Act, the Loans Decree and the Treasury Bills
          Decree. With the exception of the Treasury Bills decree, the
          aforementioned Acts stipulated that borrowing under their authority shall
          not be valid unless the particulars of the loans are published in the Official
          Gazette through a Statutory Instrument (S.I.). The Public Debt
          Management Act has kept this requirement in Section (28). Despite similar
          comments in previous reports, Audit was unable to sight the relevant S.I.
          in respect of 19 loans included in the public debt statement with a total
          liability of R1,507.6m as at end of 2009. Loans without S.I. are considered
          to have been raised outside the enabling legislative framework.
          Public debt portfolio
49        Over the past few years, long term loans in the public debt portfolio had
          grown steadily and significantly reflecting a tendency for financing of
          public expenditure through long term borrowings rather than short term
          means. One of the main components of the economic reform programme
          which the Government embarked on late 2008 with the support of the IMF
          was achieving debt sustainability. During the year 2009, a comprehensive
          debt review programme was undertaken including the restructuring of
          external debt. Further, negotiations with creditors undertaken during the
          year included talks with the Paris Club resulting in a confirmed debt
          reduction, to be applied in two phases of 22.5% on 1 July 2009 and a
          further 22.5% on 1 July 2010. As a result, the growth in long term
          borrowings was brought under control and in fact reversed in 2009.
          Accordingly, despite an increase in short term borrowings, the overall
          portfolio fell from R14,699.4m in 2008 to R10,885.6m at the end of 2009.




                                         18
                                                       Report of the Auditor General

     Figure 12      Public Debt Portfolio                               R(m)
                             2005       2006          2007       2008          2009

     Long term loans         4,543.8        6,054.5   6,959.0 12,718.4  8,059.5
     Short term borrowings   1,635.2        1,297.4   1,364.8 1,981.0   2,826.1
     Total:                  6,179.0        7,351.9   8,323.8 14,699.4 10,885.6
     Increase/(decrease)     (137.2)        1,172.9     971.9 6,375.6 (3,813.8)
     Long term loans %          73.5           82.4      83.6     87.0     74.0

     Long term debt
50   The external component of the long term debt portfolio had risen
     substantially over the three years prior to 2009 mainly due to the issuance
     of international bonds in 2006 and 2007, amortising notes issued 2007 and
     oil importation related borrowings in 2008. This was compounded by
     adverse exchange rate movements in 2007 and significantly in 2008 with
     the liberalisation of the rupee. In 2009 with a recovery of the rupee in part
     over the year, restricted international borrowing and the restructuring of
     domestic bonds through issue of Treasury bills, on the whole a major
     reduction in the long term debt portfolio during the year 2009 was noted.
     The macroeconomic reforms engaged in late 2008 also included, as a
     central component, the restructuring of external debt involving
     negotiations which have continued through 2009 into 2010.
51   The domestic component of long term debt, on the other hand, has
     declined by R1,573.8m to R925.3m from R2,499.1m in 2008 and
     R3,043.6m in 2007 which can partly be attributed to the concluded
     conversion of 20 year bonds into marketable securities under short term
     borrowings (Treasury bills) in the amount of R747.1m during the year
     2009 (R250m in 2008).
     Figure 13                      Long term loans                  R(m)
                             2005       2006        2007          2008           2009
     External debt
     Multilateral              303.7          262.9      392.8      883.4          460.1
     Bilateral                 464.8          640.9    1,030.6    2,170.8        1,933.5
     Commercial                505.9          572.8      652.4    2,126.2        1,280.5
     External bonds                -        1,159.1    1,839.6    5,038.9        3,460.1
     Sub-total:              1,274.4        2,635.7    3,915.4   10,219.3        7,134.2
     Domestic debt
     Development stock         150.0          150.0      150.0      150.0          100.0
     Others                     13.0           79.8       14.9       30.4           12.0
     Treasury bonds          3,106.4        3,188.9    2,878.7    2,318.7          813.3
     Sub-total:              3,269.4        3,418.7    3,043.6    2,499.1          925.3
     Grand total:            4,543.8        6,054.4    6,959.0   12,718.4        8,059.5
     Increase/(decrease)       957.3        1,510.6      904.6    5,759.4      (4,658.9)

     Short term borrowings
52   Short term borrowings comprise amounts raised from Treasury bills,
     deposits and overdraft facilities from Central Bank. The increase in

                                       19
Report of the Auditor General

          Treasury bills is largely the result of the aforementioned restructuring of
          bonds.
          Figure 14      Short term borrowings                         R(m)
                                   2005      2006       2007      2008     2009
         Treasury bills            1,353.2 1,200.0     1,145.0   1,708.8 2,799.8
         CBS – Advance a/c               -        -       86.4     140.6        -
         Funds/deposits              265.1     97.4       64.2      21.7     26.3
         Sub-total                 1,618.3 1,297.4     1,295.6   1,871.1 2,826.1
         Overdraft on CBS a/c         16.9        -       69.2     109.9        -
         Total                     1,635.2 1,297.4     1,364.8   1,981.0 2,826.1
         Increase/(decrease)     (1,094.5)  (337.8)       67.4     616.2    845.1

          Public debt servicing
53        The actual public debt servicing cost comprising repayments and interest
          payments of R2,682.1m is less than the budget by R2,592.9m for 2009 but
          more than the previous year’s figure of R1,502.3m.
             Figure 15                                             R(m)
                                      Estimate     Actual     Excess  Saving
             External debt
             Interest                      462.5       67.2              395.3
             Principal                   1,204.4      421.6              782.8
             Sub-total:                  1,666.9      488.8            1,178.1
             Domestic debt
             Interest                    1,983.2     616.3             1,366.9
             Principal                   1,624.9   1,577.0                47.9
             Sub-total:                  3,608.1   2,193.3             1,414.8
             Grand total:                5,275.0   2,682.1             2,592.9

54        Twelve loans without the necessary S.I. were serviced to the tune of
          R24.6m during the year. At the time of writing, this amount remained to
          be regularised through a supplementary appropriation.
          Outstanding Guarantees
55        The statement of outstanding guarantees is required by Article 154 (8) (d)
          of the Constitution. Guarantees are issued under Section 9 of the Public
          Finances Act, 1996 and a guarantee shall have no effect unless there is
          issued an order by the President. The aggregate balance outstanding in
          respect of guarantees was R246.5m at the end of 2009 down from
          R699.2m in 2008. This decrease was chiefly a result of the restructuring of
          public debt and the negotiations with the Paris Club concluded during the
          year.
          Investments
56        An investment of R6m held with a local bank for several years has not
          been confirmed by the bank concerned putting in doubt its existence. This
          is despite assurances from the Ministry of Finance to investigate the matter
          and resolve it.
                                         20
                                                 Report of the Auditor General

    Chapter 3
    Audit of statutory bodies
    Seychelles International Business Authority
1   The Seychelles International Business Authority (SIBA) was established
    by the Seychelles International Business Authority Act, 1994. The
    Authority is primarily responsible to monitor, supervise and co-ordinate
    the conduct of international business activities from within Seychelles.
    Section 11 of the relevant Act provides for the accounts and records of the
    Authority to be audited by the Auditor General.
2   The Authority has failed for three consecutive years to satisfy Section 11
    (1) and (2) of the SIBA Act, which requires the preparation of annual
    statement of accounts not later than 31 March and lay before the National
    Assembly the audited accounts not later than 30th June of each year.
3   The audit of the Authority for the year 2008 was undertaken without a
    draft statement of accounts, which was submitted in July 2010 and
    certified in the same month. An audit of the 2009 accounts of which a draft
    was submitted in September 2010 will be undertaken during the 4th quarter
    of this year.
    Marine Parks Authority
4   The Marine Parks Authority (MPA) was established in terms of the
    provisions contained in the Environment Protection Act, 1994 and the
    Environment Protection (Marine Parks Authority) Order, 1996. The
    Authority is principally responsible for the protection and management of
    marine parks. The audit of the Authority is conducted by the Auditor
    General under an appointment.
5   Over the years, the audit opinion has been qualified on account of the
    treatment of proceeds from marine park tickets as income of the Authority
    against the provision in the Environment Protection (Marine Parks
    Authority) Order, 1996.
6   The certification of the statement of accounts for the year 2007 submitted
    in May 2008, which was pending at the time of the last report, has been
    completed since. An audit of the 2008 draft accounts submitted in March
    2010 is in progress at the time of writing.
7   This is the final audit of the Marine Parks Authority in view that the
    Seychelles National Parks Authority was established effective January
    2009 incorporating the functions of the MPA under S.I.30 of 2009 which
    also repealed the MPA Order, 1996.
    Small Enterprise Promotion Agency
8   The Small Enterprise Promotion Agency Act, 2004 provides for the
    establishment of the Agency (SEnPA) to be responsible for, among others,
    promoting small enterprises and development of crafts and cottage
    industries in collaboration with the Ministry responsible for industries.
    Section (10) of the Act provides for the keeping of proper accounts and
    records and the audit of annual statement of accounts by the Auditor
    General.
                                  21
Report of the Auditor General

9         At the time of writing, an audit of the draft statement of accounts for 2008
          submitted in March 2010 has been completed and the final accounts are
          awaited for certification.
          Seychelles Tourism Board
10        The Seychelles Tourism Board (STB), established under the Seychelles
          Tourism Board Act, 2005, is principally responsible to promote the
          efficient and sustainable development of tourism and to enhance its
          contribution to the national economy and to advise and assist the
          government in the development of infrastructures supporting the tourism
          industry. The Board became operational with effect from April 2005.
11        The various problems encountered by Audit over the years in the
          completion of the Board’s audit work have been mentioned in previous
          reports. These have not been addressed satisfactorily despite assurance
          given by management, and for this reason the audit of the accounts and
          records for the years 2007, 2008 and 2009 has not been completed.
12        An audit of the accounts and records of the Board for 2007 was, however,
          undertaken and the resultant report issued in April 2010 drawing attention
          to a number of issues including some accounting errors. The Board is yet
          to submit a credible statement of accounts for the year 2007 for audit
          review and certification.
          Property Management Corporation
13        The Property Management Corporation (PMC) was established under the
          provisions of Property Management Corporation Act, 2004. The
          Corporation is responsible, among others, for the management and
          maintenance of buildings and other property on behalf of the government
          and provision of living accommodation to the people of Seychelles as per
          the policy of the government. The Corporation became operational with
          effect from October 2004.
14        The accounts for the years 2006 and 2007 were certified in April 2010
          subject to qualifications on the ground that the Corporation could not
          produce a detailed list of customers with finance leases under the House
          Purchase Scheme and a list of aged rent receivable from tenants.
15        At the time of writing, an audit of the statement of accounts for the period
          ending 31 January 2009 has been completed and the certification pending.
          The change in the accounting period is due to the government’s
          announcement of the merger of PMC with the Housing Finance Company
          effective January 2009. However, the legislation relating to the Property
          Management Corporation remains to be repealed.
          Seychelles Heritage Foundation
16        The Seychelles Heritage Foundation was set up as a body corporate under
          the Seychelles Heritage Foundation Act, 2006 with the principal objective
          to identify, conserve and promote the cultural heritage of Seychelles and to
          encourage broader public participation in activities designed to promote
          the cultural heritage of Seychelles.



                                         22
                                                  Report of the Auditor General

17   Section (11) of the Act requires the Board to ensure keeping of proper
     accounts and books and records for the recording of all financial
     transactions of the Foundation and the Auditor General to conduct audit of
     the Foundation in accordance with Article 158 of the Constitution.
18   The ongoing audit work for the years 2007 and 2008 at the time of the last
     report was completed and a report issued in May 2010. Among others, the
     report drew attention to outstanding debtors worth some R444,573 with a
     recommendation that management should take the necessary action for
     recovery.
     Seychelles Licensing Authority
19   The Seychelles Licensing Authority was established under Section 3 (1) of
     the Licences Act, 1986 for issuance of specified licences and connected
     purposes. The audit of the Authority by the Auditor General is under an
     appointment made by the Minister for Finance in 1992.
20   The Authority produced a draft statement of accounts for 2009 in April
     2010 and the certification thereof was completed in September 2010.
     Centre Mont Royal
21   The Centre Mont Royal was established under the Misuse of Drugs
     (Centre Mont Royal) Regulations 2001 made under the Misuse of Drugs
     Act (Cap 133) to provide treatment for alcohol and drug dependent
     persons in order to help them to effectively manage their condition so as to
     be able to live a healthy and productive life. The Auditor General was
     appointed in July 2003 by the Board to conduct annual audits of the
     Centre.
22   The statement of accounts for the year 2009 produced in April 2010 was
     certified in August 2010.
     Social Security Fund
23   The Social Security Fund was established by the Social Security Fund Act,
     1987. The principal functions of the Fund are to collect contributions from
     employers and employees and disburse various benefits to eligible persons,
     in accordance with the provisions of the Act. The audit of the Fund’s
     accounts for the year 2008 by the Auditor General was under an
     appointment.
24   The statement of accounts for the year 2009 was certified recently. Post
     balance sheet, the Social Security Act, 1987 was repealed and a new
     legislation enacted for the continuation of the Social Security Fund without
     the mandate to collect contributions which was replaced by a personal
     income tax to be collected by the Seychelles Revenue Commission.
     Children Special Fund
25   The Children Special Fund was established under the provisions of the
     Children Special Fund Order, 1980 with the object to improve the lives of
     children.




                                    23
Report of the Auditor General

26        The statement of accounts of the Fund for the year 2009 was certified in
          June 2010, in accordance with Section 7 (2) of the Children Special Fund
          Order, 1980.
          Central Bank of Seychelles
27        The Central Bank of Seychelles Act, 2004 was enacted in December 2004
          for the establishment of the Central Bank and for repealing and replacing
          the Central Bank of Seychelles Act, 1982. The bank’s primary objective is
          to regulate the issue, supply and availability of money and its international
          exchange.
28        As per Section 47 (3) of the Act, the financial statements for the year 2009
          were certified in March 2010.
          Seychelles Ports Authority
29        The Seychelles Ports Authority (SPA) was established under the
          provisions of the Seychelles Ports Authority Act, 2004 for the principal
          function of (a) regulating, controlling and administering of all matters
          relating to the safety and security of the port and its facilities; and (b) to
          collect all harbour dues, rental fees and other moneys payable to the
          Authority under this Act or any other law. The Authority became
          operational with effect from October 2004.
30        Since the last report, the audit of the Authority for 2008 commenced on the
          basis of a trial balance submitted in September 2009 has been completed
          and some audit work undertaken for the year 2009 without a draft
          accounts. The certification of the 2008 and 2009 accounts is pending at the
          time of the report.
          Seychelles Civil Aviation Authority
31        The Seychelles Civil Aviation Authority (SCAA) was established under
          the Seychelles Civil Aviation Authority Act, 2005. The Authority’s main
          functions include the management and maintenance of the Authority’s
          aerodromes; providing air traffic control and flight information services;
          and regulation, promotion and the development of air transport. The
          Authority became operational with effect from April 2005.
32        The Authority’s statement of accounts for the year 2009 was certified in
          July 2010.
          Seychelles Pension Fund
33        The Seychelles Pension Fund Act, 2005 repealed and replaced the
          Seychelles Pension Scheme Act. Consequently, the Seychelles Pension
          Fund became operational effective January 2006 as a body corporate for
          the main objective of providing for the financial security of members by
          the payment of a monthly pension.
34        As per Section (53) of the Act, the financial statements for the year 2009
          was audited and certified in April 2010.
          National Statistics Bureau
35        The National Statistics Bureau was set up under the National Statistics
          Bureau Act, 2005. The Bureau, which became operational in January
                                         24
                                                   Report of the Auditor General

     2006, has the main objective of collection, compilation, analysis and
     publication of statistical information relating to economy wide sectors.
     Section 16 of the Act provides for the preparation of annual statement of
     accounts by the Bureau and the audit thereof by the Auditor General.
36   The statement of accounts of the Bureau for the year 2008 was certified in
     September 2010, and some audit work is in progress for the year 2009 at
     the time of writing.
     Seychelles Qualifications Authority
37   The Seychelles Qualifications Authority established under the Seychelles
     Qualifications Authority Act, 2005 has the main objective of formulating
     and implementing a national qualifications framework. The Authority is
     administered by a Board. Section (23) of the Act mandates the Auditor
     General to carry out audits of the Authority’s accounts.
38   The audit of the Authority for the year 2009 was completed and the
     statement of accounts certified in October 2010.
     National Human Resources Development Council
39   Under the National Human Resources Development Council Act, 2006 the
     Council was established to promote human resources development in
     Seychelles and for connected matters. Section (12) of the Act provides for
     the audit of the Council’s accounts by the Auditor General.
40   Although the audit of the Council for the year 2009 was completed
     recently, the certification of the statement of accounts for the same year is
     pending due to some issues concerning the completeness of the accounts
     submitted.
     Seychelles Institute of Management
41   Established under the Seychelles Institute of Management Act, 2006 the
     Institute has the principal function of promoting, providing and advancing
     education and training in management to meet the national needs. Section
     (12) of the Act provides for the keeping of proper accounts and records
     and the audit thereof by the Auditor General.
42   The audit of the Institute for the year 2009 was completed and a certificate
     issued in July 2010 on the accounts submitted in February 2010.
     National Emergency Foundation
43   The National Emergency Foundation Notice was published in the Official
     Gazette (SI 20 of 2005) under Section 8 of the Public Finances Act for the
     purpose of establishing a Fund to be known as the National Emergency
     Foundation.
44   Section 10 requires the Board to keep proper books and accounts of the
     Fund and prepare a statement of account on an annual basis, and the
     Auditor General to audit such statement of accounts.
45   Since the last report, no further audit work has been undertaken of the
     Foundation due to the non production of annual accounts.



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Report of the Auditor General

          Health Professional Council
46        Provision for the establishment of the Health Professional Council as a
          body corporate is made in Section 3 of the Health Professional Council
          Act, 2006 for the purpose of registering and monitoring the competence
          and regulates the performance of Health professionals in Seychelles for
          promoting and upholding the highest possible standard of practice.
47        Section 3 and 4 of the Act requires the Council to keep proper books and
          accounts of the Council and prepare a statement of accounts on an annual
          basis, and the Auditor General to audit such statement of accounts.
48        There is no change in the situation as mentioned in the 2008 Report which
          stated that the authorities concerned were in the process of setting up the
          Council. I have not been updated of any further development in this
          regard.
          Unemployment Relief Scheme
49        The above Scheme was established under the provisions of the
          Unemployment Relief Scheme Act, 1995. The Scheme provides those
          without employment and looking for work with a minimum income.
50        The situation commented on in my previous reports (e.g. paragraph 53 to
          56, Chapter 3, Report for 2007) still remains without any resolution and,
          due to this no further audit work has been undertaken since the last report.
          National Council for Disabled Persons
51        The National Council for Disabled Persons (NCDP) set up under the
          National Council for Disabled Persons Act, 1994 is responsible for co-
          ordinating the activities of public and private organisations and other
          persons engaged in the welfare of disabled persons.
52        The Auditor General was appointed in April 2003 by the Minister for
          Social Affairs to conduct annual audits of the Council.
53        There is no change in the undesirable situation commented on in previous
          reports, nor has any further audit work been undertaken due to
          management failure to address the issues raised satisfactorily and produce
          annual statement of accounts.
          Policy Owners Protection Fund
54        The Policy Owners Protection Fund (POPF) was established under Section
          45 of the Insurance Act, 1994. The Minister responsible for Finance made
          regulations for the operation of the Fund through the Insurance (Policy
          Owners’ Protection Fund) Regulations, 1996.
55        The Auditor General was appointed the auditor of the Fund in June 2004
          by the Minister for Finance.
56        The problems encountered with regard to the audit of the Fund have been
          discussed in previous reports, for example, in paragraphs 60 to 63, Chapter
          3, Report for 2007 and paragraphs 58 to 60, Report for 2008. The
          Authority’s failure to resolve these problems has resulted in the non
          certification of the statement of accounts for the years 1996 to 2001 for


                                         26
                                                  Report of the Auditor General

     which an audit had been completed and non auditing of the statement of
     accounts for the following years.
57   Meanwhile a new set of Policy Owners Protection Fund Regulations were
     made in January 2009 under the Insurance Act, 2008 which repealed the
     previous Act. Under these Regulations, the Auditor General was appointed
     in June 2010 by the Minister for Finance for auditing the Fund. The
     Insurance Authority gave an undertaking in July 2010 to produce the
     statement of accounts for the years 2006 to 2009, which are being awaited
     at the time of writing.
     National Aids Trust Fund
58   The National Aids Trust Fund was established in February 2002 under S.I.
     6 of 2002 issued under the Public Finances Act with the principal objective
     to promote national interest in and commitment to the prevention and
     control of HIV and AIDS, and care of those who are infected of such
     diseases.
59   The audit of the Fund by the Auditor General is under an appointment
     made by the Board according to Section 8 (2) of the regulations. Since the
     appointment in March 2009, the statement of accounts for the years 2003
     to 2008 have been certified. The Fund is yet to produce a statement of
     accounts for the year 2009 for audit.
     Land Transport Agency
60   The Land Transport Agency was established as a body corporate under the
     Seychelles Land Transport Agency Act, 2009 with the primary objective
     to assist in the formulation of national land transport policies. The Agency
     is administered by a Board.
61   Section (13) of the Act requires the Agency to keep proper accounts and
     other relevant records and the Auditor General to audit such records.
     Accordingly, an audit of the accounts and records was completed and a
     report issued in November 2009. Subsequently, an internal audit report
     was issued in March 2010 following an investigation into some
     shortcomings including some alleged management malpractice.
62   In view of the ongoing investigation by FIU and the reorganisation of the
     Agency following the Panel of Inquiry recommendations, no further audit
     work has been undertaken since the last report.
     Social Welfare Agency
63   The Social Welfare Agency was established under the Social Welfare
     Agency Act, 2008 to provide for the granting of social welfare assistance
     to persons of insufficient means. The Agency is administered by a Board.
64   Section (8) of the Act requires the Agency to keep proper accounts and
     other relevant records and the Auditor General to audit such records. Since
     the last report, no further audit work has been undertaken.
     Seychelles Agricultural Agency
65   The Seychelles Agricultural Agency established under an Act in 2009 is
     administered by a Board with the Chief Executive Officer being

                                    27
Report of the Auditor General

          responsible for the implementation of policies under the guidance of the
          Board. The main objective of the Agency is to facilitate and support the
          enhancement of national food security. The Agency is required under
          Section 11 (2) of the Seychelles Agricultural Agency Act, 2009 to
          maintain proper accounts and other relevant records.
66        As per Section 11 (3), an audit of the accounts and records of the Agency
          for the period January to November 2009 was completed and a report
          issued in August 2010. The report included some internal control issues
          relating to sales, assets, transport and stores.
          Fair Trading Commission
67        The Fair Trading Commission was established as a body corporate in 2009
          under the relevant Act to enforce any laws relating to consumer protection
          and fair competition under the aegis of a Board of commissioners
          appointed by the President. A Chief Executive Officer is responsible for
          the day to day administration of the commission.
68        The Commission is required under Section 28 (2) and (3) of the Act to
          keep proper accounts and other relevant records and to have its accounts
          audited by the Auditor General on an annual basis. An audit of the
          accounts and records of the Commission for the period January to August
          2010 has been completed at the time of writing.
          National Tender Board
69        The National Tender Board was set up as a body corporate under the
          Public Procurement Act, 2008 for the establishment of appropriate internal
          procedures for the operations of the Board and to receive and publicly
          open bids. A Board appointed under Section 14 (1) is responsible for the
          overall administration of the Tender Board with the assistance of a
          Director appointed by the President.
70        As per Section 30 (1) the Board is responsible for the keeping of proper
          books and other records relevant to accounts. The Auditor General is
          mandated by Section 30 (2) for the audit of account and records as
          provided for under Article 158 of the Constitution. Accordingly, the audit
          of the accounts of the Board was completed and a report on the accounts
          for 2009 issued in March 2010.




                                        28
                                                    Report of the Auditor General

      Chapter 4
      Ministry of Environment, Natural Resources and
      Transport

      Department of Environment
      Introduction
1.1   The Department of Environment comprised of five Divisions until March
      2009, when some re-organisations were undertaken. As from April 2009,
      the Department has been mainly responsible for formulating policy issues
      on environment. Prior to that, the following divisions were in operation; (i)
      Administration and Finance, (ii) Environment Division, (iii) Nature and
      Conservation, (iv) Pollution Control & Environmental Impact and (v)
      Policy Planning and Services.
1.2   The Pollution Control and Environment Impact Division was responsible
      for collection and disposal of waste until March 2009, when the activities
      formally under the Pollution Section, including the Solid Waste
      Management (SWAC) were administered by the Landscape & Waste
      Management Agency. The Nature and Conservation Division which was
      responsible for conservation of national parks etc was assigned to the
      management of the National Parks Authority, formally the SCMRT-MPA,
      with the exception of the Botanical Gardens.
1.3   An audit on the accounts and records of the Department was performed for
      the period 1st July 2008 to 30th June 2009 to review the system of controls
      on revenue and the effectiveness of the system of internal controls on
      payment for goods and services. Audit also examined the effectiveness of
      the fixed assets management and transport functions to ensure that
      applicable procedures were being followed. Matters arising were
      addressed to the Department in April 2010 which incorporated comments
      of the Department from an exit meeting of 15th March 2010.
      Payments for goods and services
2.1   Audit examined a sample of 14 payments worth R1,121,036 effected
      during the period July 2008 to June 2009 and noted the following
      observations:
         payments for goods and services were not classified to the relevant
          account to which the type of expenditure related to the extent of
          R28,187. As such, proper budgetary control was not exercised at all
          times; and
         the justification for payments totaling R415,010 could not be
          determined in the absence of payment documents such as invoices,
          payment vouchers and cash memos. As supporting documents could

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Report of the Auditor General

              not be located during the audit inspection, it could not be ascertained if
              expenses paid for related to the activities of the Department and were
              legitimate.
2.2       The Department replied (11 November 2010) that an internal order form
          has been introduced and all orders above R1,000 have to be approved by
          the Principal Secretary. The reply further confirmed that all payments
          commented on in the audit report are legitimate ones.
          Fixed Assets
3.1       The audit of fixed assets revealed deficiencies in the safekeeping,
          recording and maintenance of fixed assets in the custody of the
          Department. Audit of records relating to the stewardship of fixed assets
          revealed the following:
3.2       Incomplete register: The Assets Register maintained by the Department
          was not updated with assets purchased during the period under review.
          Instead a listing of purchases was being separately maintained by the
          purchasing assistant, which lacked details such as payment voucher
          reference number, make of the asset, location and identification number, in
          the absence of which the identification of the asset was found difficult.
          Consequently, audit was unable to confirm the existence of the assets
          recorded on the listing as a physical verification could not be performed.
          Moreover, other asset movements such as relocation and disposals were
          not recorded in the assets register. For example, a computer table recorded
          under SWAC could not be traced. According to SWAC, the table was
          transferred to STAR (Seychelles). Officers from the latter however
          informed that the table was returned to SWAC. This indicates that the
          Department’s control over the movement of assets was not effective.
3.3       The Department acknowledged that the issue of monitoring of movement of
          assets was a problem and explained that a new list of assets was being
          compiled following the handover of assets to the National Parks Authority
          and the Landscape Management Agency.
3.4       The reply stated that a new electronic register is being compiled from the
          old register and all new purchases are being recorded, which will be
          submitted to Ministry of Finance.
          Transport
4.1       The Department operated a fleet of 36 vehicles at the time of audit. The
          audit of the transport function revealed a number of system deficiencies
          requiring remedial action to ensure that adequate controls are exercised
          over the use of fuel coupons and log books as discussed hereunder.
4.2       Log books not produced: FI0705 (c) requires a Vehicle Log Book to be
          maintained up to date in respect of every government vehicle recording

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                                                   Report of the Auditor General

      details as per section 7.4 of the Accounting Manual. FI0705 (e) (v) further
      requires all mileage to be noted correctly in the logbook and the book kept
      safely and produced for verification whenever called for.
4.3   The audit, however, could not conclude whether the Department did
      actually maintain logbooks in respect of nine of the twelve vehicles
      selected for audit inspection throughout the period July 2008 to June 2009
      because the books were not produced for verification despite requests.
4.4   Mileage records not satisfactorily maintained: Scrutiny of the log book
      in respect of GS18589 revealed a number of instances during the month of
      March 2009 where the meter reading was in regression at the start of the
      journey and did not correspond to the reading at the close of the
      immediately preceding journey, indicating significant gaps ranging from
      57 kilometers to 131 kms. Management oversight was not sighted to
      establish the cause and address possible damage to the odometer or
      tampering with the same by the drivers concerned.
4.5   It was recommended that the Department investigates the possible damage
      to the odometer and takes corrective action.
4.6   The Department informed the vehicles were being used by different
      employees and therefore monitoring was difficult.
4.7   Fuel coupons not recorded: Fuel coupons purchased and issued should be
      recorded in the Fuel Coupon Register as prescribed in section 7.4(d) of the
      Accounting Manual. It is also required that all fuel coupons issued are
      recorded in the respective vehicle’s log book. Audit inspection of the
      relevant records revealed cases where fuel coupons issued were not
      recorded in the respective logbooks, upon re-fuelling of the vehicle. It is
      not known if they were used on the vehicle shown in the Fuel coupon
      register. In a number of instances, the vehicle number and driver to whom
      the coupons were issued were not recorded in the register. It is not known
      whether coupons with total value of R500 bearing serial numbers 0296610
      to 0296705 purchased in November 2008 were issued to official
      Government vehicles as there was no record of issue in the register nor
      were the coupons found in stock.
4.8   Audit recommended that all coupons purchased and issued should be
      recorded in the register.
4.9   The reply stated that all daily record sheets and log books are now being
      maintained by the drivers under the responsibility of the head of Divisions
      and fuel coupons purchased under projects will be recorded separately.
      Pollution Control and Environment Impact Division
5.1   The Pollution Control and Environment Impact Division was responsible
      for collection and disposal of waste, activities formally undertaken by the

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Report of the Auditor General

          Solid Waste and Cleaning Agency (SWAC) until March 2009 when the
          functions of Waste management were administered by the Landscape and
          Waste management Agency.
5.2       Audit, in its 2007 Annual Report, reported on the absence of controls in
          place to ensure that the accounting records maintained in respect of the
          activities undertaken by SWAC were reliable and all income attributed to
          waste collection had been collected and banked.
5.3       In response to audit comments, the Department informed that all revenue
          was collected by the cashier and the cash book was kept up to date by the
          Accounts Assistant. The Department also confirmed that bank
          reconciliation is performed periodically by the Accounts Supervisor.
5.4       Audit examined the records maintained during the period July 2008 to
          June 2009, which revealed that the Department had not implemented
          controls to counter the deficiencies noted in the last report as further
          discussed below.
          Income
6.1       Cash book not maintained: Despite audit recommendation in the 2007
          Annual Report and the assurances of the Department, it did not maintain a
          cash book to record therein receipts collected and payments effected
          during the period. Likewise, bank reconciliation was not performed to
          ensure that income and payments recorded in the bank account matched
          accounting records.
6.2       Debtors figure unknown: The Department provided waste collection
          services for its various clients to whom it provided credit facilities. The
          system of issuing invoices in respect of services provided did not operate
          consistently. Some invoices were issued from the computerized accounting
          system with invoice numbering allocated in an ad hoc manner whereas
          others were issued manually without a proper consolidation to arrive at the
          total debtors figure and debtors listing. Invoices for the months of
          November and December 2008 could not be located for audit inspection
          and likewise invoices for the last month of operation in March 2009, prior
          to transfer of operations to the Landscape Management Agency.As
          invoices and the updating of receipts were not performed in a systematic
          manner, a credible debtors listing and ageing list were not compiled by the
          Department.
6.3       Outstanding debtors: Audit attempted to establish a figure for outstanding
          debts during the period July 2008 to June 2009 based on invoices issued
          and receipts. The computation showed the sum of R3.87 million in
          uncollected revenue for the period without taking into account debtors
          prior to the month of July 2008. In principle, it can be assumed that


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                                                    Report of the Auditor General

       accumulated debts exceeded R3.9 million. There was no evidence of
       follow-up action taken for recovery of outstanding amounts.
6.4    Unexplained payments:- According to the terms of an unsigned agreement
       with Contractor ‘A’, the sum of R100,000 was payable to the contractor on
       a monthly basis for road cleaning services on Praslin. The sum of
       R900,000, comprising of R100,000 paid from the Agency’s bank account
       and R800,000 was from the recurrent budget of the Department. In
       addition, the Ministry of Finance transferred a further sum of R1.4 million
       to the contractor and charged the amount as supplementary budget of the
       Department. In total, the sum of R.2.3million was paid to the contractor in
       2008 of which only R1.2million was supported by an unsigned agreement,
       leaving an unexplained payment of R1.1 million.
6.5    The Department informed that it was not aware of the rationale for the
       decisions taken to pay the contractor as payments were effected directly by
       the Ministry of Finance and charged to the Department’s recurrent
       expenditure budget.
6.6    Payments from recurrent budget: All payments to contractors should
       have been paid from the Agency’s bank account in which all sales
       proceeds, including receipts from debtors should have been deposited. The
       Department used funds from the recurrent budget to pay contractors to the
       extent of R2,267,056, inclusive of the R2.2million paid to the contractor
       mentioned above.
6.7    The failure of the Department to collect sales proceeds and account for
       same promptly resulted in insufficient funds in its bank account to pay
       contractors and recurrent budget funds were therefore used for the
       purpose.
6.8    The Department explained that budget funds were used due to insufficient
       funds in the bank account.
6.9    Lack of supervisory checks on invoices: From a sample of two invoices
       examined by Audit, it was noted that there was no evidence of checks
       performed by inspectors on invoices submitted by Contractor ‘B’ to
       confirm that services had been delivered prior to payment being made.
       This related to two payments made in the month of July and December
       2008 amounting to R1,530,809 and R2,096,532 respectively. In addition,
       Audit noted that the contractor increased the rates applied for invoicing of
       waste collection by 8% in October 2008. It was not clear if there was
       mutual agreement with the Department for the upward revision of the
       rates, although the latter paid the invoiced amounts. The Department could
       not provide a clear explanation to justify the increase.
6.10   The reply pointed out that the two major Divisions are no longer with the
       Department and the report has been noted for corrective action.

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Report of the Auditor General

          Ministry of Finance
          Introduction
1.1       The Ministry of Finance is responsible for the prudent management of
          public finances and setting an appropriate macro-economic framework
          geared towards sustained growth and the wellbeing of the nation.
1.2       An audit was undertaken covering the recurrent expenditures of 4 divisions
          at the Ministry’s headquarters for the 12 months period ending 31 August
          2009. Matters arising were addressed to the Ministry in a management
          report dated 9 February 2010 incorporating appropriate comments from
          discussions with the Ministry.
          Personal Emoluments
2.1       An audit of the payroll expenditure for the period revealed the following
          instances whereby irregular payments were effected by the Ministry.
2.2       Employment terms and conditions not followed: According to existing
          procedures, renewal or extension of contract for expatriates has to be
          approved by the Department of Public Administration (DPA). However,
          Audit sighted two cases where the salaries of expatriate workers were not
          according to their contract of employment approved by DPA. This resulted
          in the overpayment of salaries of some R66,789 per month. Audit
          recommended that employees should be paid the salaries and allowances
          stipulated in their approved employment contracts.
2.3       According to the Ministry, the DPA had since questioned the above cases
          and the issue remains to be resolved. The Ministry also confirmed that one
          of the expatriates left employment as of April 2010.
2.4       Incentive/inducement allowances not approved: Audit observed five
          cases in which employees were receiving incentive/inducement allowances
          without obtaining the required approval of DPA. These totalled R18,400
          per month. Audit is of the view that prior approval should have been
          obtained from DPA for these allowances.
2.5       According to the DGAF, the DPA has since requested a justification for
          paying such allowances.
2.6       Overtime paid not supported: Audit sighted overtime payments of R1,027
          made to one member of staff and R2,015 made to another for the month of
          July 2009. The payments were supported by approved overtime salary
          input forms. However, Audit observed that in both cases the attendance
          report did not correspond to the start/finish times on the salary input form
          submitted for overtime authorization. Audit recommended that overtime
          payment should be made only for hours worked.



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                                                   Report of the Auditor General

2.7   The Ministry acknowledged that the two employees in question are being
      paid overtime even though they are not in attendance on an on-going
      basis. It was added that these two employees have been performing
      additional duties.
      Payments for Goods and Services
3.1   A sample of 44 payments for goods and services recorded under ‘Other
      Charges’ and ‘Minor Capital Outlays’ of the divisions under audit was
      selected for detailed examination. The followings were observed.
3.2   Provisions of the Procurement Act not complied with: The Procurement
      Act provides for the procurement of goods and services not exceeding
      R100,000 to be approved by the Principal Secretary of the Ministry
      whereas items over R100,000 should be cleared with the Tender Board or
      the relevant Procurement Committee through the Procurement Oversight
      Unit. Audit was unable to sight other quotations for the purchase of 35
      office chairs at a cost of R103,250 and 20 filing cabinets at a cost of
      R78,000 sourced from a local supplier for the Trade Unit, and a second-
      hand 12 seater bus acquired by the Administration Division from a local
      private individual at a total cost of R567,000. It was noted that these
      procurements were not cleared by the Procurement Oversight Unit as
      required according to the laid down thresholds under the Procurement Act.
3.3   The Ministry acknowledged the variation with procedures in these cases.
3.4   Payments made against pro-forma invoices: From the same sample, it
      was noted that in 6 cases, payments were effected against pro-forma
      invoices. This was explained to be necessary because of the conditions
      imposed by suppliers and also in the case of urgent items. Audit is of the
      view that the Ministry should follow-up on payments made against pro-
      forma invoices to ensure that goods and services are received in good
      order. Further, the original invoice should be obtained and filed properly
      with appropriate notations thereon to avoid double payment.
3.5   The Ministry responded that it will ensure that pro-forma invoices will be
      followed by original invoices or receipts which are duly certified as to the
      satisfactory receipt of goods and services.
3.6   Recovery not made: In one instance, the payment of air freight costs of
      R6,345.12 on 30.10.2008 in respect of Mr A was approved by the Ministry
      on the basis that the amount would be refunded to the Ministry. However,
      Audit could not sight evidence of a refund effected by the above person.
      Audit recommended that the Ministry should follow-up on the re-
      imbursement.
3.7   The Ministry confirmed that the above individual is yet to refund the
      amount.


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Report of the Auditor General

          Transport
4.1       The Ministry operates a fleet of 9 vehicles. The Director Operations is the
          designated Transport Officer. The procedures in place provide for the
          recording and approval of journeys undertaken through the use of daily
          mileage sheets and vehicle log books. Fuel issues are also recorded and the
          monthly fuel consumption of vehicles calculated and assessed. Audit
          examination of records pertaining to vehicles revealed the following.
4.2       Mileage records incomplete: It was observed that of the 9 vehicles in
          operation, the mileage records for 5 vehicles were incomplete, as discussed
          below:
             vehicles ‘A’ and ‘B’ do not have daily mileage sheets or a log book;
             vehicle ‘C’ does not have daily mileage sheets available for the period
              25 March 2009 to 1 June 2009 whereas the log book had recorded
              mileage;
             vehicle ‘D’ had no mileage logged from 14 May to 7 July 2009; and
             vehicle ‘E’ had no daily mileage sheets and no mileage recorded in the
              log book for the period 7 January to 1 June 2009.
4.3       Audit recommended that mileage should be recorded for every
          Government vehicle in a Vehicle Log Book (Form FV-001) as required by
          FI 0705 (c) and Section 7.4 of the Accounting Manual. Private use of
          vehicles must be recorded in the Vehicle Logbook, but need not detail
          private running except kilometres travelled and paid for at the prevailing
          rates stipulated under PSO 200.
4.4       The Ministry responded that all staff of the Ministry had been reminded of
          the need to comply with the procedures in place. It was acknowledged that
          there is an issue of proper mileage records not being kept by certain
          senior officers of the Ministry.
4.5       Fuel coupons not recorded in logbooks: A computerised fuel coupon
          register is maintained by the Transport Officer. A reconciliation of the
          register to the log books revealed that a large number of fuel coupons
          issued during the months of May and July 2009 were not recorded in the
          respective logbooks. Audit is of the view that the non-recording of fuel
          coupons in the respective logbooks impairs the quality of the monthly fuel
          consumption analysis. Audit recommended that logbooks are updated with
          the coupons issued and adequate checks performed to ensure that the
          vehicles are used efficiently.
4.6       The Ministry agreed to ensure the recording of issued fuel coupons in the
          register.



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                                                      Report of the Auditor General

      Fixed Assets
5.1   Apart from motor vehicles, the fixed assets of the Ministry include
      furniture, fixtures and fittings and equipment located at various premises.
      The Register of Inventory is kept centrally by the Director of Operations
      for the four Divisions. Audit review of the register revealed the following.
5.2   Register of Inventory incomplete: It was observed that although inventory
      records have been established they were incomplete because:
         it does not include all the assets of respective divisions;
         acquisition details of assets recorded are not complete; and
         assets are not allocated identification numbers to facilitate physical
          verification as required by financial instructions.
5.3   For example, from a sample of 13 payments totalling R391,237, it was
      observed that the assets purchased during the audit period were not
      updated in the register. These included 8 computers, 2 printers, a
      refrigerator, a photocopier and an air conditioner amongst other items. The
      maintenance of a register is essential to ensure adequate control over assets
      existence and responsibility for safeguarding. Audit recommended that the
      fixed assets register be properly maintained in accordance with financial
      instructions.
5.4   Verification of assets not performed: FI 1205 provides that at frequent
      intervals, Accounting Officers will physically verify items of fixed assets.
      Audit noted that this requirement was not complied with during the audit
      period. As a result, the Ministry does not have a complete record of all its
      assets for which it has custodial responsibility. Audit recommended that
      periodical assets verification should be performed in accordance with
      financial instructions. This would enable the Ministry to confirm assets
      existence and locations together with their operational status.
5.5   The Ministry confirmed that a complete register of fixed assets was not
      available. It added that an inventory stock taking was in progress and
      identification numbers would be allocated to assets on completion of the
      exercise.

      Concessionary Credit Agency
      Introduction
1.1   The Concessionary Credit Agency (the CCA) operates as an Agency under
      the Ministry of Finance to provide concessionary finance to small
      entrepreneurs to develop viable projects and thus promote self
      employment. The CCA has been the primary source of start-up capital for
      young entrepreneurs and it has helped over 1000 small businesses since its
      existence which has empowered the youth through self-employment. Four

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Report of the Auditor General

          types of loans or concessionary credit facility are provided by the CCA,
          namely, Cottage Industry (CI), YES Scheme, Small Business Finance
          Facility (SBFF), Agricultural Development Fund (ADF) and EMS Scheme
1.2       An audit was undertaken on the accounts and records of the CCA over the
          12 months period from 1 September 2008 to 31 August 2009. Audit
          examined the loan approval processes to ascertain the effectiveness of
          procedures and internal controls in the disbursement and recovery of loans.
          Matters arising were discussed in a meeting with the Ministry of Finance
          in January 2010 and the Ministry’s comments have been appropriately
          incorporated in this report.
          Debt portfolio
2.1       The accounting records for loans are maintained using an accounting
          software package (QuickBooks). Interest bearing SBFF loans are also
          recorded in individual Excel worksheets maintained by the Director for
          monitoring and control purposes. The current debt portfolio at the end of
          2009, comprising both the old YES scheme loan accounts dating prior to
          the creation of the CCA and current loans disbursed in the period since is
          some R64,183,439, according to a report generated from the accounting
          system in January 2010.
2.2       Overdue loan accounts: At the time of the last audit in 2006, total
          outstanding loans relating to the period 1996-2005 was R40,278,076,
          which should have been fully repaid by the year 2005. As at September
          2008, according to an analysis produced by the CCA, the outstanding
          balance of those loans was R37,851,867 indicating a 6% reduction of
          R2,426,209. Audit noted that the decrease was largely due to the write-off
          of R1.9m with the balance having been recovered.
2.3       Recovery not enforced effectively: In analysing the overdue loans further,
          Audit noted that although some form of communication had taken place
          with all the debtors and with guarantors in the case of two loans, the CCA
          was not seen pursuing the collection of the debts rigorously which would
          have included the enforcement of legal action. Consequently, the CCA had
          made little or no progress in recovering the over due loans over the years.
          For example, from a sample of ten outstanding loans totalling R403,010 at
          the end of 2005, only R16,850 (or 4%) had actually been recovered by
          August 2009. Audit recommended that the CCA strengthens its recovery
          procedures in general and to seek advice from the Ministry of Finance on
          cases where legal action proves to be the last resort.
2.4       The Ministry confirmed that recovery of debts had been slow but noted
          that this was in view of the great number of cases that the CCA had to deal
          with and limited staff resources. While confirming that the CCA did not
          have a proper database to generate reports, the Ministry added in August

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                                                   Report of the Auditor General

      2010 that the recovery and compliance of CCA loans shall be made by
      DBS according to the MOU signed between the Ministry of Finance and
      DBS effective September 2010.
      Current loans
3.1   The CCA received budgetary allocations for loan financing totalling
      R28.0m during the period January 2006 to August 2009. The disbursement
      of current loans was tested on a sample basis with a view to ascertain
      whether the CCA was following the policies and procedures in place.
      Audit examination revealed the following.
3.2   Security not obtained prior to disbursement: It was noted that, in 3 out of
      the sample of 84, the necessary security was not obtained prior to the
      disbursement of loans, as discussed below.
         While approving the loan for a Mrs ‘A’, the board resolved that the
          loan be approved subject to adequate security in excess of the
          approved loan and that proforma invoices should be provided and
          payments made directly to suppliers. The Board decision was not
          respected by CCA however and the loan was disbursed directly to Mrs
          ‘A’ with only two guarantors provided as security. She did not provide
          proforma invoices from suppliers.
         In the case of Ms ‘B’, Audit observed that the loan was disbursed on
          29 May 2009 before the security was received on the 2nd June 2009.
         In the case of Mr ‘C’, the loan was disbursed on 08 April 2009 but the
          pledge signed on 11 May 2009.
3.3   Audit recommended that the CCA should ensure that all applicants provide
      securities and other required documents before loans are disbursed.
3.4   The Ministry explained that in the first case due to the urgency in the
      setting up of the business it was decided to disburse the loan before the
      receipt of relevant documents. As for the others, it was confirmed that the
      necessary securities had since been received.
3.5   Poor repayment performance: A sample of 20 new loans was examined to
      ascertain whether repayments were on time and if not, the extent to which
      the accounts may have fallen into arrears. It was observed that the majority
      of the loans (17 SBFF loans) had not made a repayment at the time of the
      audit in October 2009. As per the Excel Spreadsheets records, there was an
      accumulated arrears of R102,063 against an aggregate loan balance of
      R2,685,000.
3.6   Recording incomplete: It was further noted that one YES loan of R25,000
      was not recorded in the QuickBooks. In the case of another borrower, Mr
      ‘D,’ two disbursements of R100,000 each made in May and June 2009
      were yet to be reflected in the QuickBooks records. Audit recommended

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Report of the Auditor General

          that the records be updated with all loans disbursed and that the CCA take
          appropriate measures to reduce loan repayments in arrears and to ensure
          the timely collection of all loan repayments.
3.7       The Ministry responded that current loans were being monitored very
          closely. The need to reconcile the accounts was acknowledged.
          Bank accounts
4.1       The CCA operates 2 bank accounts with the Seychelles Savings Bank
          (SSB) termed as a ‘revolving’ account and a ‘loan’ account. All
          disbursements of loans are made from the revolving account and
          repayments made by SSB clients through standing orders are deposited
          also in this account. The loan account is kept for the collection of
          repayments made in cash at the CCA’s office and standing orders from
          other banks.
4.2       Bank reconciliations not performed: Audit observed that the CCA did not
          perform monthly bank reconciliations, as it was not maintaining cashbooks
          in a form which could be reconciled to the bank accounts. For example,
          the bank reconciliation was seen performed by reconciling the closing
          bank balance of the previous month with the closing current bank balance.
          Further, information from bank statements was seen to be used to update
          individual loan records and agree to daily collection sheets only. As a
          result, there can be no assurance that the records have been properly
          maintained and that all items appearing in the bank statements have been
          fully accounted for. Audit recommended that cash books be introduced for
          each of the bank accounts and a monthly reconciliation performed between
          these and the bank statements.
4.3       The Ministry confirmed the need to strengthen financial accounting
          controls and aimed to address these needs in the immediate future. In
          August 2010, the Ministry added that the ‘revolving account’ with SSB has
          been closed and the ‘loan account’ would be closed on the completion of
          the necessary procedures.
          Accounting for loans
5.1       The accounting records for loans are maintained using QuickBooks.
          Interest bearing SBFF loans are also recorded in individual Excel
          worksheets, as the QuickBooks does not record additional interest on late
          payments or details of arrears. As a result, the CCA does not have
          consolidated or summarised information on arrears and debtors including
          additional interest, which is vital for effective recovery action.
5.2       Periodic financial statements not available: Audit observed that the CCA
          was not preparing statements of accounts as recommended in the last audit
          report. As a consequence, information on the financial position and the
          operational results of the CCA is limited. Audit recommended that the
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                                                    Report of the Auditor General

      accounting system in place be upgraded so that financial information can
      be generated periodically providing a basis for management reports
      including arrears and financial statements.
5.3   The Ministry advised that it was aware of the need to re-look at the
      development of a system for CCA. This may be similar to that which is
      being used by the Development Bank of Seychelles. The outcome of a
      World Bank review of financing in Seychelles under DBS, HFC and CCA
      expected to take place shortly was to be awaited first. A subsequent follow-
      up at the time of writing (12.07.2010) revealed that the decision had been
      taken to transfer the disbursement, accounting and recovery of loans
      under the DBS with a view to addressing this issue and others mentioned
      above in terms of accounting and recovery. The ‘revolving’ account at SSB
      has been closed. Loan applications will continue to be processed by the
      CCA. For the moment, however, the changes mentioned above have not
      taken place. Audit was informed that all applicants who currently have a
      loan with the CCA will have to sign a repayment agreement in favour of
      DBS in the first place.
      Department of Legal Affairs

      Law Office
      Introduction
1.1   The main function of the Law Office Division is to advise Government on
      all legal matters pertaining to international law and international relations
      and on all aspects of international contracting, and provides legal advice
      and services to Government organisations. An audit was carried out on the
      accounts and records of the Division to appraise the internal control
      system in place over revenue, expenditure and the effectiveness of the
      fixed assets management. Matters arising were addressed to the Division
      in a management letter dated April 2010 which incorporated comments of
      the Division from an exit meeting of 20 April 2010.
      Personnel Emoluments
2.1   Overpayment of salary: From records examined, Audit noted one
      instance whereby an employee who left employment of the Division
      effective January 2009 and transferred to another Government office was
      paid his full salary for the month which required a refund. At the time of
      writing, the Division was yet to receive a refund.
2.2   In discussion, the Division stated that it was yet to receive a refund for
      which Audit sighted copy of correspondence requesting same.




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Report of the Auditor General

          Payments for Goods and Services
3.1       Checks performed were not always evidenced: Audit examined a sample
          of 57 payments made during the period to ensure that laid down
          procedures were followed. Audit noted that in 15 cases for payments worth
          R4,638.25, there were no evidence of independent checks of rates and
          computation on invoices to confirm the correctness of those invoices.
          Audit is of the opinion that while the correctness of the invoice may have
          been ascertained, it is important to demonstrate such checks on the invoice
          either by signing the invoice. It is imperative to perform supervisory
          check which is a form of control that improves validity of transactions.
3.2       In response, the Division admitted that checks were performed but were
          not always evidenced and agreed to implement the audit recommendation.
3.3       Payments incorrectly classified: In 12 cases out of the mentioned sample,
          it was noted that payments worth R43,732.98 were incorrectly posted in
          the general ledger. These resulted in understatement in the appropriate
          accounts codes while the account codes which were debited were
          overstated in view that they had sufficient fund balance. The virement
          procedure established under Financial Instructions 0407 was not seen
          followed.
3.4       In discussion, the Division explained that the above were resultant of
          insufficient funds under the respective account codes, and as such
          payments were settled from another account vote having ample fund
          balance.
          Fixed Assets Management
4.1       Incomplete Fixed Assets Register: Section 12.3 (b) and (e) of the
          Departmental Accounting Manual requires each Ministry/Department to
          maintain a register of inventory in accordance with form RR-004 and
          stipulates that the register should be kept up to date at all times. Contrary
          to these requirements, the fixed assets register maintained by the Division
          was found incomplete and not up to date as it lacked vital details such as
          date of acquisition, details of items purchased, details of suppliers,
          purchase consideration and places allocated to. Based on a sample of
          assets traced to the master register, Audit noted that 3 computer sets and a
          shelf costing R23,564 in total were not sighted thereon. The issue was
          discussed with the personnel concerned who was yet to update the register.
          It is imperative that the Division maintains the Register in accordance with
          laid down regulations.
4.2       In discussion, the Office agreed with Audit and explained that the three
          assets have been omitted from the register.



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                                                    Report of the Auditor General

      Transport Management
5.1   Unauthorised Journeys: Daily journeys are firstly recorded on daily
      report sheets prior to being recorded in the respective vehicle log books.
      Despite the fact that the daily report sheets has a column for the officer
      authorizing the journeys to sign off, the latter was not being filled in. This
      was found to be a departure from section 0705(e)(iii) of the Departmental
      Accounting Manual requiring Government vehicles to be used solely for
      authorized journeys. The Division stated that all journeys are verbally
      authorised by the designated employee who also involved the Accounting
      Officer.
5.2   The Division stated that official journeys were being authorized on the
      daily sheets.
      Revenue
6.1   Scope for further segregation of duties: Audit observed a lack of
      segregation of duties over the collection of revenue from both sale of
      gazettes and laws of Seychelles.           The shortcomings which were
      highlighted in the previous audit report, following which the Office
      separated the collection process by category of revenue, whereby one
      officer was collecting both types of revenue. Audit is of the view that the
      tasks involved in the collection and banking process should be further
      segregated as the same officer is performing the invoicing function,
      receipting function, recording function and banking of collections. In view
      that cash is highly susceptible to risk the aforementioned duties should be
      adequately segregated.
6.2   In response, the Division stated that this was attributed to shortage of staff
      personnel, but with the imminent recruitment of an Administrative Officer,
      it is anticipated that the tasks will be delegated to allow for better
      segregation of duties over the collection of revenue.
6.3   Collection of revenue by non-designated staff: Audit observed that an
      unauthorised personnel was involved in the collection of revenue in the
      absence of the responsible officer. Audit’s perusal of receipt books
      revealed that in many instances the non-authorised personnel had issued
      receipts to clients upon remittances. Based on queries put forth to
      management, Audit was informed that the unauthorised personnel
      collected revenue in the absence of the responsible officer. Audit is of the
      opinion that in view that the duties of the unauthorised personnel does not
      entail collection of revenue, the function should be discharged by
      designated personnel to ensure proper control.
6.4   Based on Audit’s recommendation, management stated that the practice
      has been stopped.


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Report of the Auditor General

6.5       Loss of used receipt book: An attempt to verify thirteen (13) receipts
          issued for collection of revenue on the 06.01.2009, in respect of receipt
          numbers (728437-728450), were futile in view that the receipt book was
          not made available as it was not located. In the absence of which, Audit
          was unable to confirm the correctness of amounts recorded in the ledgers
          for that particular day.
6.6       The Division indicated that it had not been successful in locating the
          receipt book usually kept in the Accounts Assistant’s Office as it is packed
          with documents and gazettes and there were no proper way of storing used
          records.
6.7       Discrepancy between records: Audit noted that as per the general ledger a
          sum of R600 was paid by a client in respect of its 2007 subscription for
          one copy of official gazette. However, as per the subscribers’ listing, the
          amount recorded as paid was R1,130 resulting in a discrepancy of R530.
          The issue was brought to the attention of the Administrative Accounts
          Assistant who was yet to investigate and revert to Audit.
6.8       In view of the above shortcomings, Audit recommended that the annual
          subscription listing be maintained in a computerized format, in
          alphabetical order and up to date. This will facilitate amendments to the
          listings for both new subscribers and for those cancelling such.
6.9       Delays in banking: Audit verification of records disclosed that banking of
          revenue is not always done on the next official working day as required by
          Financial Instructions. Audit noted instances where banking was
          undertaken weekly and fortnightly. Further, Audit noted that at the end of
          the financial year 2009, the cash on hand for sales of law books was not
          banked. There was a total collection of R3,081 on hand as at 31.12.2009
          which was banked on the 11.01.2010 with other collections for the period
          04.01.2010 to 08.01.2010. Audit recommended that collections should not
          be left on hand at the end of the financial year but should be banked on the
          last working day so as to ensure that revenue is accounted for in the
          corresponding accounting period.
6.10      In reply, the Division stated that since the day’s collections were not
          substantial, banking is not performed on the next official working day.
          With respect to the end of year collections, the Office agreed to perform
          banking at the year end.

          Registration Division
          Introduction
1.1       The Registration Division is part of the Department of Legal Affairs
          responsible to serve the government by managing a number of Registries,
          namely, the registration of Land Titles; Business Names and Associations

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                                                    Report of the Auditor General

      amongst others. Additionally, it guarantees access to and advice relating to
      the Registries.
1.2   Audit examined the accounts and records of the Division for the period
      July 2008 to June 2009. The system of internal control on payments for
      goods and services and revenue collection were examined to assess its
      effectiveness and the application of laid down procedures. Matters arising
      from the audit were addressed to the Division in a management letter dated
      18 December 2009 which incorporated their comments from an exit
      meeting of 03 December 2009.
      Payments for Goods & Services
2.1   Total non-payroll expenditure represented 43% of the total expenditure
      budget. Audit examination of a sample of 58 payment transactions with a
      total value of R230,654 for the period revealed the following
      shortcomings:
2.2   Petty cash imprest not maintained. It was mentioned in a previous report
      that the Division was not operating a petty cash imprest to meet day to day
      incidental expenses. On Audit recommendation then, the Division applied
      and obtained a petty cash float from the Treasury. During the course of this
      audit, it was noted that the Division was again not maintaining a petty cash
      imprest but was instead making purchases through cheque payments made
      through an employee. Expenses ranging from R50 to R173 were sighted
      effected in this manner.
2.3   The Division stated that effective 2010, it will re-introduce a petty cash
      system following the promotion of one of her existing staff member, which
      will also create the right environment to hold a petty cash float. In
      November 2010, the Division admitted that it was yet to re-introduce the
      petty cash system.
      Fixed Assets Management
3.1   Audit examined the Division’s records relating to fixed assets and
      performed a physical check over a sample of recently acquired assets and
      noted that:
         assets purchased during the audit period were not allocated with
          identification numbers and the particulars of those assets were not
          recorded in the fixed asset register. It is considered good practice that
          assets are tagged when purchased and an asset register maintained
          recording their particulars including location and cost.
         a physical verification of assets was not undertaken during the audit
          period as required in FI 1205.




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Report of the Auditor General

3.2       The Division stated that the above shortcomings will be implemented in
          2010. The Division stated in November 2010 that it had implemented an
          asset register.
          Revenue
4.1       The Division generates revenue through the collection of various fees
          enacted under various Statutory Instruments and Acts in return for the
          registration of documents. The core activity being revenue collected
          through stamp duty levies. Examination of records revealed the following
          shortcomings:
4.2       Lack of supervisory checks: The Assistant Accountant and the Accounts
          Technician were both responsible for revenue collection. However, at the
          end of the day, total collection was not reconciled to the receipts issued by
          an independent officer. The Assistant Accountant performed the check as
          well as carrying out banking on the next official working day.
          Furthermore, reconciliation of the Treasury monthly revenue statement
          against the Division’s revenue ledger was performed by the Assistant
          Accountant and was not verified for accuracy by an independent officer.
4.3       The Division replied in November 2010 that the actual collection is
          reconciled by the Assistant Accountant and the Administrative officer has
          been designated to verify the accuracy.
4.4       Delays in banking: Audit noted delays in the banking of revenue against
          the requirement of FI803. For example, it was noted that in two instances
          banking of cash and cheques collections worth R97,827.35 and
          R758,599.96 collected on 14.01.2009 and 25.06.2009 were banked on the
          16.01.2009 and 30.06.2009 respectively. In view that the Division collects
          substantial revenue, it is important that revenue is banked promptly to
          safeguard it against loss either through fraud or theft.
4.5       The Division confirmed in November 2010 that banking is done on a daily
          basis.
          Company Registration
5.1       Departure from laid down procedures: Under section 169(4) of the
          Companies Act 1972, new companies are required to submit particulars of
          Directors and Secretaries within 15 days of appointment of first Directors
          and Notice of Situation of Registered Office under Section 109 of the Act
          within 14 days of incorporation. Audit selected a sample of 24 newly
          incorporated companies to verify whether the above statutory procedures
          were observed. Audit noted that five of the companies were yet to lodge
          their particulars of Directors/Secretaries and notice of registered office
          within the stipulated time frame at the time of the audit.



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                                                    Report of the Auditor General

5.2   The explanation provided to Audit over the above shortcomings were the
      non-postings of all the relevant details into the computerised systems. The
      Division advised that the matter will be addressed in 2010 with the
      recruitment of additional staff although the updating of the land register
      will be given priority over the company register.
5.3   Non-submission of annual returns: Section 114 of the Company Act
      requires that every registered company should at least once a year lodge an
      annual return in the form prescribed by the 5th schedule of the Act within
      42 days from the date of their annual general meeting (AGM). Certain
      shortcomings were observed in the 2005 Annual Report whereby audit
      noted that non-compliance with the above requirement had been persistent
      resulting in the loss of revenue through the non-levying of fines. Audit
      performed a follow up in order to establish the current position as regards
      to the status of company returns following the recent introduction of a
      computerised system. Based on a sample of 25 companies selected from a
      total of 440 registrations during the audit period, Audit noted that 11
      companies had failed to submit annual returns since incorporation.
5.4   The Division stated that reminder letters have been issued which tended to
      be ignored by the companies concerned. It further stated that it usually
      takes at least 20 months after registration for a company to file its return.
5.5   The above is a departure from Section 114 (3) of the Act which stipulates
      that “if a company fails to submit its annual return within the prescribed
      period, the company and every officer of the company who is in default
      shall be liable to a fine everyday that default continues. Audit was
      informed, however, that the Division has never imposed such fine despite
      the existence of legislation.
5.6   The Division indicated the need to apply legal actions although they
      consider it impractical. In November 2010, the Division added that non
      submission of particulars of directors and annual returns were very low as
      compared to revenue collected from those who have complied and
      reminder notices are sent out on a piecemeal basis.
      Ministry of Education
      Introduction
1.1   The Ministry of Education is the second largest Ministry in terms of
      budget allocation. It is responsible for the planning, development and
      implementation of Government’s policy on education. An audit was
      undertaken of the accounts and records of the Ministry relating to recurrent
      expenditures and revenues for the year 2009. Matters arising were
      addressed to the Ministry in June 2010 incorporating their comments from
      an exit meeting of 5 May 2010.


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Report of the Auditor General

          Payments for Goods and Services
2.1       A sample of 34 payments for goods and services was examined and it was
          noted that in two instances the Ministry did not follow the requirements of
          the Public Procurement Act, 2008 as follows.
2.2       Purchase of motor vehicles: The Ministry purchased 3 Suzuki AP 8-seater
          vans from Supplier ‘A’ costing R353,019 each without obtaining prior
          approval from the procurement committee as required by the Public
          Procurement Act, 2008. The Act states that the procurement of goods
          exceeding R100,000 should be approved by that committee and those
          exceeding R500,000 should be approved by the National Tender Board.
          Whereas Audit sighted a pro-forma invoice in support of the purchase, it
          was noted that this document did not set out the terms and conditions of
          delivery including any warranty cover for the 3 vans. Other quotations
          sighted included one from Supplier ‘B’ for a Hyundai 12-seater mini bus at
          a cost of R275,088 including a 2 year or 50,000 km warranty. The process
          of selection was however not seen minuted. On enquiry, the Ministry
          advised that with the outsourcing of the School Meal Centre, the Ministry
          assumed responsibility for logistical expenditures and it was agreed with
          the Ministry of Finance to buy the vehicles for Mahe, Praslin and Head
          Office. According to the Ministry, it was decided to buy the vehicles
          selected because at times only the front seats were needed and it was
          therefore possible to easily remove the back seats when required. It was
          not however explained why in that case a suitable panel van was not
          sourced at the outset. Audit noted that a Suzuki APV panel van was quoted
          by Supplier ‘A’ at the cost of R242,303, which was R110,716 less than the
          cost of a seater van. Payment of R1,059,057 for the 3 vans was made on
          the 30 December 2009
2.3       When the above was discussed with the Ministry, it advised (05.05.2010)
          that it has received the first of the 3 vehicles which was a panel van at the
          cost of R245,075. As a result thereof, a credit of R107,944 was due on the
          vehicle which would be followed up with the supplier and enquiries
          undertaken regarding the delivery of the other 2 vans.
2.4       Audit follow-up in July 2010 revealed that the remaining two 8-seater vans
          had been delivered at a total cost of R772,368 but only a credit of R41,614
          was given by the supplier. Although the shortfall in the credit amount due
          may be the result of foreign exchange fluctuations, the Ministry was
          unable to explain the basis upon which the amount of R41,614 was arrived
          at and therefore fully reconcile the sums involved. The Ministry confirmed
          that it would be necessary to check further with the supplier.
2.5       Procurement of line exercise books: During the year 2009, the Ministry
          spent a total of R820,364 buying square and line exercise books from
          Supplier ‘C’. These included two consignments of a total of 79,050 line
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                                                    Report of the Auditor General

      exercise books at a total cost of R312,248 delivered in two batches with
      payments made in four instalments in amounts under R100,000. Audit is
      of the view that the instalments payments may have been made in such a
      way so as to circumvent the procedures stipulated in the Procurement Act,
      2008, and therefore avoiding the need to request approval from the
      Procurement Committee for any purchase above R100,000. This is despite
      the fact that such practice was pointed out in a previous report which the
      Ministry responded that it will ensure that all future orders are done as per
      the requirements of the Public Procurement Act.
2.6   The above shortcoming was noted by the Ministry and added that the in-
      house Procurement Unit had only just been set up following the enactment
      of the Act. It further indicated that non-compliance will not be repeated in
      the future.
      Revenue
3.1   The Ministry collects revenues principally from sales of uniforms material,
      fees for adult learning, deductions for rent from expatriates and others
      including sales of lunch cards
3.2   Examination of records relating to the collection and accounting of
      revenue revealed the following:
3.3   Fees wrongly accounted for: ALDEC raises revenue in the form of tuition
      fees for courses provided to adults and institutions for in-service training
      and evening classes. Audit observed that three accounts were used in 2009
      for banking of course related fees as listed below:
         Treasury MOE: Tuition fees account;
         Treasury MOE: Tuition fees exemption suspense account; and
         Seychelles Savings Bank account (ALDEC)
3.4   Audit observed that recent invoices relating to evening classes have been
      divided into two components mainly: tuition fees deposited in the Ministry
      Tuition fees revenue account No: 86-10-0001 and facility fees which were
      deposited into a savings account at the Seychelles Savings Bank. On
      enquiries, the Ministry indicated that the facility fees were to be used to
      pay for infrastructural facilities at the National Institute of Education. On
      further examination, Audit noted that no such payment was seen made
      during the period of audit. Audit is however of the view that the facility
      fees together with in-service training fees should have been deposited into
      the ALDEC operating suspense account No: 76-12-1015, while the savings
      account at the Seychelles Savings Bank was opened as a staff welfare
      account. According to the cash book for the Savings Bank account, Audit
      observed that a total of R53,139 relating to both facility fees and in-service
      training was banked into the Savings Bank account in 2009. Further, non-

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          official receipts were used in the collection of those amounts. Audit
          recommended that the above amount be transferred to the Treasury
          suspense account and that collections are properly accounted for in the
          future. It is to be noted that tuition fees totalling R56,450 were collected
          in January 2010 using official receipts and banked at the Seychelles
          Savings Bank account.
3.5       The Ministry responded that the matter will be followed up formally with
          ALDEC.
3.6       Audit follow-up on 16.07.2010 revealed that no refund had yet been
          received from ALDEC and the matter remained to be resolved.
3.7       Outstanding amounts overdue: The Ministry has various debtor balances
          amounting to R1,728,252 with the oldest outstanding debt dated from
          April 1994. Given the age of some of those debts, their recoverability
          appears to be remote and that write-off procedures should be considered.
          Audit recommended that the debtors aged listings should be reviewed by
          management on a regular basis to avoid debts remaining outstanding for
          considerable length of time.
3.8       The Ministry confirmed that it would pursue the debtors. In the case of old
          debts, particularly those relating to housing rents dating from period
          1994-2000, approval for write-off will be sought from the Ministry of
          Finance.
3.9       Audit follow-up on the matter indicated that this was yet to be done.
          Personal Emoluments
4.1       Audit testing on a sample basis was performed to confirm that payroll
          amounts have been correctly calculated, authorised and properly recorded
          in the accounting records. Audit examination of payroll records revealed
          the following:
4.2       Overpayment of allowances: Audit identified four employees who were
          paid commuted overtime allowances were also claiming hours worked as
          overtime. Audit verified payments totalling R7,757 for the month of
          December 2009 made to these individuals. Audit observed that two of the
          employees, Ms ‘A” and Mrs ‘B’, both personnel manageress, were
          claiming overtime on a monthly basis for the whole audit period despite
          receiving commuted overtime payment as well. Audit noted from the
          personal file of Mrs ‘B” that the matter of overtime was discussed with her
          in 2008 and she had explicitly agreed to keep her commuted overtime
          allowance instead of claiming overtime. It is not clear why then she
          continued to claim overtime payment. On further examination of records,
          total overtime claimed by these two individuals during the year 2009
          amounted to R58,906. Audit is of the view that when an employee is


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       receiving commuted overtime allowances he/she should not be claiming
       overtime payment as well as this amount to a double payment.
4.3    The Ministry advised that based on humanitarian grounds, both Ms ‘A”
       and Mrs ‘B’ will be requested to refund the commuted overtime payment
       which was the lower of the two amounts paid. As for the other two
       employees, Ms ‘C’ has refunded the overtime claimed while Ms ‘D’ was
       yet to do so.
4.4    As a follow-up in July 2010, Audit noted a letter of deduction for R3,600
       at R300 per month and R4,800 at R400 per month effective 1st July 2010
       addressed to Ms ‘A” and Mrs ‘B’ respectively.
4.5    Payment of allowances without approval: Audit observed one employee,
       Mrs ‘E’, was drawing commuted overtime allowance contrary to DPA’s
       instruction that the allowance be stopped. Audit observed that the
       employee was still receiving the allowance in December 2009 which
       resulted in an overpayment of R5,000; ie 10 months during the period
       March to December 2009 at R500 per month.
4.6    Audit was advised that the Ministry will stop payment of the allowance and
       request a refund from Mrs ‘E’.
4.7    Audit follow-up on 16.07.2010 revealed that letter of deduction of R5,000
       at R500 per month effective 1st July 2010 had been addressed to Mrs ‘E’.
4.8    Salary while on overseas training: Audit observed that one employee, Ms
       ‘F’ who was on overseas training for the period March 2008 to November
       2009, was drawing full salary for the period March to November 2008 and
       2/3 salary thereafter to November 2009. Several reminders from DPA
       were sighted by Audit in which it requested that further information be
       provided prior to the consideration of payment of full salary. However, at
       the time of the audit, approval for either full or 2/3 salary was not sighted.
       Total overpayment for the period March 2008 to November 2009
       amounted to R43,283. Audit recommended that the Ministry should follow
       laid-down procedures and request approval from the relevant authority
       prior to deciding the level of salary payable to staff on overseas training.
       This was also an issue highlighted in the last audit report.
4.9    The Ministry responded that it would request a refund from Ms ‘F’. It
       indicated that procedures will be put in place to ensure that personnel
       proceeding on overseas training will initially receive 1/3rd of their salary
       until such time an appeal to the contrary had been considered.
4.10   Audit follow-up on 16.07.2010 revealed that the request for refund was yet
       to be finalised.




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          Missing tools
5.1       Audit observed that an exercise was carried out in September 2009 by the
          Coordinator of Technical & Vocational Education to verify equipment
          used in vocational education. As a result of the exercise, the Coordinator
          compiled a list of missing tools and equipment at secondary schools and
          the School for the Exceptional Child which amounted to a value of
          R77,567. Of this amount, R36,260 was the value of loss relating to the
          Exceptional School which Audit selected for further verification.
5.2       Periodic verification not done: FI 1205 (b) states that at the end of each
          year, Accounting Officers will physically verify all items of stores and
          other assets remaining in stock and will prepare a statement which will
          include all details including exact locations. Any discrepancy found
          between the statement and the fixed assets register is to be investigated and
          appropriate action taken. Audit noted that a physical verification was not
          carried out during the year 2008 which resulted in the failure to confirm
          the physical existence of those assets on a timely basis.
5.3       The Ministry noted that the Co-ordinator is the only one performing
          physical verifications. Therefore, due to limited staff resources the
          Ministry cannot perform annual verifications taking into account the
          number of schools. In this particular case, the School is responsible and
          will have to make good the loss.
5.4       Audit is however of the view that Administrative Officers of schools
          should be given the necessary training in the conduct of periodic physical
          verification of assets to minimise the risk of loss of those assets.
5.5       Audit follow-up on 16.07.2010 revealed that the School had refunded
          R15,000 from its school fund account with the Seychelles Savings Bank.
          The refund was credited to the Ministry’s Vocational Supplies account at
          the Treasury. The Ministry is however to clarify the recoverability of the
          outstanding balance of R21,260.

          Projects
          Introduction
1.1       The Ministry of Education is responsible for the planning, development
          and implementation of the Government’s policy on education. It also
          undertakes development fund projects in the implementation of its given
          objectives. An audit was undertaken of the accounts and records of the
          Ministry for the following Development Fund projects during the period 1
          January 2009 to 31 December 2009.
             School cleaning works
             Equipment and text books for schools

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         MOE - Remedial works
1.2   Matters arising were discussed with the Ministry in an exit meeting of 5
      May 2010. Matters arising were sufficiently incorporated in a management
      report issued on 9 June 2010.
      School cleaning works
2.1   During the year 2009, the Ministry outsourced cleaning services for all
      schools. From a feasibility study to establish whether it would be more
      cost effective to contract out cleaning services, the expected benefits of
      such outsourcing were identified as:
         increased quality of cleaning services;
         more time for school management to devote to the teacher-learning
          process; and
         reduced costs.
2.2   Tender procedures for the outsourcing were followed and the National
      Tender Board approved the selection of contractors. Contracts were
      awarded in nine different lots at a total annual cost of R6,106,200. The lots
      comprised two or more schools according to their location.
2.3   Scope of works not clearly defined: Audit visited seven schools and it was
      observed from site inspections that school toilets in five of the schools
      were found to be in need of fresh cleaning and disinfection. It was
      apparent that head teachers at those schools were of the understanding that
      cleaning of toilets was to be undertaken after each class break. Audit
      observed however that this was not necessarily the case. Audit verification
      of contract agreements revealed that it made no specific provisions as to
      the frequency of cleaning of school toilets. The only provision that Audit
      saw was for the ‘proper cleaning and disinfection of all toilets with
      cleaning performed by 7.00am from Monday to Friday’. In the absence of
      clearly defined scope of works, head teachers were inconsistent in the
      application of the contract which led in some cases to the delivery of
      service to be below acceptable standard. Audit recommended that the
      cleaning contract agreement needed to be reviewed with a view to clearly
      define the services to be provided by the contractors.
2.4   The Ministry indicated noted that a new contract agreement was under
      discussion and the services to be provided will be considered in more
      detail therein.
2.5   Audit follow-up (23.7.2010) revealed that new contracts had been signed
      with the cleaning contractors with approval from the Procurement
      Oversight Committee. However, specific provisions for the cleaning of
      school toilets after each class break was still not addressed and the matter
      was left open for schools to negotiate individually with the contractors.

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          The reply of 04 November 2010 indicated that the issues have been
          addressed through an addendum to the contract.
2.6       Need for appraisal of cleaning contractors: It would be considered good
          practice for the performance of cleaning contractors to be appraised
          periodically to evaluate performance and taking corrective actions when
          performance is seen to be below expectation. Audit observed that a system
          of appraisal was not in existence. Audit recommended that an appraisal
          system be introduced to monitor the work of cleaning contractors thus
          ensuring that the Ministry is receiving good value for the works contracted
          out.
2.7       The Ministry agreed to audit findings and indicated that it will look into
          introducing an appraisal system. Under the system, the Ministry indicated
          that head teachers will be responsible rather than an officer from
          headquarters to monitor the work of cleaning contractors. The November
          reply stated that both head teacher and staff from headquarters will
          participate in the appraisal of cleaning agencies.
          Equipment and text books for schools
3.1       Two major expenditure items were selected from the development fund
          expenditure head ‘Procurement of Text Books and Equipment’. This
          amounted to R4,646,278 in 2009. Audit examination of records relating to
          (i) Photocopier maintenance contract and (ii) the purchase of ‘History of
          Modern Seychelles’ text books revealed the following:
          Photocopier maintenance contract
3.2       The Ministry has a maintenance contract with Company ‘A’ in which the
          company provided preventive maintenance on some 43 photocopying
          machines situated in different schools for an annual fee of R211,200. After
          the servicing of equipment, the practice is for the company to provide the
          Ministry with a list of spare parts that were required for those equipment.
          Following the completion of service in February and March 2009, Audit
          observed that the Ministry was provided with two invoices for spare parts
          at a cost of R326,485. From records examined, Audit noted that the spare
          parts were ordered by the company and that there were no control in place
          to ensure that the parts ordered were received in good order and used for
          the intended purpose, since management of the parts was left with the
          company. At the time of payment in May 2009, Audit noted that the
          Ministry had indicated that “about 15 photocopiers” were not functioning.
          Moreover, according to a report dated 29 January 2010, the Ministry
          confirmed that some 16 machines were stated as not working while the
          status of another 11 was unknown. Audit recommended that there should
          be adequate control on the ordering and utilisation of spare parts given the
          high cost of those parts.

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3.3   The Ministry responded that payment will be made when the machines are
      actually up and running and that maintenance fees will only be paid for
      machines which are actually working. The reply stated that the contract
      has been amended to incorporate the issue of non payment during non
      performance of machine.
      History Books on Modern Seychelles
3.4   The Ministry ordered a consignment of text books entitled “History of
      Modern Seychelles” for an amount of GBP64,160 CIF from an overseas
      publisher, as part of the Post Secondary books project. The textbooks were
      shipped on 30 April 2009 and charged to the Development Fund at a cost
      of R1,482,476. Audit examination of records relating to the purchase of
      the text books revealed the following:
3.5   Procurement procedures not followed: As per the requirements of the
      Procurement Act, 2008, Audit did not have sight of the approval of the
      National Tender Board for the purchase of textbooks which exceeded the
      threshold of R500,000. The manner in which the contract was awarded to
      the publisher could not also be verified by Audit.
3.6   Books not yet utilised: Despite the fact that the text books were delivered
      in May 2009, they were yet to be used in schools at the time of the audit in
      March 2010. A stock check performed on 15 February 2010 revealed that
      whereas the total books ordered and received numbered 8,020, some 7,638
      of it was in stock while the balance of 382 have either been sold or used
      internally by the Ministry. Audit is of the opinion that the holding of a
      large stock of text books is costly over time and may be susceptible to
      losses due to pilferage and deterioration in quality.
3.7   The Ministry responded that the contents of the book are currently being
      reviewed to determine its fitting in the national school curriculum.
3.8   Audit follow-up in July 2010 revealed that the books were still being kept
      in stock. The reply (November) stated that the review on the book has been
      completed but the training is yet to be given hence the delay in its
      distribution.
      Remedial works
4.1   The Infrastructure Development Unit of the Ministry is responsible for
      carrying out maintenance work and monitoring of capital projects. It is
      headed by a Manager and has four project officers each assigned with a
      number of projects. Examination of records relating to the implementation
      of maintenance works by the Unit revealed the following:
4.2   Approval of Procurement Committee not sought: Audit observed that the
      Ministry awarded a pest control services contract to Company ‘B’
      amounting to R222,126 during the year 2009 without following the

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          procedures of the Procurement Committee. Although the contract was
          awarded on the basis of lowest bidder under restrictive tendering, Audit is
          of the view that the approval of the Procurement Committee should have
          been obtained prior to the award of contract.
4.3       The Ministry advised that the requirements of the Procurement Act, 2008
          will be complied with in future. The reply stated that the Procurement Act
          is being complied and a new pest control service contract has been drawn
          up.
4.4       Execution of works not certified: Audit examined a sample of 31
          payments made in connection with remedial works. It was observed that in
          eight cases, the respective Project Officers had not certified the works
          carried out at schools at a total cost of R237,087. As a result, there is
          incomplete documentary evidence that works were properly carried out.
4.5       The Ministry responded that in future they will ensure that works carried
          out are certified by the respective Project Officer as well as the Head
          Teacher or a member of the senior management team at the school
          concerned before payment is made. The reply stated that measures have
          been introduced to ensure that invoices are dully certified and approved for
          payment.
          Ministry of Health and Social Development

          Family Tribunal
          Introduction
1.1       The Family Tribunal (the Tribunal) falls under the Ministry of Health and
          Social Development. It was set up under Section 77 of the Children’s
          (Amendment) Act, 1998, and its primary functions include the hearing and
          determination of matters relating to care, custody, access and maintenance
          of children. Its jurisdiction and function are also derived from the Family
          Violence (Protection of Victims) Act, 2000 in which Section 3 (1)
          empowers the Family Tribunal, on application, to grant Protection Orders.
          The Family Tribunal Secretariat is administered by the Secretary to the
          Tribunal and it has three sections namely, Support, Registration and
          Litigation and Enforcement. An audit was undertaken of the accounts and
          records of the Tribunal for the 12 months period from 1 August 2008 to 31
          July 2009. Matters arising were addressed to the Department of the Social
          Development in October 2009. The comments of the Department from an
          exit meeting of the 20th October 2009 have been suitably incorporated in
          this report.
          Recurrent Expenditure
2.1       Aside from payroll, premises and transportation costs, significant other
          recurrent expenditures of the Tribunal are on stationery.

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2.2   Recording of stationery purchases: Sample tests of expenditure
      transactions revealed seven cases with a total value of R24,530 in which
      the stationery register was not updated with items purchased. The register
      was also noted not to reflect the actual current stock of stationery in hand
      for the items concerned. Audit is of the view that failure to update records
      of stationery in hand may undermine the effectiveness of control leading to
      excessive ordering of stationery, wastage and loss. Audit recommended
      that stationery purchases and issuance should be updated in the register.
      Physical counts should be performed from time to time, and the balance in
      the records reconciled to the actual amount in stock with differences
      investigated.
2.3   The Department noted that the staff had been busy with other work and
      had not updated the register. Instructions have been given to update the
      inventory book with the relevant details. A check will be performed to
      confirm that the amount in stock equals to the amount in the inventory
      register.
2.4   Audit follow-up on 15/07/2010 revealed that stock record cards had
      thereafter been introduced replacing the register from 1 January 2010,
      while checks had not yet been conducted until the follow-up visit. The
      reply of 19 October 2010 stated that frequent checks are undertaken and
      certified.
      Fixed Assets
3.1   The Tribunal is responsible for the furnishings at its premises and the
      office and computer equipments needed for its day to day operations.
      Examination of records relating to fixed assets management revealed the
      following:
3.2   Identification of assets: Audit attempted to perform physical verification
      on a sample of 13 fixed asset items purchased during the audit period. It
      was observed that 11 items costing R207,809 out of the 13 assets items
      selected did not have asset identification numbers. In the absence of
      identification numbers, it was difficult to satisfactorily identify the assets
      in question. Audit recommended that each asset purchased should have a
      unique identification number, and this should be affixed on the asset items.
3.3   The Department responded that the Tribunal will undertake to allocate
      asset identification numbers. The move to Treasury Single Account (TSA)
      for the Tribunal will help draw attention to such purchases.
3.4   Periodical verification: FI 1205 (a) states that physical verification of
      assets are to be performed at frequent intervals, and FI 1205 (b) adds that
      at the end of each year all items will be physically verified and a statement
      prepared to include all details and exact locations. Discrepancies between
      the statement and inventory registers are to be investigated and appropriate

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          action taken. Audit noted that the inventory register maintained did not
          have any remarks that would indicate compliance with these instructions,
          and a statement if prepared was not made available for audit examination.
          It is recommended that all assets should be physically verified at the end of
          the year as envisaged by FI 1205 (b).
3.5       The Department confirmed that it will ensure that year end physical
          verification of assets is carried out in future.
3.6       Audit follow-up on 15/07/2010 revealed that a physical inventory of assets
          was performed subsequent to the audit with the purpose of marking assets
          with ID numbers and completing the records. The records will be used for
          future verifications. The reply of 19 October 2010 stated that new
          identification number allocation has been completed.
          Child Maintenance Records
4.1       Maintenance orders made by the Tribunal may require respondents to
          make monthly cash payments at the Social Security Fund (SSF) towards
          the maintenance of their children. The recording of payments by the
          Tribunal is different to that of the SSF. Whereas the Tribunal will open a
          case file when a maintenance order is made and update this accordingly
          taking into account any arrears accumulating, the SSF will only record
          payments made allocating these to the earliest month from which
          payments are due. As a result, the Tribunal statements will show the
          amounts of any arrears due while the SSF records do not. It was also
          noted that SSF only started collecting payments in the year 2006, whereas
          the Tribunal has been handling payments since November 1998.
4.2       Payments not updated on individual records: A sample of 30 accounts
          files selected for audit verification revealed that altogether 9 (30%) of the
          files were last updated to differing months in 2008 with one file last dated
          in April 2006. As a result, the position concerning arrears is not
          immediately available from the records and it will be time consuming to
          update the accounts file at the last moment when required for a query or
          hearing. It was also observed that the overall movements in arrears as
          reflected by the records at the Tribunal are not reconciled with the total
          collections reported by the SSF (monthly Alimony Transaction Checklist).
4.3       Audit recommended that the records should be updated on a regular basis
          so as to confirm their accuracy and avoid any unnecessary delay in
          extracting information concerning individual arrears. The Tribunal should
          aim for a sole reliable computer database located either at the Tribunal or
          the SSF depending on institutional capacity to maintain and update the
          system and hardware. The system should be available for management
          information purposes including case hearings. The reply of 19 October
          2010 stated that it is an activity undertaken by the section on a daily basis

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      but considering the load, other activities, and the human resources it is a
      situation that would be ongoing as noted above.
4.4   The Department agreed with the recommendations, noting that there were
      significant differences between the two records. It was advised that the
      reason for the delays is because of the workload, and the Tribunal will
      update any file which is required for hearing as necessary. It was
      confirmed that the number of sittings has increased from 2 to 3 times a
      week due to the increased number of cases. The Department indicated that
      it would liaise with the SSF and DITC so that the Family Tribunal can
      have a proper data management system subject to available resources.
4.5   Audit follow-up on 15/07/2010 revealed that this situation has not yet been
      resolved.
      Ministry of National Development
      Introduction
1.1   The Ministry of National Development was principally responsible for
      land matters, housing management, investments and industries. The
      Ministry’s re-organisation in October 2009 resulted in the transfer of the
      Industries section to the Ministry of Finance.
1.2   An audit was performed on the accounts and records of the Ministry for
      the period 1 November 2008 to 31 October 2009 to review the system of
      controls on revenue to ensure that it was collected correctly and properly
      accounted for and banked. The audit also examined the effectiveness of the
      transport function of the Ministry. Matters arising were addressed in a
      management report to the Ministry in August 2010 which incorporated
      comments from an exit meeting of July 2010.
      Transport Management
2.1   At the time of audit in December 2009, the Ministry managed a fleet of 27
      vehicles. In addition, vehicles were hired from operators on a regular
      basis, requiring budgetary funds for refueling, repairs and maintenance.
      Viewed against applicable regulations and procedures which are there to
      ensure adequate control over the official running of vehicles, the
      Ministry’s system was found to be lacking in the following control
      aspects:
2.2   Lack of control over issue of fuel coupons: Fuel coupons worth R29,700
      issued to two vehicles (GS10663 & GS11926) were not recorded in the
      respective vehicle log books for control purposes. It was not evident if the
      coupons were actually used on those vehicles.
2.3   Vehicle log books not properly maintained : Log books in respect of 2
      vehicles (GS11926 & GS2692) examined by audit for the period August
      2009 to November 2009 revealed that the combined mileage of 2 vehicles

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          totaling 388 kilometers covered during the period were not recorded in the
          vehicle log books. It is not known whether the vehicles were used for
          official or private purposes.
2.4       The Ministry indicated that it is the responsibility of the Transport
          Supervisor to ensure that coupons are correctly recorded in log books by
          assigned transport drivers. Regarding gaps in mileage recording, the
          Ministry stated that it occurs when drivers passed on keys to each other
          without ensuring that mileage log book has been updated.
2.5       Audit is of the view that it is the responsibility of Accounting Officers to
          ensure that financial procedures are followed at all times.
          Revenue from Rent of Land and Buildings
3.1       The Ministry receives applications for the lease of state land and buildings
          from local and foreign individuals or corporate bodies. Once an
          application is approved, the applicant is advised of the terms and
          conditions of the lease and is required to make an advance payment before
          the lease agreement is finalized. An examination of a sample of 28 local
          and foreign leases examined by Audit revealed the following:
3.2       Lease rentals not fully realized: The sum of R1,923,642 equivalent to
          USD$315,000 was received from hotel development company ‘A’ on 2
          February 2009 representing lease payment due at the earlier of signing of
          the lease agreement in 2005 or 30days following the commercial opening
          of the resort. Contrary to the terms of the agreement which required that
          the lease payment to be made in foreign exchange, it was paid in
          Seychelles Rupees in February 2009. The exchange rate used, however,
          was not the prevailing rate of R15.83 but R6.1068 which was the effective
          rate of 02 May 2007. The rationale for the application of the said rate was
          not justified by the Ministry. Audit was of the view that since the terms of
          the agreement were not respected, the rate of exchange on the date of the
          transaction should have been applied. It would appear therefore that the
          Ministry did not realize the full potential of the revenue to the extent of
          R3million.
3.3       The Ministry responded that the rate of R6.1068 applied was as per the
          signed commercial lease agreement. At the time of writing, Audit was to
          verify the lease agreement to confirm the fact.
3.4       Uncertainty over receipt of lease payment: According to the terms of
          another lease agreement with hotel development company ‘B’, the sum of
          US$3m was received in January 2008 as upfront payment for the lease of
          properties. The lease agreement dated 14 November 2007 verified by
          Audit stipulated a total amount of US$3,500,000 as lease payment of
          which US$500,000 was paid to the Government in advance of signing the
          lease agreement. The advance payment of US$500,000 is however not

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      reflected in the Ministry’s records as having been received. Ministry
      officials queried were uncertain as to whether the said sum was actually
      received.
3.5   The Ministry informed that it needed more time to clarify whether the
      receipt of US$500,000 has been received.
3.6   Unavailability of up-to date records: In the case of hotel development
      company ‘C’, records maintained by the Ministry in respect of lease
      payments were not produced for audit examination. According to the
      Senior Officer overseeing the hotel development project, he had
      encountered delays in updating the records and that he will revert to audit
      when the exercise is completed. As a result, Audit was unable to establish
      whether or not all lease payments due under the agreement have been
      received by Government.
3.7   The Ministry indicated that an attempt will be made to sort out various
      issues pertaining to the project.
      Debtors’ management
4.1   The Ministry collects substantial revenue from sale of land, rent of
      properties, royalties and planning fees. While fees payable by the public
      for services rendered are mostly collected upfront, some types of revenue
      inevitably create debtors for various reasons. Revenue arrears in respect of
      sale of land bank plots, sale of state land, monthly lease rentals and long
      term leases amounted to R13.3 million as at 31st December 2009, of which
      R11.3 million (85.1%) related to unpaid term leases. As re-iterated over
      the years, the Ministry should put in place a sound Debtor’s management
      system to ensure the close monitoring and collection of debts and which
      would alert management when debts fall into arrears. Audit review of the
      debt collection function revealed the following.
      Sale of state land
4.2   State land is sold to the public subject to availability. Upon approval of an
      application, the applicant will either pay the agreed price upfront or by
      agreed installments. As at 31 December 2009, debtors totaling R801,000
      remained uncollected for periods ranging from 7 to 11 months. Generally,
      many debtors were not up to date with their payments and the Ministry
      was not found taking effective recovery action to speed up the collection
      of arrears except for sending reminder letters which applicants tended to
      ignore.
      Lease of state land
4.3   State land is leased to individuals and companies for business development
      in return for a rental. The terms and conditions of the lease vary according
      to the nature of the business development proposed, size of land, location

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          etc., which are included in the agreements. Notwithstanding the written
          agreements, it was noted that many leases have been in arrears over the
          years. According to a debtors’ summary compiled by the Ministry as at
          31st December 2009, Audit noted total arrears of R11.3million comprising
          of R2.5 and R8.8 million of arrears in respect of monthly and other term
          leases respectively.
4.4       Doubtfulness of Debtors Summary: The credibility of the Debtors’
          summary was found doubtful. For example, in some cases examined by
          Audit, balances were not updated with receipts issued to debtors, as
          reflected on individual debtors’ statements. In one case, an amount of
          US$275,000 received from a lessee in respect of annual lease payment for
          the year 2007 appeared as outstanding at 31 October 2009 whilst the
          subsequent year’s lease payment is shown as paid. Audit could not
          ascertain whether the lessee’s statement of account is credible or the
          account balance is overstated due to the omission to update the lessee’s
          account. Whether or not the 2007 lease payment is in arrears is not clear in
          the absence of any recovery action seen taken.
4.5       The Ministry attributed its inability to perform reconciliation between the
          individual debtor’s statements and debtors listing to ensure cohesion due
          to limitations in the existing computerized debtor’s accounting system. It
          further stated that it is in consultation with the Department of Information
          Technology with the aim of developing new software to counter the
          deficiencies noted.

          Department of Police
          Introduction
1.1       The Department of Police is responsible for the maintenance of law and
          order, the preservation of peace and the prevention and detection of crime
          as per Section 6 of the Police Force Act, 1959. An audit was undertaken of
          the accounting records of the Department covering the period 1 September
          2008 to 31 August 2009. The audit looked at procedures and internal
          controls relating to (i) transport management, (ii) stores and fixed assets,
          and (iii) the recurrent expenditure and revenue functions. Matters arising
          from the audit were addressed in a management report to the Department
          in April 2010 which incorporated comments of the Department from an
          exit meeting of 2nd March 2010.
          Transport
2.1       According to records examined by audit, the Department operates a fleet
          of 93 vehicles allocated to various units and outstations. In addition to the
          fleet, the Department hires vehicles to complement its transportation needs
          due mainly to a number of its vehicles being off the road as a result of
          accidents, mechanical breakdown and for other needs. Audit examination
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      of the vehicle register, log books and mileage sheets kept for control
      purposes revealed the following.
2.2   Register of vehicles incomplete: Audit noted that one vehicle was not on
      the Seychelles Licensing Authority’s (SLA) list of vehicles registered
      under the Department although recorded as such on the latter’s list. In
      addition, three other vehicles recorded as vehicles of the Department were
      not seen on the list provided to Audit. Given those shortcomings, Audit
      concluded that the vehicle records kept by the Department were
      incomplete and needed to be brought up to date.
2.3   The Department responded that the list of all registered Police vehicles
      has been requested from SLA so as to update the Register.
2.4   Vehicles not in use: Audit observed that out of the fleet, 28 vehicles were
      found not operational due to mechanical problems or damaged through
      accidents. As a result, the Department was not realising the maximum use
      of its vehicles thus resorting to the hiring of vehicles which obviously
      come at a high cost. Audit recommended that the Department carries out
      an exercise to identify vehicles that can be economically repaired and
      others that may be considered for write-off as per laid down procedures.
2.5   The Department responded that it has obtained the necessary approval to
      write-off 12 vehicles (including 3 of the 28 vehicles noted above). As for
      the others, the Department indicated that an exercise is underway to verify
      which vehicles can be repaired and those requiring write off.
2.6   Vehicle accidents not followed up: According to the Register of
      Accidents maintained by the Department, a total of 43 accidents were
      reported during the audit period. As a result, the Department spent a total
      of R1.7m in 2008 and R1.9m by 31 August 2009 on vehicle repairs. Audit
      selected a sample of 4 recorded accidents to verify whether laid down
      procedures as stipulated in FI 1303 were followed. It was observed that, in
      3 of the 4 cases, refund towards the cost of repair was not sought from
      drivers at fault despite the fact that repair costs were known from
      quotations obtained. Further, Audit was unable to obtain case files relating
      to those accidents to establish management action taken in respect of those
      accidents as per FI 1303 (b).
2.7   According to the Department, the decision was taken by senior
      management not to make the drivers refund the repair costs as they were
      not drawing an allowance for driving duties. The Department added that it
      was planning to introduce a bonus award scheme to reward drivers who
      are accident free and maintain their vehicles in a clean state. The
      Department further stated that Police officers are not bound by the Police
      Force Act to drive vehicles and consideration would be given for
      incorporation of such in the Police Force Act presently under review.

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2.8       Audit is of the view however, that irrespective as to whether a driving
          allowance is paid, police officers assigned driving duties should ensure
          that proper care is taken when driving public vehicles to minimise the
          incidence of accidents.
2.9       Monthly mileage not calculated: Chapter 7.4 (c) of the Accounting
          Manual provides for a fuel consumption analysis to be prepared at the end
          of each month in respect of all government vehicles to ensure that those
          vehicles are used in an efficient and economic manner. Although the fuel
          coupon register examined was noted maintained satisfactorily, Audit noted
          instances where the monthly calculation of fuel consumption was not
          carried out and daily mileage sheet not completed with the necessary
          particulars.
2.10      The Department agreed to Audit recommendation that the monthly fuel
          consumption be carried out in accordance with laid down procedures.
2.11      Issue of fuel not supported: The Department runs a fuel depot at the
          Central Police Station for the supply of fuel to approved vehicles. A Fuel
          Stock Register is kept at the depot to record stock of fuel received and
          issues to vehicles. Audit examination of records relating to the issue of
          fuel during the audit period revealed that a list of hired vehicles authorised
          to collect fuel at the depot was not prepared and submitted to the Fuel
          Attendant in line with internal procedures. As a result, Audit was unable to
          confirm that fuel was issued to authorized vehicles only during the period.
          Audit also noted that the Fuel Attendant was not always recording the
          registration number of vehicles issued with fuel in the fuel stock register.
          This is a good control measure to ensure that issues are to authorised
          vehicles only. For example, 22 litres of fuel issued to officer ‘A’ on 2 July
          2009 and 23.4 litres to officer ‘B’ on 30 July 2009 did not have the
          registration number recorded in the register. Failure to comply with laid
          down procedures may undermine the controls underlying the management
          of the fuel depot.
2.12      The Department agreed to Audit recommendations that internal
          procedures relating to the issue of fuel should be followed.
2.13      Hiring of cars without agreement: The Department spends a substantial
          amount of its recurrent expenditure budget on the rental of vehicles from
          car hire operators. During 2008, the total amount spent was R2.3m and as
          at 31 August 2009 a sum of R1.2m has been spent as per records examined
          by Audit. Audit observed that the Department was not entering into valid
          contract agreements with operators with the exception of one operator.
          Audit recommended that the Department should enter into a signed
          contractual agreement with car hire operators to safeguard it from any
          misunderstanding and/or disputes that may arise in the hiring of vehicles.


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       Audit also recommended that a Register recording details of car hire
       vehicles should be kept as part of the internal control procedures.
2.14   According to the Department, details for the Register are now being
       collected by the Transport Manager.
2.15   Claim for damages to hired vehicles: The Department received a claim of
       R10,035,237 in September 2009 from one car hire operator in respect of
       damages to vehicles on hire during the years 2007 and 2008. According to
       documents seen on file, the car hire operator was claiming compensation
       in respect of 15 vehicles damaged through accidents. An analysis of the
       claim revealed that over 50% of the amount claimed relates to the loss of
       use of those vehicles and the balance spread between breakdown and
       labour costs.
2.16   The Department stated that the matter was referred to the Ministry of
       Finance late in 2009 and the claim has now been resolved. Audit follow-up
       with the Ministry of Finance revealed that a total sum of R8,539,630 was
       paid in full settlement of the claim and charged to the Provision for
       Arrears account in the 2009 national accounts.
2.17   It is worthy to note that according to the Internal Audit report of July 2009,
       the car hire operator had originally claimed the sum of R1.701 million for
       damages to its vehicles. The claim amount was then considered reasonable
       in the report. The report further stated that the claim when originally
       submitted was not promptly dealt with by the Department presumably due
       to lack of funds and inadequacy of records maintained. However,
       according to documents seen on file, the operator submitted a revised
       claim of R10,035,237 in September 2009 to take into account inflationary
       prices in the local economy.
       Stores
3.1    The Department operates a central store for the storing of uniform
       materials and accoutrements, stationeries, vehicle spare parts and cleaning
       materials. Records are manually kept at the store in the form of a stores
       ledger although a Peachtree Accounting Software was introduced in
       October 2009 to maintain computerized stock records. Audit examination
       of records revealed that an independent stock-take of items in store was
       underway in September 2009 but spare parts items were not included in
       the exercise. Audit selected a sample of 16 lines of spare parts from
       physical stock and compared it to the ledger balances to ascertain the
       reliability of the store records. The stock records did not agree to the
       physical stock indicating stock discrepancies in all cases. Audit observed
       that spare parts included slow moving items which had not been issued for
       more than a year and parts for vehicles which were no longer in use.
3.2    Audit recommended the following:

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             as required by FI 1203 and FI 1204, the Department should review
              periodically store procurement management with the view of
              maximising the economy and efficiency of ordering, storage, security
              and accounting of store items;
             periodically carry out physical verification of stock in line with good
              practice and to ensure that all stock items are clearly identified and
              recorded; and
             redundant, obsolete and unserviceable stock items to be identified and
              write-off approval sought in accordance with FI 1208.
3.3       The Department explained that it has not been possible to complete the
          stock taking exercise including identification of slow moving or obsolete
          stock items due to the high staff turnover in the store. It further explained
          that due to the recruitment freeze in place they are unable to recruit new
          staff.
          Fixed Assets
3.4       The Department has under its responsibility other fixed assets including
          buildings, furniture, fixtures and fittings as well as equipment located at
          the Headquarters and in district police stations on Mahe, Praslin and La
          Digue. Audit examination of accounting records relating to those assets
          was performed to ascertain the adequacy of controls exercised to safeguard
          and record those assets. The examination revealed the following
          weaknesses:
3.5       Register of Inventory not properly kept: Audit was unable to obtain an
          up-to-date Register of Inventory for the Department. Only a computerized
          listing of an inventory which started in early 2008 was made available.
          This was not complete at the time of audit in September 2009. In addition,
          the list provided to Audit did not always include essential particulars such
          as identification number, payment voucher number, supplier name and
          cost of acquisition which are important to ensure adequate control over
          assets existence. Further, as mentioned in my previous report, periodical
          verification of fixed assets are not performed as required by FI 1205. As a
          result of the above weaknesses, Audit could not physically verify a number
          of assets selected.
3.6       Audit recommended that a Register of Inventory should be kept in the
          format laid down in the Accounting Manual. In addition, periodic physical
          verification of assets should be performed and all assets should be clearly
          identified and recorded.
3.7       The Department indicated that they are in the process of preparing a
          Register of Inventory and they are presently undertaking an inventory
          stock take to update the Register.


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3.8   Register of Land and Buildings not properly kept: FI 1211 requires that
      Accounting Officers maintain a register of all land and buildings in the
      prescribed format laid down in section 12.5 of the Accounting Manual.
      Audit noted that although a register is kept it lacked certain information
      such as date of acquisition, payment details, parcel or identification
      number, area and cost of acquisition. Audit recommended that the register
      should be kept in the format prescribed in the Accounting Manual.
3.9   The Department advised that issues relating to land and building are
      being taken up with the Ministry of National Development (MND) so as to
      sort out which properties are still under the responsibility of the
      Department. The Department further stated that it is considering the
      transfer of all land and buildings to MND for their administration. In the
      case of individual houses belonging to the Department, consideration will
      be made for sale of those houses to current occupants.
      Revenue collections
4.1   The Department collects revenue from static/escort duties, stand-by
      services and from drivers learners permit, driving and theory test etc.
      Audit observations arising from revenue collection and banking were as
      follows:
4.2   Segregation of duties can be improved: As mentioned in my previous
      report, the Department employs two personnel in the revenue section, a
      cashier whose main function is to collect driver’s fees and an Accounts
      Supervisor involved in collection of other revenue, issue of invoices,
      maintenance of debtors’ records, sending of reminders and banking. Audit
      observed that prior to banking of revenue there are no supervisory checks
      carried out by the Accountant on the Cash Book Analysis, revenue
      deposited and banking documents to ensure the completeness of revenue
      collection. Audit recommended that in order to strengthen internal
      controls in revenue collection, there should be adequate segregation of
      duties within the section with supervisory checks performed between
      revenue collection and banking.
4.3   The Department confirmed that prior to banking collections are agreed to
      the cash book analysis and banking documents by the Accountant. Audit
      follow up revealed that there was no evidence recorded in the cash book
      analysis of the checks carried out with regard to banking.
4.4   Delay in collection of dues: The credit policy of the Department provides
      for the settlement of invoices within 30 days from the date of the invoice.
      Audit examination of records relating to debtors control revealed that as at
      31 August 2009 total debtors balance stood at R1,955,529. The aged
      debtors analysis at that time showed that 23% (R449,165) was over 90
      days hence defeating the credit policy of the Department. As at January

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          2010, however, total debtors amounted to R610,227 showing a significant
          reduction. Audit recommended that the Department should ensure that
          they rigorously chase-up debtors so as to maintain debtors’ balances within
          credit limit.
4.5       The Department advised that the reduction in debtors balance as at 31
          January 2010 is due mainly to recovery efforts made.
          Payments for Goods and Services
5.1       Audit examination of a sample of 47 payments made for the procurement
          of goods and services revealed the following:
5.2       Telecommunication Equipment and Services not contracted: Audit
          observed that a total of R1,297,975 was paid to a service provider during
          the audit period for the monthly maintenance of telecommunication
          equipment and system without a valid maintenance contract. The absence
          of a contract may lead to uncertainty as to the rights and obligations of
          both parties. Audit recommended that the Department enters into a
          contract agreement with the service provider as a safeguard in the event of
          contractual problems arising from the delivery of service.
5.3       According to the Department, the maintenance service was procured
          through the Ministry of Finance in previous years and the Department
          does not have a copy of the agreed terms.
5.4       Copies of unsigned contract agreement for the Department, which also
          included the Departments of Defence and Health, were subsequently
          obtained from the Ministry of Finance. As noted in previous years, the
          Department was also meeting the maintenance costs of telecommunication
          equipment of those two Departments through its recurrent budget. This has
          the effect of overstating the recurrent expenditure of the Department and
          not showing the actual running costs of the other two departments in the
          annual accounts. It was also noted that the proposed agreements were
          dated to commence 1st January 2003 for two years renewable (at a total
          monthly cost of R131,600). Audit further noted that the proposed
          agreement for the Department of Police did not specify the quantity or
          location of equipment to be maintained.
5.5       Receipt of goods not certified: In one case, the invoice was found not
          certified in respect of a payment of UK£2,314.19 (R53,000) to an overseas
          supplier in April 2009 for spare parts ordered by the Fire Brigade Section.
          As a result, Audit was unable to establish if the goods were checked for its
          authenticity and received in the quantity ordered. Audit recommended that
          the laid down procedures be followed at all times to ensure that all
          invoices are authorized prior to settlement.



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5.6   The Department confirmed that the spare parts were cleared directly by
      the Fire Brigade Section and noted the need for all procuring sections to
      acknowledge the receipt of goods and services properly in future.
      Ministry of Community Development, Youth, Sports and
      Culture

      Department of Community Development
      Introduction
1.1   The Department of Community Development has the overall responsibility
      for implementing Government policies relating to community
      development and maximizing community contribution towards national
      development through participation in local administration. An audit was
      undertaken on the accounts and records of the Department for the period
      October 2008 to September 2009 to review the system of payment for
      goods and services to ensure that monies were spent in accordance with
      applicable provisions. Matters arising were addressed to the Department in
      May 2010 which included comments from an exit meeting of 8 April
      2010.
      Payments for Goods and Services
2.1   Payments not adequately supported: Audit examined a sample of 70
      payments effected during the period under review. Audit noted a number
      of instances where certain transactions were posted to wrong account
      codes and payments for goods and services were not supported by the
      required documentation such as invoices and cash memos in
      acknowledgement of cash paid to personnel and affiliated agencies. Those
      shortcomings signified non-compliance with prescribed financial
      procedures dealing with recurring expenditure and budgetary controls.
2.2   The Department indicated that the problems highlighted above will be
      resolved and officers concerned made aware of their responsibilities.
2.3   Retention of budget savings: The Department transferred all savings
      arising from the recurrent expenditure budget to the extent of R592,000 at
      the end of 2008 to two bank accounts maintained in the name “Community
      Life Account” and “Social Club”. The manner in which these transactions
      were performed, ie year end savings transferred to a bank account, was in
      breach of financial instructions which required prior approval of the
      Ministry of Finance. The expenditure of the Department in the national
      accounts has as a result been overstated to the extent of R592,000.
      Further, following the introduction of the Treasury Single Accounting
      System in July 2009, the Department was required to cease operation of
      the bank accounts unless approval had been obtained from the Ministry of
      Finance. At the time of writing in October 2010, the “Community Life

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Report of the Auditor General

          Account” had a credit bank balance of R1,063,785 as at 28 September
          2010.
2.4       The Department indicated that the practice of transferring year end
          savings from the recurrent budget to the Community Life Account have
          ceased. The Department however explained that the practice provided it
          with adequate resources to undertake projects in the districts in the next
          accounting year.

          Department of Internal Affairs

          Immigration Division
          Introduction
1.1       The Immigration Division operates under the portfolio of the Department
          of Internal Affairs. It co-ordinates all the activities of the Immigration
          Section and advises government on immigration control policies that need
          to be adopted. It ensures that all persons entering or leaving Seychelles
          comply with the formalities under the Immigration Decree 1979
          (Airport/Port) and maintains records of all: persons exempted from permits
          such as staff from foreign diplomatic missions etc.; foreigners employed
          by government, liaising with their employing ministry, department,
          parastatals; yachts entering and leaving Seychelles; passports issued, as
          well as Seychelles citizen with dual citizenship.
1.2       An audit was carried out on the accounts and records of the Division for
          the period June 2008 to May 2009. The audit examined the effectiveness
          of the system of internal control on payroll processes and revenue
          collection and the management of fixed assets within applicable
          procedures. Matters arising were addressed to the Division in a
          management letter dated 5 November 2009 which suitably incorporated
          comments of the Division from an exit meeting of 06 October 2009.
          Personnel Emoluments
2.1       Overtime payment: From payroll records examined by Audit, a total of
          R28,094.68 was noted paid as overtime to three drivers from the Division
          personnel emoluments budget for duties undertaken for the Prisons
          Division. The drivers were paid for 60 hours worked and given time off in
          lieu of the remaining hours. Audit was of the opinion that the overtime
          payment should have been settled by the Prisons Division and therefore a
          reimbursement was necessary to allocate cost to its correct cost centre.
2.2       In response, management agreed to invoice the Prisons Division.
          Revenue
3.1       The Division collects revenue from immigration fees, resident permit fees,
          passport fees, work permit fees (GOP) and citizenship fees. Total amount
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      collected during the audit period was R92,130,999. Audit examination of
      records revealed the following:
3.2   Outstanding debtors: The Division provides credits to certain companies
      or “fast track services” at the international airport. At the time of the audit,
      the Division had total debtors of R358,435 and US$7,550 some of which
      had been outstanding as far back as 2002. Further, Audit noted a marked
      increase in outstanding debtors when compared to total outstanding debts
      at the last audit in January 2008 of R17,000 and US$7,115 respectively.
3.3   The accumulation of debts was a departure from the 30 day credit facility
      which Accounting Officers are allowed under Financial Instruction 0815.
3.4   The Division stated that it anticipated forwarding a request for write-off to
      the Ministry of Finance for old debts while the remaining debts were to be
      pursued for collection.
      Gainful Occupation Permit Debtors
4.1   At the time of the last audit in January 2008, the Gainful Occupation
      Permit (GOP) arrears amounted to some R2,134,200, some of which had
      been outstanding for several years. Audit re-visited the list GOP debtors to
      verify whether there has been any improvement in the collection of debts
      and noted that the situation has remained more or less the same. This is
      despite of audit recommendation that the Division undertakes a review of
      its debtors in order to collect as much as possible or alternatively to follow
      write-off procedures for debts considered irrecoverable.
4.2   The management stated that in respect of debtors still carrying on business
      with the Division, it will attempt to collect outstanding GOP debts when
      processing new or renewal of permits. With regards to businesses that
      have ceased operation, the Division will consider write-off for which
      approval will be sought from the Ministry of Finance.
      Fixed Assets Management
5.1   The various items of assets under the custody of the Division comprise
      office and computer equipments and furniture.                Audit verified
      documentation in respect of a sample of new assets acquired during the
      period under review and performed a physical verification to confirm
      existence and ownership. Audit observed that the register of inventory was
      last updated in 2007. Audit was, therefore, unable to trace the recording of
      a sample of new assets acquired during the audit period for the sum of
      R32,133 to the register, contrary to Financial Instruction 1206.
5.2   The Division stated that a physical verification of assets was being
      undertaken for posting into the asset register. It further added that it has
      purchased a software program which will be linked to the LPO system and


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          which will pick up details of assets upon acquisition which will
          automatically update the register.
          Judiciary
          Introduction
1.1       The Judiciary is responsible for the administration of various jurisdictions
          under the Laws of Seychelles and equitable jurisdiction where no
          significant legal remedy is provided by Law. An audit on the accounts and
          records of the Judiciary was performed for the period August 2008 to July
          2009. The audit reviewed the system of payment for goods and services
          with emphasis on internal controls to ensure that monies were spent in
          accordance with the intended purpose. Audit also examined the manner in
          which the fixed assets and transport management functions were
          performed. Matters arising were addressed to the Judiciary in a
          management report dated 23 December 2009 which suitably incorporated
          their comments from an exit meeting of 23 November 2009.
          Payments for Goods and Services
2.1       The Judiciary has in place a policy whereby it bears the cost of
          international telephone calls on behalf of Judges to a maximum limit of
          R300 per month. Examination of records and the application of this policy
          revealed that one of the Judges has failed to refund the cost of overseas
          calls made during the year 2008 for the sum of R15,755.43 over and above
          the monthly entitlement. The debt remained unsettled as at August 2010
          and Audit noted that no recovery arrangement had been initiated. Audit
          recommended that the Judiciary take steps to ensure the recovery of this
          debt without further delay
.2.2      The Judiciary confirmed that the debt remains unpaid despite of reminders
          issued to the Judge.
          Revenue
3.1       Other than the collection of deposits not forming part of the Consolidated
          Fund, the Judiciary collects fees for services rendered and fines and
          forfeitures through its Court. Audit scrutiny of fees collected revealed
          three instances whereby outstanding fines amounting to R7,200 had not
          been settled at the time of audit in August 2009. No evidence of follow-up
          action was seen taken by management.
3.2       The Judiciary did not comment on the matter.
          Deposits
4.1       Deposits comprising of compensation, bail bonds etc are collected and
          disbursed by the Judiciary in accordance with Court orders. The system in
          operation is such that all disbursements not exceeding the sum of R2,000

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      are paid in cash and entered in the “suitors cash book”. Audit scrutiny of
      10 deposits selected from the Deposit Register and another sample of 15
      transactions extracted from Treasury printout revealed a payment effected
      on 30 January 2009 for the sum of R1,400 which could not be matched
      against the corresponding original deposit. Audit was unable to ascertain
      the correctness of the payment made vis-a-vis the original deposit made.
      Moreover, details of the depositor and recipient could not be identified in
      the cash book.
4.2   The Judiciary indicated that they will verify and confirm the depositor.
      Fixed Assets
5.1   An audit of fixed assets was performed to review whether adequate
      controls were exercised to safeguard upkeep and account for assets in the
      Judiciary’s custody. FI 1206(a) requires Accounting Officers to ensure the
      maintenance of a Register of Inventory which should be kept up to date in
      the prescribed format. The usefulness of a register would be to record
      when assets are required to be disposed to ascertain their book value and
      determine the value at which they could be disposed profitably.
5.2   Register not updated: Audit examined the fixed assets function of the
      Judiciary in the light of laid down control procedures and noted that the
      Register of Inventory maintained was last updated in 2007, contrary to
      Financial Instructions. Assets purchased during the years 2008 and 2009
      worth R134,930 had not been recorded in the register, nor allocated with
      asset identification number, which impaired audit verification to confirm
      their existence.
5.3   The Judiciary agreed with the findings.
      Transport
6.1   The Judiciary operated a fleet of six vehicles as at end of 2009. Audit
      examination of records relating to the day to day operation of the fleet,
      with reference to the relevant financial rules and regulations revealed the
      following unsatisfactory matters:
6.2   Log books not satisfactorily maintained: Section 199 to 201 of the PSO
      and FI 705 stipulate the need to maintain log books for Government
      vehicles and recording of information on their use. From a sample of
      vehicles examined by audit, journey details which would enable the
      assessment of distance covered in relation to mileage recording were not
      specified on the mileage sheets. The only information recorded on mileage
      sheets was the opening and closing mileage reading for the day. Moreover,
      drivers did not sign on the mileage sheets in order to allow for
      identifications of drivers operating the vehicle as required under S7.4 (b)
      of the Accounting manual. Audit observed that the same vehicle(s) was
      used by more than one driver. In view of the scanty information recorded
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Report of the Auditor General

          on mileage sheets, Audit was of the opinion that proper control was not
          exercised over the use of vehicles, exacerbated by the inadequate
          monitoring of the same.
6.3       The Judiciary agreed with Audit findings.
          National Assembly
          Introduction
1.1       The National Assembly of the Republic of Seychelles (the Assembly) is
          established under Article 77 of the 1993 Constitution. It represents the
          legislative power of Seychelles. The main function of the Assembly is to
          present and pass bills in accordance with the Constitution. The Assembly
          comprises of 34 members including the Speaker, the Deputy Speaker, the
          Leader of the Opposition and the Leader of Government Business. The
          Administrative arm of the Assembly falls under the Secretariat under the
          responsibility of a Clerk as Accounting Officer. The function of the
          Secretariat is to manage the day to day running of the Assembly and
          provide assistance to parliamentary members. An audit was undertaken of
          the accounts and records of the Assembly for a 12 month period from 1
          October 2008 to 30 September 2009. Matters arising were addressed to the
          Secretariat in a report dated 29 December 2009. Management comments
          from an exit meeting held in December 2009 was suitably incorporated in
          the report.
          Personal Emoluments
2.1       The National Assembly had a total of 16 persons on the Secretariat payroll
          and a total of 61 persons on the active and retired assembly members’
          payroll for the month of September 2009. Examination of supporting
          records relating to payroll expenditure revealed one case where one
          employee drew monthly telephone and responsibility allowances of
          R1,000 and R1850 respectively without the approval of the Department of
          Public Administration (DPA). Under prevailing arrangement at the time of
          the audit in December 2009, the administration of the civil service payroll
          fell under the overall responsibility of the DPA which can delegate such
          administration to organisations only in specified instances. The Assembly
          was not granted such dispensation to make those payments without formal
          approval of DPA. Audit recommended that the necessary approval be
          obtained from DPA to authorise those payments.
2.2       The Secretariat did not provide explanations to the above observation.
2.3       Audit follow-up on the matter in July 2010 revealed that administrative
          autonomy was subsequently granted to the Assembly in March 2010.
          Under the autonomy, the Assembly is not required to obtain prior approval
          on administrative matters such as (i) terms and condition of service and (i)
          scheme of service for its staff.
                                         74
                                                    Report of the Auditor General

      Payments for Goods and Services
3.1   Together with the day to day operating expenses of the National
      Assembly, the budget also provides funds for:
         Speaker’s Office
         Leader of Government Business – Staff Remuneration
         Leader of the Opposition – Staff Remuneration
         Constituency & Committee Support
3.2   The audit of expenditure falling under the above categories revealed the
      following:
3.3   Travel allowances: Audit observed that, in a number of cases, it was not
      possible to relate actual payment of per diem to officers travelling on
      overseas missions against applicable rates in the Public Service Orders
      (PSO), (as updated by Circular No. 2 of 2009). Moreover, in the absence
      of clear guidelines as to the correct rates payable to the Speaker, Audit
      made a comparison of actual payments made in respect of per diem against
      those applicable to Cabinet Ministers. From a sample of 3 overseas trips
      made during the audit period, Audit observed that the allowances paid
      were relatively higher than ministerial rates. This took into account that
      actual accommodation costs on occasions exceeded the standard rates and
      some visits sometimes dictated a cash float for incidental expenses which
      were accounted for on return on the production of receipts. Given this
      anomaly, Audit took the view that guidelines for the provision of overseas
      allowances to the Speaker needed to be formalised to remove any
      ambiguity as to the rates of per diem payable including to Secretariat staff
      accompanying the Speaker.
3.4   The Secretariat informed that the matter had been discussed with the
      Department of Public Administration. The reply of 21 September 2010
      further stated that the National Assembly was never given a copy of
      Circular 2 of 2009 and per diem rate paid to the Speaker, though slightly
      higher, was based on a management decision taken by the Assembly
      following the devaluation of the rupee. The reply also clarified that the per
      diem of a person travelling with the Speaker is guided by a policy adopted
      by the Cabinet on 27 December 2006.
3.5   Audit follow-up in July 2010 revealed that the Department had on 12
      February 2010 confirmed the position of the Head of the Legislature and
      that an entitlement equivalent to Ministerial rates is applicable.
3.6   Itineraries for overseas visits not seen: Audit noted in 3 cases examined
      involving payments for overseas airfares and subsistence allowances that
      itinerary confirming travel dates were not available for verification. As a
      result, Audit could not confirm the correctness of amounts paid as per

                                     75
Report of the Auditor General

          diem and airfares vis-à-vis applicable rates and duration of overseas
          mission. Audit recommended that relevant documentation (i.e. invitation
          and itinerary details) be kept on records for audit purpose and future
          reference.
3.7       The Secretariat confirmed that it will now ensure that these documents are
          attached to payment vouchers in future.
3.8       Constituency and Committee Support: During the year 2009, it was
          approved for elected members of the Assembly to claim monthly expenses
          in respect of (i) telephone, (ii) fuel for vehicle, (iii) printing and stationary,
          (iv) office rent, and (v) secretariat duties and staff support for the general
          function of their parliamentary duties.
3.9       According to correspondence seen from the Ministry of Finance dated 21
          January 2009, each member is entitled to claim expenses not exceeding
          R7000 per month supported with documents. From a sample of claims
          examined, Audit observed that, in three cases, the documents attached
          were not satisfactory as discussed below.
             Honourable ‘A’ claimed office rent of R3,500 and allowance for
              personal secretary amounting to R2,500 on invoice number 0155510
              dated 28 August 2009. Audit observed that this invoice was from the
              Honourable herself;
             Honourable ‘B’ claimed transportation cost of R2,500. Audit sighted a
              receipt for this amount which stated received from the Honourable but
              the recipient of payment is not clear on the receipt; and
             Honourable ‘C’ claimed the rental of his office in Victoria for the sum
              of R5,610. Audit is of the opinion that as rental payment relates to both
              the activities of the Honourable as a MNA and of his professional
              practice, payment of rental should be apportioned accordingly.
3.10      The Secretariat responded that there should be clear guidelines as to when
          and what a member can claim. It further added that as from 1 January
          2010, the two leaders in the Assembly will take responsibility for the
          claims made by their respective party members.
3.11      Audit follow-up in July 2010 revealed that guidelines in the form of
          “Constituency Support - Procedure for Making a Claim” were issued in
          March 2010.
          Transport
4.1       The Assembly maintains a fleet of 3 vehicles. Audit examined relevant
          records to ascertain whether laid down procedures were being followed in
          accordance with financial instructions. The examination revealed that
          monthly calculation of mileage run per litre of fuel was not being done for
          the three vehicles. Such analysis would enable management to measure the

                                           76
                                                   Report of the Auditor General

      efficiency of the vehicles both in terms of fuel and economy and would
      enable necessary action to be taken when there are deficiencies.
4.2   The Secretariat advised that the utmost will be done to calculate the
      mileage run per litre for each vehicle.
4.3   Audit follow-up in July 2010 revealed that this was yet to be addressed.
      Seychelles Revenue commission

      Business tax and GST on goods and services
      Introduction
1.1   The Seychelles Revenue Commission (SRC) is established as a body under
      the Seychelles Revenue Commission Act, 2009 responsible for the
      administration of revenue laws. At the time of the audit in April 2010, a
      major tax reform was under way with important changes being made in the
      tax system which is to be phased over a 3 year period beginning 1 January
      2010.
1.2   An audit of the accounts and records of the SRC in respect of Business
      Tax and GST on locally manufactured goods was undertaken for the
      period 1 January to 31 December 2009 in terms of the Business Tax Act,
      1987 (repealed by the Business Tax Act, 2009 except in relation to prior
      years) and the Goods and Services Tax Act, 2001. Matters arising were
      addressed to the Commission in May 2010 and a written reply received in
      June 2010.
      Business Tax - Registration of Businesses
2.1   All businesses operating in Seychelles are required to register with the
      SRC within 14 days after the date on which their business commences in
      line with Regulation 2(2) of the Business Tax Act, 1987. The Registry
      Section of SRC is responsible for ensuring that businesses licensed by the
      Seychelles Licensing Authority (SLA) are registered as taxpayers. For this
      purpose, a list of newly licensed businesses is obtained from SLA every
      month to enable SRC to enforce the registration process. Audit examined
      the effectiveness of the registration process to establish whether
      weaknesses in internal procedures identified in previous audits have been
      addressed. The audit revealed that the problems that existed persisted as
      reported below.
2.2   Registration delay: From a sample of 108 out of 1,094 new businesses
      licensed during the year 2009, Audit observed that 13 businesses were still
      not registered at the SRC at the time of the audit in April 2010. This
      included a carpenter, a manufacturer of textiles, discotheque, butcher and a
      commission agent. Audit examination of records to establish whether
      follow-up actions were taken to ensure registration revealed that reminder

                                     77
Report of the Auditor General

          letters to licensed businesses were not found on the respective files. As
          was the case in previous report, audit recommended that the SRC ensures
          that laid down procedures are properly and consistently followed so that
          all potential taxpayers are captured by the system.
2.3       The SRC replied that as at May 2010, 2 out of the 13 businesses had since
          registered, while reminder letters had been issued to 7 others. The reply
          further stated that 3 businesses were scheduled for field work while one
          licensed business was still deciding whether to proceed with the business
          venture. SRC emphasised that it is planned to automate the referral
          process from SLA to the SRC under the Tax Reform programme. The SRC
          updated its reply (12.11.2010) that 5 out of 13 businesses have been
          registered, two have not started business, one has been issued final notice
          and the addresses provided by the remaining 5 businesses proved difficult
          to be located. The SRC felt that it had exhausted all possibilities.
          Assessment of Business Tax Returns
3.1       Businesses are required to lodge annual returns with the SRC setting out
          their trading position (profit/loss) for the year. Deadline to lodge returns is
          31 March of the following year. Failure to comply with lodgement
          provisions leads to the issue of notice requesting the taxpayer to lodge the
          return within the next 21 days. Further non-compliance would lead to a
          ‘Show Cause’ letter, phone calls and prosecution as a last resort. Returns
          lodged by businesses are subject to assessment by the Assessing and
          Compliance Section to determine the level of taxable income or assessed
          losses for the business. A review of the lodgement procedures revealed the
          following.
3.2       Late lodgements and assessment of returns: A sample of 34 businesses
          was selected for detailed examination of lodgement and assessment of
          returns. According to audit examination, 11 of the 34 taxpayers had not
          submitted returns for the year 2008 while 15 were in wait for assessment at
          the time of the audit. Failure to lodge returns and assess taxable income
          may lead to delays in collecting tax revenue on final assessments.
3.3       The reply (12.11.2010) stated that of the 11, 3 have lodged returns, 2
          ceased business, 5 are being followed up and 1 is being searched through
          the company registrar. The reply further stated that 10 returns out of 15
          have now been assessed and 5 are being audited and added that as from
          01 January 2010, SRC has introduced self assessed business tax return.
3.4       Taxpayers’ files not seen: According to internal procedures, files are kept
          for individual taxpayers by the Registry, with permanent folders to capture
          relevant documentation relating to various taxes and correspondence.
          Movements of those files are made through the Assessing Section and a
          register is maintained for their issue. From the sample of 34 businesses

                                          78
                                                    Report of the Auditor General

      selected, Audit was not able to sight the files in respect of 4 taxpayers.
      This indicated a failure to comply with internal procedures to flag the
      movement of files and this may give rise to tax assessments not being
      carried out and therefore the collection of tax revenue.
3.5   The SRC confirmed that the 4 files remain to be located. The reply
      (12.11.2010) stated further that to overcome the difficulties when handling
      and searching for files, the SRC is looking to introduce a system of bar
      coding.
      Lodgement and Assessment of GST Tax Returns
4.1   Every business liable to GST must declare a return of income to the SRC
      every month making a full declaration of all payments received or gross
      sales, details of exempt items and the tax rate applicable. Payments are
      collected by cashiers who forward the returns to the GST Section which
      are checked for correctness and filed. At the end of each year, a sample of
      businesses is selected for GST review and based upon the outcome of the
      review, a notice of GST Assessment or Amendment is raised to show the
      correct income liable to GST for the year of assessment.
4.2   Returns not sighted: Audit selected a sample of 41 GST taxpayers from
      the GST database for examination of returns. From the sample, a total of
      20 monthly GST returns were not produced for verification although
      payments were observed made by the taxpayers concerned. No
      explanations were given for the missing GST returns. Audit is of the view
      that this may give rise to loss of revenue due to errors or irregularities not
      being detected.
4.3   The SRC made no further comment concerning the missing returns. The
      reply (12.11.2010) stated that 2 files had been located and produced to
      Audit for verification.
      Collections
5.1   The Accounts Section is responsible for the collection and banking of tax
      revenue. A computerised receipt is issued upon payment and the
      taxpayer’s account credited with the amount paid. A follow-up audit on the
      problems of missing receipts was carried out to establish whether they
      have now been resolved. Out of a sample of 12 days collections
      representing 1 day per month selected for the year 2009, Audit observed
      that there were still instances of missing receipt numbers from the daily
      sequence of computerized receipts as reported previously. In total, four
      receipt numbers were found missing from the sequences examined and
      they could not be sighted anywhere in the system. Audit also observed the
      duplicate production of one receipt number which was used for two
      taxpayers with different Tax ID. Audit is of the view that a basic internal
      control over the recording of receipts has not functioned as it should. Audit

                                     79
Report of the Auditor General

          recommended that the above issues be investigated with a view of
          addressing the problem of missing receipt numbers.
5.2       The SRC responded that all missing receipts were issued prior to the
          installation and running of the new Client Management System in March
          2010. It further added that since the launching of new system there has
          been no missing receipts reported in the daily reports.
          Unidentified items
6.1       The Accounts Section is also responsible for the accounting of unidentified
          items posted in the unidentified items account at the Treasury. Audit
          review of the unidentified accounts revealed the following.
6.2       Misstatement of account: Audit observed a number of unidentified items
          posted to the ledger which are not relevant to the activities of the SRC.
          Audit further noted that the year-end balance on the unidentified items
          account at 31 December 2009 increased by R8,030,294 to R13,118,165
          compared to the previous year. Further verification of Treasury records
          revealed that certain foreign exchange payments recorded under the
          unidentified items account were related to the Ministry of Finance and
          remained to be cleared at the year end. The unidentified items account
          balance is therefore materially misstated by the value of those payments
          whilst other expenditure balances in the national accounts are understated.
          Audit recommended that the SRC should pursue the clearance of the
          unidentified items account to correctly reflect those transactions in the
          annual accounts.
6.3       The SRC responded that the issue of unidentified items were discussed in
          weekly Tax Reform meetings with the Ministry of Finance which undertook
          to clear as soon as possible.
          Objections and Appeals
7.1       Under Section 104 (1) of the Business Tax Act, 1987, a taxpayer
          dissatisfied with a tax assessment is entitled to raise an objection to the
          assessment within 60 days in writing to the Commissioner outlining the
          grounds for the objection. The Commissioner will consider the objection
          on the basis of documentary evidence provided by the taxpayer and the
          Commissioner may or may not allow the objection. Should the taxpayer be
          dissatisfied with the decision, he is entitled to appeal to the Supreme Court
          under Section 106 of the Act.
7.2       Resolution of cases pending: As reported previously (AR08), there is
          considerable delay in resolving both objections and appeals resulting in
          some cases remaining unresolved for many years. For example, Audit
          observed that as at 31 December 2009, the SRC had 15 cases outstanding
          comprising of 10 objections and 5 appeals. As noted in previous reports,
          those cases go back to as far as the year 1999. Further, in one major case, a
                                         80
                                                    Report of the Auditor General

      taxpayer with a disputed liability of R6,055,595 since 2001 had his file
      misplaced at the SRC. His case remains unresolved at the time of the audit
      since the SRC is waiting the decision of the court in another case.
7.3   The SRC noted that the intended courses of action have been determined
      for all of the 10 disputed cases. The SRC further stated that appeals cases
      are outside its jurisdiction and that the decisions lie with the presiding
      Appeals court. The SRC informed that a new strategy includes the
      establishment of a Revenue Tribunal under the Revenue Administration
      Act, 2009 which will be able to independently review decisions of the SRC
      whilst not preventing a taxpayer who remains dissatisfied after the review
      from lodging an objection.
      Recovery of Outstanding Taxes
8.1   The Recovery Section is responsible for monitoring the recovery of tax
      debts and management of debtors. Individual officers within the Section
      are assigned groups of taxpayers for monitoring and recovery and report to
      senior management when there are problems in the recovery process. In
      the event that a taxpayer fails to settle its debt, court prosecution is
      initiated under Section 139 of the Business Tax Act, 1987.
8.2   Significant taxpayer debtor balances: According to the database system
      in use at the Commission, the level of tax debt was R265,188,588 as at 31
      December 2009. This showed an increase of R105,501,543 when
      compared to the previous year’s debtors balance of R159,687,045. As
      pointed out in previous reports, outstanding debtors’ balances are not
      generated directly by the system. Instead, it is extracted from the system
      maintained by the Department of Information and Communication
      Technology (DICT) for further analysis. An overall debtor’s age analysis
      is not produced by the SRC for outstanding debtors. Production of
      debtors’ age analysis is considered good management practice as it enables
      the close monitoring of non-performing debts so that prompt follow-up
      action may be taken. In view of current practice, management is unable to
      assess the debtor’s position in overall terms and has to delve into
      individual taxpayer’s files to ascertain the length of time individual debtors
      have remained outstanding. Despite of the significant increase in the year
      end outstanding debtors’ balance, Audit noted a significant recovery of a
      tax debt from a particular taxpayer following the payment of R20million
      made in January 2010. This left an outstanding balance of R3.7million
      which has been scheduled for recovery over a 37 month period beginning
      July 2010. Audit recommended that management should maintain the
      momentum to investigate every avenue available to improve the debt
      collection procedures. An overall age debtor’s analysis should be
      introduced as soon as possible as a tool to facilitate a more effective
      recovery mechanism.

                                     81
Report of the Auditor General

8.3       Stalled debtors: Audit observed cases where certain recognised taxpayer
          debtors have continued over time to accumulate tax arrears. For example,
          from a sample of 21 taxpayers with significant arrears, 8 were found to
          have long outstanding debts totalling R17,965,856 going as far back as
          1990. No course of action was seen taken against those taxpayers that
          have fallen behind with their tax obligations with the exception of one case
          with an outstanding amount of R814,660 of which the SRC succeeded in
          the court case heard in October 2008. In three other cases totalling
          R4,691,027 in aggregate, Audit observed that recovery action was not
          taken on a timely manner which resulted in them being left unresolved
          over several years. The inordinate delay in recovering those debts has put
          at risk the collection of significant amounts of revenue and put in doubt the
          recoverability of those debts. Audit recommended that the Recovery
          Section should intensified efforts to ensure that tax debtors are chased
          vigorously to settle their tax obligations.
8.4       The reply stated that submissions for write-off have been prepared for the
          4 unresolved cases while the remaining 4 cases are being considered for
          court prosecution.




                                         82
Appendix
                 OPINION OF THE AUDITOR GENERAL
         ON THE ACCOUNTS OF THE REPUBLIC OF SEYCHELLES
              FOR THE YEAR ENDED 31 DECEMBER 2009
Scope
In accordance with Section 11 of the Public Finances Act, 1996 the Minister for 

Finance has submitted for au~it the several statements of accounts of the government of 

Seychelles for the year ended 31 December 2009. 

The statements comprise: 

• 	 Statement of assets and liabilities
• 	 Statement of receipts and expenditures of the Consolidated Fund and the
    Development Fund
• 	 Statement of outstanding public debt
• 	 Statement of outstanding guarantees
• 	 Statement of government's investment

The Minister for Finance is responsible for the preparation and presentation of the
several statements and the infonnation they contain. In accordance with Article 158 (3-)
of the Constitution and the provisions of the Audit Act, I have conducted an
independent audit of those statements in order to fonn an opinion and report it to the
Minister.

The audit has been conducted in accordance with International Organisation of
Supreme Audit Institutions (INTOSAI) aUditing standards and practices to provide
reasonable assurance that the statements are free of material misstatement. Audit
procedures include examination, on a test basis, of evidence supporting the amounts
and other disclosures in the accounts and the evaluation of accounting policies. These
procedures have been undertaken to fonn an opinion whether, in all material respects,
the statements of accounts are in agreement with the accounts and records of the
Treasury so that they properly present the financial transactions of the Government.

The audit opinion has been fonned on the above basis.

1. 	 the Specialised Treatment Fund suspense account had a brought forward debit
     balance of R58,310,285 as of January 2009. Further expenditures totalling
     Rll,495,304 were incurred during the year 2009 without an appropriation. The
     aggregate balance of R69,805,589 was written off due to non-recovery from the
     Fund. Audit had expressed concern on the recoverability and the accounting
     treatment over the years;
2. 	 a balance of R25.5m shown under the cash and bank balances since 2006 was
     written off due to non-recovery from Social Security Fund;
3. 	 the accounting treatment of R12m and R25,374,020 debited to exchange rate
     variations account under general revenue balance is doubtful in view that the
     relevant infonnation was not provided for verification;
4. 	 a balance of R89,531        is                   Sinking Fund      the
     Assets and             as at 31.12.2009. This is inclusive     the rp"''''nt"
     R68,736,495 from the sale of assets credited and some amounts
     R2,645,520 debited to      account        the year.       proceeds should have
     credited to the Consolidated Fund as per Article 151 of the Constitution in view that
     the Sinking Fund was not                 by               the                 Fund is

5. 	 the tax unidentified       suspense account is a clearing account and should have a
            balance, if not a nil balance.     account, however, had an              debit
     balance of R8,030,294 as at 31.12.2009. The debit balance          resulted from the
     posting of some                        which should have       otherwise
     for as expenditure under various organisations. Thus the tax unidentified items
     account is             and
6. 	 the existence of an investment     R6m held with a local bank as at 31.12.2009 is
     doubtful in        that it    not been confirmed by the relevant bank for several


Audit Opinion
In my opinion,             the above matters included in my report to       National
Assembly, the statement of accounts properly        the financial transactions of
government for the year ended 31 December 2009.


~
Marc                                                        of    Auditor General
AUDITOR GENERAL                                             Victoria, Seychelles
                                                            30 November 2010
                                                    3­

                                  GOVERNMENT              SEYCHELLES.




                                                   Note            31.12.2009          31.12.2008

ASSETS                                                                 R                  R

Cash and Bank                                       5                                158,379,707

Remittances                                         6                       176        8,442,196

Investments                                          7             7,300,285           7,172,576

Advances                                             8           640,697,861         960,179,932

Imprest                                              9             2,749,857




LIABILITIES

Short Term Borrowings                               10         2,826,135,994       1,871,048,729

Deposits                                            11                                 4,774,556

Other Funds                                         12              1,228,488           1,329,073

Suspense Accounts                                   13            61,320,936        (239,264,465 )

Contingency Fund                                    14             (7,31               (3,208,745)

Sinking Fund                                        15             89,531             23,440,882

Consolidated Fund                                   16        (13,445,469,691 )   (11,893,167,893)

Development Fund                                    17        11,207,419,283      11,371,81




The accompanying notes 1 to 19 form part of these accounts




D.Faure (Mr)
Vice President


18th November 2010
                                                     -4­


                              Abstract Account of Revenue and Expenditure of the 

                                   Consolidated Fund for Financial Year 2009 


        RECURRENT REVENUE
                                                                   Estimate 
         Actual 

                                                                      R
                R

Heads

8100    Transfers                                                   352,000,000        49,999,728

8200    Trades Tax and GST on Goods I Services                    2,017,000,000      1,784,871,793

8300    Income/Business Tax                                         551,000,000       800,889,902

8400    Other Indirect Taxes                                        213,500,000       349,519,752

8600    Fees and Charges                                                  100,000     182,114,512

8700    Rents & Royalties                                                 139,000      23,549,810

8800    Income of Public Services                                        3,100,000     56,892,040

8900    Dividends, Interest & Statutary Transfers                                     214,860,065

9000    Reimbursements                                                                     65,000

9100    Miscellaneous                                                    2,902,000      4,007,375

9200    Other Revenue                                               41       8,000    213,804,271

        TOTAl- RECURRENT REVENUE



        RECURRENT EXPENDITURE

                                                                    Estimate           Actual 

                                                                       R                 R


0100    President's Office                                           34!220,768                   4

0200    Ministry of Environment, Natural Resources                  166,841,602       160,860,321
        And Transport

0400    Ministry of Finance                                          41,671,505

0500    Department of Defence                                       109,211,348

0600    Department of Legal Affairs                                  10,522,720

                              Carried
                                                     - 5­


                            Abstract Account of Revenue and Expenditure of the
                                 Consolidated Fund for Financial Year 2009

        RECURRENT EXPENDITURE - continued
                                                                 Estimate                     Actual
                                                                    R                           R
                                  Brought Forward                362,467,943                 349,943,537
Heads

0700    Seychelles Revenue Commission                             34,119,303                   33,419,200


0800    Department of Risk and Disaster                            4,552,000                    3,808,761
        Management

0900    Department of Information and Public                       7,955,000                    7,885,966
        Relations

1000    Ministry of Education                                    235,580,687                 229,222,007

1100    Ministry of Foreign Affairs                               37,936,024                  37,936,024

1300    Ministry of Health and Social Development                311,551,000                 304,518,939

1400    Ministry of National Development                          49,505,113                   46,406,041

1600    Department of Public Administration                       23,695,000                   19,870,266

1700    Department of Police                                     129,485,939                 1'28,183,934

1800    Ministry of Employment and Human                          15,872,000                   13,123,065
        Resource Development

1900    Ministry of Community Development                         85,000,000                   79,493,251
        Youth, Sports and Culture

2000    Department of Internal Affairs                            30,909,315                  29,297,074

2100    Office of Ombudsman                                        1,354,000                    1,343,187

2140    Constitutional Appointments Authority                        596,000                      305,460

2150    Office of the Public Service Appeals Board                   371,000                      358,750

2160    Department of Judiciary                                   14,978,000                   13,620,083

2170    Office of the Auditor General                              4,278,000                    3,851,094

2180    National Assembly Secretariat                              8,646,934                    8,336,068

2190    Office of the Electoral Commissioner                       2,012,000                    2,011,958

2200    Centralised Payments                                   1,332,976,396                1,027,278,297

23 & 24 Public Debt Servicing                                  5,275,028,000                2,682,108,125


        TOTAL - RECURRENT EXPENDITURE                          7,968,869,654     ' .        5,02~,321   ,087
                                                                                       -'
                  Recurrent Deficit for the year                                            1,341,746,839
The following notes form part of and are to be read with the Annual Financial Statements.


1. 	   General

                 Financial   <;;:t<lt""rn   of 	         consist of

                             the                Fund, Contingencies Fund, Development Fund
                             established under the Public Finances Act;
       (b) a            of outstanding
       (c) 	a statement of public debt; and
       (d) a statement 	of assets and liabilities,                    as            by or provided
            Article 1 (8) of the Constitution and ,","',I"fll"'.... 11 of the Public Finances Act.


2. 	   Accounting Entity

       The Government of Seychelles as an accounting entity comprises all organs of the
       state excluding Statutory Corporations and         owned companies.


3. 	   Financial Year

       A financial    is defined by Section 2 of the Public Finances Act, 1996 as a period of
       12 months ending on 31 December in any year.

       The financial      in respect of which the Financial Statements are prepared covers
       the period 1st January 2009 to 31 st December


4. 	   Accounting Policies

       (i) 	       The             of    Government are         on a             Transactions are
                   recorded when moneys are               and paid. As a consequence, accruals of
                          amounts due to or            by the               are not shown in the
                   financial statements but are kept track by way of departmental records.

        (ii) 	     Assets such as buildings, motor vehicles, aircraft, furniture and fittings, plant
                        equipment, etc acquired by any ministry or organ of state are treated as
                   outright expenditure and not capitalised as              in the year in which
                   payments are made. Likewise,          in               end of     financial year
                   are not taken into account as

        (iii) 	    All foreign currency balances are          at the official rates ruling on the
                   working      of    financial
                                          -7­


5.   Cash and Bank Balances

     The cash balances in hand and at banks as at the                                end consisted of the following:


                                                                                                            31.12.2008
                                                                                                                         R


     In hand 	                                                            1                                    1,629
     With: Central Bank of                                             61,640,508                        (83,967,745)
            Other Banks                                                 4,296,630
     Crown Agents                                                       8,956,200

                                                                     75,067,636                        158,379,707
                                                      -----------                                   -----------
                                                                                                    -----_ .......................          ....., 





     The cash/bank balances as reflected in the Annual Financial Statements     not
     include an aggregate amount of R 23,458,288.78 held in different bank accounts
     maintained by various Ministries and Departments as at 31st December 2009.


6.

                               In        in various accounts as shown on                                           121.


     Investments

     (i) These represent

             (a) Deposits with the 	    Bank     Seychelles, the Crown Agents on behalf
                 of   Consolidated Fund and various       Funds and




             Other Funds 	                                             7,300,285                              7,172,576

                                                                           7,300,285                           7,172,576
                                                        _ _-_....................
                                                     ----------­
                                                     ...................    ......                     --------_
                                                                                                       ...... .......................... - ...... --­
                                                                                                                                             ...... 





     OJ} 	   Government's investment by way of assigned capital and equity is disclosed in
             the Statement of Government Investment in Parastatal Organisations and other
             Companies at       131.
                                                          -8­


8. 	    Advances

        These include:

        (i) 	     Advances which are recoverable within specified periods.

         (ii) 	   Advances                      to Government owned            The terms and
                  conditions              advances and loans are determined by the Ministry of
                  Finance.

                                                                                                                                31.12.2008
                                                                                                                                     R

        General                                                                                                                271,046,614
        Parastatals                                                                                                            687,664,1
        Deposit Accounts with Debit Balances                                                                                     1,469,1

                                                                             640,697,861                                       960,1
                                                                        ----------                                           ----------
9. 	    Imprest

                are                              from
        incidental pVI"\pr,<:;:,,,·<::: for which moneys have


10. 	   Short          Borrowings

        These are:

         (i)             borrowed from the Central Bank                 Seychelles.

        (ii) 	                 by the issue of Treasury                      under Public Debt Management
                            2008.

        (iii)                     on call 	                     parastatals and



                                                                                  31.12.2009                                    31.12.2008
                                                                                                   R

                                                                      2,799,752,840                                         1,708,780,000
                                                                                                                              140,600,000
        Parastatal Organisations                                                   26,383,154                                  21,668,729

                                                                      2,826,135,994                                         1,871,048,729
                                                                             _­

                                                                ...------------
                                                                .........................................................
                                                                                                                            ----------­
                                                                                                                            --------_ ...........

                                              -9­


11.     Deposits

                 are moneys deposited with the government by organisations and departments
        under          10 of the Public         Act, 1996.




                                                           --------­
                                                           --------­            --------­

12. 	           Funds

                are the moneys          to the credit             funds set up under Section
        8 of the Public Finances      1996 and which are deposited with the government.



13. 	   Suspense Accounts

                include:

         (i)    general            awaiting clearance     financial year end,

         (ii)   trading and operating accounts of government ministries/departments.

                                                           31.12.2009            31.12.2008
                                                               R                         R

                Suspense                                  (50,403,956)          254,164,925
        Trading/Operating                                 (10,916,980)          (14,900,460)

                                                         ( 61,320,936)            239,264,465
                                                        -----------             ............. _ _----­

                                                                                ----------
                                                                                      ......




        ( ) denotes credit balances

                               proceeds from        aid and loan         held in
                            end are accounted under the Development Fund (movement in
                                Accounts) as they represents funds available to be on
                            expenditure.
                                                  - 10 ­

14.   Contingency

      The Contingency Fund is established as         in                                                        (1) of the Constitution
      to make Advances to meet urgent and unforeseen                                                          to which no other
      provision

                                                                                                                            31.12.2008
                                                                                                                                R

      Balance at 1st                                                                                                       (15,320.281 )


      Add: Amount        nrn\lgn      by National Assembly                                                                   15,320,281



      Less: Expenditure incurred during the year                      ( 4,1                                                ( 3,208,745)

      Balance at 31st                                                  ( 7,31                                               (3,208,745)
                                                                       ---------
                                                                       ---------                                          ----------
      The balance     ron,roc,ontc:       expenditure incurred and awaiting approval of the National
      Assembly.

1     Sinking Fund

           Fund was                              all the proceeds for                              of                    upon
      privatization of


1     Consolidated Fund

       This balance represents                   deficit of the
       by Article 151 of the Constitution of Seychelles 1993.
       also provides that all   recurrent revenue of the
       Fund and Article 152 provides       moneys shall be withdrawn from the      to meet
       expenditure authorised by an                     or any other law      charging it to
       the Fund.

                                                                        31.12.2009
                                                                            R

      Balance at 1st January                                    11,893,167,893                                      11

      Add: Transfer to Contingency Fund                                                                                    1

                                                                11,893,167,893                                      11

      Add: Deficit for the year                                    1,341,746,839

                                                                13,234,914,732                                       11

                    General Revenue balance                           210,554,959                                               1

               at     st December                               13,445,469,691                                        11,893,167,893
                                                             ---------_
                                                             --------_ .................. ......
                                                                                        ............ ......               __
                                                                                                                     -----------­

                                                                                                                     ....... ...... ...... _-----­
                                                  - 11 ­


17.     Development Fund

        This fund is established under Section 7 of the Public                         Act, 1996.
        sources of            this fund are:

         (i)                              byway            or         as development aid.

        (ii) 	        moneys          from           government, institution, body or person for
                      purpose of any development            project or programme to        financed
                      from the Development Fund, or generally for the purposes of the Development
                      Fund.


                                                                      31.12.2009
                                                                          R

                       at 1st                                    11     1,818,631


        Add: 	 Receipts              the year                         461,080,103           1,156,740,640


        Movements in
        Loans in Transit Accounts                                     (12,462,687)            10,877,395

                                                                 11,820,436,047         11,833,539,752

                      for the year                                    613,016,764            461,721,121

        Balance at           st December                         11,207,419,283         11,371,818,631
                                                                -----_ ------­
                                                                -------------
                                                                         ........       ------------
                                                                                        ------------
18. 	   Contingent Liability

        In accordance with Article 154(8) (d) of    Constitution, the statement   guarantees
                by
        "''''HH-':U   Government of Seychelles outstanding as at 31 December 2009 and
            statement of guarantees         by the Central Bank of            during the year
        ended      December 	                    at     141

19. 	   IMF                     Account

             IMF          account is equivalent to the             un-repurchased quota in
            IMF and was represented by non-negotiable/non-interest bearing Treasury Notes
        issued by the           and held by the Central      of            in IMF's favour.

        As      st           2009 the               of                 confirmed by     Central         of
        Seychelles was R 454,849,305.41

				
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