I. Budget reliability
Scores by Dimension
Overall Indicator Score
1. Aggregate expenditure outturn
D
Notes:
1.1 Aggregate expenditure outturn
D
Notes:
Table 1-1 indicates that actual expenditures exceeded the original budget estimates in all the three fiscal years. The actuals as a percentage of the budget estimates registered 124.7%, 127.4% and 133.3% for FY18/19, FY19/20 and FY20/21 respectively.All the three fiscal years fall outside the range for a C score which means a D rating.
2. Expenditure composition outturn
D+
Notes:
2.1 Expenditure composition outturn by function
D
Notes:
The variance in expenditure composition by budget function exceeded 20% for each fiscal year, with two years more than 30%.
2.2 Expenditure composition outturn by economic type
D*
Notes:
There is no presentation of expenditure composition by economic classification available. The 2018/19 unaudited financial statement presents spending by economic classification. This was not published in later years. Therefore, it is not possible to compare the budget and outturn due to data being unavailable
2.3 Expenditure from contingency reserves
A
Notes:
Actual expenditure charged to a contingency vote is zero which implies an A rating.
Notes:
3.1 Aggregate revenue outturn
D
Notes:
Based on the audited financial statement for 2018-19 and preliminary outturns shared by the authorities for 2019-20 and 2020-21, actual revenue exceeded 116% of budget revenue forecasts in each of the past three completed fiscal years (range 131%-195%).
3.2 Revenue composition outturn
D
Notes:
A composition variance greater than 15% was calculated for each of the past three fiscal years, again greater than required for a C score. Taxes on income, profit and gains; taxes on international trade and transactions; property income; and sales of good and services had the largest deviations from their respective estimates.
II. Transparency of public finances
Scores by Dimension
Overall Indicator Score
4. Budget classification
D
Notes:
4.1 Budget classification
D
Notes:
The budget classification is not consistent with international standards. But the financial statements for the year ending 30 June 2019 was presented in the GFS format. Although the classification used has allowed the government to effectively manage budget resources and deliver services to the community, the classification cannot produce consistent documentation comparable with international standards.
Notes:
5.1 Budget documentation
B
Notes:
Budget documentation in FY20/21 satisfies four basic elements and four additional elements which implies a B rating.
6. Central government operations outside financial reports
D
Notes:
6.1 Expenditure outside financial reports
D
Notes:
Expenditure outside government financial reports comprise EBEs that are non-market producers, including NRC, NMRA, NUC, NPS and NITF, which in total comes to $35.1m in 2020-21 and comprises 13% of total BCG projected actual expenditures of $267m.This is more than 10% of total BCG expenditures.
6.2 Revenue outside financial reports
D
Notes:
Revenue outside government financial reports comprise EBEs that are non-market producers, including NRC, NMRA, NUC, NPS and NITF, which in total comes to $60.1m in 2020-21 and comprises 21% of total BCG projected actual revenues of $287.9m. This is more than 10% of total BCG revenues.
6.3 Financial reports of extrabudgetary units
D
Notes:
Only Nauru Utilities Corporation and the Nauru Intergenerational Trust Fund had submitted Financial Reports for FY 2020-21. This means the majority of EBEs have not submitted detailed financial reports to the Audit Office within nine months of the end of fiscal year 2020/21 which according to the Guide constitutes a D score.
7. Transfers to subnational governments
NA
Notes:
7.1 System for allocating transfers
NA
Notes:
Not applicable.
7.2 Timeliness of information on transfers
NA
Notes:
Not applicable.
8. Performance information for service delivery
D
Notes:
8.1 Performance plans for service delivery
D
Notes:
Annual Operational Plans (AOPs) are now provided to DoF by ministries in the context of the Budget process. AOPs provide milestones and KPIs for key activities with some linkage to government ouAnnual Operational Plans (AOPs) are now provided to DoF by ministries in the context of the Budget process. AOPs provide milestones and KPIs for key activities with some linkage to government outcomes and strategies. The development of AOPs has been a very positive development in the development of a performance measurement framework. Scoring for a C rating and above for this dimension requires evidence of a performance measurement framework and publication of that information to permit citizens to understand the outputs and outcomes that government is seeking to achieve from public expenditure. tcomes and strategies.
8.2 Performance achieved for service delivery
D
Notes:
Scoring for a C rating and above requires annual publication of performance information against plans set out in the budget for the majority of ministries. Apart from donor-funded projects in health and education, currently there is not systematic publication of data relating to performance achieved on service delivery relative to planned performance.
8.3 Resources received by service delivery units
D
Notes:
There is no published data available on the level of resources received by service delivery units.
8.4 Performance evaluation for service delivery
D
Notes:
Evaluations of the efficiency and effectiveness of service delivery have not been carried out in recent years.
9. Public access to fiscal information
D
Notes:
9.1 Public access to fiscal information
D
Notes:
GoN currently publishes several elements of fiscal information to enable the public to understand the fiscal position (e.g. proposed annual budget, enacted budget and in-year budget execution reports).
III. Management of assets and liabilities
Scores by Dimension
Overall Indicator Score
10. Fiscal risk reporting
D
Notes:
10.1 Monitoring of public corporations
D
Notes:
Audited financial statements were prepared for Nauru Air Corporation for the 2020-21 fiscal year, presented to GoN in October 2021 and tabled in Parliament in January 2022. Draft statements for Ronphos and Nauru Utilities Corporation are undergoing audit, but statements are not available for Eigigu Holdings or Nauru Rehabilitation Corporation.
10.2 Monitoring of subnational governments
NA
Notes:
Not applicable. There are no subnational governments.
10.3 Contingent liabilities and other fiscal risks
D
Notes:
Estimated liabilities from the BoN liquidation are presented in the annual debt report. Financial statements for 2020/21 are not yet available meaning the requirements for a C score have not been met.
11. Public investment management
D
Notes:
11.1 Economic analysis of investment proposals
C
Notes:
Most major investment projects are undertaken by, or in conjunction with development partners. In these cases, development partners will conduct economic analyses for projects.
11.2 Investment project selection
D
Notes:
While the NSDS and NIISP provide some guidance for prioritization of investment projects, there is no defined criteria to ensure that individual projects are aligned with government priorities.
11.3 Investment project costing
D
Notes:
Capital costs for the forthcoming budget year for major investment projects are included in the budget documents but not projections of the total cost of major investment projects.
11.4 Investment project monitoring
D
Notes:
Development partner-funded major projects typically have Project Management Units (PMUs) to undertake monitoring but GoN-funded projects have less systematic monitoring and implementation processes.
12. Public asset management
D+
Notes:
12.1 Financial asset monitoring
C
Notes:
The government maintains a record of its cash holdings and regularly tracks these major categories of financial assets, through the Treasury, reporting to senior management.
12.2 Nonfinancial asset monitoring
D
Notes:
The government maintains a register of its holdings of fixed assets, but there is no evidence or information on their usage and age.
12.3 Transparency of asset disposal
D
Notes:
Procedures and rules for the transfer or disposal of nonfinancial assets are established in the PFM Act 1997. There is no evidence of any disposal done under these provisions in the last completed fiscal year. No information on transfers and disposals is contained in budget documents, financial reports, or other reports.
Notes:
13.1 Recording and reporting of debt and guarantees
D
Notes:
The 2021 Debt Report includes reconciled information on current and projected external debt including stock, operations and servicing. It is yet to be updated on an annual cycle but this is planned. The report does not contain information on operations or servicing for internal debt. Internal systems supporting debt management were not provided for assessment.
13.2 Approval of debt and guarantees
A
Notes:
The Parliament must approve new borrowing (via the annual budget) and guarantees (via special motions). The Finance Minister is solely authorized to execute transactions and the Treasury is responsible for debt management.In recent years no new guarantees have been issued and government borrowing has been limited to two concessional loans on behalf of SOEs. Relevant approvals were seen for the Aircraft Replacement Program in 2020/21.
13.3 Debt management strategy
D
Notes:
There is currently no medium-term debt management strategy that would meet the requirements of this dimension. Work is progressing in this area with ADB assistance.
IV. Policy-based fiscal strategy and budgeting
Scores by Dimension
Overall Indicator Score
14. Macroeconomic and fiscal forecasting
D
Notes:
14.1 Macroeconomic forecasts
D
Notes:
GoN publishes IMF estimates for real GDP growth, nominal GDP (level) and CPI for the budget year, but not consistently for the two forward years. Updates to IMF WEO forecasts are noted as relevant in quarterly budget execution reports.
Notes:
GoN prepares forecasts of revenue, expenditure and the budget balance for the budget year but not the two outer years. Within-year fiscal forecasts for the budget year are updated via supplementary budgets. . No medium-term reconciliation is undertaken as multi-year projections are not prepared or published.
14.3 Macrofiscal sensitivity analysis
D
Notes:
The most significant risks to the budget are idiosyncratic in nature. GoN undertakes scenario analysis of the expected fiscal implications of selected specific risks but does not undertake broader scenario analysis adopting alternative macroeconomic assumptions.
Notes:
15.1 Fiscal impact of policy proposals
D
Notes:
Policy costings to support decision-making or reporting of budget measures are not performed systematically. For example, in BP1 2020/21, changes to import duties on tobacco and alcohol were not presented and a significant increase in public sector wages was not explicitly costed.
15.2 Fiscal strategy adoption
C
Notes:
The 2020/21 Budget contains a medium-term fiscal strategy with numerical objectives (the Fiscal Responsibility Ratios) and a further requirement for minimum NITF contributions.
15.3 Reporting on fiscal outcomes
B
Notes:
The 2021/22 Budget contains commentary on achievement against the fiscal strategy over the 2020/21 fiscal year, noting all numerical targets had been met.
16. Medium-term perspective in expenditure budgeting
D
Notes:
16.1 Medium-term expenditure estimates
D
Notes:
The Budget provides expenditure estimates by administrative and economic classification for the budget year but not the outer years, there by falling short of the requirements for a C score.
16.2 Medium-term expenditure ceilings
D
Notes:
Indicative expenditure ceilings for the budget year were provided to ministries as part of the Budget Circular issued on 7 December 2020 ahead of the 2021-22 Budget.
16.3 Alignment of strategic plans and medium-term budgets
C
Notes:
The Nauru National Sustainable Development Strategy 2019-2030 (NSDS) and Integrated Infrastructure Strategic Plan (NIISP) appear well aligned in terms of sectoral coverage but the NSDS lacks detail on resourcing needs.
16.4 Consistency of budgets with previous year’s estimates
D
Notes:
Estimates are prepared for the Budget year only so there are no vintages of forward estimates to evaluate.
17. Budget preparation process
C+
Notes:
Notes:
The Budget Circular provides a clear budget timeline of when the budget submissions from Ministries and SOEs are expected to be received by the Department of Finance.
17.2 Guidance on budget preparation
A
Notes:
The Budget Circular provides clear guidance on the budget process. Under the budget framework, clear objectives/strategies and the platform on which the budget is framed provide a sense of the risks involved. Guidance on the budget structure and budget timelines with clear cut-off dates eliminates any confusion of when the documents are required. Department ceilings pre-approved by Cabinet and guidance on Operational Plans and Budgets is clearly set out.
17.3 Budget submission to the legislature
D
Notes:
According to the Budget Papers, FY19/20 budget was submitted to Parliament on 11 June 2019, FY20/21 on 4 June 2020 and FY21/22 on 1 June 2021.
18. Legislative scrutiny of budgets
D
Notes:
18.1 Scope of budget scrutiny
C
Notes:
Parliament’s review covers fiscal policies and aggregates for the coming year as well as scrutiny of the details of expenditure and revenue by the HC.
18.2 Legislative procedures for budget scrutiny
D
Notes:
Parliament’s procedures to review the Annual Budget are preset in the Standing Orders, which provide the general framework for procedures and leaves the discretion to the Speaker to elaborate as and where appropriate.
18.3 Timing of budget approval
D
Notes:
The annual budgets were reported in DoF Annual Reports to have been approved before the start of the year in each of the past three fiscal years. But no clear evidence provided.
18.4 Rules for budget adjustment by the executive
C
Notes:
Clear rules exist for in-year budget adjustments by the executive, and are adhered to in some instances. Extensive administrative reallocations may be permitted. The magnitude and trends of these adjustments are well documented in the DoF’s Annual Report, which is evidence of at least some of the budget adjustments being adhered to.
V. Predictability and control in budget execution
Scores by Dimension
Overall Indicator Score
19. Revenue administration
C+
Notes:
19.1 Rights and obligations for revenue measures
B
Notes:
The following revenue sources account for 90% of total government revenues before grants. NRO (27%); NCS (8%); Fisheries (24%); MCA (31%). The NRO Website contains copies of tax and revenue administration legislation, as well as the taxpayers charters—these documents provide guidance on modalities for redress.
19.2 Revenue risk management
D
Notes:
NRO: There is a compliance improvement strategy (CIS) with a systematic approach to managing risk but there is no documented report on its implementation.
19.3 Revenue audit and investigation
D
Notes:
No revenue specific audits having been undertaken.
19.4 Revenue arrears monitoring
A
Notes:
NRO tracks arrears in a spreadsheet at the end of the year, and with a small taxpayer base arrears are minimal ($4,737). Fisheries revenues are paid in advance for fishing access the following calendar year.
20. Accounting for revenue
D
Notes:
20.1 Information on revenue collections
C
Notes:
DoF receives all revenue data as it is entered into the FMIS in real time. Consolidated revenues are reported quarterly, in the Quarterly Performance Reports. However, there are no documented monthly reports of consolidated revenues.
20.2 Transfer of revenue collections
A
Notes:
All revenues from all the four major sources are deposited directly upon receipt to the Operations Bank Account held by the Department of Finance.
20.3 Revenue accounts reconciliation
D
Notes:
NRO undertakes a reconciliation at the end of the financial year in Excel, but this covers NRO’s own revenues only. There is not consolidated reconciliation of revenue from all sources.
21. Predictability of in-year resource allocation
B+
Notes:
21.1 Consolidation of cash balances
A
Notes:
All bank accounts are managed on a consolidated basis. Monies are paid directly into bank accounts held and managed by the Treasury with Bendigo Bank.
21.2 Cash forecasting and monitoring
D
Notes:
No annual cash plans are produced. No forward-looking cash flow forecasts are currently produced.
21.3 Information on commitment ceilings
A
Notes:
MDAs receive their annual budget appropriations in full at the start of the financial year. They are therefore able to implement the budget with a significant degree of reliability. Expenditures are controlled against the full budget release.
21.4 Significance of in-year budget adjustments
A
Notes:
Only two amendments were made to the budget, in the form of two supplementary appropriations which are published on the DoF website and provide a full rationale on the funding sources and allocation of the supplementaries.
Notes:
22.1 Stock of expenditure arrears
A
Notes:
Expenditure arrears are not a major issue in Nauru as suppliers are requiring payment up-front. Consequently, this is not something being monitored or reported upon.
22.2 Expenditure arrears monitoring
D
Notes:
There is no monitoring or reporting of arrears and no analysis or breakdown of the figures shown in the Debt Report.
Notes:
23.1 Integration of payroll and personnel records
D
Notes:
There is no evidence to suggest that reconciliation of the payroll with personnel records takes place at least every six months. Staff variations are not checked against budget prior to authorization of payroll run.
23.2 Management of payroll changes
D
Notes:
There is no evidence that personnel records and payroll are updated at least quarterly for some retroactive adjustments. Recent issues highlighted by recent PFTAC reports15 point to acute problems with updating and reconciliation.
23.3 Internal control of payroll
D
Notes:
Documented controls are not sufficient to ensure the integrity of the payroll data.
Notes:
No payroll audit done nor evidenced in the last three fiscal years.
Notes:
24.1 Procurement monitoring
D
Notes:
No central database is maintained on procurement. There are no procurement plans, nor are there any data on tenders let, awarded tenders, nature of tenders, value of tenders, procurement statistics, etc.
24.2 Procurement methods
D*
Notes:
There is no data on the different procurement methodologies used. It is up to the Agent to achieve value for money. The Agent operates using its vendor-network. Tenders are rarely opened to competitive open bidding.
24.3 Public access to procurement information
D
Notes:
Apart from the amendment to the Public Finance Act 2019 and Public Finance Regulations – 2013 Procurement, other procurement criteria are not made public.
24.4 Procurement complaints management
D
Notes:
The government does not have an appeals/complaints process, as all procurement is undertaken via the Agent.
25. Internal controls on nonsalary expenditure
C+
Notes:
25.1 Segregation of duties
D
Notes:
There is no definition nor statement of the principle of segregation of duties in the PFCMA, nor in any of the FIs. Instead, key steps in the procurement and payment process and the responsibilities are lumped together with the Budget/Accounting officers at Department level.
25.2 Effectiveness of expenditure commitment controls
B
Notes:
Evidence provided showed a fully centralized system of expenditure controls from processing to approval stages, but no commitment reporting template was made available.
25.3 Compliance with payment rules and procedures
B
Notes:
Most payments are compliant with regular payment procedures and the majority of exceptions are properly authorized and justified.
Notes:
26.1 Coverage of internal audit
D
Notes:
No formally established IA function in GoN. Only some donors focus their own IA operations on their respective programs and projects and GoN conducts internal audit very selectively.
26.2 Nature of audits and standards applied
NA
Notes:
No internal audit function operational.
26.3 Implementation of internal audits and reporting
NA
Notes:
No internal audit function operational.
26.4 Response to internal audits
NA
Notes:
No internal audit function operational.
VI. Accounting and reporting
Scores by Dimension
Overall Indicator Score
27. Financial data integrity
B+
Notes:
27.1 Bank account reconciliation
B
Notes:
Evidence provided gives reasonable grounds to infer that bank reconciliation for all active central government bank accounts takes place at least monthly, usually within 4 weeks from the end of each month.
Notes:
Suspense accounts are not kept by GoN in either superannuation contributions or revenue accounts. These are journaled and directly posted to the relevant revenue or payroll accounts.Therefore, it is assessed as an A because it shows that reconciliation of suspense accounts takes place instantly and is well within a month from the end of each month, and are cleared in real time.
Notes:
Advance accounts are not kept by GoN because staff travel allowances are paid on an entitlement basis. Therefore, it is assessed as an A because there is no need for reconciliation of advance accounts since GoN does not allow advances and all such allowances and entitlements are expensed immediately.
27.4 Financial data integrity processes
C
Notes:
Access and changes to records is restricted and recorded. The FMIS Manual Version 1.0 provides security, access and user level privileges protocol. These are recorded and leaves an audit trail for tracking.
28. In-year budget reports
A
Notes:
28.1 Coverage and comparability of reports
A
Notes:
The FMIS allows real-time preparation of budget execution reports with the same coverage as budget and has the flexibility to produce reports at an even more detailed level.
28.2 Timing of in-year budget reports
A
Notes:
Weekly reports are prepared and shared with Department Heads. Aggregate budget execution reports are prepared and published quarterly. Three out of four were published within four weeks of the end of each quarter in 2020/21.
28.3 Accuracy of in-year budget reports
A
Notes:
Weekly and quarterly reports contain information on both commitments and actual expenditures and authorities flagged no material concerns regarding accuracy. No special analysis or commentary is provided in the Q2 report; each quarterly report follows a familiar template of analysis and commentary.
29. Annual financial reports
D
Notes:
29.1 Completeness of annual financial reports
D
Notes:
Annual Financial Statements for 2019/20 and 2020/21 had not been finalised by 31 March 2022, meaning the requirement for a C score that they be prepared for the last completed fiscal year could not be satisfied.
29.2 Submission of reports for external audit
D
Notes:
Draft 2018-19 Annual Financial Statements were submitted for audit on 11 March 2021 and the audit commenced on 28 April 2021, beyond the nine-month maximum for a C score.
29.3 Accounting standards
D
Notes:
GoN uses a hybrid cash/accruals system, seeking to comply with international standards and national legislative requirements under the Audit Act 1973. The draft 2018/19 statements note a transition to full adoption of the IPSAS Cash Standard. Authorities advise that the 2019/20 statements will be the first to be prepared in full accordance with the IPSAS Cash standards.
VII. External scrutiny and audit
Scores by Dimension
Overall Indicator Score
Notes:
30.1 Audit coverage and standards
D
Notes:
Financial reports of the majority of total expenditures and revenues of government for the last two financial years have not been audited. The audit of one financial year, 2018/19, has been completed with issues raised and responded to by the executive. A qualified audit opinion was issued.
30.2 Submission of audit reports to the legislature
D
Notes:
Although, no audit reports for the financial years in the assessment period were submitted to Parliament, audit reports of prior financial years were submitted in 2020 and 2021. The performance is rated at D.
30.3 External audit follow-up
D
Notes:
A formal response was made by the executive on the audit of one financial year, 2018/19, but given the last two financial years have not been audited. The performance is rated at D.
30.4 Supreme Audit Institution independence
D
Notes:
The appointment of the head of SAI is made by the Chief Secretary and subject to approval by the executive government. The removal of the Auditor General requires a two-thirds majority of Parliament on the basis of incapacity or misconduct.
31. Legislative scrutiny of audit reports
D
Notes:
31.1 Timing of audit report scrutiny
D
Notes:
There is no evidence that Parliament scrutinized the reports from the Department of Audit. Of the past three completed financial years, there are no audit reports for 2019/20 and 2020/21 as the Government Financial Statements haven’t been finalized. The audit report of 2018/19 Government Financial Statements had been issued but not submitted to Parliament.
31.2 Hearings on audit findings
D
Notes:
There is no evidence provided from Parliament of any hearings relative to the audit reports. The Department of Audit confirmed that they have not been called or attended any hearings by the legislature on key findings of their audit reports demonstrating low performance.
31.3 Recommendations on audit by the legislature
D
Notes:
As there has been no scrutiny of audit reports by the legislature in the last three fiscal years, the legislature has also not issued any recommendations on actions to be implemented by the executive relative to any of the audit reports submitted to them. Thus, there is no follow-up mechanism in place highlighting low performance.
31.4 Transparency of legislative scrutiny of audit reports
D
Notes:
As alluded to in 31.2 above, there is no evidence of any scrutiny of audit reports by the legislature, hence transparency of the process cannot be determined. The Parliament’s website does not publish any committee reports on hearings on audit reports.