I. Budget reliability
Scores by Dimension
Overall Indicator Score
1. Aggregate expenditure outturn
C
Notes:
1.1 Aggregate expenditure outturn
C
Notes:
Aggregate expenditure outturn for FY21 and FY22 lies between 85% and 115% of the approved aggregate budgeted expenditure. This means it satisfies the requirement for a C rating.
2. Expenditure composition outturn
D+
Notes:
2.1 Expenditure composition outturn by function
B
Notes:
Variance in expenditure composition among budget categories between the budget approval and execution was less than 10% in two of the last three years.
2.2 Expenditure composition outturn by economic type
D
Notes:
Variance in expenditure composition among economic categories was higher than 15% in each of the last three years.
2.3 Expenditure from contingency reserves
A
Notes:
Contingency appropriations and spending were approximately 1% of the budget each of the past three years, well less than the standard of 3% required for a score of an A for this dimension.
Notes:
3.1 Aggregate revenue outturn
D
Notes:
Actual revenues were not within the ranges required for a score of A – C, 84% and 118% of budgeted revenue for two of the past three years. Actual revenues were within 102% of the budget in 2022, but outside the target range in 2020 and 2021.
3.2 Revenue composition outturn
D
Notes:
Revenue composition varied by more than the ranges required for a score of A – C, (less than 5% to 15%). Actual composition changes were over 20% each year.
II. Transparency of public finances
Scores by Dimension
Overall Indicator Score
4. Budget classification
A
Notes:
4.1 Budget classification
A
Notes:
Budget classification requires a function and sub-function classification for budget formulation, execution, and reporting, but allows program classification as an alternative. Palau uses an administrative and program classification to manage finances. The program classification is at a level of detail that corresponds to a subfunction classification. GFS compliant budget data, which include administrative and economic item classifications, are used for budget formulation, execution and reporting.
Notes:
5.1 Budget documentation
B
Notes:
Palau includes 8 of the 12 elements including 3 of the 4 basic elements in its budget and supporting documents. Palau’s budget presentation is less effective because it does not present a unified budget but presents locally funded activity separately from grant funded activity.
6. Central government operations outside financial reports
B
Notes:
6.1 Expenditure outside financial reports
A
Notes:
All primary government transactions from all funds, whether part of or outside the budget, have been recorded in the FMIS, and these together with all non-SOE component units have been included in the consolidated central government financial reports. There was no indication of any expenditure which has not been reported.
6.2 Revenue outside financial reports
A
Notes:
All primary government transactions from all funds, whether part of or outside the budget, have been recorded in the FMIS, and these together with all non- SOE component units have been included in the consolidated central government financial reports. There was no indication of any revenue which has not been reported.
6.3 Financial reports of extrabudgetary units
D
Notes:
Detailed financial reports of all extrabudgetary units are submitted to government annually within 12-22 months of the end of the fiscal year.
7. Transfers to subnational governments
C
Notes:
7.1 System for allocating transfers
D
Notes:
All transfers to the state governments are in accordance with standard allocation criteria/formula. However, this formula was not formalized in the form of a written rule or policy.
7.2 Timeliness of information on transfers
B
Notes:
Budget ceiling for state governments is released by May 25, and deadline of submission of proposal to MoF was June 23 (last completed fiscal year), giving state governments 4 weeks to complete their budget proposal.
8. Performance information for service delivery
C
Notes:
8.1 Performance plans for service delivery
C
Notes:
The Ministry of Finance reported that performance indicators were published for all ministries and agencies of government. A majority of ministries were confirmed to have submitted required reports. Reports are presented to the OEK by Ministries making the information public, but are, not consolidated or disaggregated by program or function.
8.2 Performance achieved for service delivery
C
Notes:
Performance reports provide information on performance indicators for the budget year and on performance results for the prior year for a majority of ministries. Performance reports include information on activities performed and evidence of measurable progress on performance targets disaggregated by program. Reports are presented to the OEK by Ministries making the information public but are not consolidated or disaggregated by program or function.
8.3 Resources received by service delivery units
B
Notes:
Information is available on level of resources received by service delivery units in the Education, Health and Justice ministries. Most of the funding is used for service delivery is managed by the ministries. Funding and performance measurement is focused on service delivery. For education there are 14 elementary schools and one high school. Funding, performance targets and performance measures are focused on the schools and the students attending those schools. Similarly, for Health, eight community health centers and several specialty clinics provide health services. Funding, performance objectives and performance reporting are focused on clinics and patients. Performance objectives and measurement of results are targeted on the service providers and the intended beneficiaries. Funding allocations to service delivery units is reported quarterly and annually in the Quarterly financial reports. This is evidenced in the QTR4 financial reports for each of the last three completed fiscal years for FY2020, FY2021 and FY2022.
8.4 Performance evaluation for service delivery
D
Notes:
No evaluations of performance by an independent body have been performed. No systematic evaluations of service delivery were reported.
9. Public access to fiscal information
D
Notes:
9.1 Public access to fiscal information
D
Notes:
From the Table below only 3 Basic Elements and two Additional Elements are met. To get a C rating four basic elements must be satisfied, therefore this indicator is rated D.
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:
Financial statements of public corporations were not published within 6 months of the end of the fiscal year. The financial year for public corporations follows the calendar year.
10.2 Monitoring of subnational governments
D
Notes:
None of the State financial statements have been submitted within nine months of the end of the fiscal year. The financial year for government, including subnational governments runs from 1 October to 30 September.
10.3 Contingent liabilities and other fiscal risks
D
Notes:
Contingent liabilities and other fiscal risks are being recognized in the Economic and Fiscal Update report but are not yet being quantified. The government has recognized the need to do so.
11. Public investment management
C+
Notes:
11.1 Economic analysis of investment proposals
A
Notes:
The analysis of the need and the expected impact of each project to the economy and other national development objectives was done for all identified project proposals. A summary of the analysis is published as part of the National Infrastructure Investment Plan (NIIP) document. The analysis was done by an inter-agency task force.
11.2 Investment project selection
A
Notes:
Prior to their inclusion in the NIIP, the projects were prioritized by an inter- agency task force, based on a set of prioritization criteria, which is published as part of the NIIP.
11.3 Investment project costing
D
Notes:
Only the costing guidelines is part of the published NIIP, but not the total project cost by year for both capital and recurrent costs.
11.4 Investment project monitoring
D*
Notes:
Only the M&E framework is part of the published NIIP. Monitoring is done, but no copy of actual project monitoring reports was provided.
12. Public asset management
C+
Notes:
12.1 Financial asset monitoring
A
Notes:
Government maintains a record of “all” categories of financial assets, which are recognized at fair market values in line with GAAP standards. All quarterly reports provide updates on this information. The 2022 QTR 4 financial report presents an updated position of all financial assets in schedules F and H.
12.2 Nonfinancial asset monitoring
C
Notes:
Government maintains a register of its holdings of fixed assets, including information on usage and age which are complete and current. The registry covers buildings and other improvements, machinery, vehicles and infrastructure. A register of land is also maintained. The government did not recognize the existence of any sub-soil assets as they are not material. Evidence included the MS Excel sheet “Public Lands- PPLA Government CT Listing” and the “FY22 Semi-Annual Reconciliation MoF BNT”. The registers are not published. Reports are provided to the legislature on pending asset disposal. Fixed assets and land registers were provided to the team, as of the end of fiscal year 2022, the most recent fiscal year. As the registers are not published – this was rated C.
12.3 Transparency of asset disposal
D
Notes:
Procedures and rules for the transfer and disposal of financial and nonfinancial assets are established. Information on transfers or disposal is included in the consolidated financial report. However, the most recent consolidated financial statements are for FY2019, and the statements had not been completed for FY20 and FY21. This has therefore been scored D.
Notes:
13.1 Recording and reporting of debt and guarantees
B
Notes:
Domestic and foreign debt records are complete, accurate, updated and reconciled quarterly not monthly – hence a rating of B. Comprehensive management and statistical reports covering debt service, stock and operations are produced quarterly and published in the quarterly reports on budget execution.
13.2 Approval of debt and guarantees
A
Notes:
The Fiscal Responsibility and Debt Management Act of 2021 grants authorization to borrow, issue new debt, and issue loan guarantees to a single responsible debt management entity. Annual borrowing must be approved by the government or legislature.
13.3 Debt management strategy
D
Notes:
The Public Debt Management Policy was issued by the Minister of Finance in April 2022 covering medium-term horizon of 3-5 years. The External Debt reported in the Economic and Fiscal Update for 2022 is consistent with that strategy. A schedule provided by the ministry shows Debt and Debt Service for 2020 - 2024 consistent with the policy or strategy. Section VI of the Debt Management Policy provides the debt management strategy but lacks preferred targets for debt parameters such as interest rates, refinancing, currency risks and other risk indicators. - For that reason, this is rated D.
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:
The Medium-Term Economic and Fiscal Model (MTEF Model) was approved in 2021 and FY22 was the first fiscal year where forecasts of the two outer years were provided. The FY22 fiscal strategy provides analysis of future GDP growth, debt situation, inflation and implications of proposed tax measures to form the basis of the budget appropriations. Macroeconomic forecasts for the two following years were provided for FY22 only. Because estimates for the outer years were not done for FY20 and FY21, and the requirement covers the last three completed fiscal years this dimension is rated D.
Notes:
Fiscal forecasts for the two years ahead were only provided in the FY22 Economic and Fiscal Update where forecasts for fiscal years FY23-FY25 are provided. Hence this is rated D.
14.3 Macrofiscal sensitivity analysis
D
Notes:
The FY22 Economic and Fiscal Update included a sensitivity analysis of the impact of the increase in the minimum wage on inflation, household incomes, and the fiscal balance, including on taxes, and the wage bill. Given that there are no forecasts for FY20 and FY21, this is rated D.
Notes:
15.1 Fiscal impact of policy proposals
A
Notes:
Analysis of impact of all revenue and expenditure policy proposals were provided for FY20, FY21 and FY22 and these were submitted to Congress as part of the budget submission. FY22 fiscal policy stance was tight given the collapse of Palau’s tourism industry. The 10% reduction in total appropriations remained in FY22 and continued in FY23. Departmental budgets were not allowed to increase in FY23 but in FY24 the 10% reduction was expected to be restored.
15.2 Fiscal strategy adoption
B
Notes:
For FY20, FY21, and FY22 fiscal strategies were developed and submitted to Congress as part of the State of Republic Address. These were approved by Congress. Appendix 1 to the FY22 fiscal strategy provides a summary of the revenues and expenditures for FY21-FY25 in addition to data on GDP, inflation, employment and tourism. This is therefore rated B.
15.3 Reporting on fiscal outcomes
C
Notes:
In preparing the FY22 Fiscal Update, the impact of the pandemic was discussed. The impact on tax revenues saw a 21% drop in FY21 compared to FY19. On the other hand, expenses grew by 25 percent in FY21 during the same period in response to the pandemic. Payroll expenses was well contained and outlays on goods and services fell by 1.8% in FY21 compared to FY19. Given the uncertainty as a result of the pandemic, maintaining the principles of fiscal responsibility proved difficult. In response fiscal policy remained conservative through reducing non- essential expenditures to allow fiscal space for debt servicing. A Compliance and Performance Matrix is provided as part of the Fiscal Update.
16. Medium-term perspective in expenditure budgeting
B
Notes:
16.1 Medium-term expenditure estimates
A
Notes:
Appendix 1 of FY22 Economic and Fiscal Update provides the economic and fiscal forecasts as required under the Fiscal Responsibility Law. The fiscal forecasts for FY22/23-FY24/25 are clearly presented in the GFS format. This meets the requirement for an A.
16.2 Medium-term expenditure ceilings
A
Notes:
The fiscal risks that emerged as a result of the pandemic led the government to rein in expenditures. Ministries and agencies were directed to keep as a ceiling the previous year’s budget levels. Non-priority spending were asked to be delayed or deferred. The estimates were submitted as part of the State of Republic Address which were endorsed by Congress before the FY22/23 Budget Call was issued. This meets the requirement for an A.
16.3 Alignment of strategic plans and medium-term budgets
C
Notes:
The budget call stipulates clearly that budget proposals must be aligned to national priorities in the National Master Development Plan (NMDP) as well as the Management Action Plan (MAP) including sector strategic plans. Some ministries submitted costed budget proposals which helps determine the resources required in FY23. This satisfies a C rating.
16.4 Consistency of budgets with previous year’s estimates
C
Notes:
In preparing the FY22 budget estimates, a review of the impact of the pandemic on the FY20 and FY21 budgets was carried out in terms of tax revenues and expenditures. This exercise is built into the formulation of the FY23 estimates. The FY22 Economic & Fiscal Update; and the Budget Summary for FY22 provide the rationale for variation in the budget estimates for some of the ministries for FY23, therefore this satisfies a C rating.
17. Budget preparation process
B
Notes:
Notes:
There is a clear budget calendar that outlines the scheduling of each step of the budget process. The budget call determines the duration allowed for ministries and agencies to prepare and submit their budget proposals. For FY23 budget preparation, 4 weeks were allowed for budget activities to complete and submit their proposals. Most budgetary units are able to complete the preparation of their budget submissions within 4 weeks enabling the presentation of the budget more than 2 months before the start of the financial year.
17.2 Guidance on budget preparation
A
Notes:
For FY23, the budget call signed by the President, clearly presented the broad setting on which the budget strategy was formulated. The need for fiscal discipline by improving cash flow, containing expenditures and build reserves underpins the fiscal strategy for FY23. Service delivery in response to the needs of the public is emphasized in particular aligning budget proposals to the national priorities. The FY23 budget call, dated May 25, 2022, gave clear instructions to all budget activities to restrict their budget proposals to FY22 budget levels and this was endorsed by Cabinet.
17.3 Budget submission to the legislature
C
Notes:
T FY21 budget was submitted to Congress on 2 March 2021 which was five months overdue. The FY22 and FY23 budgets were submitted on 13 July 2021 and 9 July 2022 respectively giving more than two months before the new fiscal year takes effect. This satisfies a rating of C.
18. Legislative scrutiny of budgets
D+
Notes:
18.1 Scope of budget scrutiny
A
Notes:
The Ways and Means Committee has the authority to scrutinize across all aspects of the budget, including fiscal strategy targets and forecasts, level of funding, tax and expenditure policies underpinning the budget, HR needs and Ministry performance in the previous year. The Committee has the authority to call on any official to appear before the committee to clarify any budget issue.
18.2 Legislative procedures for budget scrutiny
D*
Notes:
The Ways and Means Committee is responsible for reviewing and scrutinizing the budget. The procedures that guide the work of the Ways and Means Committee were not provided as part of the evidence. Hence this is scored D*.
18.3 Timing of budget approval
C
Notes:
According to the budget calendar, the national appropriations must be approved prior to October 1, every year. For the three fiscal years FY21- FY23 the budget was approved prior to 1 October in FY22 and FY23 but not FY21. The delay in FY21 was five months This supports a C rating.
18.4 Rules for budget adjustment by the executive
A
Notes:
There are legislative controls in place to restrict reallocations of funds during the budget year. It is mandated by law that the President may reprogram appropriated funds up to ten percent (10%) of appropriated funds. Moreover, no budget activity appropriations may be increased by reprogramming by more than fifteen percent (15%) of the original appropriations. The President of the Senate and the Speaker of the House of Delegates may also reprogram up to ten percent (10%). This was adhered to in FY23.
V. Predictability and control in budget execution
Scores by Dimension
Overall Indicator Score
19. Revenue administration
D+
Notes:
19.1 Rights and obligations for revenue measures
A
Notes:
The websites for Bureau of Revenue and Tax (BRT) and Bureau of Customs & Border Protection (BCBP) provide extensive materials and guidance for assisting payers. Access is provided for downloading the relevant legislations, including the PNC Title 40 (relevant Chapters 10-19), and RPLL 11-11 of 2021, as well as taxpayer calendars, and guides including up-to-date requirements, tax rates and excise tariff schedules. The processes and procedures for redress are included in Sections §1603 - §1608. The Customs website provides access to customs regulations. Regulations for BRT are still under development and only in draft format at this stage. There is widespread public access to the internet with many locations offering free Wi-Fi connections.
19.2 Revenue risk management
D
Notes:
BRT is in the processing of comprehensive reform with the implementation of the PGST. This will encompass strengthening a number of areas, including compliance risk management. However, these are not yet in place. The BCBP is in the process of implementing reforms which aim to provide a structured approach to managing compliance risks. The impending implementation of the Automated System for Customs Data (ASYCUDA) will be accompanied by a strengthening of standard operating procedures (SOPs).
19.3 Revenue audit and investigation
D
Notes:
Neither the BRT nor BCBP currently have compliance improvement plans or audit plans. Whilst BCBP undertakes investigations, these are based on high-risk items such as alcohol imports and high value items. There is no comprehensive report on the investigations undertaken. However, a summary of customs violations is contained in BCBP’s Annual Performance Report 2022. The Report also sets out strategic actions for improving performance along with target indicators.
19.4 Revenue arrears monitoring
D*
Notes:
Both BCBP and MAFE make collections in advance, and hence have no revenue arrears except for an amount of $21,000 owed by one importer, where special dispensation was allowed to one importer. The original amount of $85,000 is being paid back over a period. BRT manages its debtors on an ongoing basis, but no data was available on the arrears.
20. Accounting for revenue
D+
Notes:
20.1 Information on revenue collections
A
Notes:
All BCG revenue collections are deposited to BNT operated bank accounts and recorded into the FMIS daily, using the chart of accounts, which provides an analysis by revenue type. Management reports are produced monthly from the FMIS. Revenues for PCC, PICRC, PHA, PVA, and PAN operate as extrabudgetary units (referred to as component units). The BNT does not receive any data on these entities, although their own source revenue collections are small (3% of total CG Revenue). The BNT oversees collections of BCG revenues and produces a report for management from the FMIS monthly. BCG revenues account for 97% of total CG revenues which represents “all” for this assessment.
20.2 Transfer of revenue collections
A
Notes:
All revenue collections are banked directly into bank accounts managed by the BNT. Regular collections are deposited to the Bank of Guam (BoG) Savings Account. Credit card receipts are deposited to the BoG ACH account, also held by BNT. These monies are retained in the account for operationally funding EFT and wire transfer payments.
20.3 Revenue accounts reconciliation
D*
Notes:
BCBP makes collections at the time of import, so there is no lag between assessment and collection. Similarly, MAFE agrees VDS requirements of the fishing companies and collects their payments prior to permitting ishing within Palau waters. The revenues and collections are managed within the FMIS, and no credit is extended (notwithstanding the small arrear discussed in 19.4 above).
21. Predictability of in-year resource allocation
C+
Notes:
21.1 Consolidation of cash balances
A
Notes:
All revenue collections are deposited into the BoG Savings Account, except for credit card receipts which are deposited to BoG ACH Account for operational reasons (electronic banking) and subsequently used for making EFT and wire payments. Other savings accounts are maintained to maximize returns and providing short term liquidity access. The BoG checking account has now been discontinued in favor of BoH checking accounts, which can take advantage of the bank’s support for electronic banking. The BoH checking accounts are funded on a just-in-time basis to meet the immediate outgoings for payroll and vendor payments— effectively they operate as zero balance accounts, and the BoG Savings Account operates as the treasury single account structure.
21.2 Cash forecasting and monitoring
D
Notes:
BNT monitors the budget during implementation and provides updated projections of expected outturns, but it does not currently produce any cash flow forecasts.
21.3 Information on commitment ceilings
B
Notes:
As a matter of course, spending agencies are permitted to commit expenditure according to a 30:20:20:20:10 basis, whereby commitment ceilings are set at 30% of appropriation for the first quarter, and 20% in subsequent quarters, with 10% being released towards the end of the year once certainty of funds availability is assured. The spending agencies provide a detailed breakdown in Excel, which is captured by BNT into the FMIS. For non-routine spending items, spending agencies may request release of amounts above the standard ceilings, e.g., for education textbooks where the full appropriation is released at the beginning of the year to facilitate bulk purchase.
21.4 Significance of in-year budget adjustments
C
Notes:
There were 6 budget adjustments during the year FY22 with an overall increase to the budget of 21.5%. Two adjustments were very small, three were in the 2-3% range and the major supplementary of 12.6% was made under RPPL 11-23. All adjustments are undertaken through the passing of a Republic of Palau Public Law (RPPL). The original budget was enacted under RPPL 11-12 with adjustments being authorized under RPPLs 13, 14, 18, 19, 22, 23. The 4 th Quarter’s financial report consolidates all these adjustments. The process is transparent but there more than 2 adjustments during the year so is scored C.
Notes:
22.1 Stock of expenditure arrears
A
Notes:
Data is not maintained separately on expenditure arrears. However, AP balances are maintained in the FMIS. The management of AP is orderly, and payables are usually paid on a timely basis. For FY20 payables older than 60 days totaled $1.48 million (90 days $0.77 million) against total expenditure of $101.1 million; for FY21 payables older than 60 days totaled $0.57 million (90 days $0.47 million) against total expenditure of $90.7 million; and for FY22 payables older than 60 days totaled $0.25 million (90 days $0.15 million) against total expenditure of $85.3 million. This equates to 1.5%, 0.6%, and 0.3% (at 60 days) for FY20, FY21, and FY22 respectively.This meets the threshold for a score of A.
22.2 Expenditure arrears monitoring
A
Notes:
Arrears are monitored and reported as a subset of payables which are recorded and monitored on a day-to-day basis. MoF usually clears all payables in a timely manner. Management is undertaken against payables rather than against arrears per-se and this is undertaken through the FMIS. During the year data is available in the FMIS in terms of composition of the payables. At the end of the year analysis of payables is undertaken, which includes aging, invoice details, vendor, and fund. The low level of arrears signifies well managed monitoring and settlement of payables before they become arrears, which merits an A score.
Notes:
23.1 Integration of payroll and personnel records
C
Notes:
There is no approved staff list —a Personnel Schedule is prepared when preparing the budget, which includes headcount and costs by Ministry but does not present a breakdown by position/grade. Although the personnel and payroll databases are integrated in the FMIS (Tyler Munis HR and Payroll Modules). Staff hiring and promotion is checked against the budget before approval is given. The Budget Office is required to approve these new additions, promotions, etc. The Agency Manager is required to sign employee payroll listing every 4 weeks.
23.2 Management of payroll changes
A
Notes:
The payroll is updated fortnightly and retroactive adjustments are rare. Retroactive payments were less than one quarter of one percent, as highlighted in the PR-22 RETROACT report.
23.3 Internal control of payroll
A
Notes:
The Munis system maintains separate user responsibilities for HR and Payroll roles. Changes to HR data are undertaken by BHR officials and timesheets and voluntary deductions are processed by BNT officials. The system enforces access controls based on the user-responsibilities defined in the system. The system provides detailed audit trails on all activity within the system, with details of the edits made, including employee, date, action type, category, and system user.
Notes:
There have been no dedicated payroll audits over the past three years. Although payroll forms part of the financial and compliance audits, there were no observations on payroll in the FY2019 audit, and no audit plans were available to demonstrate evidence of auditing of weaknesses and ghost workers.
Notes:
24.1 Procurement monitoring
D
Notes:
There is no overall database of procurement summarizing all procurement undertaken. Documents are maintained individually with no overall statistics or analysis.
24.2 Procurement methods
D*
Notes:
There is no annual procurement plan showing the totality of planned procurement. Some limited data is maintained but there is no comprehensive record of all procurement undertaken, the value of awarded contracts, successful bidders and procurement method used.
24.3 Public access to procurement information
D
Notes:
(1) Title 40 of the PNC is available on the Palau Government website. (2) No annual procurement plans are currently prepared. (3) Bidding opportunities are advertised and posted on the website. (4) After contracts are awarded, the webmaster may take down the tender opportunity. No data is publicly available on awarded tenders. 5) No data is published on resolution of procurement complaints.5) No data is published on resolution of procurement complaints.(6) No procurement statistics are published. The available data satisfies information element (1) and (3) only.
24.4 Procurement complaints management
D
Notes:
Section §649 of the PNC highlights the procurement complaints process. (1) The section provides that the Procurement Office shall seek to resolve by mutual agreement but failing such agreement, the Procurement Officer shall issue a decision in writing. The only redress then is through the Supreme court. There is no independent review body for complaints. (2) Bidders are not charged for submitting a complaint. (3) §649 sets out the processes involved for lodging a complaint, including requirement to be in writing and the timeframes for submission, acknowledgement and rendering of decision. (4) The authority to suspend a procurement process rests solely with the Procurement Officer.(5) No record is maintained of complaints although it is purported that the market is small, and no real complaints have been lodged. Therefore, there is no data on this criterion. (6) The Procurement Officer’s decision is final subject to ultimate appeal to the Supreme Court.This dimension requires as a minimum that the review body is independent of the process. This is not the case in the provisions in the Palau legal framework.
25. Internal controls on nonsalary expenditure
B+
Notes:
25.1 Segregation of duties
A
Notes:
Segregation of duties is prescribed throughout the expenditure process. Responsibilities are clearly laid down throughout the expenditure process. There was no audit issue on segregation of duties.
25.2 Effectiveness of expenditure commitment controls
C
Notes:
Comprehensive expenditure commitment controls are in place and effectively limit commitments to the annual appropriation and quarterly budget allocation. Commitment control is automated through the FMIS controls. All expenditures pass through these controls. However, the control against projected cash availability is missing.
25.3 Compliance with payment rules and procedures
A
Notes:
Based on the latest audited financial statements (2018-19) as of the time of assessment, all payments were compliant with regular payment procedures, and there were no reported exceptions. There were some audit qualifications on procurement processes amounting to less than 2% of total expenditures from the general fund.
Notes:
26.1 Coverage of internal audit
D
Notes:
There is no Internal Audit function within government.
26.2 Nature of audits and standards applied
NA
Notes:
Not applicable
26.3 Implementation of internal audits and reporting
NA
Notes:
Not applicable
26.4 Response to internal audits
NA
Notes:
Not applicable
VI. Accounting and reporting
Scores by Dimension
Overall Indicator Score
27. Financial data integrity
B
Notes:
27.1 Bank account reconciliation
C
Notes:
Complete bank reconciliation for all active central government bank accounts maintained by the BNT takes place at least quarterly and bank statements are prepared usually within one month. Four EBUs, bank reconciliations are done monthly.
Notes:
There is no suspense account maintained by the central government.
Notes:
Monitoring of travel advance accounts is done at least monthly, but during 2020-21, there was an uncleared balance of 19%.
27.4 Financial data integrity processes
A
Notes:
Access and changes to the FMIS database is registered and restricted. There is an organizational unit within MoF in charge of verifying financial data integrity.
28. In-year budget reports
B+
Notes:
28.1 Coverage and comparability of reports
A
Notes:
Coverage and classification of data allows direct comparison to the original budget. Information includes all items of budget estimates. Expenditures representing actual transfers to de-concentrated (component) units are reflected in the reports.
28.2 Timing of in-year budget reports
B
Notes:
Budget execution reports are prepared quarterly, and published within four weeks from reference period.
28.3 Accuracy of in-year budget reports
A
Notes:
There are no material concerns regarding data accuracy. An analysis of the budget execution report is provided on a cumulative basis every quarter. Actual expenditures include both payments and outstanding encumbrances or commitments.
29. Annual financial reports
D
Notes:
29.1 Completeness of annual financial reports
D*
Notes:
The last completed fiscal year (2020-21) financial statements which should have been submitted in 2022 are not yet available and preparation is still in progress as of this mission.
29.2 Submission of reports for external audit
D
Notes:
The latest financial statements that were submitted for audit were for 2019- 20, but no copy was provided to the assessment team. The National Treasury and the Office of the Public Auditor confirmed that these were submitted on November 22, 2021, which was more than 12 months after the reference fiscal year. The preparation of the 2020-21 financial statements is still in progress.
29.3 Accounting standards
D
Notes:
The National Treasury has confirmed that the central government (primary government and the component units) have adopted and consistently applied the US Generally Accepted Accounting Principles. The standards used and compliance thereto were disclosed in the notes to the financial statements). In the 2018 and 2019 audit reports, there were no audit issues on compliance to these standards. However, application of these standards could not be determined in the last two years (2019-20 and 2020-21 annual financial statements as these were not provided or yet completed respectively, as of the time of assessment.
VII. External scrutiny and audit
Scores by Dimension
Overall Indicator Score
Notes:
30.1 Audit coverage and standards
D
Notes:
The audit of the consolidated financial statements of government for 2018/2019 has been completed with issues raised and responded to by the executive. An unmodified audit opinion was issued. The audit of the consolidated financial statements of government for the last two financial years (2019/2020 and 2020/2021) which have yet to be completed indicate that the majority of total expenditure and revenues for the last three financial years have not been audited. On this basis, audit coverage and standards is assessed at D.
30.2 Submission of audit reports to the legislature
D
Notes:
The audit report for the financial statements of government for 2018/2019 was submitted to Parliament in March 2021. The audit report for the 2019/2020 has yet to be issued as the audit is in progress. The dates these financial statements of government were submitted for audit are not available. The financial statements of government for 2020/2021 have yet to be submitted for audit. The audit reports for 2018/2019 and 2019/2020 were not issued within the statutory timelines of nine months after each financial year. On this basis, the performance is rated at D.
30.3 External audit follow-up
D
Notes:
All audit issues for the financial statements of government for the 2017/2018 financial year have been raised and followed up with management of the Ministry of Finance and a corrective action plan is included in the auditor’s report on internal control and compliance. There was no follow up for the financial statements of government for the last three financial years. Therefore, the performance is rated at D.
30.4 Supreme Audit Institution independence
A
Notes:
The independence of the appointment of the Public Auditor General is confirmed under Article 12, Section 2(a) of Palau’s Constitution. The SAI operates independently from the executive government in the appointment and removal of the SAI head, the planning of audits, publicizing reports, the approval and execution of the budget. The SAI has unrestricted and timely access to information. On this basis, the performance is rated at A.
31. Legislative scrutiny of audit reports
D
Notes:
31.1 Timing of audit report scrutiny
D
Notes:
The audit report of the 2018-19 Government Financial Statements has been issued and submitted to Parliament. Parliament has not scrutinized the reports from the Office of the Public Auditor yet twelve months have passed. The audit reports for 2019/2022 and 2021/2022 have yet to be issued. Scrutiny of audit reports on annual financial statements of government has not been done for the last three years. On his basis, the performance is rated as D.
31.2 Hearings on audit findings
D
Notes:
Since there is no scrutiny of audit reports, there are no hearings relative to the audit reports hence the performance is rated at D.
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. The performance is rated as D.
31.4 Transparency of legislative scrutiny of audit reports
D
Notes:
There is no scrutiny of audit reports by the Legislature, hence there is no transparency of the process, and the performance is rated as D.