Part Two of Tonga Independent News’ examination of the Government’s 2024 Financial and Compliance Audits

Imagine being asked to trust someone with your money — and when you ask them to show you what they own as security, they hand you a list they cannot verify, for assets they cannot confirm exist, valued at a price they cannot justify.

That, in essence, is what Tonga’s Auditor General found when she examined the Government’s assets in the 2024 Financial and Compliance Audits report.

According to the Government’s own financial statements, the people of Tonga own $737 million worth of public assets — buildings, land, vehicles, plant and equipment accumulated across every ministry and agency in the country. It is one of the largest single figures in the entire public accounts. It is also, according to the Auditor General, a figure that cannot be independently verified.

The auditors were unable to confirm the completeness, valuation, existence or ownership of the assets behind that number. In practical terms, the Auditor General was unable to obtain sufficient evidence to independently verify that the assets recorded in the accounts exist, are accurately valued and are legally owned by the Government. For an asset base worth hundreds of millions of pa’anga, that represents a significant limitation on the reliability of the financial statements.

This is not a minor accounting discrepancy. It is a finding serious enough that it directly triggered one of the two formal qualifications on the Government’s financial statements — for the second year in a row.

A number that grew by $292 million in a single year

To understand how significant this finding is, it helps to look at how the $737 million figure was arrived at.

At the start of the financial year — 1 July 2023 — the Government’s Property, Plant and Equipment was recorded at $115.5 million. During the year, new assets worth $37.9 million were added. A small disposal of $82,890 was recorded.

Then, in a single line of the accounts, $292,141,402 was added through what is described as an Asset Revaluation.

That one entry more than doubled the recorded value of the Government’s physical assets — taking Property, Plant and Equipment from $115.5 million to $445.5 million in a single step. Combined with a separate category of Other Assets valued at $291.8 million, the total reached $737,364,510 by 30 June 2024.

The Auditor General’s conclusion was unambiguous. Despite that large revaluation, the disclosed total is not the true and fair value of property, plant and equipment. The work needed to support that revaluation — fair valuations of all government assets, properly documented, reviewed and approved — was still in progress at the time the accounts were completed.

In other words, the revaluation was recognised in the accounts while the broader valuation exercise remained incomplete. The Auditor General concluded that the resulting balance did not represent the true and fair value of the Government’s property, plant and equipment at year-end.

No register. No depreciation. No baseline.

The revaluation problem does not stand alone. It sits on top of two more fundamental failures that the Auditor General has been raising for years.

The first is the absence of a complete Fixed Asset Register for all of Government. A Fixed Asset Register is the basic tool by which any organisation — public or private — keeps track of what it owns, where assets are located, what condition they are in and what they are worth. Without one, there is no reliable baseline against which any valuation can be checked. The prior year follow-up table in the report confirms this issue is still outstanding — listed as only partly resolved.

The second is the complete absence of a depreciation policy. Depreciation is the accounting practice of reducing an asset’s recorded value over time to reflect the fact that buildings age, vehicles wear out and equipment becomes obsolete. Without a depreciation policy, asset values in the Government’s accounts simply accumulate over time — growing larger and larger without ever reflecting economic reality. The Auditor General notes that as a result the balance of assets is an accumulated amount over the years rather than a current fair value.

Together these three problems — an unverified revaluation, no asset register and no depreciation policy — mean that the $737 million figure in the Government’s accounts cannot be relied upon as an accurate measure of the Government’s true asset position.

The practical risk is not necessarily that assets are missing. Rather, without a complete register, regular valuations and a depreciation framework, decision-makers cannot be certain whether public assets are being maintained, replaced or insured appropriately. It becomes more difficult to plan future capital expenditure, assess maintenance requirements or determine when critical infrastructure has reached the end of its useful life. In effect, Government is managing hundreds of millions of dollars in public assets without a fully reliable picture of their condition or value.

The Ministry’s response

When the Auditor General raised these concerns, the Ministry of Finance’s formal response was brief.

“Noted, and the team is looking at ways to ensure completeness, valuations, existence and ownership for a true and fair presentation in the future financial statements.”

That response — “noted” — will be familiar to anyone who has followed Tonga’s audit history. The prior year audit raised the same concerns. The response was noted. The year passed. The problems remained.

What the response does not contain is a timeline, a named responsible officer, a budget for the work required, or any commitment to a specific outcome before the next audit begins.