Investigating Allegations of Corruption at the Department of National Planning and Monitoring

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  • Papua New Guinea
    INVESTIGATION TASK FORCE SWEEP

    Investigating Allegations of Corruption at the Department of National Planning and Monitoring

    FINAL REPORT
    Containing Findings, Implementations and Recommendations

    Dated the 5th Day of May, 2012

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  • THE INDEPENDENT STATE OF PAPUA NEW GUINEA

    INVESTIGATION TASK-FORCE SWEEP


    FINAL REPORT

    Prepared by

    Sam Koim, LLB [Hons]
    Chairman

    Draft Report 1
    Last printed 4/27/2012 4:24:00 PM

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  • FINAL REPORT
    TABLE OF CONTENTS
    1 -PRELIMINARY ………………. 6
    1 ABBREVIATIONS USED IN THIS REPORT ………………………………………………………………..
    2 GLOSSARY …………………………………………………………………………………………………………………………………….. 6
    3 ACKNOWLEDGEMENT ……………………………………………………………………………………………………………….
    4 INTRODUCTION ………………………………………………………………………………………………………………………… 7
    4.1 Executive Summary ……………………………………………………………………………………………………….. 7
    4.2 Terms of Reference 7
    4.3 Scope of Investigations ………………………………………………………………………………………………….. 8
    4.4 The Team Structure ……………………………………………………………………………………………………….. 8
    4.5 Investigations Methodology ……………………………………………………………………………………………. 9
    PART II —LEGAL PROCESSES AND ESTABLISHMENT …………………………………………………………….. 10
    5 ESTABLISHED STATE PROCUREMENT PROCESS …………………………………………………………… 10
    3.1 Budgetary Process and Appropriations ………………………………………………………………………….. 10
    5.2 The Law Governing State Tenders and Contracts …………………………………………………………… 12
    5.2.1 Issuance of Certificate of Inexpediency (COI) ……………………………………………………………………….. 13
    5.2.2 The use of Authority to Pre Commit Expenditures ……………………………………………………………….. 14
    5.2.3 Rational behind Public Tender Process …………………………………………………………………………………. 15
    5.3 Established position by the Courts on illegal contracts and their enforcements ………………… 15
    6 DEPARTMENT OF NATIONAL PLANNING AND MONITORING ……. 15
    6.1 Establishment of DNPM ………………………………………………………………………………………………. 15
    6.2 Core Functions of DNPM ……………………………………………………………………………………………. 16
    6.3 Project Appraisal Guidelines …………………………………………………………………………………………. 17
    6.3.1 The PIP Guidelines ……………………………………………………………………………………………………………… 17
    6.3.2 The Development Projects Documentation Guidelines …………………………………………………………. 18
    6.4 DNPM’s Capacity ………………………………………………………………………………………………………… 18
    PART III —FINDINGS ……………………………………………………………………………………………………………………….. 19
    PART III.1 -GENERAL FINDINGS ………………………………………………………………………………………………. 19
    PART 111.2 -DETAILED FINDINGS ……………………………………………………………………………………………. 19
    7 DNPM’S DEVIATION FROM PRIMARY ROLE …………………………………………………………………….. 19
    7.1.1 Mischievous Gazettal of Ministerial Functions 19
    7.1.2 Observations on the Gazettal Notices conferring of powers to successive National Planning
    Ministers 21
    7.1.3 DNPM turned into a Cash Cow ……………………………………………………………………………………………. 22
    7.1.4 Corruption and Malpractices ………………………………………………………………………………………………… 23
    7.1.4.1 DNPM peormingCST7.3 .Roles ………………………………………………………………………………………… 23
    7.1.4.2 Lack of Capacity to implement Projects ………………………………………………………………………………….. 24
    7.1,4.3 DNPM’s Lack of Capaci ty to Monitor Pr jectr ………………………………………………………………………. 25
    7.1.4.4 Lack of proper documentation and record keeping …………………………………………………………………….. 26
    7.1,4.3 Release of payments in full amounts ……………………………………………………………………………………… 26
    7. 1.4.6 Conflicts of Interest Situations ……………………………………………………………………………………………… 26
    7.1.4.7 Lack of Due Diligence ………………………………………………………………………………………………………. 27
    7.1.4.8 Deviation of Payment Votes ………………………………………………………………………………………………. 27
    8 ABUSE OF CERTIFICATE OF INEXPEDIENCIES ……………………………………………………………… 27
    8.1 Some examples of Abuse of COI: …………………………………………………………………………………. 28
    8.2 Recommendations ……………………………………………………………………………………………………….. 31
    9 ILLEGAL CONTRACTS …………………………………………………….. 31
    10 INDIVIDUAL CASES ………………………………………………………………………………………………………………….. 31
    10.1 Detailed Investigations …………………………………………………………………………………………………. 31
    CASE 1: PAYMENT AND RELEASE OF K180,000 TO KAJAH DEVELOPMENT &
    BUSINESS SERVICE CENTRE ……………………………………………………………………………………………….. 32
    CASE 2: PAYMENT OF K100,000 TO KEREKAMB ISLAND CORPORATIVE SOCIETY ………….. 34
    Case 3: Payment and Release of K547,000 to K-Island Builders Ltd ………………………………………….. 36
    CASE 4: PAYMENT AND RELEASE OF K1.0 MILLION TO XONINGI COFFEE LIMITED ….. 39

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  • FINAL REPORT-
    CASE 5: PAYMENT AND RELEASE OF K1.5 MILLION 0 METTLE LIMITED …………… 42
    Case 6: Payment and Release of K3.5 million and K1,108,650.18 to Niugini Star Transport Limited45
    Case 7: Payment and Release of K5.0 million to Niugini Star Transport Limited …………………… 49
    Case 8: Payment and Release of K5.0 million to Niugini Star Transport Limited ……………………..54
    CASE 9: PAYMENT AND RELEASE OF K3.0 MILLION TO HILAND FARMS LIMITED .58
    Case 10: Payment and Release of K3.0 million to Agricultural Development Limited …………………… 61
    Case 11: Payment and Release of K3.0 million to Rait Hela Coffee Limited …………………………………… 63
    Case 12: Payment and Release of K2.0 million to Yapiok Contractors Limited …………………………………… 66
    Case 13: Payment and Release of K700,000 to Tild Coffee Estate Limited ……………………………………… 69
    Case 14: Payment and Release of K2.0 million to Wando No.2 Coffee Estate Limited ………………….. 72
    Case 15: Payment and Release of K7.5 million to Rait Fama Limited ……………………………………………. 75
    -4- CASE 16: PAYMENT OF KI MILLION TO NEW STAR CENTURY LIMITED FOR ESA-ALA
    DISTRICT ……………………………………………………………………………………………………………………………………. 78
    CASE 17: COMMUNITY COLLEGE CONCEPT ……………………………………………………………………… 81
    CASE 18: KOGE COFFEE AND PYRETHRUM PROJECT —K5 MILLION ………………………….. 94
    CASE 19: K3,400,000.00 PAYMENTS TO TOL PORT SERVICES FOR FUNDING
    REHABILITATION OF KARL PLANTATION. …………………………………………………………………….. 97
    Case 20: Payment and Release of K10 million to Travel Air Limited ………………………………………….. 105
    10.2 More cases in Brief …………………………………………………………………………………………………….. 110
    10.2.1 Sarakolok West Transport Ltd and Chain of Companies ………………………………………………………. 110
    11 SCITB (K125 MILLION KOKOPO COMMUNITY PROJECTS) …………………………………………… 114
    11.1 Introduction 114
    11.2 Treasury Bills 115
    11.3 SCITB and Chronology of Events ………………………………………………………………………………. 115
    11.4 Findings 120
    11.4.1 Legality of the SCITB …………………………………………………………………………………………………………. 120
    11.4.2 Private Individuals/Companies Performing Functions of State
    institutions ………………………………………………………………………………………………………………………………………… 121
    11.4.3 Directorship and Expenditure of Funds ………………………………………………………………………………. 121
    11.5 Actions Taken …………………………………………………………………………………………………………….. 124
    11.6 Recommendation ……………………………………………………………………………………………………….. 124
    12 HEALTH ……………………………………………………………………………………………………………………………………. 124
    13 OTHERS ……………………………………………………………………………………………………………………………………. 125
    PART IV — REPORTS ……………………………………………………………………………………………………………………….. 125
    14 ACTIONS UNDER THE CRIMINAL CODE ACT ……………………………………………………………….. 125
    15 RECOVERY ACTIONS —TAX …………………………………………………………………………………………………. 125
    15.1 Introduction 125
    15.2 Background 126
    15.3 Methodology 126
    15,4 Assessments 127
    15.4.1 Compliant taxpayers …………………………………………………………………………………………………………… 127
    15.4.2 Non-compliant taxpayers ……………………………………………………………………………………………………. 127
    15.4.3 Desk and Field Audit ………………………………………………………………………………………………………….. 127
    15.4.4 Desk Audit …………………………………………………………………………………………………………………………. 127
    15.4.5 Field Audit …………………………………………………………………………………………………………………………. 127
    15.4.6 Objections, Review or Appeal and Request for Amendments ………………………………………………. 128
    15.5 Recovery of Tax Raised ………………………………………………………………………………………………. 128
    15.6 Facts & Findings ……………………………………………………………… 128
    15.7 Outcomes. 128
    i. Listed and registered seventy (70) recipients of funds from DNPM, SCITB and NDOH for tax. ……. 128
    ii. Field audit to three (3) provinces which resulted in tax assessments raised. ……………………………………. 129
    iii. Gross receipts from DNPM and SCITB deemed assessable income derived by taxpayers
    taken as a basis and from it no deductions were allowed to arrive at taxable income on which taxes are
    raised. 129
    iv. Raised tax assessments for fourteen (14) taxpayers ………………………………………………………. 129

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  • FINAL REPORT
    v.Garnishee order under section 272 of the Income Tax Act served on banks holding money on account of
    the fourteen (14) taxpayers. …………………………………………………………………………………………………………… 129
    vi. Only two (2) taxpayers lodged their return of income after receiving special assessments
    raised and issued under sections 229 and 230 of the Income Tax Act ………………………………………………….. 129
    vii. One objection was made by a taxpayer to an assessment which has been disallowed in full.
    129
    viii. Four (4) amendment under section 232 of the Income Tax Act to assessments raised under
    sections 229 and 230 of the Income Tax Act were effected to reduce taxable income and tax payable after
    taxpayers lodged their income tax returns and request for amendment …………………………………………….. 129
    15.8 Tax Revenue ………………………………………………………………………………………………………………. 129
    15.8.1 Actual Tax Raised ………………………………………………………………………………………………………………. 129
    15.8.2 Estimate Tax ……………………………………………………………………………………………………………………… 129
    15.9 Recommendations ……………………………………………………………………………………………………… 129
    i. Companies, businesses and individuals for tax purposes must register with Internal Revenue Commission; ……….. 129
    16 RECOVERY ACTIONS —PROCEEDS OF CRIMES ……………………………………………………………… 130
    17 REFERRALS —DISCIPLINARY ACTIONS ……………………………………………………………………………. 130
    18 REFERRALS —LEADERSHIP CODE ACTIONS ……………………………………………………………………. 131
    19 COURT CHALLENGES AGAINST ITFS ……………………………………………………………………………….. 132
    19.1 National Court Proceedings ………………………………………………………………………………………… 132
    PART V —REMEDIAL ACTIONS ….. 132
    PART V.1 GENERAL …………………………………………………………………………………………………………………. 132
    PART V.2 DETAILED ……………………………………………………………………………………………………………………… 137
    20 PRODUCTION NOTICES IN FINANCIAL FRAUD AND CORRUPTION RELATED
    CASES INVESTIGATION ……………………………………………………………………………………………………….. 137
    20.1 The Current Law (Problem) ………………………………………………………………………………………… 137
    20.2 Proposed Law (Solution) …………………………………………………………………………………………….. 139
    20.3 Recommendation ……………………………………………………………………………………………………….. 140
    20.4 Justifications on the Proposed Law ……………………………………………………………………………… 140
    21 BAIL CONDITIONS ……………………………………………………………………………………………………… 142
    21.1 The Current Law (Problem) ………………………………………………………………………………………… 142
    21.2 Proposed Law (Solution) …………………………………………………………………………………………….. 143
    22 REFORMING THE JUDICIARY …………………………………………………………………………………………….. 143
    22.1 Integrity of District Court Committal Proceedings ………………………………………………………. 143
    22.1.1 Current Practice (Problem) 143
    Justice Cannings echoed the same sentiments in Abel v Hargy Oil Palms Ltd [2006] PGNC 179; N4150 (8
    June 2006) where he said. 145
    22.1.2 Recommendation ………………………………………………………………………………………………………………. 145
    22.2 Giving Priority to Corruption related cases …………………………………………………………………… 146
    22.3 Courts Interference into Authorities vested with Investigatory Powers ………………………….. 146
    22.3.1 Current Situation ……………………………………………………………………………………………………………….. 146
    22.3.2 Recommendation ………………………………………………………………………………………………………………. 147
    23 ENACTMENT OF PUBLIC CONTRACTS ACT …………………………………………………………………… 147
    23.1 State Contracts ……………………………………………………………………………………………………………. 147
    23.2 Proposal …………………………………………………………………………………………………………………….. 148
    23.3 Standard Terms and Conditions in State Contracts ……………………………………………………….. 148
    2)Project Implementation Schedules ………………………………………………………………………………………………. 149
    3)Prohibition Clauses …………………………………………………………………………………………………………………….. 149
    4)Voidable Clauses ………………………………………………………………………………………………………………………… 150
    5)Maintenance of Records ……………………………………………………………………………………………………………… 150
    23.4 Establishment of an Ad Hoc Project Implementation Committee …………………………………. 151
    23.4.1 Current Problem ……………………………………………………………………………………………………… 151
    23.4.2 I mportance of Monitoring Contract Performance ………………………………………………………………… 151
    23.4.3 Is there a Monitoring Committee in place? ………………………………………………………………………….. 152
    23.4.4 Proposed Solution ………………………………………………………………………………………………………………. 152
    24 ESTABLISHMENT OF AN ANTI-CORRUPTION INSTITUTION ………………………………….. 153

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  • 24.1.1 Background ………………………………………………………………………………………………………………………. 153
    24.1.2 PNG’s Existing Anti-Corruption Mechanisms …………………………………………………………………….. 154
    24.1.3 The New Agency ……………………………………………………………………………………………………………….. 157
    24.1.4 Proposed Structure …………………………………………………………………………………………………………….. 157
    25 APPENDICES ……………………………………………………………………………………………………………………………. 158
    25.1 References on Materials used in this Report …………………………………………………………………. 158
    25.2 Financial Report of ITFS ……………………………………………………………………………………………. 158
    25.3 Organizational Chart of ITFS ……………………………………………………………………………………… 158
    25.4 National Gazettes ……………………………………………………………………………………………………….. 158
    25.5 Criminal Prosecutions Status Report ……………………………………………………………………………. 158
    . 25.6 Tax Recovery Status Report ………………………………………………………………………………………… 158
    25.7 Summary of Legislative Changes Proposed ………………………………………………………………….. 158

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  •  

    PART I —PRELIMINARY

    1 Abbreviations used in this report
    APC -Authority to Pre-Commit
    COC —Certificate of Compliance
    COI —Certificate of Inexpediency
    GSM —Central Supplies and Tenders Board
    DNPM —Department of National Planning and Monitoring
    DoF —Department of Finance
    DoT —Departillent of Treasury
    FF3
    FF4
    IPA —Investment Promotion Authority
    IRC —Internal Revenue Commission
    ITFS —Investigation Task-Force Sweep
    NACA —National Anti-Corruption Affiance .
    NADP —National Agriculture Development Program cc _
    OC —Ombudsman Commission
    PFMA —Public Finances (Management) Act 1995
    PIP -Public Investment Program
    PPP —Public Private Partnership
    PSTB —Provincial Supplies and Tenders Board
    SCITB –

    2 Glossary
    K2 Companies —

    3 Acknowledgement
    The Bank of Papua New Guinea is acknowledged in providing information and
    clarifying issues relating to the K125 on Kokopo Sovereign Community
    Infrastructure Treasury Bill (SCITB).

    27 April 2012 Page 6

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  • INTRODUCTION

    There were allegations of massive corruption at the Department of National
    Planning and Monitoring being raised in the media in early 2011. It was triggered by a dispute between the Minister for DNPM and the Secretary for DNPM During the
    period of dispute and media circus, both sides of the dispute raised serious
    allegations of corruption against each other.
    When the O’Neill/Namah Government came into power on August 2, 2011, ITFS
    was appointed to investigate the allegations
    4.1 Executive Summary

    4.2 Terms of Reference

    The Terms of Reference of this investigation, inter alia, were:
    1. Inquire into and ascertain:
    i. That Public funds (Development budget component) administered by
    the Department of National Planning & Monitoring of the 2009, 2010
    & 2011 Budgets were appropriated in compliance with their respective
    Appropriation Acts.
    ii. That those who applied for and received the funds vier accordance
    with the Appropriation Act.
    iii That the project submissions were consistent with the Appropriation
    Act and passed the screening criteria used by DNPM without undue
    influence.
    iv. That the proponents of the project did not place themselves in a
    conflict of interest position.
    v. If those funds were diverted, who orchestrated the diversion and who
    benefited from such diversion.
    vi. If the Funds were paid outside of the Appropriation Act, who applied
    for and benefited from the funds,
    vii. Whether the funds were xxx used for the purpose to which it
    was applied and granted.
    viii. Whether certain laws including the Public Finance (Management) Act,
    Public Service (Management) Act and the Criminal Code Act etc were
    breached
    ix. Who orchestrated the breach of those laws
    x. Whether the person(s) implicated were public servants,
    whether their conduct also amounted to conflict of interests,
    2. Prosecute the persons criminally implicated during the inquiry under the laws of
    Papua New Guinea including but not limited to the Criminal Code Act and
    Proceeds of Crimes Act 2005

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  • Er:AL REPORT –
    3. Take all steps under the Proceeds of Crimes Act 2005 and the Mutual Assistance in
    Criminal Matters Act 2005 to recoup all proceeds of all funds found to have been
    diverted and misappropriated, such proceeds as are defined by Section 10 of the
    Proceeds of Crime Act.

    4. Refer the person(s) to the Ombudsman Commission if he/she is a leader
    covered by the Leadership Code.

    5. Recommend for immediate termination of employment he or she is a public
    servant who is implicated in the investigations.

    6. Furnish to the NEC within 3 months from the date of commencement, a report
    on the investigations conducted, persons implicated, prosecutions done, funds
    recouped, referrals made to the Ombudsman Commission and further actions to
    be taken

    7. Recommend to the NEC through the Minister for Panning and Attorney
    General, possible legislative changes to patch up loopholes discovered during the
    investigation.

    The NEC, in its Decision No. NG10/2012 extended the terms reference to cover
    all other cases referred to ITFS.

    4.3 Scope of Investigations
    The scope of the investigations as per 1 EC Decision No. NG ,O 3/2011 cover
    allegations of corruption in the DNPM -ertend s-t other departments and State
    , envies insofar as development budgets of 2009, 2010 and 2011/was-appropriat4p ,,-L
    ..-i others, the controversial K125 Million Sovereign Community
    _t.,1 e-,,t4.4-( 0.. g’71nd ., among
    Infrastructure Treasury Bills for Kokopo Community Projects and the KlOmillion that
    was paid to Travel Air Limited owned by Kokopo Businessman, Eremas Wartoto.

    On le September 2011, the NEC, through its Decision No: NG 25/2011, included
    the National Department of Health to be investigated by ITFS. Further, on 27 th
    January 2012, the NEC, through its Decision No: NG 10/2012, extended the teens of
    reference of ITFS to include any cases that the Government and/or any cases the
    general public lodge with the ITFS from time to time.

    With the combined powers of each agencies co-opted to ITFS, ITFS was able to
    extend its investigations into wide range of areas including financial fraud,
    administrative malpractices, recoverability of tax dues and proceeds of climes and
    leadership code breaches arn_o_iag_othets-7-

    4.4 The Team Structure

    27 April 2012 Page 8

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  • FINAL REPORT –

    • The Committee as per Annexure “A” of NEC Decision No: NG 03/2011 is
    J comprised of:
    Chairman, Mr Sam Koim, a Principal Legal Officer at the Office of the
    Solicitor General, Department of Justice & Attorney General
    1.1 Superintendent Sylvester Kalaut, PPC of East New Britain as Deputy
    •k) Chairman
    a Chief Inspector Timothy Gitua, Director of Frauds & And Corruption Squad

    < together with 6 Investigators, 1 Forensic Expert, 1 Police Prosecutor, 2
    Financial Intelligence Unit officers and 6 Mobile Squads.
    Y
    A Lawyer with the POCA Division at the Office of the Public Prosecutor
    74 ,
    An Officer with Department of Treasury
    r,)
    o An Accountant from the Auditor General’s Office
    v.., 4.
    An Officer with the Tax Compliance Division of the Internal Revenue
    Commission.
    0 An auditor with Department of Provincial Affairs

    The structure of ITFS was adopted from National Anti-Corruption Alliance (NACA) )
    however certain members of NACA were not included in that Decision. Those
    members were coopted to ITFS including Ombudsman Commission and Department
    of Personal Management. The ToR does captures these two agencies’ involvement
    .$) however faqe short of listing them on Annexure “A”.
    “)
    the Papua New Guinea and Australian Law and Justice Partnership Program (PALJP)
    was gracious enough to second Mr John ToGuata to the Team to assist the team as a
    technical advisor, a role he plays with NACA.
    cc Ct teL 4 ‘4
    4

    ck_t. p T-FC
    The constitutionality and/or legality of bringing the different State agencies together
    r through ITFS by NEC as tested in three different National Court proceedings. Two
    those proceedings Tutted in,a deaswieortin our favour whilst one of them is still
    pending decision. Team- structure Pias therefore fortified by two National Court
    Decisions ) namely, Tiensten v Koim [2011] PGNC 127: N4420 (14 October 2011) and
    Golu v National Executive Council [2011] PGNC 134: N4425 (21 October 2011).
    .e.yo C.I; v-11 3 ectd-
    The organizatic l. at Appendix A shows the sttucture of the ITFS.

    4.5 Investigations Methodology c’L •

    },_. The operation of the Task Force Svieep fundamen is one where all the agencies
    come together and share r sour5es
    t, ,anainforrnaticin.
    ,.,40K . There are operational links
    between the age esigtei – infor tion collated, assessed and then we-
    Iv
    discuss. as a team ow leads are to be followed. This is essentially where each agency
    uses its constituti tin powers and clout to follow cases.

    re v ;.

    27 April 2012 Page 9

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  • yL.
    REPD[ITT

    ,pli Li
    ‘1–;:-V jo e. g7-” I %ay-for-instance if tkt.. is a disciplinary matter, then the relevant body is the Department –
    of Personnel Management. If it is a leadership case, then it becomes a ase for the,
    Ombudsman Commission. If it is a ‘K2 company’ purposely created vernight / 6′)
    benefit from certain allocated sums of money, then it becomes an issue f r the I C to OZ-vit thAdlt .
    follow-up. If it is a criminal matter, then the police fraud squad is equi ped fr that.-Frr t t-cco I ct,44
    . .
    .c,-TI -4,,, L/
    ww-i ii- Police use their normal lawful process of collecting evidence and arres g using their ‘t t 4,44.A
    Nei/1.i- , powers The Task Force Sweep therefore is exactly what the name Gays ; we-‘sweep’,$/. t.,,Jk. t .„,
    . -elq.- it/ – ,
    .,5 4. ,,..4 –
    Ireitie LA C1.4…j-
    0
    viAluch-is-similarisLasiragnet. t -5 1 _ + ,, Are 4,U. all 44 4-6… t i,i 4441 e
    4- 1
    AA C al-49-4 4 C-iPc .44 4 6’i’2 -G 12.-e. ,
    ‘ ..t.h- i- c 5 -i- -A0 e- °E ‘” i 1- ,c…, t „
    ,– – — . – r4- 4 ,

    q 4,,,,,t, There is no overlappirpw4isscrossing of anotheN ncy’s constitutional loGuudalie-s. k 61, ,,A..1A-‘, ) -L-1,Let
    All the team membersToiro is sharing 9f information and collaborating their efforts in
    taking a thorough action to combat corruption.

    PART H —LEGAL PROCESSES AND ESTABLISHMENT

    5 Established State,Frocurement Process
    L-0-‘14’
    5.1 ‘ticagetary ‘ Zess and Appropriations

    CE -1 64/the raising and expenditure of finance by the National Government is subject to
    a •• thotization d control by the National Parliament and is regulated by an Act of
    f.)( ° Pa;lirent ma-terfrts-ef
    .
    Section 209 of the Constitution. That-Autisl -he Public Finance
    (Management) Act, 1995 vzhich was enacted for the purposes of managing public
    funds 1 Public money is defined by PFMA includes all revenue and loans, trust and
    other moneys raised or received, and all bonds, debentures and other securities
    received, by any person on behalf of the State’; or by an officer in his capacity as such
    on behalf of any other person. 3

    PFMA is defined under section 2 of the Act itself. Pursuant to section 2, PFMA
    includes the Regulations, Rules and Financial Instructions. The Regulations, Rules and
    Financial Instructions are not subordinate to PFMA itself but forms’ part of PFMA.
    The Court per Davani J in Robmost Ltd State [2008] N3372 affirm s position when
    she held that PFMA also includes Financial Instructions.

    Pursuant to Section 210 of Constitution, the Executive Government takes the
    initiative in formulating the National Budget. There are two components of the

    1
    Preambles of the Public Finance Management Act 1995
    2
    1n line with judicial interpretations and, as encompassed in the PFMA, the State
    herein also includes Provincial Governments and Local Level Governments, See,
    SCA No.1 of 1998 [2001] PGSC 8; SC 672 (8 November 2001), a decision by five member supreme
    Court.
    3
    Section 2 of the PFMA

    27 April 2012 Page 10
    Fir5t PrAft lavestigatka Tas!i-Fone 37nee9 MelooTi to DcevalAve
    T’.cuncH ai als Thr2Ings, lart32eznazazons, s72.0 Fulrlhe:r Recommendallens.

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  • p

    EINAL REPDET .
    budget, namely recurrent and development. Budget Process on Development
    Budget takes the following pha&e,s_i_:=4, 3, –
    ;r 7
    o All development proposals by line agencies, provinces, Statutory Bodies and private
    sector agencies are documented in the Project Fohnulation Document and
    submitted to the Secretary 9f–11011•1′ M and a copy sent to Development Planning
    and Programming Division(PI3 P1 )) Notegl5that the development initiatives of the
    Government are driven b4vernraent through submitting the respective policies.
    t■
    A private company cannot use the government’s budget process to benefit itself.

    o Proposals that meet all requirements are submitted to the Departmental Technical
    Screening Committee (PIP) for deliberation and selection. The Committee further
    provides technical appraisal and consolidates the proposals.

    ‘ After clearing from the Technical Screening Committee, the proposals will proceed
    to the Department of National Planning & Monitoring Budget Management
    Committee for final screening and approval. The Committee after deliberations
    approves new list of development projects and existing ones for inclusion in the
    Budget and forwarded to Budget Steering Committee.

    © The Budget Screening Committee co-chaired by Deputy Secretary for Treasury and
    National Planning (PIP) after consultations with national agencies, statutory bodies
    and relevant provincial governments, the list is finalized by Treasury and Planning
    and together witk.tecommendations presents to the Central Agencies Coordinating
    Committee (CACC).

    flV
    a The Central Agencies Coordinating Committee ( CO) made up of the Secretaries
    of the Central Agencies Treasury, Finance, DPM, M a
    NEC, Attorney General
    and Provincial Affairs, This committee then further deliberated and justified as to
    why these development projects need funding. With the reco endations,
    Treasury & Planning Departments prepare the • f projects for CC to be
    presented to Ministerial Economic Committee

    e The MEC finally makes recommendations either to cut or increase for particular
    projects. At this stage, certain projects that are not on the list of projects that ULA
    initially A.vG.e. recommended for funding at the Planning and Screening process are
    included at th , requtesof the Ministers and such request is taken note of and e -ffc-u t-
    e –, e
    the request by ylarining & Treasury.
    /V
    G The National Executive Council (NEC) deliberates on the recommendations by
    &IEC. Again, new projects are also recommended for inclusion. The NEC will be
    mindful of the government’s commitments and would want to ensure all are
    reflected. After the NEC process, the Development Budget is now finalized to be
    tabled at the floor of P arliament, with the endorsement of the I lead of State, who
    acts with and in accordance with the advice of NEC.

    27 April 2012 Page 11
    irtPrAfrt lavesVmattlon 1as21-Fone Smola Tizta:1 3o9ori go the ZalAorill DSCCTith72
    ,CO438IC11.1 oii hs Thltdins, brapRemogesagions, Tzgylhel Reco ma. enola;iAons.

  • Page 13 of 159

  • FINAL PAEPOEMT

    e Parliament approves the Budget through an Appropriation Bill, thus makes the
    policies legal for funding. The Appropriation Act provides for expenditure to be
    incurred during the year for the purposes and services set out in a Schedule to the
    Appropriation Bill.

    ® After Parliament approves the expenditure of ublic funds and money is available,
    Department of Finance and Treasury en r leases warrants to implementing
    agencies, be it a government department, LLG, rovincial Government, etc.
    11
    • When money is transferred to implementing agencies, it is not up for grabs or to be
    paid to private contractors at the will of that implementing agency. The expenditure
    of that money is again sub ect to the PFMA, hence the obligations for tender apply.
    &L ,
    Section 211 of Constitution es it illegal for any expenditure of public funds that is
    not authorised by Parliame t through the Appropriation Act. All expenditures of
    public funds within a fiscal y must be in accordance with the law, be it ‘ rcilistitution,
    PFMA, Appropriation Act The expenditure, whether development or recurrent,
    must be in accordance with thee relevant
    relevantlaws.

    5.2 The Law Governing State Tenders and Contracts
    6 4 • – QA
    IN & b v‘itA 4. .N Q-:(/’ to vo V 7 LiA P’ ’11 . ‘ VN

    The Constituti n, s. 247(1), provides that the Governme4, lan , the capacity to make
    contracts. Som enabling legislations empower respectiveRgencies to make contracts
    whilst others ciatt. Unless specifically provided in any other law to the contrary, the
    mandatory requirements of the PFMA in terms of the expenditure of public funds
    cannot be replaced or ignored.
    /
    Part VII of the PFMA
    ….._th (sections 38 A — 47D) provides for public contracts. Public
    ,– .
    contracts can be si ded into two categories, Minor and mj or contracts. Minor
    contracts cgae contracts valued up to IC100 000 but any value beyond that is defined
    as major contracts. Major contracts are executed through a public tender and minor
    contracts are executed through quotations. 4
    Mi
    /
    The Central Supply and Tenders Board (c.S”,__B -f ) is established under section 39 (1) of
    PFMA. The composition and appointment of CSTB is provided for under subsection , ,
    3, 4, 5 & 6. As the name suggest, CSTB is the public body that amongst ethers, tl -P ) .L-.
    ””’
    tenders and executes public contracts on behalf of the government. Its primacy role is
    to control and regulate all purchase and disposal of property and stores and the supply
    of works and services unless it falls within the Specialized Supply and Tenders Boards
    established under section 39A of PFMA such as the Pharmaceutical Supply and
    Tenders Board and Gazelle Restoration Authority Supply and Tenders Board. Section
    39B of the PFMA establishes a Provincial Supplies and Tenders Board (PSTB) and

    ‘See Part 12 Division 2 Clause 8.

    27 April 2012 Page 12
    . ,
    7int Hzavesflgaflon TIsl?t-rone Sweelp 3r2 the. Nalienal Iltec7.2qive
    Conaci2 oil. -As hygilemeagalions, and ITturthey Ttlecommemiatloas.

  • Page 14 of 159

  • FMAIL REPORif
    gives a Leiling of K3,000,000 as the maximum amount that it can tender.

    CSTB is generally the legitimate authority to control and regulate all public contracts.
    The control and regulatory jurisdiction of CSTB is extended to minor procurements,
    major procurements and Provincial Supply and Tenders Board (PSTB)’.

    The requirement fof,public /ender is compulsory except as provided by Section 40(3)
    of the PFMA whichi-erx,septi
    r vP tr
    ” –
    • t
    (a) if that project to be undertaken or purchased by a public body, authority or
    institution; a Provincial Government; Local Level Government or an approved
    overseas agency; or
    (b) If Certificate of Inexpediency is necessary; or
    (c) If Minister for Finance approves it to be exempted, but the amount should
    not exceed a limit of K500, 000 and also it must relate to a natural disaster
    related cause; or
    (d) where the terms of an agreement concluded, or proposed to be concluded,
    with any international organization under which the State is to receive
    moneys, make specific provision for the manner in which tenders will be
    invited for contracts to be performed in relation to the agreement.

    1. The value based tender process goes as follows:
    (e) less than K5000- Verbal quotation is required
    (f) K5000 to K100 000 — written quotation is required.
    (g) Section 32 officer, amount up to K300,000.
    (h) K300,000 to 1(3,000,000 —PSTB and/or CS 1 ’13 pursuant to s 39B(1)(b)
    of PFMA
    (i) CSTB — amounts up to K10 million pursuant to s 39(2)(b) of PFMA
    (j) Any Amount beyond K1Omillion goes to NEC.

    5.2.1 Issuance of Certificate of Inexpediency (COI)

    As stated hereinabove, a COI is one of the exceptions to the compulsory requirement
    for public tender. Section 40 (3) (b) of the PFMA states that tenders shall not be
    publicly invited and contracts met if a board certifies that the inviting of tenders is
    impracticable or inexpedient. That is when certificate of Inexpediency is issued.
    Division 4 of Part 13 of the Financial Instructions states what a Certificate of
    Inexpediency is and ,when it can be issued. The Court in Robmos o State [supra]
    extensively elaborateci,this provision. In light of the provisions in the PFMA including
    the Financial Instructions and the Court decision following could be noted;

    5
    See Part 15 Division 1, Clause 4 of Financial Instructions

    27 April 2012 Page 13
    First Prol,ft hivestigailon Tash-Torce Sweep Final nericzt lo the IlTational Executive
    of its Findings, ;inap3enienlations, and Fuzfctert gleconmendallions.

  • Page 15 of 159

  • EHALL REPOR7
    1) The CSTB must ensure that there is a valid approved APC 6 for the procurement
    before approving a Certificate of Inexpediency.

    2) That certificate “‘mut cearly identify” the requirement set out in Div. 4 Clause 12 of
    the Financial Instructions, namely;

    Supplier, and
    Department / agency requesting the certificate, and
    Name and signature of the Departmental/agency head requesting the
    certificate, and
    Goods, works or services being procured, and
    Value of the procurement, and
    Name and signature of the Chairman of the Supply and Tenders Board
    issuing the certificate
    Reason for the certificate to be issued, and
    Date on which the Certificate is awarded, and
    Name of those Board members issuing the Certificate, and

    3) Certificate of Inexpediency cannot and should not be issued, to retrospectively
    cover a contract already executed.

    4) Certificate of expediency is only necessary where a declared Natural Disaster, or.
    Defence Emergency, or Health Emergency, or Situation of Civil Unrest exists, and
    procurement processes must be undertaken urgently, to remedy the situation.

    In the absence of any of the four situations enumerated and (4), the Certificate of
    Inexpediency issued or intended to be issued is invalid and enforceable. A COI
    should not be used because there is one suitable supplier or because the implementing
    agency/Department has “run out of time” to conduct a proper tendering process.

    5.2.2 The use of Authority to Pre Commit Expenditures Op c )
    Section 47B of the PF1VIA provides thegookigns for the use of APC. The co biped
    reading of Part VII under which this .e is accommodated and . t
    provision itselfi zImp that APCs can be issued, in a case involving contract exceeding
    K100,000,ggua4ntee that funds for that particular project is available to be released
    in due course. It gives the assurance to the private contractor that the State will
    honour its side of the deal. Hence the APC cannot replace the mandatory
    .

    .)
    requirements of tender etc provided under that Part of the PFIVIA. It must also be
    noted that APCs are requested by the head of the implementing agency but is issued
    by the Secretary for Finance matters. Note also that section 47C makes it illegal for
    any supply of goods and services without an APC on credit basis , hence deemed null

    6
    Authority to Pre Commit is only issued by the Secretary for Finance and no other persons
    pursuant to section 47B of PFMA.

    27 April 2012 Page 14
    Tir5t Pr linvestigation TasR-Tioyce Swee73 , Find Ele3loyl to the National nocutive
    Council is “A’Andings, linghntonta.tions, and ITuLlinerz . 12000,Tiantenclations.

  • Page 16 of 159

  • FINAL F-13. EPORIT
    and void. Section 47D even bars any claim against the State for supplying goods and
    services without a prior APC.

    Execution of State Contracts as stipulated under section 47 of the PFMA must be
    distinguished from awarding of a State contract. Different authorities or persons may
    exercise the two distinct functions as empowered by the PFMA

    5.2.3 Rational behind Public Tender Process

    The rationale behind public tender is to prevent fraud, waste, corruption or local
    protectionism; hence the 4rovernment regulates the procurement process. The size and
    volume of government procurement does, however, give rise to considerable potential
    for corruption. Both contractors and public officials may resort to corrupt practices,
    and this may be for personal or political reasons. Whatever the underlying reasons,
    corruption undermines the attainment of ue for money in government contracting,
    I
    the fair treatment of contractors and thrush of procurement as a policy tool.„ c. p„,5 4
    The bidding process must therefore be Ipen to public scrutiny and •osen on the
    basis of price and quality.

    5.3 Established position by the Courts on illegal contracts and their enforj ments
    isey. •

    The Government’s gFocurement process is defined by law and fist al:41444d by various –

    Court decisions. AbarieuYt ,of National and Supreme Court decisions have made the
    law trite that a party that contracts with the State is deemedCArwc., to know
    4 , u2.-■- 7r
    ,the legal ,
    .

    processes stipulated under the relevant laws iicluding the PFMA,and any contract that
    is executed and performed na iga “r the law is illegal and unenforceable: Panga
    “exavattr

    Coffee Factory PO Ltd v. Coffee Industry Corporation Limited (Unreported but numbered judgement
    delivered on 6 October, 1 999) SC61 9, Fly River Provincial Government v Pioneer Health Services
    Ltd [2003] PGSC 4; SC705 (24 March 2003, Jack Livinai Patterson a National Capital
    District Commission (unreported judgement delivered 05/10/01) N2145

    6 DEPA ► .TMENT OF NATIONAL PLANNING AND
    MONITORING
    6.1 Establishment of DNPM

    The Department of National Planning and Monitoring (DNPM) does not have an f
    Enabling Act of Parliament for its establishment. It is understood that there is a diat-1—
    National Planning and Monitoring Act being drafted which is yet to be passed by
    Parliament. Its establishment is by way of Ministerial Determination.

    The DNPM used to be part of the Department of Finance and called Department of
    Finance & Planning. The separation of National Planning from Finance occurred in
    1995. By National Gazette No. G72 dated 3t d August 1995, the National Planning

    27 April 2012 Page 3
    it Prf.ft iinves1Agalin l’Es2c-Fogcs swee-9 Ilnaa to 1:itialVaflonal DizecutAve
    Cazencil oc tis Findings, ilmpleysaeatadons, ead niairlheE Reconarme:Tarlie.Eioas.

  • Page 17 of 159

  • EMU_ REPOR7
    functions wei .e separated from Finance and were vested in the Department of Prime
    Minister and National Executive Council.

    Almost a month later, a separate ministry called National Planning was established by
    way of National Gazette No. G89 dated 28 th September 1995. The Minister, Moi Avei
    (now Sir) was delegated the National Planning functions of the Prime Minister to take
    charge. A department was yet to be established at that time.

    6.2 Core Functions of DNPM

    The Department of National Planning and Implementation was established in 1997 by
    National Gazette No G65 dated Tuesday 26 th August 1997. Schedule 2 of that
    National Gazette outlines the determination of functions of the Department of
    National Planning and Implementation. The functions are:
    1. Monitor and report on implementation of National Executive Council Decisions.
    2. Co-ordinate and provide advice to Government on medium and long term
    development strategies and priorities
    3. Provide effective co-ordination and advice for development and improvement
    plans at the National, Provincial and Local Level of planning in the allocation of
    resources.
    4. Provide advice for the formulation of macro-economic policies in consultation
    with the Department of Finance and Bank of Papua New Guinea.
    5. Provide advice and direction to all Departments and agencies as provided under its
    enabling legislation on any specific planning aspect of Government operation.
    6. Co-ordinate the International organisations in the provision of grants,
    concessional and/or technical assistance and aid to the country.

    The Investigation Team had not sighted any other Instrument or law replacing the
    National Gazette No G65 dated Tuesday 26 th August 1997 which initially established
    the Department of National Planning and Monitoring. In the ab,nce of such t it/
    the
    most likely conclusion is that the core functions of DNPIVI’,’A ipe’r that- ga:zettal
    remains.

    The DNPM in consultation with DoF is responsible for the compilation of the
    national budget and for carrying out periodical review of budgetary performance and
    appraisal of projects. The appraisal of projects in this case is the appraisal of project
    proposals by State agencies to be included in the budget formulation. It is the role of
    the Departments of Finance and Planning to appraise the project initiative of the
    respective agency in line with the overall long/short term Plans of the Government
    and include them in the Budget for funding. The program budget involves an
    analytical approach in the allocation of budgetary funds to specific operations, which
    are identified in the light of sectoral policies to meet national objectives. It also entails
    establishing suitable indicators for measuring performance of government operations.

    DNPM’s primary role and function as a mandate:l aCintral agency of the Government
    t
    of Papua New Guinea (GoPNG) is for the form -uldtion of national development plans

    27 April 2012 Page
    Ti’ot PrAft 11 -sives’ai0anora Tasir-Fone Stve.ey lo DcecutIve
    o .,r FiraclAngs, lIsnalemeateldons, and narrlEla ZecommenelatIons.

  • Page 18 of 159

  • TPA_ REPDPITI
    and strategies, development programming and budgeting, monitoring and evaluation,
    donor coordination and mobilization, and giving assistance to provincial and district
    administration in planning and formulation of their own development plans. DNPM’s
    responsibility as a central agency is not to involve itself with the actual implementation
    of the project. Its role is to coordinate the overall plans of the Government, ensure
    that funds are committed according to those plans, and monitor the implantation of
    those plans with the support of funding, by each agency.

    6.3 Project Appraisal Guidelines

    The only lawful appraisal of project proposals comes before the budgetary process
    and it is an integral part of the budget process. The project appraisal process takes
    place during the budget formulation period where agencies submit their respective
    project proposals for inclusion in the Budget for the following year. DNPM in
    consultation with DoF, consider the viability of the project such as impact projects
    for funding under the Public Investment Program (PIP). If satisfied, that project
    proposal is appraised to go through the budget process.

    6.3.1 The PIP Guidelines

    The PIP Guidelines outlined the PIP process. It details a step-by-step process for
    the implementation of PIP from the formulation, submission, and appraisal of
    proposals, to the composition kf management committee, disbursement procedures,
    monitoring and evaluation, and reporting procedures. It was envisaged as the
    planning and budgeting tools that would help guide the design of investment
    projects and preparation of annual development budget.

    Sub-Section 2.1.1 of the Guidelines stipulates sthe purpose of DNPM being the
    agency charged with administering PIP of the government, as follows:
    • Provide a coherent strategy and policy planning process for effective,
    sustained and equitable national development, ensuring the involvement of
    all key stakeholders;
    • Coordinate the public investment program in line with approved strategic
    directions, mobilizing funding as required; and
    o Support and monitor implementation of the public investment program.
    0
    . 1. .)
    Section 2.2.1 shew’ed the structure of DNPM, to-qt,tete.:
    “The Public Investment Programme is managed by the PIP Wing of DNPM, headed
    by the Deputy Secretary. The PIP Wing of DNPM is divided into two major
    divisions comprising the Development Planning and Programming Division
    (DPPD) headed by a First Assistant Secretary and a Development Monitoring and
    Evaluation Division (DMED) also headed by a First Assistant Secretary. The DPPD
    is responsible for coordination and processing all proposals for funding under the
    PIP including registration, appraisal and screening. After funding is approved by

    27 April 2012 Page
    Fir5t Pratt TinvesticrErIlem Tasilt-To3ce Zwee? :71e7ort to t’ ViationalOncentive
    [(,aiLrincr.111. ,01 45 7. -nElLags, 712Td @^ l aaas an 72.171hez Llecommenc2e2ileins.

  • Page 19 of 159

  • HINAL REPORT
    Parliament, the DIvIFD takes over and is responsible for monitoring and reporting
    on all ongoing projects”.

    6.3.2 The Development Projects Documentation Guidelines

    On the other hand, Development Project Documentation Guidelines was intended
    to assist planners and development workers access project funding on behalf of
    communities including districts through proper documented projects. It detailed the
    development project documentation requirements, namely: the Project Identification
    Document (PID) and Project Formulation Document (PFD). These
    documentations were to be used for the identification and formulation of all projects
    at every level of government and for both GoPNG and donor-funded projects.

    Section 2.0 (Project Endorsement) of the Guidelines required all proposals to be
    screened, endorsed, and prioritized by the relevant committees, named as follows:
    o The Joint District Planning and Budgeting Priorities Committee (JDPBPC);
    O Project Screening Committees within Line Agencies and Statutory Bodies ( if
    such committee do not exist, endorsement must be provided from the
    highest level within the agency);
    e The Working Groups of Sector Coordinating Mechanisms where these
    mechanisms exist.
    Section 3.0 listed the organizations eligible to submit proposals for development
    funding from the GoPNG Public Investment Programme, as follows:
    • Government Line Agencies;
    O Provincial Administrations;
    o District Administrations;
    o Local-level Government Administration; and
    o Statutory Bodies and Public Institutions.

    It further reiterated that private individuals and companies were ineligible to apply
    directly for development funding from the GoPNG’s Public Investment
    Programme.

    Furthermore, Section 5.0 (Appraisal Criteria) required that:
    “Projects will be accessed in terms of their anticipated social and economic
    benefits, cost effectiveness and the capacity of the applicant(s) to carry out the
    intended tasks on time and within budget. Therefore proponents need to provide
    sufficient information in the Project Formulation Document to enable the
    appraising organization and DNPM to assess the proposal….”

    6.4 DNIFM’s Capacity

    Consistent with its primary functions, DNPM operates out of the Vulupindi House in
    Waigani, National Capital District as its Headquarters. It has Six (6) divisions headed

    27 April 2012 Page 18
    Tir5t Prof:
    , :inves’AgEfilait TE.:s2t T ,DEce SweeTg Final Reloyl lo 1 le NaVtonal EaaclAlve

    .
    i3ounel of Tinchngs, Ini. ,,pReanenfaf:Ivms, and. 71.qa -lhe3 Decorenendal:ons.

  • Page 20 of 159

  • RINAL REP/0E7
    by First Assistant Secretaries. Each division have four branches headed by Assistant
    Secretaries. DNPM has three other regional offices outside of Port Moresby with the
    staff strength of five (5) each. Of those five, one of them is always a person with
    Project Management background whilst the others are ancillary staff.

    PART 11! —IFIINDENGS

    PART II11.1 -General Findings
    Incidences of institutionalised and syndicated corruption had been uncovered where
    private companies through partnerships with public officials and politicians have
    infiltrated the Government budgetary processes under the guise of development
    projects. Funds have been earmarked for project programs for the public at large as it
    seems but only selected companies appear to be the sole beneficiaries.

    DNPM digressed from its principle function and turned into a cash cow, usurping the
    powers of DoF, DoT and CSTB without any legislative backing. DNPM
    institutionalised illegality and corruption by usurping powers that were vested in other
    authorities such as public tenders board, even to the extent of gazetting those powers in
    the National Gazette.

    DNPM became a cash cow by dishing out project funds to certain selected private
    companies at will, most of which were ghost companies that did not have the capacity
    to deliver.

    Projects were awarded to selective private companies under a thick veil of secrecy witIVa-1..t
    any public tender. On other occasions, COIs were systematically cleared by the State
    Solicitor and granted by CSTB on projects that clearly did not qualify for the issuance of
    a COI but fox collusion and corruption.
    • 1,

    PART HL2 -Detailed Findings

    7 DNPM’s Deviation from Primary Role
    7.1.1 Mischievous Gazettal of Ministerial Functions

    The powers and functions of the Minister who was responsible for the Department
    of National Planning and Implementation in successive National Gazettes after 26 th
    August 1997 reflected the primary functions of the Department itself as stipulated in
    National Gazette No G65 of 1997. Soon after the 2007 National General Elections,
    Hon Paul Tiensten was appointed the Minister for National Planning and Rural
    Development. As is ev-ide-ncediby the National Gazette No. G145 of 2007 dated 13 th
    September 2007, the powers and functions that Mr Tiensten . had as a Minister were

    27 April 2012 Page 19
    ir5t PrAli,’ havesii.gaiion TasZt-Tolece Swell) ;anal Repogil to the Natiosaaa 1Z:coo/Vivo
    !Council of iS5 rhaelhIgis, eziul Tnyll’aeY Deconmenell.allions.

  • Page 21 of 159

  • FINAL REPOET
    those that reflectcd_,the primary role of the department. The functions as stipulated
    in Schedule 5 of tia.t` National Gazette are:
    All the matters related to the functions of:-
    (a) Department of National Planning and Monitoring; and
    (b) Department of Finance and Treasury insofar as relating to-
    i. International Development Assistance, National, Regional and
    Provincial Social and Economic Planning and Management; and
    ii. Department and Regional Audits; and
    (c) National Statistical Service; and
    (d) Central Agencies Coordinating Committee insofar as relating to reforms
    processes and implementation; and
    (e) Office of Rural Development; and
    (f) Bilateral and Multilateral negotiations with donor partners except those
    relating to International Financial Institutions; and
    (g) International Development Assistance; and
    (h) Gazelle Restoration Authority.
    Statutory Responsibilities are:
    Statistical Services Act (Chapter 386)
    Gaelle Restoration Authority Act 1995
    Mineral Resources Development Company POI Ltd (Privatisation) Act 1996

    In 2011, by National Gazette No. G57 dated 3r j March 2011, interestingly, the scope
    of the functions of the Minister for National Planning and Rural Development were
    widened. The functions as stipulated in Schedule 4 of that National Gazette are:
    All the matters related to the functions of:-
    (a) Department of National Planning and Rural Development; and
    (b) Department of Finance and Treasury insofar as or relating to-
    i. International Development Assistance, National, Regional and
    Provincial Social and Economic Planning and Management; and
    ii. Department and Regional Audits; and
    iii. All financial matters; and
    (c) National Statistical Service; and
    (d) Central Agencies Coordinating Committee insofar as relating to reforms
    processes and implementation; and
    (e) Office of Rural Development; and
    (f) Bilateral and Multilateral negotiations with donor partners except those
    relating to International Financial Institutions; and
    (g) Only insofar as the powers and functions relate to Supply and Tenders Board
    under Public Finance (Management) Act 1995; and
    (h) International Development Assistance; and
    (i) Gazelle Restoration Authority.
    Statutory Responsibilities ate:
    Getelle Restoration Authority Act 1995
    Mineral Resources Development Company Pty Ltd (Privatisation) Act 1996
    Public Finance (Management)Act 1995, insofar as it relates to matters —

    27 April 2012 ?aka 20
    Tint Prrft InveslIgallon Tas-rone Sween 1 t a.1 12e3381 lhe 11%0031E1 Etecullive

    Ctuac:11 o a1s :TADARrags, Ilarraz.32e:nezo::ahlons, an 11 71221″2.e:e RattvirsneTrOatIons.

  • Page 22 of 159

  • EINAL HERDLET
    (a) Relating to approval of requisition, under section 32 for expenditure ( )f true
    monies or funds for health and education; and
    (b) International Development Assistance and DSIP funds.
    Statistical Services Act (Chapter 386)

    The notable provisions that increased the powers of the Minister for Planning and
    Rural Development as per National Gazette No. G57 of 2011 are highlighted with
    underline emphakse,—- e”- 1–f%)

    In the subsequent Determination of Titles and Responsibilities of Ministers after the
    Change of Government on August 2, 2011, the powers relating to Supply and
    Tenders Board were omitted whilst the Section 32 requisition powers under the
    PFMA were retained with the Ministry of National Planning and Monitoring. That is
    reflected by National Gazettes No G234 dated Thursday 18 t h August 2011 and G374
    dated Wednesday 14 th December 2011. The Ministry for National Planning and
    Rural Development was separated with National Planning and Monitoring to Hon
    Sam Basil whilst Implementation and Rural Development to Hon Moses Maladina.
    When that split occurred, both Minister Maladina and Minister Basil appear to have
    retained section 32 powers under the PFMA as per the National Gazette G374 of
    2011.

    7.1.2 Observations on the Gazettal Notices conferring of powers to successive National
    Planning Ministers

    Why was Department of Finance and Treasury powers relating to all financial
    matters vested in the National Planning and Rural Development Minister by virtue
    of National Gazette No. G57 dated 3r d March 2011? What was the legal basis for
    conferral of powers of Finance and Treasury in all financial matters to the National
    Planning and Implementation Minister? Why duplicating the role of finance and
    treasury? Does the DNPM have the capacity to operate as a mini treasury or finance
    department? Was DNPM structured and equipped to operate finance and treasury
    functions and responsibilities?

    The Section 32 of the PFMA powers that were stated as part of the functions of the
    Minister for National Planning and Rural Development in National Gazette No G57
    of 2011 must be verified against the provision of the .Act itself. Section 32 provides:
    32 APPROVAL OF REQUISITIONS.
    (1) The Departmental Head of a Department may appoint officers to approve requisitions
    for the expenditure of money in the Department for which he is responsible in accordance
    with a warrant authority and may spec/ conditions for the exercise of that approval.
    (2) The Minister may appoint designated officers to approve variations to contracts as
    regards time, price or other conditions within such limits cis are Jpecified in the Financial
    Instructions.
    (3) An officer appointed under this section who wilfully refuses or neglects to comply with
    the provisions of this section is guilty of an offence under Section 112.

    27 April 2012 Page 21
    FirY Prg/11- Halves .liganon Tas:r-Trny Swan Thria2 me .poLi 9a lhailla2iona21,’NeczYnve
    .:;ataaaciq ‘DI Us :717k1:1.n1s, 1:: ,L .,72 ,?..rne31’la .:ilons, and Flirael: DecanaTraandsnons.

  • Page 23 of 159

  • NAL HERDEU

    (4) appi .mental Head in relation to the Department of which he is Head may appoint
    Financial 1)elegates to approve expenditure in accordance with a Cash Fund Certificate.

    It is clear from the above provision that Section 32 power under the PFMA vested in
    the departmental head and not the political head. How then was section 32 power
    vested in the Minister by those Gazettal Notices?


    Put the powers and functions relate to Supply and Tenders Board under the FF . :NIA,
    there is no provision that leaves a room for any other persons apart from those
    established by PFMA to exercise those powers. The PFMA gives powers to the
    Minister for Finance in regards to Supply and Tenders Board in certain
    circumstances, not Minister for Planning or any other Minister for that matter.
    evvett4-0 d.e19
    S
    An amendment to the PFMA, if any, was not cited by the Investiga on Team. As it PCIA7t2.. ►
    ,,
    is, the,above is the correct position of law. On what legal basis . ere powers of the
    ublic /tender Board were conferred to the Minister for Pla • by that National
    : SP4i4fi L.
    azette? And what specific powers of the Supplies and Tend. Board uticier PFMA aufhten—/-i)
    1),5-64‘as- conferred to the Minister for Planning? Vesting of pow in a ter without a,-__elf
    the legislative foundation and particularly where the law • d already/to usurp the
    powers of other authorities is illegal and suspicious. A
    7.1.3 DNPM turned into a Cash Cow

    DNPM had deviated from its purpose of establishment into a mini-treasury and mini
    department of finance of its own, thereby duplicating the roles of Departments of
    Finance and Treasury. It assumed responsibilities that were beyond its purpose and
    capacity hence, created room for abuse and a culture for corruption. Most of the
    corruption was facilitated by the officers of DNPM itself.

    Through the investigations, it was discovered that from 2008, DNPM started to have
    interest in the development funds and opted to implement a number of development
    initiatives, as such kept a portion of the development budget. In 2009, DNPM
    decided to keep more of the Government initiatives including the RESI and NADP
    funds and disbursed on projects that it selected. That continued in 2010 with more
    development projects vested in DNPM through the annual budget.

    Project Proposals from private companies and individuals were received, appraised
    and payments made directly to the proponents by DNPIVI. The more payments were
    made ,,, the more it encouraged others to approach the department with project
    i
    propo sal s h1 ence a culture and practice was then established and entrenched.
    ,)
    In 2011, the then Acting Prime Minister, Honourable Sam Abal upon taking office as
    the Acting Prime Minister, deliberately or being misled by the Minister responsible
    for DNPM, or passively announced that 2011 would be a “Year of Implementation”.
    In keeping, with that, the DNPM was directed to front-load 90% of the
    Development Budget to be spent by June 2011. The Annual Development Budget

    27 April 2012 Page 22
    PrAft 3:raresngarilen Tas2t-Forrce Sweet’) Irina2Repoini io Wegionai 1:ceculive
    Zinliags, haDlenaeTaallogas, and Farraere Decommemialions.

  • Page 24 of 159

  • FINAL EFAF_PORIT
    foi: 2011 vas K2.066 Billion and K1.9 Billion of that money was anticipated Lo be
    spent within the first half of the year. The DNPM anticipated to rollout the entire
    Development Budget by the end of July and to focus on monitoring and ensuring
    projects are implemented well in the later part of the year.

    Interesting in the year 2011, most of the development projects under the GoPNG
    Developrrknt budget were parked with the DNPM. Coincidently, the Minister now
    has absolute power by way of National Gazette No. G57 dated 3r d March 2011 to
    exercise the public tenders’ powers and section 32 powers. Alined with those powers
    and in the pretext of executing the Government’s “year of implementation” policy
    millions of kina were paid out directly to purported contractors without any public
    tender.

    Minister Tiensten misled the public to believe that the funds were sent to the
    Government’s sectoral implementing agencies when in fact most of those funds
    were retained by DNPM. Once such statement was reported in the Post Courier on
    . th
    6 July 2011 where he said:
    “Under instructions of the acting Prime Minister, Sam Abal, 2011 has been
    designated the ‘Year of Implementation’. As a result, Treasury and National
    Planning have front-loaded 80 per cent of development expenditure based
    on the Appropriations Bill with cash flows going directly to the government’s
    sectorial implementing agencies.”

    Against the backdrop of financial mismanagement and no proper monitoring of
    development projects, the then Acting PM, deliberately or was misled, to make that
    announcement which opened the flood gates for looting of 90% of the
    Development funds within less than three months in 2011.

    It was discovered that between 2006 and 2011, the DNPM would have directly
    managed and implemented K3.6 billion worth of projects and programs out of a
    total development funding of K15 billion for that period. Of the K3.6billion, and
    based on our investigations with the 2009, 2010 and 2010 development budgets that
    DNPM administered, it is estimated that more than K1billion of those funds did not
    translate into tangible development projects to which Parliament had appropriated.

    7.1.4 Corruption and Malpractices

    7.1.4.1 DNPM perforrning CST ales

    The expenditure of public funds, whether recurrent or development, is regulated by
    law, in particular the PFMA. As soon as Parliament passes the budget, the public
    funds are not up for grabs or for any one department to spend it at will. Those funds
    are subject to the PFMA such as calling for public tender. The PIP Guidelines, as
    well as the Development Projects Documentation Guidelines do not make any
    provision for a private contractor to access funds directly under the PIP. If there is
    such provision, then it is inconsistent with the law and is illegal.

    27 April 2012 Page 23
    )-=’ Pratt Inves2Aga’non TD.521-Force 37rJeep inziaR ne9o -A the 1∎1a4onal 1:;emtlIve
    ,
    i1Dmac19. o311s TincliAgs, 1!:•119?:esirtemIalil ms, asul Tr’lrgae:z 7,1eDD:onzentleg10ms.

  • Page 25 of 159

  • FINAL REPORU

    It was discovered duriLlg our investigations that COIs were either issued on projects
    that did not qualify for such or were issued to retrospectively cover payments that were
    already paid.

    The then State Solicitor, Mr George Minjihau, who, by virtue of his position is a
    member of the CSTB. He is also required to do legal clearance for any issue of COI. It
    was discovered that he basically defends the decision of CSTB by tailoring legal
    clearance letters to sanction illegal decisions on issuance of COIs. His legal clearances
    on projects/contracts that did not qualify for COIs is illegal and highly improper.

    8.1 Some examples of Abuse of COI:

    Certificate of Inexpediency (COI) 001/09 Department of National Planning
    and Monitoring

    The COI was requested by Joseph Lelang Secretary of the Department of National
    Planning and Monitoring on . 1. 6 th January 2008 in a letter addressed to Bryan
    Kimmins for the construction of three (3) houses and a Police Post in Bewani and
    Amanab in West Sepik Province. Clearance was given by State Solicitor George A.
    Minjihau in a letter dated 23r d January 2009 to the Acting Board Secretary of CS 1’B.
    It was approved by the CSTB to the amount of K2 Million as stated in the letter to
    Joseph Lelang on the 21′ of January 2009.

    2. Certificate of Inexpediency (COI) 001/11 Depaxtuient of Finance

    Request was made by the Department of Finance Secretary Gabriel Yer in a letter
    dated 13 th of December 2010 for stationary and learning material for various schools
    in the Talasia District of the West New Britain Province. In a letter dated 26 th
    January, 2011 State Solicitor George A. Minjihau cleared the application of all legal
    obligations. Approval was given in a letter dated 05 th January 2011 to the Finance
    Secretary Gabriel Yer by CSTB Chairman Bryan Kimmins. The amount approved in
    the letter dated 05 th January 2011 from the Chairman of CSTB to Gabriel Yer
    Secretary of the Finance Department was Six Million Eight Hundred Thousand Kina
    (K 6,800,000.00).

    3. Certificate of Inexpedience ( OI) 004/09 Department of Police

    Police Commissioner Gari L. Bald applied for a COI for K20,000,000.00
    rehabilitation of the Kerowagi Mobile Squad Barracks in Chimbu Province and the
    reestablishment of the Kavugara barracks in Kimbe West New Britain Province.
    The COI request was put through by Commissioner of Police Gari L. Baki on behalf
    of the Police Department in a letter dated 23r d January 2009 to Brain Kimmins.
    George A. Minjihau wrote to the Acting Secretary of the Central Supply and Tenders
    Board on March 09 th 2009 and gave clearance to the COI. Letter of approval was
    issued on the 04 th of February 2009, attention to Gari L. Bald and signed by the

    27 April 2012 Page 28
    7ir-5t PrP,) havesligalion Uash-Fone StAreem Tina?. Livnorg kt. file Zalional E:cecufive
    Council of its Figaelings, Implentellmtaiions, end Faythey tecommenia2ions.

  • Page 26 of 159

  • ENA11.. RERDE7
    There is no internal Tenders Board established at DNPM by the Minister for
    Finance pursuant to the PFMA. The Secretary for DNPM, just like all other
    departmental heads, can authorise commitment and payment of up to K300,000 as
    his limit.

    Against the standing PIP and Development Project Documentation guidelines
    restricting the eligibility of PIP project proposals to State agencies only, DNPM
    officers went out of their way to accept project proposals from private contractors,
    appraised them and made payments in millions of kina without any tender process.

    There appears to be some sort of appraisal criteria used to appraise the project
    proposals for the expenditure of public funds. Although the Investigation Team does
    not have the benefit of such a criteria, we find that purported project appraisal
    criteria were devised as a substitute for the legally established procurement process
    under the PFMA. In so doing, DNPM officials assumed the role of mandated
    authorities such as the CSTB. The actions of DNPM and its officials amount to
    legitimising illegality and creating a culture ‘of corruption.

    The former Minister for National Planning and Monitoring, Honourable Paul
    Tiensten, MP did not have the lawful authority to approve project funds yet he
    approved projects for funding. In doing so, he usurped the public tender powers.
    The practise went on for some time until it was institutionalised with the Gazettal
    of his powers in the National Gazette. In the absence of any lawful justification, we
    find that the Public Tender powers invested in the National Planning Minister by
    way of National Gazette No. G57 dated 3r d March 2011 was done to backflip and
    legitimise the illegal authority the Minister purportedly exercised over the years. It
    was also done to give him the basis to continue the trend.

    Billions of kina in development funds were disbursed on purported projects to
    certain private companies by incompetent officials who did not have the capacity to
    perform the role of CSTB. The awarding of the development contracts were single
    handed by certain officers of DNPM under a thick veil of secrecy hence defeated the
    role and purpose of public tender process envisaged under the PFMA.

    We find that there was no limit placed as to who should sign and commit on what
    amount. The PFMA places ceiling on the Departmental Heads, Finance Minister,
    PSTB, CSIB and NEC respectively. At DNPM, there appears to be no ceiling on
    who was going to sign on what amount to commit the funds. There was gross abuse
    of the process. Senior officials appear to have taken turn in approving projects and
    the signing of FF3 and FF4 documents.

    7.1.4.2 Lack of Capacity to implement Projects

    In an Interview with Dr Kora, the incumbent Secretary of DNPM, it was revealed
    that DNPM only have three (3) regional offices apart from the Head Office in

    27 April 2012 Page 24
    Tics’ P-rAt “Invers -igation Tas1.7 ,xxs veal? Fina:1 3c]pyl le no 111aAemz7.
    Cou.:a;;A:l. of it .7110.-ags, Lf:a7.71ennaa’2Acns, as1617:3?.(ihe2 ar.3.COarrae.:252a210n5.

  • Page 27 of 159

  • Waigani. In those, three, other. regional offices, they have less than 5 staff each.
    Among the five ,nlige r One Project manager and the rest are support staff. The
    Secretary indicated that he was going to decommission the regional offices and
    centralise operations from Waigani.

    The DNPM, consistent with its primary function, obviously does not have the
    capacity for implementation of individual projects on the ground level. DNPM does
    not have officers in each province or districts throughout the country. Even if
    DNPM had offices/officers throughout the country, it did not have specialised
    project managers to manage projects.

    We inquired why the funds for National Agriculture Development Program
    (NADP), REST, Rural Electrification, Strategic Market Development Program, just
    to name a few, were retained by DNPM? Did DNPM have the capacity to
    implement these projects? Or is it for the convenience of controlling the public
    purse? When these questions were posed to Dr Kora, he said “that was illegal” and
    that he was directing all these projects and the funds to be transferred to the
    respective implementing agencies. For instance, REST should be handled by
    Education Department; NADP should be implemented by Department of
    Agriculture and Livestock.

    7.1.4.3 DNPM’s Lack of Cpacity to Monitor Projects

    DNPM had a division for monitoring the projects but lacks capacity and most times
    is dysfunctional.
    As already highlighted, most of the impact projects that DNPM retained against the
    respective implementing agencies were funded directly from DNPM. As such, the
    qualified implementing agencies were not involved in the monitoring of the
    implementation of the projects. Since the payments were made out of DNPM
    without the knowledge of the supposedly implementing agencies, DNPM created an
    enormous responsibility in monitoring its implementation all around the country
    which it did not have the capacity to do so.

    There were some specialised projects that needed expertise to verify the designs and
    further monitor the implementation according to the specifications and designs.
    DNPM did not have those specialists yet it opted to administer the projects. For
    instance, DNPM did not have qualified electricians yet it retained the rural
    electrification project to itself as an implementing agency.

    Since DNPM did not have the capacity and did not bother to monitor the
    implementation of the projects, it opened the door for schemers and scammers to
    approach the DNPM with more and more ghost project proposals. DNPM
    therefore turned into a cash cow, dishing out cash without any responsibility,—;/,..–
    , 7
    ( –“-1
    4

    27 April 2012 Page 25

    Tir5t P r4fL 7 -swesqlgagion Tzs21-7oreca 1wee3 7
    .2e130:: ghe PJaV.,3,-raa?,
    Corm-I.L.fl ol Ls Th26.11E35, ane. 1nyEae2 :Issama-tamlaCioz1s.

  • Page 28 of 159

  • FiNAL REPCDOTEf
    As a result, much needed public funds were wasted and opened to abuse. The
    projects were either not implemented at all, incomplete or completed but with
    changed designs and specifications with the cheapest materials.

    7.1.4.4 Lack ofproper documentation and record keeping

    Millions of kina were paid out of DNPM and most of these payments were not
    supported by proper documentation. DNPM officials failed their duty to maintain
    proper records of the transactions involving public monies. In some instances, only
    FF3 and/or FF4 documents were found. In other instances, only the copy of the
    cheque was placed on the file.

    Since most of the allegations of corruption were raised against the officers of
    DNPM, it is believed that most of the crucial documents were conveniently disposed
    by persons with vested interest.

    7.1.4.5 Release ofpayments in full amounts

    For any Government Contracts, unless the nature of the contract allows otherwise
    and by agreement of both parties, works and supplies have always been done in
    phases. There is always a clause or schedule in every contract with the State to ensure
    that each project is implemented in phases. In order for the next phase of payment
    to be released, a phase completion report is issued by the implementing agency. The
    implementing agency automatically becomes the project manager if a specific project
    manager is not nominated.

    DNPM in this case had kept the development budget at its disposal and developed a
    trend of paying the full value of the contract/project in single cheque payments to
    private companies on purported contracts. There does not appear to be due diligence
    checks done on whether the private companies had the capacity to deliver the
    projects. In many cases, these companies are K2 companies that were just registered
    to cater for the funds from DNPM. When the monies were released to those
    companies, withdrawals were made in substantial amounts, and in some cases the
    funds were depleted and accounts closed.

    The payment of full value of the contract coupled with lack of monitoring
    mechanisms presented opportunistic contractors the perfect option to squander the
    funds.

    7.1.4.3 Conflicts of interest Situations

    The level of abuse at the DNPM was such that the development budget was at the
    disposal of the Minister and the officers. They diverted monies into companies that
    they themselves have direct interest. The officials appear to have used their
    knowledge to apply and their position to approve or influence the payments to their

    27 April 2012 Page 26
    srt :Draft Lavesgtagion Tiasils-force Sweep InEgaR Zieporri 8© the Nag:log -gal Executive
    Council of Hs 173nd.In61’s, Implemegagagiagie, and nazaelg1.1e.comngenteggons.

  • Page 29 of 159

  • [ii[EPOr..!7
    companies. In other instances, they facilitated payments to certain front compan;.es
    and received their kickbacks— Lf ‘

    When conducting search at various houses of officers of DNPM, it was discovered
    that the officers of DNPM write up project proposals for front companies in
    accordance with their knowledge of the appraisal guidelines that they set at DNPM.
    It is believed that they then give the draft proposal to front companies to submit
    with a cover letter. Once it is submitted, the officers then appraise the proposal
    without any reservation as it is tailored to comply with every requirement of DNPM.
    An officer of DNPM having electronic copies of project proposals implies the level
    of insider trading orchestrated by public officials to syphon public funds, r-‘i’; 6’l)• ‘ 14 F

    It now makes sense as to how front companies whose principals have no knowledge
    and experience on certain specialised projects yet received funding on very colourful
    project proposals.

    7.1.4.7 Lath of Due Diligence
    1–Tve>
    ITFS was not provided a copy of the project appraisal criteria that DNPM used to
    appraise projects from individuals and companies. What is howeverXDparent is that
    the officers at DNPM, being blurred by the corrupt and deceitful eyes, failed to even
    detect the most obvious defects in the project documentations submitted to DNPM.
    Elementary due diligence checks such as Investment Promotion Authority
    Certificate of Incorporation, Certificate of Compliance from IRC, specialised trade
    certificates, register of machinery and equipment, number of skilled employees,
    company’s track record, surety bonds on contracts requiring contractor to undertake
    payment in the event of contract not complied with etc, were ignored to be part of
    the due diligence checks.

    7.1.4.8 Deviation of Payment Votes

    It was discovered through the investigations the Appropriation Act was breached
    when officers diverted funds appropriated under different votes. In their search to
    get hold of the funds, they grossly abused the Appropriations by taking monies out
    of different votes to pay for purported contracts/projects.

    8 Abuse of Certificate of ffnexpediencies
    Certificate of Inexpediency, as already explained, is only necessary where a declared
    Natural Disaster, or Defence Emergency, or Health Emergency, or Situation of Civil
    Unrest exists, and procurement processes must be undertaken urgently, to remedy the
    situation.

    27 April 2012 Page 27
    Pmft kaves2:12a0.0n 7as:i-Tczec3 Jose 2eD071 ‘2 a E.ie Ya’slone. “Lcengv2
    Councli 13d :;:reaDae ma:deons, a2 ,. 7a1 FuNhe.re Devormazailanoas.

  • Page 30 of 159

  • HMO_ E’DCHO’
    Chairman of the CSTB Bryan Kimmins. The total value approved in the letter to the
    :ornmissioner of Police from the Central Supply and Tenders Board was Ten
    1

    Million Kina (K10,000,000.00).

    4. COI 008/09A Department of Police

    This is in reference to the construction of the Musu/Wutung Jetty and Wharf in the
    Sandaun Province in the year 2009 at the cost of K6.5 Million. There was no formal
    letter written to CSTB applying for a COI. On the 13 th of March 2009 George A.
    Manjihu the State Solicitor issued a letter of clearance to the CSTB attention to the
    Secretary of CSTB. In a letter to the Secretary Finance Gabriel Yer on the 26 th
    February 2009, the COI application was rejected on the basis that the project did not
    meet the CSTB requirement of it being an emergency situation. However, it was
    subsequently approved and communicated to Joseph Lelang, Secretary for DNPM in
    a letter dated 12 th of March 2009 by the CS’•.13 and signed by the Chairman Brain
    Kimmins. The amount approved per letter from CSTB on the 12 th of March 2009
    was Six Million Five Hundred Thousand Kina (K 6,500,000.00).

    5. COI 019/09 — Department of National Planning and Monitoring

    Certificate Of Inexpedience (COI) Application to build a bridge in Aitape Town,
    Aitape Lumi District in Sandaun Province at the cost of Three Million and Twenty
    Four Thousand Kina (K3,024,000.00). Proposed contractor was Structural Bridging
    Systems Ltd. Request made by Joseph Lelang, Secretary of the Department of
    National Planning and Monitoring in a letter dated 13 th March 2009 to Mr Bryan
    Kimmins Chairman of the Central Supply and Tenders Board. Clearance letter was
    signed by George A. Minjihau, State Solicitor on 14′ 1′ May 2009 in a letter addressed
    to the Acting Board and Secretary of the Central Supply and Tenders Board. CSTB
    approved the COI on the 23′ d April 2009 as per the letter to the Secretary of the
    Department of National Planning and Monitoring on the 24 th of April 2009. The
    project was estimated at the cost of Three Million and Twenty Four Thousand Kina
    (K3,024,000.00) as per letter from the State Solicitor dated 14 th May 2009.

    In another COI application dated 13 th March 2009 from the Department of National
    Planning and Monitoring the total amount was stated Nine Million Seven Hundred
    and Ninety Thousand Kina (K9,790,000.00).

    6. Certificate of Inexpediency (COI) 031/09 Department of Finance

    COI application for the upgrading of the Balam-Kauk-Sowam and Urip-Sapuain
    feeder road in Wewak District of East Sepik Province. Request was put through by
    the Department of Finance Caretaker Secretary Chris Kalebo on the 25 th of May
    2009. There was also a supporting letter from the Finance Minister Patrick Pruaitch

    27 April 2012
    ‘Anal
    ‘.7.11.resthrja .Mon 7-2sKt-To3va Swe.33 Dep:a. gtv.,? Neflone.1
    Councn 7LneLlings, 17n1leaLrnan .;’12V..ons, .s:u1 necommen&?:]icinz.

  • Page 31 of 159

  • ENAL HERDHT
    on the 11 6′ May 2009 . to CSTB Chairman Bryan Kimmins. In a lettei dated 28′ h May
    2009 State Solicitor George A. Minjihau wrote a letter to the Acting Board Secretary
    of CSTB giving clearance to the COI. Approval was given in a letter dated 20 d1 May
    2009 to Chris Kalebo Acting Secretary in the Department of Finance. The amount
    approved in the letter dated 20′ 1 ‘ May 2009 from the Chairman of CS173 to Chris
    Kalebo of the Finance Department was One Million Nine Hundred and Ninety Six
    Thousand Nine Hundred and Ninety Six Kina Twenty Toea (K1,996,996.20).

    7. COI 008/09A Department of Police

    This was for the construction of the Vanimo market at the cost of K2.5 Million. No
    formal letter requesting COI, but in the letter of approval from CSTB to Joseph
    Lelang Secretary of the National Planning and Monitoring approved a COI for the
    amount of Two Million Five Hundred Kina (K2, 500,000.00). No letter was on file
    from the State Solicitor’s Office regarding this matter. But on the 3r d of March 2009
    John Kwarara Board Secretary of Central Supply and Tenders Board wrote to
    George Minjihau, State Solicitor requesting legal clearance but the letter was not
    signed. Letter of approval was issued on the 03` d of June 2009 attention to Joseph
    Lelang, Secretary of the Department of National Planning and Monitoring from
    Brain Kimmins Chairman of CSTB. The amount approved per letter from CSTB on
    the 03r d of June 2009 was Two Million Five Hundred Thousand Kina (2,500,000.00).

    8. COI 036/10 . Department of National Planning and Monitoring

    Construction of the Wapenamanda District Market. No formal letter requesting or
    applying for a COI was on file. No letter was on file from the State Solicitor’s Office
    regarding this matter. There is a letter dated 24t h June 2009 from CSTB requesting
    legal clearance. Letter of approval was issued on the 19 th June 2009 attention to
    Joseph Lelang Secretary, Department of National Planning from Brain Kimmins
    Chairman of CSTB. The amount approved per letter from CSTB on the 19 6’ June
    2009 was Two Million Kina (K 2,000,000.00).

    9. GOT 088/10 Department of National Planning and Monitoring

    Application for the construction of the second stage of the Yuhama to Pandoka
    Road in Komo Magarima Electorate in the Southern Highlands Province. No faunal
    letter requesting COI was on file. No letter was on file from the State Solicitor’s
    Office regarding this matter. Letter of approval was issued on the 18` h November
    2010 attention to Gabriel Yer Secretary, Department of Finance from Brain
    Kimmins Chairman of CSTB The amount approved per letter from CSTB on the
    l e of November 2010 was Three Million Five Hundred Thousand Four Hundred
    and Seventy Five Kina (K 3,500,475.00).

    27 April 20’12 Page 30
    r.
    Li.avesfigation TasZt-Fone sweep a mall Deport lo the National Elteclaqive
    Co4 ma. of igs .71 -zad1ngis, Impletnemiadons, auaril nerfaere Mec3mraendanons.

  • Page 32 of 159

  • FINAL BERIMITT
    Full (100%) payment and released full contract value of K3,500,475.85 on cheque
    No:44012 dated 20 th October, 2010 but cancelled and replaced with cheque No:
    44103 dated 3r d November, 2010 for the same amount. The payment was made first
    on 20 t h October, 2010 and the contract signed later to retrospectively cover their
    actions.

    8.2 Recommendations
    It is recommended that:-

    1) The State Solicitor should not be a member of the Central Supplies and Tenders
    Board so that he can independently assess the nature of the contract before
    giving legal clearance for the issuance of a COI.

    2) Mr Brian Kimmins, the Secretary for CSTB and Mr Minjihau should be dealt
    with under the Public Services Management Act and GOs.

    9 ILLEGAL CONTRACTS
    It was discovered that most of the contractual arrangements that the State was made a
    party were illegal hence unenforceable. Contracts that were entered into in breach of the
    PFMA are illegal and unenforceable. Not many of the payments made were based on
    properly constituted contracts. The rights of the State were not protected. Therefore it
    makes it difficult for the State to plead its rights and take actions under the law
    of contract. The servants of the State who were supposed to protect the rights and
    interests of the State have failed their responsibilities and failed their employer.

    The course of action available to the State is the recovery under the Proceeds of Crimes
    Act 2005.

    le INDIVIDUAL CASES
    10.1 Detailed Investigations

    The ITFS investigated a number of allegations, some of which actions were taken
    whilst others are still being pursued by the respective agencies. The following are 20
    cases set out in detail for the purposes of substantiating the findings and
    recommendations in this report. These are only the few of the many cases that ITFS
    is investigating.
    The individual cases bear contain the findings and recommendations respectively.
    Again, the structure of ITFS allows ITFS to implement its own findings.

    27 April 2012 Page 31
    First Prxft Envestigation rfash-Fouce Sweep Final Report to the National Executive
    Caugacil of its Findings, hupleanentations, and Fuzihey Recommendations.

  • Page 33 of 159

  • IFOINAL REPORT

    Case 1: Payment and Release of K180,000 to Kajah Development &
    Business Service Centre

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that were approved by NEC and subsequently Parliament in
    2007 for 2008 and 2010 for 2011 Development Budget. Consequently, We were
    unable to establish whether this project went through the normal budget process
    through to NEC.

    The payments were made from vote item 4203-5203-413, earmarked for Districts
    Markets Program.

    2. Facts involving Project Submission, Appraisal and Approval for the
    K180,000.00

    The initial project proposal and copy of Contract No: COI — 76/2008 said to be
    awarded by CSTB for the construction of Mul Baiyer Sub-District Markets to Kajah
    Development & Business Service Centre for a quoted price of K450,000.(K150,000
    each) for three (3) markets in Western Highlands Province are not on file.

    During later part of 2008, all of 2009 and 2010, nothing is said about the project and
    whether payments were made in relation to this contract but in 2011, cheque No:132
    for 1(180,000 dated 22/03/11 was paid, the same date, cheque No:133 for 1(137,000
    was paid to K-Island Builders Ltd (refer K-Island Builders Ltd K547,00.

    The letter and Invoice on file and submitted by the Managing Director, Mr Obed
    Rouri, to the Secretary for DNPM was for the final 10% of Contract No: COI —
    76/2008 for 1(37,000.00 to be paid. That is an indication that 1(413,000.00 of the
    contract value of 1(450,000 was already paid as down payment in 2008. As such,
    there was an over payment of 1(143,000 when 1(180,000 was paid instead of
    1(37,000.00.

    3. Breach of Financial Management and Administrative Process in facilitating
    the release of K180, 000.00.

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and officer responsible for
    financial administrative role of the Departmental.

    o The acting Secretary — Ms Ruby Zarriga as Departmental Head and Chief
    Accountable Officer,

    27 April 2012 Page 32
    Tint Pr ft havesggagon TESh-Fone Sweep Flnal alepokt lo the Diagonal IxeczAve
    Council Fin(Aings, limplenteggations, and 1.rnrcestey Mecornmencladons.

  • Page 34 of 159

  • i) AppinVed as Section 32 offictr for payment to Kajah Development &
    Business Service Centre, a private company without proper due diligence
    checks and its track record of being in the Building Industry.

    ii) The letter and Invoice on file and submitted by the Managing Director,
    Mr Obed Rouri, to the Secretary for DNPM was for the final 10 0/o of
    Contract No: COI — 76/2008 for 1(37,000.00 to be paid but instead the
    requisition officer requested for 1(180,000 and Acting Secretary approved
    this. As a result, an overpayment of 1(143,000 was made.

    There is NO Project Completion Certificate on file to certify that this
    contract was fully implemented. Only the Provincial Works Manger’s status
    report addressed to Secretary but attention made to FAS-IED, a position
    held by Mr William Sent in an acting capacity recently. The Provincial Works
    Manager mentioned in his status report that the actual Contract No: Col
    76/2008 was not at his disposal to determine whether the project was done
    according to specifications.

    0 There was very long delay of more than two (2) years from the time the
    contract was entered into and this payment which should be explained.

    Part II Section 5 (a), (b), (d), (e), (i) and (g) of the Public Finances
    (Management) Act, 1995 were breached as the Departmental Head.

    The cheque signing officers, Assist Secretary Finance Mr Aloge Alupe and the
    counter signing officer and the authorized requisition officer, Mr Moses Aihi, as
    accountable officers are equally responsible for raising, approving and releasing
    moneys without properly monitoring resulting in excessive payments totaling
    1(143,000.00.

    Part II Section 6 of the Public Finances (Management) Act, 1995 and Part 8 of
    the Finance Instruction were breached as Accountable Officers.

    4. National Tenders & Contracts

    This contract valuing 1(450,000.00 falls within PSTB and/or CS IB threshold and
    should have been publicly tendered but instead COI – 76/2008 was issued. The
    nature of the contract does qualify the issuance of a COI yet such was issued.

    5. Missing Source Documents

    The payment vouchers for the first 90% payment and the contract document
    together with other supporting documents were missing.

    . Possible Contractor & Employer Conflicts

    27 April 2012 Page 33
    Pro..ft Inves’thgallon Tas2c-7ons 3weeD 7112.ine.7a11 lirle National Zczcznve
    r,oancli 91- Lis Fhadings, laniilemea;:anc:ras, end 7 -2.7a9Te73.ecommo.n.0..atIons.

  • Page 35 of 159

  • FUNAL REPUITI

    It is noted that Mr William Sent, was the Acting First Assistant Secretary – IED
    within the Department of National Planning & Monitoring at the time of payment
    and he is the Director of the contractor Kajah Development & Business Services
    Centre as per the company extract. Mr Sent has awarded a contract to himself

    7. Directorship, Expenditure of Funds and Site Inspections

    The Directors of the company as per the company extract are Obed Rouri and
    William Sent Keleim.

    The technical valuation of the markets shows that the market does not equate with
    the value of the money. In the absence of a contract, it is found that the amount was
    grossly overpaid for a substandard market, hence bulk of the monies were diverted
    to purposes other than the markets.

    8. Recommendations
    1) Firstly;

    a) The Departmental Head should be dealt with under General Order 8.22 and
    Section 114A of the PFMA.
    b) Other Accountable Officers mentioned in hereinabove (if a confirmed
    I
    Director) should be dealt with under Sections 102, 112 and 113 of the PFMA
    and General Order 15.
    c) Any other captions of the General Order and Public Services (Management) Act,
    1995 deemed appropriate for all officers stated in (a) and (b) above.

    2) Concurrently, the Departmental Head and Acting Secretary, Ms Ruby Zartiga,
    Acting First Assistant Secretary-IED, Mr William Sent, Assistant Secretary
    Finance Mr Aloge Alupe should be interviewed in relation to this contract by
    the fraud squad.

    Case 2: Payment of K100,000 to Kerekamb Island Corporative Society

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that were approved by NEC and subsequently Parliament in
    2010 for 2011 Development Budget. Consequently, we were unable to establish
    whether this project went through the normal budget process through to NEC.

    The payments were made from vote item 2075 6000 01 252000, earmarked for Social
    Development Program that should have been administered by the Department of
    Health.

    27 April 2012 Page 34
    Tirst Prof Imesflga2ion Task-?force sweep iTinal 24) the Naeional Enecutive
    Council of iQs Findings, Imolemenga2lons, and Diythey Ileconurnendaiions.

  • Page 36 of 159

  • LEDINAL BERM’S
    2. Facts involving Project Submission, Appraisal and Approval for th.! K100,000

    o Initial project proposal dated if April, 2011 was submitted for two (2) Lucas
    Sawmills to do a small scale logging by a Pastor Michael Kui in Mount Hagen,
    Western Highlands Province.

    • The same address used by K-Island Builders Ltd of which Mr William Sent is a
    Director and at the same time Acting First Assistant Secretary-IED of DNPM.

    ® Without any project appraisal and screening, Assistant Secretary-Budgets raised
    FF3 and FF4 on even date.

    • Again, immediately on 1′ April, 2011, Acting Secretary-Ms Ruby Zarriga
    approved the payment as Section 32 Officer.

    o Finally, on the next day, 2′ d April, 2011, cheque No:189 for K100,000 was paid.

    . is reach of Financial Management and Administrative Process in facilitating
    the release of K100,000.00.

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and officer responsible for
    financial administrative role of the Departmental.

    The acting Secretary — Ms Ruby Zarriga as Departmental Head and Chief
    Accountable Officer,

    (a) Approved as Section 32 Officer for this payment without any project appraisal,
    assessment or recommendation from her senior staff. Proper due diligence
    checks including its certificate of incorporation for this corporative society was
    not done.

    (b) On the same date (01/04/2011), the project proposal done, requisition by
    requisition officer, approval by Section 32 Officer without the financial delegate
    and commitment clerk signing and next day cheque was paid even from a wrong
    vote.

    Part H Section 5 (h), (d), (II and (g) of the Public Finances (Management)
    Act, 1995were breached as the Departmental Head.

    The cheque signing officers, Assistant Secretary Finance Mr Aloge Alupe and the
    counter signing officer and the Authorized Requisition Officer, Assistant Secretary-
    Budgets Mr Paul Daungun, as accountable officers are equally responsible for raising,
    approving and releasing moneys.

    27 April 2012 Page 35
    pintPrAft Hnvestigation Tash-Fonce Sweep Final Repoyl to the National Exec;give
    Councii of its Findings, Empiententations, and Twine!? Deconmendations.

  • Page 37 of 159

  • EN AL RE: POR1T
    1 3 afi: H Sect lot 6 of the Public Finances (Mam,y,Linent) Act, 1995 was
    breached as Accountable Officers.

    4. Expenditure of Funds and Site inspections

    The cheque of K100,000.00 was drawn on the name of Kerekamb Island
    Corporative Society’s account with the ANZ Bank Mt Hagen Branch.
    On or after 26/4/10 Ps Michael Kui immediately made cash withdrawals and started
    buying items like one day old chickens for members of the society, stockfeed, cash
    of K10,000.00 given to their local church as tithes , parts for chain’ saw and other
    unappropriated items etc. Pastor Micheal Kui himself single handles the funds
    which were to purchase a complete set Lucas Sawmill.
    Police findings reveal that the sum of K100, 000.00 that was acquired from the
    Department of National Planning and Monitoring was not used in purchasing a
    complete set of Lucas Sawmill but was diverted to other use. Police also confirm that
    the Society headed by Chairman Pastor Michael Kui misappropriated the sum of
    K100, 000.00 to the use of others.

    On Wednesday the 9 th of November 2011 at about 9:00am Pastor Micheal Kui was
    asked to front up at the Mt Hagen fraud office. He voluntarily came where he was
    interviewed and later arrested and charged for misappropriating the sum of
    K100,000.00 to the use of others the property of the state. He is out on bail. The
    prosecution file was served on him and he is awaiting the committal hearing.

    5. Reco mendations

    1. Firstly;

    a) The Departmental Head should be dealt with under General Order 8.22 and
    Section 114A of the PFMA.
    b) Other Accountable Officers mentioned hereinabove should be dealt with under
    Sections 102, 112 and 113 of the PFMA and General Order 15; and
    c) Any other captions of the General Order and Public Services (Management) Act, 1995
    deemed appropriate for all officers stated in (a) and (b) above.
    2. Concurrently, the Acting Secretary, Ms Ruby Zarriga, Assistant Secretary-
    Budgets Mr Paul Daungun, Assistant Secretary Finance Mr Aloge Alupe and
    Acting First Assistant Secretary-IED, Mr William Sent should be interviewed in
    relation to this payment by the fraud squad.
    3. The Directors of the Co-operative society be interviewed by the Fraud Squad on
    the expenditure of the public funds.

    Case 3: Payment and Release of K547,000 to K-Island Builders Ltd

    1. Analysis of the Payment Sc Final Submission to NEC

    27 April 2012 Page 30
    7irstPrAft Davestigation gash-lione Zweey rinaiDepril 1`’ne Nattionall DAeculive.
    ConsuiR or it Findings, implementadons, and iTmigkeR Liecommendatons.

  • Page 38 of 159

  • REPOR-17

    The DNPM did not provide to the Task force team the list of projects and their
    cost estimates by Sectors that were approved by NEC and subsequently
    Parliament in 2009 and 2010 for 2011 Development Budget. Consequently, we
    were unable to establish whether this project went through the normal budget
    process through to NEC.

    The payments were made from vote item 229.000.101725, earmarked for
    Districts Markets Program.

    2. Facts involving Project Submission, Appraisal and Approval for the
    K547,000.00

    Initial project proposal not on file but on 31st August, 2008, CSTB in its Meeting
    No: SM-008/2008 awarded and approved the construction of Hagen Central
    Sub-District Markets to K-Island Builders Ltd for a quoted price of
    K450,000.(K150,000 each) for three (3) markets in Western Highlands Province
    through Contract No: COI — 062/2008.

    During later part of 2008, all of 2009 and 2010, nothing is said about the project
    and whether payments were made in relation to this contract but in 2011, cheque
    No:111 for K410,000 dated 18/03/11 was paid and again shortly after three (3)
    days, cheque No:133 for K137,000 dated 22/03/11 was paid.

    3. reach of Financial Management and Administrative Process in
    facilitating the release of K547, 000.00.

    The primary responsibility for the prevention and detection of fraud rests with
    the Departmental Head as Chief Accountable Officer and officer responsible for
    financial administrative role of the Departmental.

    The acting Secretary — Ms Ruby Zarriga as Departmental Head and Chief
    Accountable Officer,
    (a) Approved as Section 32 officer for payment to K-Island Builders LTD, a
    private company without proper due diligence checks and its track record of
    being in the Building Industry.
    (b) The invoice for the final progressive payment was for K110,000 but
    requisition and approval was for K137,000, in excess of K27,000.
    The Contract No: COI — 062/2008 approved value was K450,000.00 but
    actual payment totaled K547,000.00 resulting in an overpayment of
    K97,000.00. Also we were unable to ascertain whether any down payment
    made in 2008 in relation to this project.

    27 April 2012 Page 37
    Fir5tPrAft- Invesitigation Tash-Tone Sweep Final Reposi 8o the ilialianal Egeculive
    Connor of Us Findings, llnwiegnenr,a’sions, and Fzuthey Mecommondeions.

  • Page 39 of 159

  • ENAL REPORT-

    The full contract value plus additional K97,000 was paid . but there is NO
    Project Completion Certificate on file to certify that this contract was fully
    implemented.

    o There was very long delay of more than two (2) years from the time the
    contract was entered into and this payment which should be explained.

    Part H Section 5 (a), (b), (d), (e), (/) and (g) of the Public Finances
    (Management) Act, 1995were breached as the Departmental Head.

    The cheque signing officers, Assist Secretary Finance Mr Aloge Alupe and the
    counter signing officer and the authorized requisition officer, Mr Moses Aihi, as
    accountable officers are equally responsible for raising, approving and releasing
    moneys without properly monitoring resulting in excessive payments totaling
    1(97,000.00.

    Part II Section 6 of the Public Finances (Management) Act, 1995 and Part 8 of
    the Finance Instructions were breached as Accountable Officers.

    4. National Tenders & Contracts

    This contract valuing 1(450,000.00 falls within Central Supply & Tenders Board
    threshold and should have been publicly tendered but instead COI – 062/2008 was
    issued. This project was not qualified for a COI pursuant to Section 40 (3) (b) of the
    PFMA hence the issuance thereof was a gross abuse of the established procedures and
    amounts to fraud.

    5. Missing Source ocuments

    The payment vouchers for cheque No:111 for value 1(410,000 together with the other
    supporting documents were missing.

    6. Contractor & Employer Conflicts

    It is noted that Mr William Sent, was the Acting First Assistant Secretary- IED
    within the Department of National Planning & Monitoring at the time of payment
    and he was also the Director of the contractor, K-Island Builders Limited per the
    Contract Agreement through his directorship of Kajah Development and Business
    Services which is the shareholding company of K-Island Builders. As such, Mr Sent
    has awarded a contract to himself.

    7. Expenditure of Funds and Site Inspections

    27 April 2012 Page 38
    Tint PrAft Investigation Tasit-Foyce Sweep Final Repost to the National Executive
    Council of its Tintings, lannlentenlations, and Irtiniliog Zeconmentlailons.

  • Page 40 of 159

  • IFFAL [KROFT
    Upon site inspect-H.1s five of the proposed markets were built. _However, the

    standard of the markers do not show the value for the money. There were make-shift
    sheds those various locations which would cost less than 1(10,000 with its existing
    fittings. Also, the sheds were built at locations distanced from the normal marketing
    places hence they are not is use.

    8. Recommendations

    1. Firstly;

    a. The Departmental Head should be dealt with under General Order 8.22 and
    Section 114A of the PFMA.
    b. Other Accountable Officers mentioned hereinabove should be dealt with
    under Sections 102, 112 and 113 of the PFMA and General Order 15.
    c. Any other captions of the General Order and Public Services (Management) Act,
    1995 deemed appropriate for all officers stated in (a) and (b) above.

    2. Concurrently, the Departmental Head and Acting Secretary, Ms Ruby Zarriga,
    Acting First Assistant Secretary-IED, Mr William Sent, Assistant Secretary
    Finance Mr Aloge Alupe should be interviewed in relation to this contract by
    the fraud squad.

    3. The Director of the recipient company, Mr William Sent should be interviewed
    by the Fraud Squad for the expenditure of the public funds.

    Case 4: Payment and Release of K1.0 tnillion to Koningi Coffee Limited

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that were approved by NEC and subsequently Parliament in 2009
    for 2010 Development Budget. Consequently, we were unable to establish whether
    this project went through the normal budget process through to NEC.

    The payment was made incorrectly from vote item 1204-1292-144, eaitnarked for
    Business Development Grants. Proper vote would be the NADP vote.

    2. Facts involving Project Submission, Appraisal and Approval for the K1.0
    million

    0 On 11 th August, 2011, a project proposal was submitted by a Mr Lufai Wan
    (Managing Director) for establishment of a new coffee project to be located
    Watabung LLG, Daulo Electorate, EHP.

    27 April 2012 Page 39
    T-irstPrxft Jnvesfigalion Task-Tome we Final Repot to ghe Nafional Executive
    COI4216 01PS nnengs, Implemexteflons, and FuslEari Recommendations.

  • Page 41 of 159

  • ENAL REPOCF7
    • The CVs included in the project proposal are the same ones also included in Rait
    Hela Coffee Limited a project located in Komo/Magarima District of SHP. See
    Case 11.

    e On 12 th August, 2010, the Secretary-Mr Joseph Lelang approved and directed K1.0
    million for a K4.5 million project proposal without any project assessment, appraisal
    and screening process.

    • The Acting Assistant Secretary- Budget Mr Japheth Michael. raised the requisition
    for K1.0 million and was signed by Secretary – Mr Joseph Lelang as Section 32
    officer without the commitment clerk and financial delegate signing and the cheque
    No: 43638 for K1.0 million was processed, signed and released, on 18 th August,
    2010.

    • K1.0 million of State’s much needed development funds released to this project,
    without any project assessment, appraisal, screening and approval process raises the
    question of whether due regard to economy, efficiency and avoidance of waste have
    been carefully assessed.

    3. Breach of Financial Management and Administrative Process in facilitating
    the release of K1.0 mi on

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and officer responsible for
    financial administrative role of the Departmental.

    The Secretary — Mr lielang as Departmental Head and Chief Accountable Officer,

    iii) Approved as Section 32 Officer for payment to Koningi Coffee Limited, a
    private company without proper due diligence checks and its track record of
    rehabilitating and setting up agricultural plantations.

    iv) The Secretary illegally paid from vote item 1204-1292-144 earmarked for
    Business Development Grants instead of NADP vote.

    Part II Section 5 (a), (b), (d), (e), (I) and (g) of the _Public Finances
    (Management) Act, 1995 were breached.

    The Acting Assistant Secretary-Budget, Mr Japheth Michael illegally paid from vote
    item 1204-1292-144, earmarked for Business Development Grants instead of NADP
    vote. .

    The cheque signing officers Mr Aloge Alupe, Assistant Secretary Finance and the
    counter signing officer are equally responsible for approving and releasing moneys
    earmarked for the said projects to a different agricultural project.’

    27 April 2012 Page 40
    7int linvestlgalAcn TES:i°70!?7,:? Swee9 Y:.7 52a] neRoal la the Ilagil.anal nceculfrve
    ‘;„’annet al i. s Taf.ings, lizzoaesmezteAlons, ET2 L” .1, z1 1.2e2LletIonv.rn.eitcia110ns.

  • Page 42 of 159

  • ENAL EED:TETT

    Part L Section 6 of the Public Finances (Management) Act, 1995 and Part 8 of
    the Finance Instructions were breached as Accountable Officers.

    4. National Tenders & Contracts

    For the purpose of this, DNPM does not have an internal Supply & Tenders Board.
    The Department Secretary has the capacity of up to K300,000.00. Any amount
    beyond that is the responsibility of the CSTB. For the establishment of agricultural
    project for K1.0 million, falls within PSTB and/or CS threshold for procurement.

    Again, the Secretary — Mr Lelang as Depar uental Head and Chief Accountable
    Officer has assumed the role of CSTB when K1.0 million was not within his
    financial limit.

    5. Control Weaknesses

    The DNPM does not have a departmental payment procedure/guideline that would
    show the financial limits attached to certain positions for approval of requisitions, as
    financial delegates and Section 32 Officers for payments. This has been a very
    serious internal control weakness that should have been addressed as the
    Department was in control of the Development Budget (PIP) and its own Recurrent
    Budget.

    For the Development Budget, proper established processes were not followed in
    project assessment, appraisal, screening and approval or planned and approved
    projects that went through the budget process right through to National Executive
    Council and Parliament were not implemented.

    6. Expenditure of Funds and Site Inspections

    The Director of the company is Mr. Lufai WARI who is from the Koningi area of
    the Asaro/Watabung area of EHP. His company according to the extracts from IPA
    is based in Port Moresby. He wrote a project proposal requesting for K4 million
    from the DNPM but was only given K1million. The cheque was paid to his
    company on the 18 111 August 2010 after he opened an account with BSP POM
    Branch and was the sole signatory to the account. There was no tender process for
    this payment but was done directly from the DNPM to the company account
    purposely for rehabilitation of a new coffee plantation in the Watabung area.

    The bank statements indicate that most of the money was diverted for personal use
    with huge amounts made on cash payment bases with some funds been credited to
    personal accounts and not on the purposes intended for. This shows a clear case of
    DEFRAUDING THE INDEPENDENT STATE of Papua New Guinea. Some of
    these funds were used to purchase Motor vehicles from Ela Motors.

    27 April 2012 Page 41
    7-ir)t PrAft Tesa-Troyzie Sweep 2elleyil 1D Metlenei ExecutIve
    ..3aunc51 efivA.13 ranghtgs, kamaereen1E.ii1do:o.s, Mecommenigel’osis.

  • Page 43 of 159

  • EINAL REPOR7

    7. Recommendations

    1. Firstly,

    a) The Departmental Head should be dealt with under General Order 8.22 and
    Section 114A of the PFMA.

    b) Other Senior and Accountable Officers mentioned in 4.3 above should be dealt
    with under Sections 102, 112 and 113 of the PFMA and General Order 15; and

    c) Any other captions of the General Order and Public Services (Management) Act, 1995
    deemed appropriate for all officers stated in (a) and (b) above.

    2. Concurrently, the Departmental Head, Mr Lelang, Acting Assistant Secretary-
    Budget, Mr Japheth Michael and the Assistant Secretary Finance, Mr Aloge Alupe
    should be interviewed by the fratid squad in relation to this payment.

    3. The directors of the recipient company should be interviewed by the Fraud Squad
    on how these funds were received and used.

    Case 5: Payment and Release of K1.5 million to Mettle Limited

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that were approved by NEC and subsequently Parliament in
    2010 for 2011 Development Budget. Consequently, we were unable to establish
    whether this project went through the normal budget process through to NEC.

    The payment was made from vote item 101722, earmarked for Social Development
    Program that should be transferred to the Public Authorities (Agencies) for
    implementation.

    2. Observations on Project Submission, Appraisal and Approval for the K1.5
    million

    o The project proposal/submission in relation to this payment was not on file.
    However, per the FF3 and FF4, this was a funding assistance for rehabilitation of
    Vailala Hiloi Primary School in Gulf Province.
    3
    On 13 th August, 2009, Minister Paul Tiensten in a letter directed Mr Lelang to
    release K5.3 million to this project stating that the Governor for Gulf has written
    to him in relation to this project. However, copy of this letter not on file and this
    amount did not fell through ‘in 2009 and 2010. Again on 20` h December, 2010, the

    27 April 2012 Page 42
    First Pro ft laves2igation Tas?c-Force Sweep Final Repord to the National Eneentive
    Council of its Findings, lanplemen .ta.tions, and TurtheY Recommendations.

  • Page 44 of 159

  • F UNA [RE[PBEI-Cf
    Minister in an official letter titled Urgent Coiiiracts Outstanding, listing twciaty
    three (23) projects totaling K28.8 million and to whom the payments would be
    made including K1.5 million for Mettle Limited, wrote to Mrs Ruby Zarriga who
    was then Acting Secretary.
    o The Minister further authorized his Research Officer and Special Projects Officer
    Mr Mildred Tamiloeni and Mr Christopher Hulape respectively to co-ordinate from
    his office and ensure proper appraisal processes were adhered to.
    o There is no project appraisal, project screening committee meeting minute or a CoI
    in relation to this project on file.
    o The FF3 and FF4 were filled out by Mr Chris Bakwak, an acting principal budget
    officer that time and signed as the requisition officer on 06t h January, 2011.
    e The acting Secretary Ms Zarriga approved as Section 32 Officer on 06t h January,
    2011 for the funds to be released to Mettle Limited without the commitment clerk
    and finance delegate signing.
    O Mettle Limited is a private company and proper due diligence checks and its track
    record of rehabilitating schools or building and maintenance should have been
    done.
    o The cheque No:000047 for K1.5 million was raised and released on 01′ March,
    2011 to Mettle Limited.
    o K1.5 million of State’s much needed development funds was released to this
    project, without the project proposal and no project appraisal raises the question of
    whether due regard to economy, efficiency and avoidance of waste have been
    carefully assessed.
    o The funds were supposed to have been taken from the REST vote, instead it was
    paid from funds earmarked for Social Development Program, a clear deviation
    from what Parliament authorized through the Appropriation Act.
    O The implementing agency was supposed to be the National Department of
    Education. The Education department had the capacity to organize for the tender
    by CSTB and manage the implementation of the project.

    3. Breach of Financial Management and Administrative Process in facilitating
    the release of K1.5 million

    The Minister responsible for Financial Management stipulated under Section 3 (1)
    Part II of the PFMA is the Minister for Finance and Treasury and not any other
    Minister, including the Minister for National Planning. As such, Minister Paul
    Tiensten had breached the PFMA when he exercised financial directives to
    departmental staff.

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and officer responsible for
    financial administrative role of the Department.

    27 April 2012 ?age 43
    Tir5t :1:TivsslAgejLY1 Zwee:J 3e;3031 :1AlaneKe. Egeeutive
    at Us FInellngs, 1.1.1311..T:11,1ydalio;:ls,
    1
    a1161 :7:12’2:12,3 1201:31::511110:16. 1 6:VICIP.S.

  • Page 45 of 159

  • IFINNAL REPORIT
    Part II Section 5 of the Public finance anagement) Act, 1995 among other
    responsibilities of the Departmental Head, he/she must ensure that;

    (a) the provisions of this Act are complied with;

    (b) all accounts and records relating to the functions and operations of the department
    are properly maintained;

    (d) all expenditure is properly authorized and applied to the purposes for which it is
    appropriated;

    (e) all expenditure is incurred with due regard to economy, efficiency and
    effectiveness and avoidance of waste.

    The acting Secretary — Ms Zarriga, as Departmental Head and Chief Accountable
    Officer that time had failed to comply with the above provisions and as such, Part II
    Section 5 (a) (b), (d), and (1) of the Public Finances (Management) Act, 1995
    were breached.

    The cheque signing officers Mr Aloge Alupe- Assistant Secretary Finance, Chris
    Bakwak, Principal Budget Officer and requisition officer and the counter signing
    officer are equally responsible for facilitating the payment without proper
    assessment, approval and project documentation.

    Part H Section 6 of the Public Finances (Management) Act, 1995 and Part 8 of
    the Finance Instructions were breached as Accountable Officers.

    4. National Tenders & Contracts

    DNPM does not have an internal Supply & Tenders Board. For the rehabilitation of
    this school, although the funds were available at DNPM, if a private company was to
    be paid for the works, it is subject to the PFMA, hence it would have been tendered
    by CS 1’13. The amount of K1.5 million clearly falls within the jurisdiction of GS M.
    As such, the Department of National Planning and Monitoring and its officers had
    assumed the role of CSTB when 1(1.5 million was not within their financial limit.

    5. Expenditure of Funds and Site Inspections
    Site inspections yet to be conducted.

    6. Recommendations

    1. Firstly;

    a) The Departmental Head should be dealt with under General Order 8.22 and
    Section 114A of the PFMA.

    27 April 2012 Page 44
    Tint Pro ;ft IInvestigation Tasic-Fone Sweep, Finai RepoYit to the National Mecutive
    Council of its Findings, Implementations, and Furthe7 Recommendations.

  • Page 46 of 159

  • FRIAL REPIDET

    b) Other Accountable Officers mentioned in hereinabove should be dealt with
    under Sections 102, 112 and 113 of the PFMA and General Order 15.

    c) Any other captions of the General Order and Public Services (Management) Act, 1995
    deemed appropriate for all officers stated in (a) and (b) above.

    2. Concurrently, the Minister Paul Tiensten, the Departmental Head, Ms Zarriga,
    Assistant Secretary Finance Mr Aloge Alupe and Mr Chris Bakwak should be
    interviewed in relation to this payment by the fraud squad.

    3. Mr Tiensten and Ms Zarriga should be investigated by the Ombudsman Commission
    for their part in this payment pursuant to the Leadership Code.

    Case 6: Payment and Release of K3.5 million and K1,108,650.18 to
    Niug,ini Star Transport Limited

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that were approved by NEC and subsequently Parliament in
    2009 for 2010 Development Budget. Consequently, we were unable to establish
    whether this project went through the normal budget process through to NEC.

    The payment was made from vote items 1204-1299-225, K3,500,475.85 earmarked
    for Business Growth Centre Development.

    2. Observations on Project Submission, Appraisal and Approval for the K3.5
    million

    O The initial project proposal was not located at the DNPM in relation to this road
    upgrading project located in Komo/Magarima District of Southern Highlands
    Province.

    e Description of Project and Location: According to the Contract Agreement, upgrading
    of Yuhama to Pandoka Road in the Komo-Margarima District of Sothern
    Highlands Province.

    ® The project approval process, appraisal and its subsequent approval Minute by
    the project steering committee (if any) were missing in the accounts section of
    Department of National Planning & Monitoring.

    o Project Steering Committee or Internal Supply & Tenders Board: There is no such
    committee or board within DNPM where project proposals are deliberated,
    screened and approved for funding.

    27 April 2012 Page 46
    Fir5t Pratt htvestigation ‘lash-Tome Sweep Repost to the national Executive
    CouncE of its Iiin&Ings, iLmpResnentaticns, and Tuytheig neconnuendations.

  • Page 47 of 159

  • EINAL REPOTTI

    o The requisition (FF4) for the 13.5 million and the FF3 signed by Section 32
    Officer and the financial delegate were also missing. However, the Section 32
    Officer that time was the Secretary – Mr Lelang as he approved as Section 32
    Officer for the bridge project for K5.0m by the same company.

    o Contract No: Col: 035/10 for the Road Upgrading and Contract No: Col:
    036/10 for construction of three (3) Bridges were both signed and awarded by
    CSTB to Niugini Star Transport Ltd on 08th November, 2010 and again this
    Contract No: CoI: 087/10 signed on 08 th December, 2010, a space of just one
    month.

    o Full (100%) payment and released full contract value of K3,500,475.85 on
    cheque No:44012 dated 20t h October, 2010 but cancelled and replaced with
    cheque No: 44103 dated 3r d November, 2010 for the same amount. However,
    under Section 5.2 of the signed contract, stated the payment schedule as 30%,
    30%, 20% and 20% and this was not complied with.

    o The payment was made first on 20t h October, 2010 and the contract signed later
    on 08 th December, 2010 through Col: 087/10 between CSTB and Niugini Star
    Transport Ltd a company nominated by the Governor for SHP for the bridge
    project. This is a serious breach of the Public Finance Management Act.

    o Also the cheque was raised on 20t h October, 2010 first and later the tender bid
    for this project dated 23r d October, 2010 addressed to the Governor for SHP by
    the Administration and Finance Manager of Niugini Star Transport Ltd. Mr
    Lelang and CS1B need to explain why full payment was made first and later
    tender bids and contract signed.

    o There is no document on file showing due regard to economy, efficiency and
    avoidance of waste have been carefully assessed and considered; and

    o The monies were taken out of the Business Growth Centre Development vote but
    the contract was for road/bridge infrastructure. This is deviation from Parliaments
    approval for the expenditure of public funds.

    o The properly, legislated and equipped Public Authority established by the
    Government to construct, renovate and maintain the roads and bridges is the
    Department of Works well established in all provinces. As such, Mr Lelang should
    be held accountable for not transferring Roads and Bridges funds to Department
    of Works or the Provincial Treasury through CSTB for proper and value for
    money implementation.

    27 April 2012 Page 4C.i,
    pint Pr, r.
    laves’Aganon Tss2t-4′ Tec2 3riez9 17ao, E …tac -nthre
    .
    ‘!:’,DIE:zzAa A’ss 71 4161:Ing3, 212.711emealF.V.a:ns, Der..:039? me3.ila13ans.

  • Page 48 of 159

  • FINAL REPOEU
    K3.5 million of titate’s much needed development funds were released to this
    project. Without a proper project proposal and direct payment made to this private
    company raises the question of whether due regard to economy, efficiency and
    avoidance of waste have been carefully assessed and considered.

    3. Breach of Financial Management a d Administrative Process in
    facilitating the release of K3.5 million

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and Officer responsible for
    financial administrative role of the Department.

    Part II Section 5 of the Public Finance (Management) Act, 1995 among other
    responsibilities of the Departmental Head, he/she must ensure that;
    (a) the provisions of this Act are complied with;

    (b) all accounts and records relating to the functions and operations of the
    department are properly maintained;

    (d) all expenditure is properly authorized and applied to the purposes for which it is
    appropriated;

    all expenditure is incurred with due regard to economy, efficiency and
    effectiveness and avoidance of waste.

    The Secretary — Mt Lelang as Departmental Head and Chief Accountable Officer
    that time had failed to comply with the above provisions and as such, Part H
    Section 5 (a) (b), (d), and (4 of the Public Finances (Management) Act, 1995
    were breached.

    The authorized Requisition Officer and the cheque signing Officers Mt Aloge Alupe
    and the counter signing officer arc equally responsible for the release of moneys
    without proper documents in place.

    Part H Section 6 of the Public Finances (Management) Act, 1995 and Part 5 of
    the Finance instructions were breached as Accountable Officers.

    4. National Tenders Sc Contracts

    The amount of K3.5m falls within the jurisdiction of CSTB and payment to a single
    nominated company without public tender is a serious breach of the PFMA.

    The purported COIs were flawed in that they appear to have been issued well after
    the payment was made. Even if CSTB was involved, the nature of the works does
    not fall under the category that would attract a Col. CoI is .for emergency related

    27 April 2012 Page 47
    Pr Aft heye.s2ta4ion ?ask-Tone Sweep Final Report lo lhe iUatio as Dreelgive
    Council el Als Ifraplementaflolas, a iaa li’maTAaez 3ecommeadallions.

  • Page 49 of 159

  • EF L REPOIE1T
    situation aid also , Col- cannot be issued retrospectively to cover a contract that was
    illegal. The issuance of CoI No. 087/10, if ever was issued, was illegal and fraudulent.

    There was no reason for the issuance of a CoI at all except to conceal the fraudulent
    and illegal payment of funds.

    5. Project Supervision and Completion

    Per the Appendix to the conditions of the contract, the Provincial Works Manager
    was named as the delegate of the “employer” who is the Independent State of Papua
    New Guinea. As such there is neither project status report nor a completion report
    by the Provincial Works Manager stating whether the project was successfully
    completed according to Department of Works specifications and value for money
    gained.

    6. Conflict of Interest

    Nuigini Star Transport is owned by Jeffrey Yakopia, an employee of DNPM. The
    implication of him using his position to orchestrate the payment cannot be ruled out.
    There is therefore a serious conflict of interest in this payment.

    7. Payment of K1,108,650.18

    Another payment for road works between Paduaga and Yuhama Road,
    Komo/Magarima District was made to Nuigini Star Transport Ltd on 25t h
    November 2010, Cheque No. 44239

    The Southern Highlands Provincial Government had engaged Cargen Prett Services,
    a company based in Mendi to do road works construction of this same road in 2007
    through PS’TB. However, Nuigini Star Transport upon variations for road works
    submitted to DNPM and received the funding to do the same work for the value of
    K1,108,650.18.

    8. Expenditure of Funds and Site Inspections

    Site Inspections revealed that there is no road being built along that area.

    Mr. Jeffery Yakopiya is the director of the company and is also the signatory of the
    account himself which is operated at Westpac Bank, Boroko Branch. He has no
    other Directors apart from himself. The Bank account was opened on the 10/03/10
    before getting funds from the Department of National Planning & Monitoring into
    this account. The company is also registered with IPA and incorporated on the 06t h
    August 2005. When Mr. YAKOPIYA opened the account, funds totaling about 5
    million kina (in separate cheques) deposited into the account for certain construction

    27 April 2012 Page 48
    icirt :Draft 3nvesflgelion l’as./A-Foyce Sweep Final Re;ooN go ghe 111e4ionai Executive
    iS;onacAl oi FindAngs, larikmengaiAons, and Fazraer Recommendations.

  • Page 50 of 159

  • FINAL REPORT
    work on bridges along the Komo/Magarirna District Of the Southern Highlands
    Province.

    The bank statements show most of the funds were on cash payments even in huge
    amounts with some payments done to companies like Ela Motors, Boroko Motors,
    Niugini Oil Company Hosting Deering and believed to be for Motor vehicles and
    Earth Moving Vehicles.

    9. ecommendations

    1. Firstly;

    a) The Departmental Head, Mr Lelang should be dealt with under General
    Order 8.22 and Section 114A of the PFMA.

    b) Other Accountable Officers mentioned in hereinabove should be dealt with
    under Sections 102, 112 and 113 of the PFMA and General Order 15.

    c) Any other captions of the General Order and Public Services .1 anagemeni) Act,
    1995 deemed appropriate for all officers stated in (a) and (b) above.

    2. Concurrently, the Departmental Head, Mr Lelang, Authorized Requisition
    Officer, Assistant Secretary Finance Mr Aloge Alupe, Chairman of CSTB Bryan
    Kimmins, Hon Anderson Agiru and the project proponent, the Managing
    Director of Niugini Star Transport Ltd Mr Mr Jeffrey Yakopyia should be
    interviewed in relation to this payment by the fraud squad.

    Case 7: P ayment and Release of K5.0 million to Niugini Star
    Transport Limited

    Col # Project Chq No: Amount (K)
    a 036/10 3x Bridges in SHP 42097 3,900,000.00
    b 036/10 3x Bridges in SHP 43635 1,100,000.00
    TOTAL: 5,000,000.00

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that went through the above (3.0) development budget process,
    approved by NEC and subsequently Parliament in 2009 for 2010 Development
    Budget. Consequently, we were unable to establish whether this project went
    through the normal budget process through to NEC.

    27 April 2012 Page 49
    First Pratt iln.insggaiion TasA-Togce Sweep Final Repo71 to the National Executive
    Council of its Findings, gainemzentations, and Finthey Recommendations.

  • Page 51 of 159

  • 5cJI A.L FliPIDEU
    The payment was made from vote items 4203-2209-225, K3.9 million and 3909-
    5201-143, K1.1 million earmarked for Rural Roads and Coastal Vessels Program
    respectively that should have been transferred to the Public Authorities for proper
    value for money implementation.

    2. Observations on Project Submission, Appraisal, Type and Location

    o The initial project proposal obtained from the DNPM is for three (3) bailey bridges
    located in Komo Margarima District of Southern Highlands Province as denoted
    on the cover namely Wage, Lapae and Guria bridges.

    o Description of Project and Location: The contents of the contract depicts that the scope
    of works and its locality, relates to a 27 km re-gravelling and sealing on a selected
    road in East New Britain Province. It has implications of someone doing a copy-
    paste job in haste just to facilitate the payment.

    • The project was supported by the Governor, Hon. Anderson Agiru through a letter
    dated 12 th May, 2010. He further requested for the K5.0m to be made payable to
    Niugini Star Transport Ltd as “Department of Works in Mendi was overloaded
    with work” an unsubstantiated statement and for reasons only known to the
    Governor for the K5.0m to be made payable to a private company by-passing all
    procurement processes.

    9 The project approval process, appraisal and its subsequent approval Minute by the
    project steering committee (if any) were missing in the accounts section of
    Department of National Planning & Monitoring.

    © Project Steeling Committee or Internal Supply & Tenders Board: There is no such
    committee or board within DNPM where project proposals are deliberated,
    screened and approved for funding.

    o The Assistant Secretary- EID- Mr Jeffery Yakopya raised a requisition for K5.0
    million. The Secretary-Mr Lelang approved as Section 32 officer on 31st May, 2010
    for K5.0 million however the commitment clerk signed on 02″ June, 2010.

    O It appeared the Secretary approved without knowing whether funds were available
    or not for K5.0 million. The Assistant Secretary- EID- Mr Jeffery Yakopya then
    seeing only K3.9 million was available, changed and initialed on the FF4 from K5.0
    million to K3.9 million. Further, the financial delegate did not sign and cheque No:
    42004 for K3.9 million was processed, signed and released on 02″ June, 2010.
    However, the balance of K1.1 million was later paid on cheque No:43635 dated
    17 t h August, 2010.

    K5.0 million of State’s much needed development funds were released is this project.
    Without a proper project proposal and direct payment made to this private company

    27 April 2012 Page 5,0
    Fir;’t 7.7?.ves2 iga2Acin Tas2t-Toyce atus’a) ilejoTe,lio1he iVa.2:to7./.03
    2 .a:diter? 1.2ecomnaexl&ions.

  • Page 52 of 159

  • E NAL REPOni
    the (jueshou of whether due regard to economy, efficiency and avoidance of
    waste have been carefully assessed and considered.

    reach of Financial Management and Administrative Process in facilitating
    the release of K5.0 million

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and Officer responsible for
    financial administrative role of the Department.

    Part II Section 5 of the Public Finance (Management) Act, 1995 among other
    responsibilities of the Departmental Head, he/she must ensure that;

    (a) the provisions of this Act are complied with;

    (b) all accounts and records relating to the functions and operations of the
    department are properly maintained;

    (c) all expenditure is properly authorized and applied to the purposes for which it is
    appropriated;

    (d) all expenditure is incurred with due regard to economy, efficiency and
    effectiveness and avoidance of waste.

    The Secretary — Mr Lelang as Departmental Head and Chief Accountable Officer
    that time had failed to comply with the above provisions and as such, Part II
    Section 5 (a) (b), (d), and (I) of the Public Finances (Management) Act, 1995
    were breached when he;

    On 14 th May, 2010 on the letter by Hon. Anderson Agiru in a foot note requested
    acting Deputy Secretary-PIP to appraise and act on it without a project appraisal and
    its subsequent approval Minute by the project steering committee.

    Approved as Section 32 Officer for;

    9
    An initial project submission that was flawed with only the cover stating the three
    (3) bridges in Southern Highlands Province but the content related to a different
    project, a road sealing in East New Britain Province.

    0 A contract that was flawed when he approved full (100%) payment on 31″ May,
    2010 and cheque No: 42004 for K3.9m raised. This cheque was later cancelled and
    replaced with cheque No:42097 for K8.9m dated 17 th June , 2010 (K3.9m for the
    bridges and K5.0m for road construction).The other K1.1m for the bridges was
    paid on cheque No:43635 dated 17 th August, 2010. The contract was signed on 08 th
    November, 2010 through Col: 036/10 between CSTB and Niugini Star Transport

    27 April 2012 Page 51
    Pr oft linvesgigagion Taec-Fosce Sweep Tina iileport go the National Egecugive
    Council at A•s Findings, Impementagions, and Tunny Recommendations.

  • Page 53 of 159

  • F-UNAL REPT)[27
    Ltd. aicompany nominated by the Governor for SLIP, payment approved and made
    first and then Authority to Pre-Commit (APC) and contract concluded and signed
    later. This is a serious breach of the Public Finance Management Act.

    o A signed contract that contained sections that related to ADB and its payment
    process but does not contain the payment schedule for this contract thus Mr
    Lelang and CSTB need to explain why full payment was made first and later
    contract signed.

    o There is no document on file showing due regard to economy, efficiency and
    avoidance of waste have been carefully assessed and considered; and

    o The properly, legislated and equipped Public Authority established by the
    Government to construct, renovate and maintain the roads and bridges is the
    Department of Works well established in all provinces. As such, Mr Lelang should
    be held accountable for not transferring Roads and Bridges funds to Department of
    Works or the Provincial Treasury through CSTB for a value for money
    implementation for the funds allocated in the Development Budget of which
    K3.9m million is part of and K1.1m for the Coastal Vessels Program.

    Also, Section 40 of the PFMA stipulates public tenders to be called for “works and
    services” through public tenders board for value more than 1(300,000.00 and this
    was breached by approving and paying K5.0m to a single nominated company
    without proper public tender.

    The Assistant Secretary- EID- Mr Jeffery Yakopya, authorized requisition officer and
    the cheque signing Officers Mr Aloge Alupe and the counter signing officer are
    equally responsible for the release of moneys without proper documents in place.

    Pan II Section 6 of the Public Finances (Management) Act, 1995 and Part 5 of
    the Finance Instructions were breached as Accountable Officers.

    4. National Tenders & Contracts

    For the purpose of this, DNPM does not have an internal Supply & Tenders Board.
    The Secretary for DNPM can authorize payment of up to 1(300,000.00. The amount
    of K5million falls within the jurisdiction of CSTB for supply of works and services
    for and on behalf of the State with properly constituted contracts.

    In this case, payment was flawed as no public tenders were called and payment was
    made first and then APC and the Col: 036/10. Even if a valid CoI was issued, the
    nature of works/contract does not qualify the issuance of a CoI on such contracts,
    hence the Col is illegal and fraudulent.

    5. (Conflict of Interests

    27 April 2012 Page 52
    PrAft 231,ves) 7:17nr.z1 Tcle j. 9c:,’,1 2s The 1la21cona2 71;:e.c1.121ve.
    1;s717:247:111 TL-101721-i s, ]a? 1. TuyEiray Klesommenclations.

  • Page 54 of 159

  • FINAL HEMET

    Jeffrey Yakopyia is the director of the recipient of these monies, Nuigini Star
    Transport Limited and he himself appears to have facilitated the payment using his
    position as a senior officer of DNPM.

    6. Expenditure of Funds and Site inspections

    Site Inspections revealed that there were no new bailey bridges being built or even
    maintenance done on the existing bridges. The existing bridges were built by the
    resource sector companies and are still in good condition.

    Mr. Jeffery Yakopyia is the director of the company and is also the signatory of the
    account himself which is operated at Westpac Bank, Boroko Branch. He has no
    other Directors apart from himself. The Bank account was opened on the 10/03/10
    before getting funds from the Department of National Planning & Monitoring into
    this account. The company is also registered with IPA and incorporated on the 06 th
    August 2005. When Mr’. YAKOPIYA opened the account, funds totaling about 5
    million kina (in separate cheques) deposited into the account for certain construction
    work on bridges along the Komo/Magarima District of the Southern Highlands
    Province.

    The bank statements show most of the funds were on cash payments even in huge
    amounts with some payments done to companies like Ela Motors, Boroko Motors,
    Niugini Oil Company Hosting Deering and believed to be for Motor vehicles and
    Earth Moving Vehicles.

    7. Recommendations

    1. Firstly;

    a) The Departmental Head, Mr Lelang should be dealt with under General Order
    8.22 and Section 114A of the PFMA.

    b) Other Accountable Officers mentioned in 4.3 should be dealt with under Sections
    102, 112 and 113 of the PFMA and General Order 15.

    c) Any other captions of the General Order and Public Services (Management) Act, 1995
    deemed appropriate for all officers stated in (a) and (b) above.

    2. Concurrently, the Departmental Head, Mr Lelang, Assistant Secretary- EID- Mr
    Jeffery Yakopya Assistant Secretary Finance Mr Aloge Alupe and the project
    proponent, the Managing Director of Niugini Star Transport Ltd should be
    interviewed in relation to this payment by the fraud squad. Further, the Governor
    for Southern Highlands Province, Honorable Anderson Agiru should be

    27 April 2012 Page 33
    Tint:Draft anves2igaiion Tasit-Tcyce Sweep Fine nep o uo One Natozcie Executive
    Calancil digs TinciLags, haoienaen3a8lons, Teethes MecoTriznendagons.

  • Page 55 of 159

  • FOINAL HERMIT
    qut;stioned by Fraud Squad for his part in requesting payment to be made to the
    said company.

    3. Further, Honorable Anderson Agiru should be referred to the Ombudsman
    Commission for further investigations for his part in this payment.

    Case 8: Payment and Release of K5 0 million to Niugini Star Transport
    Limited

    Col # Project Chq No: Amount (K)
    a 035/10 Road in SHP 42097 5,000,000.00
    5,000,000.00

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that were approved by NEC and subsequently Parliament in
    2009 for 2010 Development Budget. Consequently, we were unable to establish
    whether this project went through the normal budget process through to NEC.

    The payment was made from vote item 4203-2209-225, K5.0 million earmarked for
    Rural Roads that should have been transferred to the Public Authorities, in this case,
    the Department of Works for proper implementation through CSIB.

    It must be noted that the cheque no 42097 was in the sum of K8.9million of which
    K3.9 million was for the balance of the construction of bailey bridges as stated in
    Case No. 7 hereinabove and bears the same cheque number.

    2. Facts involving Project Submission, Appraisal and Approval for the 15.0
    million

    ® The initial project proposal was not located at the DNPM in relation to this road
    maintenance project located in Komo/Margarima District of Southern Highlands
    Province.

    Description of Project and Location: According to the Contract Agreement, upgrading of
    Yuhama to Yongle Road in the Komo-Margarima District of Sothern Highlands
    Province.

    C4 Like the bridge project, the Managing Director of Niugini Star Transport, a Mx
    Yalop Pakio on 08 th February, 2010 wrote to Honorable Anderson Aigiru. The
    responses to that letter by the Governor together with other documents in relation
    to this payment are missing.

    27 April 2012 Page 54
    Fir5t PrAft :Investigation Taslr-Foyce Sweep Elnal llepoFt to tie National Executive
    Council of its Findings, hiapionentations, and Tirane Eleconmendations.

  • Page 56 of 159

  • FINAL HERDETT

    9
    The project approval process, appraisal and its subsequent approval Minute by the
    project steering committee (if any) were missing in the accounts section of
    Department of National Planning & Monitoring.

    • Project Steering Committee or Internal Supply & Tenders Board: There is no such
    committee or board within DNPM where project proposals are deliberated,
    screened and approved for funding.

    • The requisition (FF4) for the K5.0 million and the FF3 for Section 32 Officer and
    the financial delegate was also missing. However, the Section 32 Officer that time
    was the Secretary – Mr Lelang as he approved as Section 32 Officer for the bridge
    project for K5.0m by the same company and also a single cheque No: 42097 dated
    17 s’ June, 2010 for K8.9 million was raised and paid for the two projects.

    41
    Contract No: CoI: 035/10 for the Road Upgrading and Contract No: Col: 036/10
    for construction of three (3) Bridges were both signed and awarded by CSTB to
    Niugini Star Transport Ltd on 08 th November, 2010.

    K5.0 million of State’s much needed development funds were released to this
    project. Without a proper project proposal and direct payment made to this private
    company raises the question of whether due regard to economy, efficiency and
    avoidance of waste have been carefully assessed and considered.

    3. Breach of Financial Management and Administrative Process in facilitating
    the release of K5.0 million

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and Officer responsible for
    financial administrative role of the Department.

    Part II Section 5 of the Public Finance (Management) Act, 1995 among other
    responsibilities of the Departmental Head, he/she must ensure that;

    (a) the provisions of this Act are complied with;

    (b) all accounts and records relating to the functions and operations of the
    department are properly maintained;

    (c) all expenditure is properly authorized and applied to the purposes for which it is
    appropriated;

    (d) all expenditure is incurred with due regard to economy, efficiency and
    effectiveness and avoidance of waste.

    27 April 2012 Page 55
    pint Proft havestigagion TasEc-irorece Sweep Final Repoz Euecutive
    CounciR on Rs Flndings, Intplementaflons, and Teolhey Eleconmeadaiions.

  • Page 57 of 159

  • FiNAL BERDEIT
    The Secretary Mr Wang as Departmental Head and Chief Accountable Officer
    that time had failed. to comply with the above provisions and as such, Part II
    Section 5 (a) (b), (d), , and (1) of the Public Finances (Management) Act, 1995
    were breached when he;

    • Failed to keep records in relation to this payment of K5.0m except the contract
    and actual paid cheque, whilst all other documents supporting this payment were
    missing from the Department of National Planning & Monitoring.

    9
    Approved as Section 32 Officer for;

    o A contract that was flawed when he approved full (100%) payment and cheque
    No:42097 for K8.9m dated 17t h June , 2010 (K3.9m for the bridges and K5.0m
    for Road Upgrading) was raised and paid.

    o The payment was made first on 17t h June, 2010 and the contract signed later on
    08th November, 2010 through Col: 035/10 between CSTB and Niugini Star
    Transport Ltd a company nominated by the Governor for SHP for the bridge
    project. This is a serious breach of the Public Finance Management Act.

    • A signed contract that contained sections of the conditions of contract that
    related to World Bank and its payment process including advance payments but
    does not contain the payment schedule for this contract thus Mr Lelang and
    CSTB need to explain why full payment was made first and later contract signed.

    o There is no document on file showing due regard to economy, efficiency and
    avoidance of waste have been carefully assessed and considered; and

    o The properly, legislated and equipped Public Authority established by the
    Government to construct, renovate and maintain the roads and bridges is the
    Department of Works well established in all provinces. As such, Mr Lelang
    should be held accountable for not transferring Roads and Bridges funds to
    Department of Works or the Provincial Treasury through CSTB for proper and
    value for money implementation.

    • Also, Section 40 of the PFMA stipulates public tenders to be called for “works
    and services” through CSTB for value more than K300,000.00 and this was
    breached by approving and paying K5.0m to a single nominated company
    without proper public tender.

    The authorized Requisition Officer and the cheque signing Officers Mr Aloge Alupe
    and the counter signing officer are equally responsible for the release of moneys
    without proper documents in place.

    27 April 2012 Page ZZ
    :
    pint P701 i; 3.2weslIgaglon Tas2c-:”Fone Sweep u2 a 3 e or 2c the Nalionai I:cool/five
    Findingz, :17p1rneTrigallIons, rei6 TuFn2a.,2 iReconamenclalions.

  • Page 58 of 159

  • FONIAL 031E.PE1)ETI
    Pail II Section 6 of the Public Finances (Management) Act, 1995 and Part 5 of
    the Finance Instructions were breached as Accountable Officers.

    4. National Tenders & Contracts

    For the purpose of this, DNPM does not have an internal Supply & Tenders Board
    The Secretary of DNPM can authorize payment of up to K300,000.00 only. Any
    amount beyond that is subject to public tender.

    This was flawed as no public tenders were called and payment was made first and
    then APC and the CoI: 035/10 signed. Even if a valid CoI was issued, the nature of
    works/contract does not qualify the issuance of a CoI on such contracts, hence the
    Col is illegal and fraudulent.

    5. Conflict of Interest

    Jeffrey Yakopiya is the director of the recipient of these monies, Nuigini Star
    Transport Limited and he himself appears to have facilitated the payment using his
    position as a senior officer of DNPM.

    6. Expenditure of Funds and Site Inspections

    Site Inspections revealed that there were no new bailey bridges being built or even
    maintenance done on the existing bridges. The existing bridges were built by Exxon
    Mobil and are still in good condition.

    Mr. Jeffery Yakopiya is the director of the company and is also the signatory of the
    account himself which is operated at Westpac Bank, Boroko Branch. He has no
    other Directors apart from himself. The Bank account was opened on the 10/03/10
    before getting funds from the Department of National Planning & Monitoring into
    this account. The company is also registered with IPA and incorporated on the 06t h
    August 2005. When Mr. YAKOPIYA opened the account, funds totaling about 5
    million kina (in separate cheques) deposited into the account for certain construction
    work along the Komo/Magarirna District of the Southern Highlands Province.

    The bank statements show most of the funds were on cash payments and does
    indicate huge amounts with some payments done to companies like Ela Motors,
    Boroko Motors, Niugini Oil Company Hasting Deering and believed to be for
    Motor vehicles and Earth Moving Vehicles.

    7. Recommendations

    1. Firstly;

    27 April 2012 Page 57
    Fir3t PrAft Eavestigatioat Tash-Forme sweep nna Aeooyi to the National Enecutive
    Coliacli Ats Tindings, Lar..pkalentations, INythey 2ecomateniatioals.

  • Page 59 of 159

  • Fr:NIALL Er.ELID0127
    The Dcivitrnental Head, Mr Lelang should be dealt with cinder General Order
    8.22 and Section 114A of the PFMA.

    b) Other Accountable Officers mentioned hereinabove should be dealt with under
    Sections 102, 112 and 113 of the PFMA and General Order 15.

    c) Any other captions of the General Order and Public Services (Management) Act, 1995
    deemed appropriate for all officers stated in (a) and (b) above.

    2. Concurrently, the Departmental Head, Mr Lelang, Authorized Requisition
    Officer, Assistant Secretary Finance Mr Aloge Alupe and the project proponent,
    the Managing Director of Niugini Star Transport Ltd should be interviewed in
    relation to this payment by the fraud squad.

    3. Hon Anderson Agiru also has to answer for his part in orchestrating the
    payment. Fraud Squad and Ombudsman Commission should question him
    accordingly.

    Case 9: Payment and Release of K3.0 million to Hiland Farms Limited

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that were approved by NEC and subsequently Parliament in
    2009 for 2010 Development Budget. Consequently, we were unable to establish
    whether this project went through the normal budget process through to NEC.

    The payment was made illegally from vote item 1204-1280-143, earmarked for Large
    Plantation Rehabilitation that should be transferred to the Public Authorities
    (Agencies) for implementation, particularly the Department of Agriculture and
    Livestock.

    2. Facts involving Project Submission, Appraisal and Approval for the K3.0
    minion

    According to the project proposal on file, funds were sought to establish piggery,
    poultry and chicken processing facilities. The project location is in Rabaul, East New
    Britain. The proposed finance structure contained in the proposal was for GoPNG
    to contribute K.2.5 million and the project owners to contribute as equity of K0.5
    million. However, the Secretary — Mr Lelang on a foot note directed the Deputy
    Secretary-PIP, for the release of K3 million from the Large Plantations’ allocation to
    this project.

    27 April 2012 Page 58
    linvesligagion Basic-7cintre Sweep Final llepoyrlio the Nalional E .,ceculive
    Council of !.t Findings, aniuleFuesalaflons, and. Tunfaes Tleconisuendalions.

  • Page 60 of 159

  • FRIAL REPOIRU
    The Dcpury Secrc. y PIP, raised the requisition for 1 –

    officer and the fi.aancith delegate did not sign and cheque No: 43362 for K3.0
    million was processed, signed and released on the next day, 21st July, 2010.

    K3.0 million of State’s much needed development funds released to this project,
    raising the requisition, Section 32 Officer not approving and raising cheque no:
    43362 all on the same date, is just fraud and raises the question of whether due
    regard to economy, efficiency and avoidance of waste have been carefully assessed.

    3. Breach of Financial Management and Administrative Process in facilitating
    the release of K3.0 million

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and officer responsible for
    financial administrative role of the Departmental.

    The Secretary — Mr Lelang as Departmental Head and Chief Accountable Officer,

    i) Failed to ensure that Section 32 officer on all payments should approve before
    cheques were raised and released. Hiland Farms Limited is a private company
    and proper due diligence checks and its track record of piggery and poultry
    farming should have been done.
    ii) The amount requested per the finance structure was K2.5 million but K0.5
    million of the owner’s component was also paid by DNPM.
    iii) The Deputy Secretary-PIP illegally paid from vote item 1204-1280-143
    eamiarked for Large Plantation Rehabilitation, even without the section 32
    Officer signing and that is fraud.

    Part H Section 5 (a), (d), (i) and (g) of the Public Finances (Management)
    Act, 1995were breached.

    The cheque signing officers Mr Aloge Alupe- Assistant Secretary Finance, Deputy
    Secretary-PIP and the counter signing officer are equally responsible for facilitating
    the payment.

    Part 11 Section 6 of the Public Finances (Management) Act, 1995 and Part 8 of
    the Finance Instructions were breached as Accountable Offficers.

    4. National Tenders & Contracts

    The DNPM does not have an internal Supply & Tenders Board but even if there was
    one, K300,000.00 is the maximum limit and K10 million is the maximum limit of
    CSTB for supply of works and services for and on behalf of the State with properly
    constituted contracts.

    27 April 2012 Page 5S
    Tirst Pre ft lavestigaliola Tedc-Farce Sweep Fbriaa avaor 8o t&ae Natio&aaIl ncetugave
    react of 1115 ErsgRemeatznoms, and FurfEleg ReCOEMORGhtiOHIS.

  • Page 61 of 159

  • FliNtAL REPIDRU

    For the establishment of a piggery and poultry project for K3.0 million should have
    been referred to CSTB for procurement. As such, the Department and its officers
    had assumed the role of CSTB when K3.0 million was not within their financial
    limit.

    5. Expenditure of Funds and Site Inspections

    Director of the company is Mr. Anton KULIT and Mr. Willie MARUM. Both arc
    the Directors and signatories of the company (HILAND FARMS LIMITED) which
    is located along the Warangoi Road of the Pomio District of ENBP. The account of
    the company was opened on the 05/08/10 at BSP Branch Port Moresby after the
    Department of National Planning & Monitoring released a sum of K3 million and
    deposited into the company account on the 21/06/10. Current extracts on the
    company show the company was incorporated on the 26/07/10. Investigations
    confirm that there was no tender of this project and the money was paid directly
    from National Planning to the company.

    The bank statements indicate that most of the money was diverted for personal use
    with huge amounts made on cash payment bases with some funds being credited to
    personal accounts and not on the purpose intended for. Some of this funds were
    used to purchase Motor vehicles from Ela Motors.

    On recent site inspections, in 2012, new buildings have been erected in the vicinity
    of the HILANDS FARMS area. However, since the funds were released on the
    month of July 2010, nothing has been done until recently which shows one thing and
    that is that nothing would have been done if it wasn’t for this investigation.

    6. Recommendations

    1. Firstly;

    a) The Departmental Head should be dealt with under General Order 8.22 and
    Section 114A of the PFMA.
    b) Other Accountable Officers mentioned hercinabove should be dealt with under
    Sections 102, 112 and 113 of the PFMA and General Order 15.
    c) Any other captions of the General Order and Public Services (Management) Act, 1995
    deemed appropriate for all officers stated in (a) and (b) above.

    2. Concurrently, the Departmental Head Mr Lelang, Deputy Secretary-PIP and
    Assistant Secretary Finance Mr Aloge Alupe should be interviewed in relation to
    this payment by the fraud squad.
    3. The Directors of Hilands Farms Limited have to be interviewed by the Fraud
    Squad.

    27 April 2012 Page GO
    ir5t Pmfi; invesiligation Tash-Fone Sweep Final PlepoT.4 to the National Executive
    Council of fis Findings, Implementations, and repthey llecontmencItations.

  • Page 62 of 159

  • FINAL HEMET

    Case 10: Payment and Release of K3.0 million to Agricultural
    Development Limited

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the ITFS the list of projects and their cost estimates
    by Sectors that were approved by NEC and subsequently Parliament in 2009 for
    2010 Development Budget. Consequently, we were unable to establish whether this
    project went through the normal budget process through to NEC.

    The payment was made illegally from vote item 1204-1280-143, earmarked for Large
    Plantation Rehabilitation that should be transferred to the Public Authorities
    (Agencies) for implementation.

    2. Facts involving Project Submission, Appraisal and Approval for the K3.0
    millions

    There is no project proposal on file. The payment vouchers including the cheque
    copies and original cheque slip missing. The funding is to assist pyrethrum
    processing, a project located somewhere in Wabag per payee history printout. Postal
    address, C/-JDP & BPC Lagaip.

    The cheque was raised and released on the same date as cheque No:42262 to Yapiok
    Contractors Limited for K2.0 million also for pyrethrum processing, (some likeness).
    Refer to case 12 below.

    K3.0 million of State’s much needed development funds released to this project, with
    all payment vouchers missing raises the question of whether due regard to economy,
    efficiency and avoidance of waste have been carefully assessed.

    3. Breach of Financial Management and Administrative Process in facilitating
    the release of K3.0 million

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and officer responsible for
    financial administrative role of the Departmental.

    The Secretary — Mr Lelang as Departmental Head and Chief Accountable Officer
    that time,

    0 Failed to ensure that all accounting records were properly kept. Agricultural
    Development Limited is a private company and proper due diligence checks and
    its track record of establishing pyrethrum processing facilities should have been
    •clone.

    27 April 2012 Page 61
    Tint Pratt anvesigablon Uaslt-Tone Sweep Final 3epoT210 the National ncecutive
    Council of its Findings, Innelementailions, and FuRthere raecontunestaatiotts.

  • Page 63 of 159

  • RIVAL HEFIDEI

    Part 5 ,(a), (4 and (g) of the Public Finances (Management) Act,
    1995 were beached.

    The cheque signing officers are equally responsible for raising and signing cheque
    and releasing moneys earmarked for the said projects to a different agricultural
    project.

    Part H Section 6 of the Public Finances (Management) Act, 1995 was
    breached as Accountable Officers.

    4. National Tenders & Contracts

    Part VII, Section 39 under subsections (1) (2) and (3) of the Public Finances
    (Management) Act, 1995 empowers the minister by way of notice in the National
    Gazette; establish an internal supply and tenders Board with limits (lower than the
    minimum threshold of the Central Supply & Tenders Board), policies to be applied,
    criteria for the evaluation and other rules in relation to the operation of the internal
    tenders board.

    For the purpose of this, DNPM does not have an internal Supply & Tenders Board.
    Secretary for DNPM can authorize payment up to K300,000.00. The amount of
    K3million falls within the jurisdiction of either PSTB or CSTB.

    For the establishment of a pyrethrum processing facility for K3.0 million should
    have been referred to CSTB for procurement. As such, the Department and its
    officers had assumed the role of CSTB when K3.0 million was not within their
    financial limit.

    5. Irregularities on the Payment Vouchers

    The DNPM does not have a depariniental payment procedure/guideline that would
    show the financial limits attached to certain positions for approval of requisitions, as
    financial delegates and Section 32 officers for payments. This has been a very serious
    internal control weakness that should have been addressed as the Department was in
    control of the Development Budget (PIP) and its own Recurrent Budget.

    Even if DNPM had a payment guideline, approval and release of K3.0 million would
    be based on a properly constituted contract for works and services to the State. As
    such, those senior officers have assumed the role of CSTB, a financial management
    decision, committing and paying K3.0 million of State’s much needed Development
    Funds to a private company that does not fall within their financial limit without due
    care, no due diligence checks and even still paying from different legislated
    projects can only be termed as “highly fraud”.

    27 April 2012 Pa ;a 62
    Tint Praf% lave.sflga:21oR .’ :Es:c-To3tce awee? 7121.0. :127oy.1 lo Erne NalienaH 2;cecialve
    s)T5:,:s .7’1:1161:ings 9 1151,2f.srrsacial el.ea,.s, anD,”Tu.7:Eley

  • Page 64 of 159

  • FINAL REFORU
    Part II Section 5 (a), (a) , 0) and (g) of the Public Finances (Management) Act, 199 5 were
    .

    breached.

    6. Expenditure of Funds and Site Inspections

    Site inspections are yet to be conducted.

    7. Recommendations

    1. Firstly, the Secretary- Mr Lelang and Assistant Secretary-Finance should be
    interviewed in relation to this payment. Based on the interview;

    a) The Departmental Head should be dealt with under General Order 8.22 and
    Section 114A of the PFMA.

    b) Other Senior Officers should be dealt with under the General Order 15; and

    c) Any other captions of the General Order and Public Services Management) Act,
    1995 deemed appropriate.

    3. Concurrently, the Senior Officers should also be referred to the fraud squad to
    be dealt with under the criminal Code.

    4. The directors of the recipient company should be interviewed by the Fraud
    Squad on the expenditure of the public funds.

    Case 11: Payment and Release of K3.0 million to Rait Hela Coffee
    Limited

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that were approved by NEC and subsequently Parliament in
    2009 for 2010 Development Budget. Consequently, we were unable to establish
    whether this project went through the normal budget process through to NEC.

    2. Observations on Project Submission, Appraisal and Approval for the K3.0
    million

    e On 06 th August, 2010, a project proposal was submitted by a Timothy Timbalu
    Kaloma (Managing Director) for a coffee project located in Komo/Magarima
    District of Southern Highlands Province.

    27 April 2012 Page 63
    First PrAft Investigation T’as2{-Foyce Sweep ?Final Reput to the National ‘Executive
    Council ol Ails Findings, Havipieinentarions, and Finney gieconmendations.

  • Page 65 of 159

  • IF9NAL HIEPOEU
    The CVs included in the project propOsal are the same ones included in Koningi
    Coffee Limited proposal located in Watabung LLG, E.HP. Refer to Case 4 above.

    O The payment was made illegally from vote item 1204-1296-143, out of the K178
    million earmarked for District Services Improvement Program (K.2.0m each for
    the 89 Districts). The DSIP funds are paid directly to the District Treasuries and
    project identification is by JDP & BPC in the districts.

    o On 12 6′. August, 2010, the Secretary-Mr Joseph Lelang approved and directed
    K3.0 million for a K5.0m project proposal without any project assessment,
    appraisal and screening process.

    o The Acting Assistant Secretary- Budget Mr Japheth Michael, raised the requisition
    for K3.0 million and was signed by Secretary – Mr Joseph Lelang as Section 32
    Officer without the commitment clerk and financial delegate signing and the
    cheque No: 43602 for K.3.0 million was approved, processed, signed and released
    on even date, 12t h August, 2010.

    o K3.0 million of State’s much needed development funds released to this project,
    raising the requisition, approving as Section 32 Officer and raising cheque no:
    43608 all on the even date, raises the question of whether due regard to economy,
    efficiency and avoidance of waste have ever been carefully assessed.

    3. Breach of Financial Management and Administrative Process in
    facilitating the release of K3.0 million

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and officer responsible for
    financial administrative role of the Departmental.

    The Secretary — Mr Lelang as Departmental Head and Chief Accountable Officer,

    i) Approved as Section 32 officer for payment to Rait Hela Coffee Limited, a
    private company without proper due diligence checks and its track record of
    rehabilitating and setting up agricultural plantations.
    ii) The Secretary illegally paid from vote item 1204-1296-143, out of K178 million
    earmarked for District Services Improvement Program (1(2.0m each for the 89
    Districts).

    Part H Section 5 (a), (b), (d), (e), (i) and (g) of the Public Finances
    (Management) Act, 1995 were breached.

    The Acting Assistant Secretary-Budget, Mr Japheth Michael illegally paid from vote
    item 1204-1296-143, out of K178 million earmarked for District Services

    27 April 2012 Page 64
    Tim t Prg,ft Investigation ‘gash-Forme Sweep Final Repokt to the National Executive
    Council oLF its :Findings, Ernalententatlons, aaacl FaAl’ael.? MecommenEations.

  • Page 66 of 159

  • FONIAL FREEPaTill
    improvement Program’ (K2.0m each for th2 89 Districts). Deviation of
    Parliamentary Appropriation is unlawful.

    The cheque signing officers are equally responsible for approving and releasing
    moneys earmarked for the said projects to a different agricultural project.

    Part H Section 6 of the Public Finances (Management) Act, 1995 and Part 8 of
    the Finance Instructions were breached as Accountable Officers.

    4. National Tenders & Contracts

    Part VII, Section 39 under subsections (1) (2) and (3) of the Public Finances
    (Management) Act, 1995 empowers the minister by way of notice in the National
    Gazette; establish an internal supply and tenders Board with limits (lower than the
    minimum threshold of the Central Supply & Tenders Board), policies to be applied,
    criteria for the evaluation and other rules in relation to the operation of the internal
    tenders board.

    For the purpose of this, National Planning & Monitoring Department (NPMD) does
    not have an internal Supply & Tenders Board for supply of works and services for
    and on behalf of the State with properly constituted contracts.

    For the establishment of agricultural project for K3.0 million, should have been
    referred to CS1.13 for procurement as there was no internal supply and tenders board
    if funds were available.

    Again, the Secretary — Mr Lelang as Departmental Head and Chief. Accountable
    Officer has assumed the role of CSTB when K3.0 million was not within his
    financial limit.

    5. Directorship, Expenditure of Funds and Site Inspections

    The Director of the company is Mr.Robert TIA who is a Sole signatory to the
    company account operated at BSP Port Moresby Branch. The company extracts
    show that Robert TIA is Director with other Directors namely Norma AGAU,
    Timon TUMBU ANL Liya BORORO, Hokotu BULU, Kati HEGABA, Haguai
    HEWALU, Amos KRLA, Kambura JOGOMA, Timothy TIMABLU, Luke KEWA,
    Andrew LEPE and Mark MIN.ALU. There was no tender process for this payment.
    The claim was paid without any supporting documents like submission with the
    company profile including Certificate of Incorporation from IPA and COC from
    IRC. The payment was purposely for a Marco Scale Coffee plantation in the
    Komo/Magarima area of SHP.

    Site inspections were done in September 2011 and confirmed that the coffee factory
    in Komo was incomplete and at its foundation stage. H9wever, most of the funds, as

    27 April 2012 Page 65
    373rSt. 12 raft ;Investigation Tash-Fone Sweep Fine Repo7t to the National Dcecutive
    Council of Ds Tharags, hur9Remeadeflons, and nralian Deccamendations.

  • Page 67 of 159

  • FONAL REPORT
    it appears from the bank statements, were already cashed and diverted to personal
    use.

    6. Recommendations

    1. Firstly,
    a) The Departmental Head should be dealt with under General Order 8.22 and
    Section 114A of the PFMA.
    b) Other Accountable Officers mentioned in hereinabove should be dealt with
    under Sections 102, 112 and 113 of the PFMA and General Order 15.
    c) Any other captions of the General Order and Public Services (Management) Act,
    1995 deemed appropriate for all officers stated in (a) and (b) above.

    2. Concurrently, the Departmental Head, Mr Lelang, Acting Assistant Secretary-
    Budget, Mr Japheth Michael and the cheque signing officers should be
    interviewed by the fraud squad in relation to this payment.

    3. The director of the company, Mr Robert Tia should be interviewed by the Fraud
    Squad for the receipt and use of the public funds through this company.

    Case 12: Payment and Release of K2.0 million to Yapiok Contractors Limited

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that were approved by NEC and subsequently Parliament in
    2009 for 2010 Development Budget. Consequently, we were unable to establish
    whether this project went through the normal budget process through to NEC.

    2. Facts involving Project Submission, Appraisal and Approval for the 1(2.0
    millions

    9
    There is no project proposal on file but according to the FF4, the funding
    was to assist pyrethrum processing & production without the location of the
    project whilst the postal address being in Port Moresby, NCD.

    ® There was no project appraisal, assessment report nor a project steering
    committee minute on file approving this project.

    The Budget Officer-Chris Bakwak signed as the requisition officer for K2.0
    million and was approved by Secretary – Mr Joseph Lelang as Section 32
    Officer and Assistant Secretary- Finance as financial delegate and cheque No:
    42262 for K2.0 million was processed, signed and released on 05 th July, 2010.

    27 April 2012 Page 66
    Fir.st Pr Aft Rnvestigation Tash-Fone Sweep Final Beport to the National laecative
    Council ot” its Findings, Laplementations, and Furrihey Zecommendations.

  • Page 68 of 159

  • FUNAL REPORT
    However ; 11-L cheque was noted to have been cancelled and replaced by
    Cheque No: 43236 dated 14` July, 2010 for the same amount.

    o The payment was made illegally from vote item 1204-1280-143, out of Large
    Plantations Rehabilitation Program where the funds should have been
    transferred to the Public Authorities for implementation

    o K2.0 million of State’s much needed development funds released to this
    project, raising the requisition, approving as Section 32 Officer and raising
    cheque no: 42262 all on the same date (cancelled and replaced with cheque
    No: 43236), raises the question of whether due regard to economy, efficiency
    and avoidance of waste have been carefully assessed.

    3. Breach of Financial Management and Administrative Process sn
    facilitating the release of 1c2.0 million

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and officer responsible for
    financial administrative role of the Department.

    The Secretary —1V.Er Lelang as Departmental Bead and Chief Accountable Officer,

    i) Approved as Section 32 Officer for payment to Yapiok Contractors Limited,
    a private company without proper due diligence checks and its track record
    of whether it was in the pyrethrum processing/production industry.
    ii) The Secretary illegally paid from vote item 1204-1280-143, out of Large
    Plantations Rehabilitation Program where the funds should have been
    transferred to the Public Authorities.

    Given the missing documents and the circumstances in relation to this
    payment, the Secretary did not ensure that expenditure was incurred with due
    regard to economy, efficiency and effectiveness and avoidance of waste.

    Part H Section 5 (a), (b), (d), (e), (i) and (g) of the Public Finances
    (Management) Act, 1995 were breached.

    The Budget Officer-Chris Bakwak signed as the requisition and illegally requested
    and paid from vote item 1204-1280-143, Assistant Secretary Finance, Mr Aloge
    Alupe as Financial delegate and cheque signing officer and the counter signing
    officer are equally responsible for facilitating the release of moneys for this project.

    Part H Section 6 of the Public Finances (Management) Act, 1995 and Part 8 of
    the Finance Instructions were breached as Accountable Officers.

    4. National Tenclero & Contracts

    27 April 2012 Page 67
    hvesligagon TasEt-Fosse Sweep Timid 3epoz2 lo likellTafional Execultive
    Council! of its 17211irags, krar.lememlalions, sad Faylley flecammeacialions.

  • Page 69 of 159

  • F2NAL REnm

    Part VII, Section 39 under subsections (1) (2) and (3) of the Public Finances
    (Management) Act, 1995 empowers the minister by way of notice in the National
    Gazette; establish an internal supply and tenders Board with limits (lower than the
    minimum threshold of the Central Supply & Tenders Board), policies to be applied,
    criteria for the evaluation and other rules in relation to the operation of the internal
    tenders board.

    For the purpose of this, National Planning & Monitoring Department (NPMD) does
    not have an internal Supply & Tenders Board for procurement and a Project Steering
    Committee for the development budget. Even if there was an internal tenders board,
    K300,000.00 is the maximum limit and K10 million is the maximum limit of CS1B
    for supply of works and services for and on behalf of the State with properly
    constituted contracts.

    For the establishment of pyrethrum processing/production facility for K2.0 million
    should have been referred to CSTB for procurement.

    Again, the Secretary — Mr Lelang as Departmental Head and Chief Accountable
    Officer has assumed the role of CS113 when K2.0 million was not within his
    financial limit.

    5. Directorship, Expenditure of Funds and Site Inspections

    The Director of the company is MrJohn YANIS who is the Sole signatory to the
    bank account operated at BSP Port Moresby Branch. The company extracts show
    that another Director is a Mr Nandi YAPIOK. There was no tender process for this
    payment. The claim was paid without any supporting documents like submission
    with the company profile including a Certificate of Incorporation from IPA and a
    COC from IRC. The payment was purposely for a Pyrethrum Process and payments
    done was on the 05/07/10.

    The payment vouchers do not show where the actual location of the project is hence
    site inspection was impracticable. In such instances, the only conclusion is that this
    was a ghost project.

    The bank statements indicate that most of the money was diverted for personal use
    with huge amounts made on cash payment bases with some funds been credited to
    personal accounts and not on the purpose intended for.

    6. • ecommendatians

    1. Firstly;

    27 April 2012 Page 68
    rite PrAft hivestigation Tasic-ToYce Sweela Tine. Deporet to the :17E1tosnal Executive
    Council ou its Findings, asal,51eme ations, ea it FurAhm Eecoznanesadatiosas.

  • Page 70 of 159

  • i]3[EPOR -T

    a) ‘1 he .Depai ulicutal Head should be dealt with under General Oidcr 8.22 and
    Section 11 , !A of the PFMA.
    b) Other Accountable Officers mentioned hereinabove should be dealt with
    under Sections 102, 112 and 113 of the PFMA and General Order 15.
    c) Any other captions of the General Order and Public Services (Management) Act,
    1995 deemed appropriate for all officers stated in (a) and (b) above.

    2. Concurrently, the Departmental Head, Mr Lelang Budget Officer, Chris Bakwak,
    Assistant Secretary Finance Mr Aloge Alupe and the project proponent should
    be interviewed in relation to this payment by the fraud squad.

    3. The Directors of the recipient company should be interviewed by the Fraud
    Squad for the receipt and expenditure of these public funds.

    4. Mr Lelang should be investigated by the Ombudsman Commission for his part
    in this payment pursuant to the Leadership Code.

    Case 13: Payment and Release of K700,000 to Tiki Coffee Estate
    Limited

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that were approved by NEC and subsequently Parliament in
    2007 for 2008 and 2010 for 2011 Development Budgets. Consequently, we were
    unable to establish whether this project went through the normal budget process
    through to NEC.

    The payments were made from vote item 2075 5000 01 276000, earmarked for
    Strategic Market Development Program. The objective for Strategic Market
    Development Program was to improve the infrastructure for the rural population in
    the 89 Districts to increase their incoming earning opportunities, thus enhancing the
    improvement of their living standards. The aim was to construct new markets and
    rehabilitate existing markets in the 89 Districts of Papua New Guinea.

    However, the project in question, by its nature, relates to large coffee plantation
    rehabilitation but the funds seem to have been sourced from a wrong vote.

    2. Observations on Project Submission, Appraisal and Approval for the K700,
    000.00

    Initial project proposal and approval not on file but on 30th June, 2008, CS 1 B ‘

    awarded and approved the consultancy services of Tiki Coffee Estate Limited for the
    rehabilitation of Tiki coffee plantation in Western Highlands Province through
    Contract No: CoI – 048/08 for value K1.5 million. A 50% totaling K750,000.00 was

    27 April 2012
    invssfligaiion. T.5.37i-F3sce. Swo.c7:i3 171. -zo3 :i3e72ot .,1.o the 11-nliondi aceclaVae
    1
    13,r,79ncA -T_70: ;7’,2. -Ahey

  • Page 71 of 159

  • said to have Ut.,1211 paid as down payment and for phase I of the project in 2009 per
    the letter by a Chairman Mr John Kol dated 06t h March, 2011.

    Dialing later part of 2008, all of 2009 and in 2010, nothing is said about the project in
    terms of project assessment and the status of phase I of this contract but in 2011,
    cheque No:184 for K700,000 dated 02/04/11 was paid as phase II.

    A Project appraisal was on file but is highly suspicious as appraiser’s name and
    signature not indicated. Reasons maybe that an officer appraised the project without
    a project visit and was reluctant to sign or the project proponent may have appraised
    it himself as the appraisal document does not bear the Department logo or letter
    head.

    3. Breach of Financial Management and Administrative Process in
    facilitating the release of K700,000.00.

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and officer responsible for
    financial administrative role of the Department.

    The acting Secretary — Ms Ruby Zarriga as Departmental Head and Chief
    Accountable Officer,
    i) Approved as Section 32 Officer for payment to Tiki Coffee Estate Limited, a
    private company without proper due diligence checks and its track record of
    being in the consultancy services to coffee plantations.

    ii) Per the contract, the Department of Agriculture & Livestock would monitor
    the contract in terms of progress and status. As such, the second payment
    (50%), this payment should have been endorsed by the Departments of
    Agriculture & Livestock and Monitoring section of the Department of
    National Planning and Monitoring before payment.

    9 There was a very long delay of more than two (2) years from the time the
    contract was entered into and this payment which should be explained.

    Pan E Section 5 (a), (b), (d), (e), (i and (g) of the Public Finances
    (Management) Act, 1995 were breached as the Departmental Head.

    o Assistant Secretary-Budgets, Mr Paul Daungun was the requisition officer
    and the claimant of this payment.

    o The cheque signing officers, Assist Secretary Finance Mr Aloge Alupe and
    the counter signing officer and the authorized requisition officer, Mr Paul
    Daungun, as accountable officers are equally responsible for raising,

    27 April 2012 Page 70
    Prrft, h•aves1iga4Aosk Tash-Tome Swee9 FaaaalH Repoyl lo the Nagiona2 Esteclagave
    Council milts Findings, HavlleraesagatIons, and Fuyikeg Recommendalions.

  • Page 72 of 159

  • nEr6E -D .
    approving and releasing moneys without properly looking at the contractual
    terms and conditions of this contract.

    Part II Section 6 of the Public Finances (Management) Act, 1995 and Part 8 of
    the Finance Instructions were breached as Accountable fficers.

    4. National Tenders & Contracts

    The DNPM does not have an internal Supply & Tenders Board but even if there was
    one, K300,000.00 is the maximum limit and K10 million is the maximum limit of
    CSTB for supply of works and services for and on behalf of the State with properly
    constituted contracts.

    This contract valuing K1.5 million falls within Central Supply & Tenders Board
    threshold and should have been publicly tendered but instead Col – 048/08 was
    issued and the reasons for this not stated. The nature of the works do not fall within
    those ones that require a CoI, hence the issuance of such in this case is a gross abuse
    and fraudulent.

    5. Project Phase IT

    As per request by the Chairman, Mr John Kol, phase II payment is for the
    establishment of a wet factory and labor compounds and should be complied with.

    6. Expenditure of Funds and Site Inspections

    Field trip to Tiki Plantation in. Dei, Western Highlands Province confirms that there
    is not factory and labour compound built as intended in Phase 2 payments. The
    company’s bank account with BSP, # 1003246087 shows a total of K101 pay cash
    cheques out of the K700,000 that was paid. The Cheques were paid to identified
    individuals and companies like Ela Motors etc. It is discovered that the funds had
    been used on purposes other than that which it was intended for.

    7. Recommendations

    1. Firstly;

    a) The Departmental Head should be dealt with under General Order 8.22 and
    Section 114A of the PFMA.

    b) Other Accountable Officers mentioned hereinabove and should be dealt
    with under Sections 102, 112 and 113 of the PFMA and General Order 15.

    c) Any other captions of the General Order and Public Services(Management) Act,
    1995 deemed appropriate for all officers stated in (a) and (b) above.

    27 April 2012 Page 71
    7-irst Pmft Investigation Tastt-Poke Sweev Fistal Report to the Nationai Executive
    CouncH o’ its rizulings, llal .pientelatations, and Furlher Reccutmesuiations.

  • Page 73 of 159

  • nIEIPDRU

    2. Concurrently, the Departmental Head and Acting Secretary, Ms Ruby Zarriga,
    Assistant Secretary-Budgets, Mr Paul Daungun, Assistant Secretary Finance Mr
    Aloge Alupe and Mr Wakai Digine as program officer and appraiser should be
    interviewed in relation to this contract payment after site inspection by the fraud
    squad.

    3. The Company owner, Mr John Kol be interviewed by the Fraud Squad for the
    receipt and expenditure of these funds.

    Case 14: Payment and Release of K2.0 million to Wando No.2 Coffee
    Estate Limited

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that were approved by NEC and subsequently Parliament in
    2009 for 2010 Development Budget. Consequently, we were unable to establish
    whether this project went through the normal budget process through to NEC.

    2. Observations on Project Submission, Appraisal and Approval for the K2.0
    million

    o On 12 th August, 2010, a project proposal was submitted by a Dickson Tasi,
    Managing Director of Wando No.2 Coffee Estate Limited to establish a coffee
    project in the Kagua Erave District of SHP.

    o The CVs and the company profile including its management and shareholders
    were not inserted in the project document.

    o The Acting Assistant Secretary- Budget Mr Japheth Michael, raised the requisition
    for K2.5 million and was signed by Secretary – Mr Joseph Lelang as Section 32
    Officer without the commitment clerk and financial delegate signing and cheque
    No: 43608 for K2.0 million (less K0.5 million) was processed, signed and released
    within two (2) days, on 13 th August, 2010, one day after cheque No:43602 for
    K3.0 million to Rait Hela Coffee Limited was paid.

    o The payment was made illegally from vote item 1204-1296-143, out of K178
    million earmarked for District Services Improvement Program (K2.0m each for
    the 89 Districts). The DSIP funds are paid directly to the District Treasuries and
    project identification is by JDP & BPC in the districts.

    o K2.0 million of State’s much needed development funds released to this project,
    raising the requisition, approving as Section 32 Officer and raising cheque no:

    27 April 2012 Page 72
    Tia5t P c Envesligalion Tos2i-Tone Zinzo Final ile7o:ra 10 no iia1iona.q Executive
    Czanc:13. °ICUs TAndings, limplleys.lealaM9ras, and iTTIY:Ele3 1.2ecomanencleAlons.

  • Page 74 of 159

  • NAL EPORT
    43601 all almost on the same date, raises the question of whether due regard to
    economy, efficiency and avoidance of waste have been carefully assessed.

    3. Breach of Financial Management and Administrative Process in
    facilitating the release of Ic2.0 million

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and officer responsible for
    financial administrative role of the Department.

    The Secretary — Mr Lelang as Departmental Head and Chief Accountable Officer,

    i) Approved as Section 32 Officer for payment to Wando No.2 Coffee Estate
    Limited, a private company without proper due diligence checks and its track
    record of rehabilitating and setting up agricultural plantations.
    ii) The Secretary illegally paid from vote item 1204-1296-143, out of 1(178 million
    earmarked for District Services Improvement Program (K2.0m each for the 89
    Districts).

    iii) The Secretary also approved as Section 32 Officer without the commitment
    clerk and the financial delegate signing.

    Part H Section 5 (a), (b), (e), (if and (g) of the Public Finances
    (Management) Act, 1995were breached.

    The Acting Assistant Secretary-Budget, Mr Japheth Michael illegally paid from vote
    item 1204-1296-143, out of K.178 million earmarked for District Services
    Improvement Program (K2.0m each for the 89 Districts).

    The cheque signing officers are equally responsible for approving and releasing
    moneys earmarked for the said projects to a different agricultural project.

    Fart H Section 6 of the Public Finances (Management) Act, 1995 and Part 8 of
    the Finance Instructions were breached as Accountable Officers.

    4. National Tenders & Contracts

    For the purpose of this, DNPM does not have an internal Supply & Tenders Board
    for supply of works and services for and on behalf of the State with properly
    constituted contracts.

    For the establishment of agricultural project for K2.0 million, should have been
    referred to CS 1 J3 for procurement as there was no internal supply and tenders board
    if funds were available.

    27 April 2012 Page 73
    Profit Envestigagion task-Force Sweep lianas Rellosit go ghe National Execugive
    Cauncil ors it Findings, anaideanengagions, and Furineu Reconmendagioras.

  • Page 75 of 159

  • FINAL REPORT-
    Again, the Secretary — Mr Lelang as Departmental Head and Chief Accountable
    Officer has assumed the role of CSTB when K2.0 million was not within his
    financial limit.

    5. Internal Control Weaknesses

    The DNPM does not have a departmental payment procedure/guideline that would
    show the financial limits attached to certain positions for approval of requisitions, as
    financial delegates and Section 32 Officer for payments. This has been a very serious
    internal control weakness that should have been addressed as the Department was in
    control of the National Development Budget (PIP) and its own Recurrent Budget.

    6. Expenditure of Funds and Site Inspections

    The Directors of the company are Mr. Dickson TASI and his wife, Mrs. TASI who
    are originally from Kagua in the SHP who are also signatories to this company’s
    bank account operated at the BSP bank in Port Moresby. There was no tender
    process for this payment or Certificate of Incorporation from IPA and COC from
    IRC. The claim was paid without any supporting documents to the company. The
    payment was purposely for rehabilitation of a rundown coffee plantation in the Sugu
    area of the Kagua/Erave District of SHP.

    Site inspections were not conducted at the time of this report due to bad condition
    of the road which is impassable.

    The bank statements indicate that most of the money was diverted for personal use
    with huge amounts made on cash payment bases with some funds been credited to
    personal accounts and not on the purpose intended for. Some of this funds were
    used to purchase Motor vehicles from car dealers.

    7. Recommendations

    1. Firstly,
    a) The Departmental Head should be dealt with under General Order 8.22 and
    Section 114A of the PFMA.

    b) Other Accountable Officers mentioned hereinabove should be dealt with
    under Sections 102, 112 and 113 of the PFMA and General Order 15; and

    c) Any other captions of the General Order and Public Services (Management) Act,
    1995 deemed appropriate for all officers stated in (a) and (b) above.

    2. Concurrently, the Departmental Head, Mr Lelang, Acting Assistant Secretary-
    Budget, Mr Japheth Michael and the cheque signing officer should be
    interviewed by tht fraud squad in relation to this payment.

    27 April 2012 Page 74
    Tint Pratt Mvestigation Tasty-Forece sweep Tina! Report to the lUa3ioasal Executive
    Counci2 o its irlaings, Emplerientations, antliFurther.r Recommendations.

  • Page 76 of 159

  • FUI.NAL REPOEU

    3. The Directors of the recipient company should be questioned by the Fraud
    Squad and OC after their independent site inspections are conducted.

    Case 115: Payment and Release of K7.5 million to Rait Fama Limited

    1. Analysis of the Payment & Final Submission to NEC

    The DNPM did not provide to the Task force team the list of projects and their cost
    estimates by Sectors that were approved by NEC and subsequently Parliament in
    2009 for 2010 Development Budget. Consequently, we were unable to establish
    whether this project went through the normal budget process through to NEC.

    2. Observations on Project Submission, Appraisal and Approval for the K7.5
    million

    o There is no proper project proposal but on 15 th July, 2010, the Acting Chief
    Executive Officer (Cocoa Board of PNG) Mr. Lauatu Tautea on a two (2) page
    letter, under the board’s letterhead (not a proper documented project proposal)
    wrote to Secretary, Mr Joseph Lelang that the board was sponsoring for the
    rehabilitation and development of a Banio Plantation in the Autonomous Region
    of Bougainville. He further nominated ant Fama Limited to manage the
    project on behalf of the Board.

    O On 16 th July, 2010, the Project Folinulation Document (PDF) was done and
    immediately endorsed by the Acting CEO, 1/11 Tautea on the same date.

    o Also on 16 th July, 2010, Acting Assistant Secretary-Budget, Mr Japhet Michael
    filled out the requisition (FF3) as the Authorized Requisition Officer for K7.5
    million.

    @ On 19 th July, 2010, the Secretary, Mr Lelang approved for the K7.5 million as
    included in the PFD and on the same date, Mr Lelang signed as Section 32
    Officer and the cheque was raised again on even date.

    o The payment was made illegally from vote items 4203-2202-225 (K5 million) and
    4203-2213-225 (K2.5 million) earmarked for Construction and Improvement of
    roads for Bogia — Angoram Road and East New Britain Roads respectively.

    o K7.5 million of State’s much needed development funds released to this project,
    preparing the Project Formulation Document, approving the project, raising the
    requisition, approving as Section 32 Officer and raising cheque no: 43305 all
    within days, raises the question of whether due regard to economy, efficiency and
    hvoidance of waste have been carefully assessed.

    27 April 2012 Page 75
    7-75•,L. Pratt Invesfigataon TasR-Forece Sweep !Ting Repolei to &e National :Executive
    Council of its Findings, Liaaap2e72en2ations, and TuNheg Reconmendatloras.

  • Page 77 of 159

  • FINAL EIEPaTiff

    3. Breach of Financial Management and Administrative Process in
    facilitating the release of K7.5 million

    The primary responsibility for the prevention and detection of fraud rests with the
    Departmental Head as Chief Accountable Officer and officer responsible for
    financial administrative role of the Department.

    The Secretary — Mr Lelang as Departmental Head and Chief Accountable Officer,

    i) Approved as Section 32 officer for payment to Rait Fame Limited, a private
    company without proper due diligence checks and its track record of
    rehabilitating agricultural plantations and machinery for the capital works
    K3million mentioned in the PFD.

    ii) The Secretary illegally paid from vote items 4203-2202-225 (K5 million) and
    4203-2213-225 (K2.5 million) earmarked for Construction and Improvement
    of roads for Bogia — Angoram Road and East New Britian Roads respectively
    to this agricultural project.
    iii) The K7.5 million is within the CSTB threshold and should properly be
    expensed through a constituted contract for works and services to the State.
    As such, these Senior Officers have assumed the role of CSTB and paid K7.5
    million of State’s much needed Development Funds to a private company
    that does not fall within their financial limit without due care, no due
    diligence checks and paying from different legislated projects can only be
    termed as “highly fraud”.

    Part II Section 5 (a), (b), (d), (e), (i) and (g) of the Public Finances
    (Management) Act, 1995 were breached.

    The Acting Assistant Secretary-Budget, Mr Japheth Michael illegally paid from vote
    items 4203-2202-225 (K5 million) and 4203-2213-225 (K2.5 million) earmarked for
    Construction and Improvement of roads for Bogia — Angoram Road and East New
    Britain Roads respectively to this agricultural project when he signed as Authorized
    Requisition Officer for K7.5 million prior to the project request letter being
    approved.

    The Assistant Secretary-Finance, Mr Aloge Alupe and the cheque signing officer are
    equally responsible for approving and releasing moneys earmarked for the said
    projects to a different agricultural project.

    Part II Section 6 of the Public Finances (Management) Act, 1995 and Part 8 of
    the Finance Instructions were breached as Accountable Officers.

    27 April 2012 Page 78
    Prrifi; llsives2agation Tas21-rant.:1 Sews ;13 75220. Reijoz1 .2o ate Execullva
    ThilOings, Tyl:rf:hcr nectrarrnendalions.

  • Page 78 of 159

  • ir’dR,JAL 121EPOB7
    1Todc,Lol & Contracts

    For the purpose of this, National Planning & Monitoring Department (DNPM) does
    not have an internal Supply & Tenders Board.

    For the services of rehabilitating agricultural project for K7.5 million, should have
    been referred to CST13 for procurement if funds were available.

    Again, the Secretary — Mr Lelang as Departmental Head and Chief Accountable
    Officer has assumed the role of CSTI3 when K7.5 million was not within his
    financial limit.

    The proper and established government entity to do this project would be the Cocoa
    Board of PNG itself and the payment should have been made to Cocoa Board of
    PNG who will manage the funds and release on phase by phase as the Board would
    be monitoring this project. If the project was to be contracted to a private firm, as in
    this case, it was subject to the PFMA, which means it was supposed to have gone
    through the public tender process. The Acting Chief Executive Officer (Cocoa
    Board of PNG) Mr. Lauatu Tautea or Mr Lelang for that matter, lacked the capacity
    to approve a project that was work the amount of K7.Smillion.

    5. Expenditure of Funds and Site Inspections

    Director of the company is Mr. Lautu TAUTEA and his wife Ruth TAUTEA who
    both hail from Motlock Island in the Bougainville Atolls of the Autonomous Region
    of Bougainville. Both are the Directors and signatories of the company(RAIT FAMA
    LIMITED). The account of the company was opened on the 16/07/10 at BSP
    Branch Port Moresby after the Department of National Planning & Monitoring
    released a sum of K7.5 million after a project proposal was given stating were for the
    BANIU PLANTATION AND COCOA REHABILITATION on the Northern
    Region of Bougainville. The cheque of 1(7.5 million king was released on the 19t h
    July 2010. The company’s registered place of business is located in Kokopo, ENBP
    but the project area is in Buka, Autonomous Region of Bougainville.

    The bank statements indicate that most of the funds was diverted for personal use
    with huge amounts made on cash payment bases with some funds being credited to
    personal accounts and not on the purpose intended for. Some of this funds were
    used to purchase Motor vehicles from Ela Motors.

    6. Recommendations

    1. Firstly,
    a) The Departmental Head should be dealt with under General Order 8.22 and
    Section 114A of the PFMA.

    27 April 2012 Page 77
    Tit 5t,Draic lavestlgagon Tesl’E-7oit2 Stus-973 7:13tial Repo:/.1 .i10 c gro.1:1-;e
    ComnAll Tris:Ifogs, an.n61 Yz’alarzeL7 3:con.menclanc:25.

  • Page 79 of 159

  • FONAL RE11)(INTIT

    b) Other Accountable Officers mentioned hereinabove should be dealt with
    under Sections 102, 112 and 113 of the PFMA and General Order 15; and

    c) Any other captions of the General Order and Public Services (Management) Act,
    1995 deemed appropriate for all officers stated in (a) and (b) above.

    2. Concurrently, the Departmental Head, Mr Lelang, Acting Assistant Secretary-
    Budget, Mr Japheth Michael, the Acting Chief Executive Officer of Cocoa
    Board of PNG, Mr Lauatu Tautea, Mr Aloge Alupe, Assistant Secretary
    Finance and the cheque signing officer should be interviewed by the fraud
    squad in relation to this payment.

    3. The Directors of the company should be interviewed by the Fraud Squad for
    the receipt and expenditure of these public funds.

    Case 16: Payment of K1million to New Star Century Limited for Esa-ala
    District

    1. Background

    A total of K20 million was appropriated under Vote 229-4203-5203-225 in 2011
    Development Budget for Strategic District Markets Development Program in 89
    Districts throughout the country. Esa-ala District is a recipient of this funding for
    K1.0 million. The markets were to be built in Esa-ala Station, Dobu Rural Local-
    level Government (RLLG), Pwanapwana, Duau RLLG, Salamo Station and
    Ukeoukeo, West Ferguson RLLG.

    On 17 th March 2011, a Cheque No. 000102 for K1.0 million was issued in favour of
    Esa-ala District Treasury. This cheque was subsequently cancelled and a new one
    was raised to New Star Century Limited for the same amount on Cheque No.
    000223 on 14 th April 2011.

    2. Findings

    Payment made to New Star Century Ltd. for Esa-ala District Markets

    The initial payment of K1.0 million was made to Esa-ala District Treasury for Esa-
    ala District Markets without any supporting documents such as project proposals by
    the proponent and appraisal done by DNPM nor proper accounting procedures
    were followed when effecting the payment.

    27 April 2012 Page 78
    f
    ‘fiat Prev htvesfigalion Task-Fone Sweep Find Repold to lobe 1ia6aoaaal Euecntive
    goznacil o..” als Tinolings, LwoRemenisOlons, anti naiiherz necommenelzilons.

  • Page 80 of 159

  • TRIAL REPORU
    The Reqiiisi dun for FApenditure, Finance Form 3 (FF3) was mei ely signed by a
    Moses _Ai hi as Authorised Requisition Officer and approved by Mrs. Ruby Zarriga as
    Section 32 officer without the Commitment Clerk and Financial Delegate signing.
    The General Expenses, Finance Form 4 (FF4) was also not certified by the Financial
    Delegate to justify the correctness of the account. The normal practice is that all FF3
    and FF4 must be duly completed and signed by the relevant appointed Financial
    Delegates as indicated in the respective forms before any financial decision is made.

    In this scenario, Mrs. Zarriga as Acting Secretary and Chief Accountable Officer had
    not followed these procedures and processes and yet went ahead and made an
    expenditure decision by approving the claim without any concrete supporting
    documents to justify the payment. This is noted to be a total ignorance of the set
    down procedures and processes of the Public Finances (Management) Act 1995 and
    its Financial Instructions.

    On 11th April 2011, Hon. Moses Maladina, LLM, MP, the then Minister for Public
    Service and Member for Esa-ala wrote to the Acting Secretary, Mrs. Zarriga, DNPM
    to cancel the cheque and raise a new one to New Star Century Ltd. His reason being
    that, the Governor for Milne Bay had on numerous occasions had interfered with his
    previous Development Funds and did not want this to happen again. This letter in
    our considered view was either delivered to and/or intercepted by Mr. William Sent,
    Acting First Assistant Secretary, Infrastructure and Economic Division who then did
    a Minute to Mrs. Zarriga to facilitate the cancellation and reissue of a new cheque.

    Based on this letter by the Hon. Member and Minute by Mr. Sent, the initial Cheque
    No. 000102 for K1.0 million was cancelled. A new Requisition was raised and
    approved by. Mrs. Zarriga as Section 32 Officer and Mr. Alorige Alupi, Assistant
    Secretary, Finance signed as Financial Delegate without the signatures of Authorised
    Requisition Officer and Commitment Clerk. A new Cheque, No. 000223 was raised
    in favor of New Star Century Ltd for the same amount (K1,000,000.00) on the 14 th
    April 2011. Again the procedures and processes in the PFMA and its Financial
    Instructions were totally defied.

    It was evident that proper verification of documents to ascertain the veracity and
    validity of the claim were not undertaken. Also officers mandated to ensure
    regularity and propriety of the expenditure of public funds were negligent of their
    roles and responsibilities.

    It was also evident that proper internal control mechanisms are not in place to
    strictly monitor and screen claims hence allowing them to be processed without due
    respect to PFIVLA 1995 and its Financial Instructions. If stringent verification was
    adhered to by the mandated Financial Delegates, this claim would not have been
    paid unless collaboration and/or collusion were made between the Member and the
    officers of DNPIVI to have it processed and paid. Both the Member (Hon. Moses
    Maladina MP) and the Acting Secretary (Mrs. Zarriga) had abused their respective

    27 April 2012 Page 79
    5inct Investigalion Tasit-Foyce Swee? li scanRepoyl to the National Executive
    counen a its TAndings, ZlinpReErtemlaidons, and Iru:daie DecommenO_ations.

  • Page 81 of 159

  • FOINAL [REPO:MU
    offices to defraud the state by approving the payment to New Star Century 1 •mited,
    aprivate company without proper verification of documents.

    3. Breach of Financial Management and Administrative Process in
    facilitating the release of ]K1.0 million

    Mrs. Zarriga as Acting Departmental Head and Chief Accountable Officer, approved
    the payment to New Star Century Limited, a private company without proper
    verification of documents thereby breaching Section 5 (1) (a), (b), (d), (I) and (g)
    of the Public Finances (Management) Act, 1995 and Part 8 of the Financial
    Instructions,

    Also the cheque signing officers are equally responsible for approving and releasing
    the payment. Section 6 Subsections (1), (a), (b) and (2) of the Public Finances
    (Management) Act, 1995 was also breached by the mandated and/or appointed
    Accountable Officers.

    Subsection (2) An accountable officer shall comply with the provisions of this Act in
    respect of all matters for which he is responsible and for all public moneys and
    stores in his possession or under his control, and shall duly account for them.

    4. Ireach of Public Tender equirements

    Pursuant to the PFMA and the Financial Instructions, the amount of Klmillion falls
    within the jurisdiction of the PSTB and or CSTB. Minister Maladina, his JDP & BPC
    or the Secretary for DNPM cannot substitute the mandatory requirements of tender
    unless exempted by law.

    Hon Maladina single handedly assumed the role of the Public Tenders board and
    directed the payment to a private company even without any duly endorsed written
    contract nor was there any tender.

    Mrs. Zarriga and Hon. Moses Maladina MP had also abused their respective offices
    when they awarded the K1.0 million project to New Star Century Limited.

    5. Directorship of Company and Expenditure of Funds

    New Star Century Limited is an Asian company involved in operating shops and
    retailing business in Alotau. It is not clear whether the company had the capacity to
    deliver the project.

    6. Conclusion/Recommendations

    Verification of the source documents showed that proper procedures and processes
    were not followed by the mandated officers of DNPM when exercising their roles

    27 April 2012 Page 80
    7-^;r;tProp havesfigation TesZt-T’oyee Sweep anal nep172 to qlile Malional Executive
    L’oaancEl. Thaeltags, llarlemerAeflons, enol nazeilez necommendaflons.

  • Page 82 of 159

  • IJAP:J/AL RETTATT •
    rvf,p(4- ibilities as administrators of the public funds uc der PFMA 1995. It is
    also evi,lent that both Mrs. Zarriga and Hon. Moses Maladina MP had abused their
    respective offices when facilitating the payment to New Star Century Limited.

    7. Recommendation

    1. The Departmental Head and the officers that facilitated the payment should
    be dealt with under Public Services (Management) Act 1995, General
    Order 8.22 and Sections 102 and 114A of the PFMA.

    2. Concurrently, the Departmental Head and the Senior Officers should also be
    referred to the National Fraud Squad for further actions to be taken
    according to law.

    3. The Hon. Member for Esa-ala should also be referred to the National Fraud
    Squad and Anti-Corruption Office for further course of actions to be taken.

    4. Mrs Zarriga and Mr Maladina should be referred to the Ombudsman
    Commission for further actions under the Leadership Code.

    5. The recipient company should be interviewed by the Fraud Squad with
    respect to the receipt and expenditure of the public funds.

    Case 17: COMMUNITY COLLEGE CONCEPT

    Brief report pertaining to implementation of Community College Concept —
    establishment of pilot Marienberg & Wabag community colleges in East Sepik
    Province & Enga Province and rollout of the Second Phase throughout the country
    (PNG)

    1. General Overview of the Community College Concept

    The education is one of the single most important things that could be given to
    anyone and it is a catalyst for development of the entire PNG. It is known that not
    even 20% of the pupils enrolled at schools reach the universities, colleges and other
    higher institutions, only a hand full are selected to further their studies.

    Therefore, many of the pupils become school dropouts and dwell in rural and urban
    areas of PNG seeking for greener pastures. However these category of people arc
    semi qualified and do not have the appropriate skills and knowledge to venture into
    any workforce. Further, the education system does not propagate life skills courses as
    part of the compulsory curriculum hence when the students drop out of school, they
    become totally unknowledgeable to venture into any rewarding work on their own.

    27 April 2012 Page 81
    InvesVgaVion Tzei-Tza.in Zwa2717Ln1 2e7,!:oa-1 .1r.) Nal:101,1E3 Dsecuthe
    at Ns:TA:161:2g, iLiT, -,p1ame.:1119.11ans, :InvarnerElagAore.s.

  • Page 83 of 159

  • Al. I3E,PUT:1 7,1
    The Community College concept was iti::;:ocluced to give a second chance to these
    drop outs. It is an alternative system of education which is aimed at empowerment
    of the disadvantaged and under privileged by equipping them with appropriate skills
    attain a rewarding job and sustain their livelihood. It is anticipated that the
    Community College Concept would respond to the deficiencies of the Vocational
    System.

    The Community College System is a new concept introduced from India, an
    initiative of the former National Government under the leadership of Grand Chief
    Sir Michael Somare.

    2. Governme iit Approval

    The Community College System of education concept was introduced by Jesuit Dr.
    Xavier Alphonse S.J. Director, India Centre for Research and Development for
    Community (ICRDCE) in India to be piloted in PNG.

    The former National Government under the Prime Ministership of Hon. Sir Michael
    Somare’s National Executive Council Meetings, NEC Decision No: 55/2007 –
    Special Meeting No: 12/2007 dated 30 th November 2007, NEC Decision No:
    138/2008 — Special Meeting No: 22/2008 dated 16 th July, 2008 and NEC Decision
    No : 229/2008 — Meeting No: 10/2008 dated 31 5 ` October, 2008 approved the
    establishment of Community College System of Education Concept, introduced by
    Jesuit Dr. Xavier Alphonse S.J. Director, India Centre of Research & Development
    for Community (ICRDCE) in India to be piloted in PNG.

    The first Pilot Community College was approved by NEC for establishment in
    Merienberg, Angoram District in the East Sepik Province (ESP) and to be rolled to
    other districts in PNG thereafter. The NEC Decision No: 229/2008 – Meeting No:
    10/2008 dated 31″ October, 2008 also approved the establishment of Wabag
    Community College in Enga Province as the second pilot project.

    The NEC also approved the establishment and operation of thirteen (13) additional
    Community Colleges in the four (4) Regions of PNG & Bougainville. It was noted
    that the Department of Education and Office of Higher Education were directed by
    NEC to develop a directional and operational policy in PNG context, for the
    establishment of the thirteen (13) additional Community Colleges throughout the
    Country.

    The NEC retrospectively approved K130 Million to implement the projects for a
    period of five (5) years commencing in 2008 at the cost of K10 Million per project
    and directed the Ministry and Department of Finance & Treasury to allocate funds
    retrorespectively commencing in 2009 Appropriation Act.

    27 April 2012 Page. 82
    371:7-5t Prof:;: Invesilgailon Tash-Fone Swim :7i as T:lepoyl Eae Nailonej, Drentive
    i»T 1^s 171:-…M;a7s, TiFlp:I.ey.o.esaaflaas, a:D.4 Pial’..:19Y Tleu mmendalolons.

  • Page 84 of 159

  • FJNAL HIERDIEU
    The inve,tigario iulther uncovered that National Executive Council (NEC)
    deliberated and approved per NEC Decision No. 119/2010 dated 26 th May, 2010 to
    obtain a Concessional Loan of US$35.0 million from the Chinese Government
    through Export Import Bank of China to carry out the Second Phase

    3. Budgetary Allocation and Financing of the Community College Project

    In 2009, K3Omillion was allocated for the Marienberg Community College and
    Others under the PIP No 3002. The 2009 Budget estimates show that an amount of
    K120million would be rolled out in the next five years including 2009.

    In the 2010 budget, the amount of K3Omillion for the 2009 Appropriation is shown
    with a subsequent amount of K20million for the 2010 budgetary allocation.

    The 2011 Budget under the Community College Appropriations contains the
    following table as the forecasted funding for this project through the PIP.

    2009 2010 5 Year 2011 2012 2013 2014 2015
    Actual udget Total

    95,906,000 51,906,000 11,000,000 11,000,000 11,000,000 11,000,000

    For the Marienberg Community College under PIP Number 3284, the Government
    allocated K20million which is the estimated total project cost for the 3 years
    estimated duration of the project.

    It can be noted from the 2009, 2010 and 2011 Budgets that an amount of K5Omillion
    (K30m -2009 and K20m for 2010) had already been appropriated but is not reflected
    in the 2011 budget. These figures were conveniently not stated in the 2011 budget.
    It is also noted from the 2011 budget that if K20million was allocated to Marienberg
    for the implementation of the project for three years, what happened to the
    K5Omillion for the previous two years, 2009 and 2010 as appropriated by Parliament.

    4. Concessional Loan of USA Dollar $ 35.0 million from the Government of
    China
    On the 26 th May, 2010, National Executive Council Decision No. 119/2010
    approved the authority to proceed with Government to Government negotiation
    for a Concessional Loan of USD $35 million to fund the Second Phase Pilot
    Community College Concept for the thirteen (13) additional approved Community
    Colleges which total to fifteen (15).

    The loan was obtained from the Export Import (Exim) Bank of China to
    implement the Second Phase Community College Project and on-going work for
    Phase 1 that brings the total to fifteen (15) Community Colleges. To rollout of the

    27 April 2012 Page 83
    ;’-1,:rst Pr✓ ft havesligalion l’as2i-Force 5’wee9 The Itialional Executive
    Connell of its Thaolkagis, HarglescaenloSoms, c a i Flignele Deco! .mendaficas.

  • Page 85 of 159

  • MAL RELTTRIT
    Seconcl Phase of the Community College Project the Inclusive Education for
    National Development for Community Education Trust (IT’E Trust) was working
    with the Z1E Corporation, a Chinese Company to roll-out the Second Phase.

    It was noted that the loan of USD $35 million was to meet the short fall of K110
    million under the budgetary allocation for implementation of the Second Phase on
    Community College Project roll-out.

    The loan was approved and the agreement was signed between the State of PNG
    as the borrower and Export Import Bank of China as the lender on the 19 th •
    January, 2011. The loan was obtained at 2% interest per annum and management
    fee of 1%. The maturity period of the facility shall be 180 months, among that
    Grace Period of 60 months and repayment period shall be 120 months.

    The Concessional Loan arrangement with Exim Bank of China is a low interest
    rate credit extended by the Chinese Government through the Exim Bank purposely
    designated to fund the supply of manufactured products and infrastructure
    developments in the borrowing country. It is one of the primary conditions of the
    loan that a Chinese company shall be selected as the project contractor for the
    procurement of materials which shall largely be from China. The loan is therefore
    tied to infrastructure materials to be administered by a selected Chinese company
    to deliver to the borrowing country. In our case, ZIE Corporation was selected.

    The 2011 budget however states the forecasted loan raised funds as follows:

    2009 2010 5 Year 2011 2012 2013 2014 2015
    Actual Budget Total

    40,000,000 10,000,000 10,000,000 10,000,000 L0,000,000

    The US$35million at the time of NEC Decision No. 119/2010 dated 26 th May 2010
    would have been PNG ldna equivalent around K94,948,000. The US$35million at
    the time of the signing of the loan agreement would be around PGK87,500,000. 7

    The people who formulated the 2011 National Budget should have had the benefit
    of the NEC decision to obtain the loan beforehand, hence the loan raising
    component for the next five years for the Community College Project should have
    been estimated to as near as possible. The loan figure for the five years is however
    grossly understated to be less than half of the total amount of loan. An explanation is
    required for this understatement.

    5. Disbursement of Funds by Department of Treasury & Finance

    Calculations done on http://www.oanda.com/currency/converter/

    27 April 2012 Page 84
    74L’i5t, Pratt Investigation Taste-lromce Sweep Final Blepori to the National illecwilve
    Connell of its I’incilings, Implementations, anti Fuethe Deconamemgations.

  • Page 86 of 159

  • FiNAL BEFUEILI
    Th.: Department of Education made a submission to the Dcpaatinent of ‘Treasury &
    Finance requesting the release of funds allocated to implement the Community
    College Concept in 2008.

    The submission also disclosed standard plans of architectural designs for teachers’
    houses and other infrastructure buildings for the two pilot projects.

    Instead of releasing the funds to the Department of Education, they were paid into
    the Young & Williams Lawyers Trust Account. ITFS has not cited any Trust
    Instrument duly issued by the Treasurer to open or use the Young and Williams
    Lawyers Trust Account. How a private law firm’s trust account was used to carry out
    development projects of the Government raises questions in itself.

    6. Establishment of Pilot Marienberg Community College in Angora=
    District, East Sepik Province.

    The investigation revealed the propose architectural designs and cost of construction
    for the Pilot Marienberg Community College infrastructure developments were 1(8,
    760, 000.00, which includes all the essential infrastructure buildings.

    The operational costs estimated for running of the college stood at K1,800,000.00
    for first academic year upon completion of construction works and subsequent
    enrolment of students.

    It was noted from the project inspection conducted by the Investigation Team that
    only three (3) teachers houses were erected and forty (40%) per cent done. The
    construction work ceased, the team was unable to talk to the constructor. Some of
    the photographs taken during the site inspections are posted at Appendix of this
    report.

    It is confirmed that K17,631,721.02 was disbursed to Marienberg Community
    College Trust Account. The funds disbursed were more than sufficient to carry out
    the construction works and commence operation of Marienberg Community
    College. Yet nothing much has been done by the Contractor, Board of Governing
    Councils and Community College Secretariat. The funds allocated and disbursed to
    execute the project were deemed misappropriated without completing the project.

    It was confirmed that the Marienberg Community College was administered b y
    Board of Governing Councils; the Chairman of the Governing Council being Mr
    Junior Michael Maiwa Somare and is also a signatory to the Marienberg Community
    College Trust account.

    The proposed architectural plan and costs for the construction of buildings and
    other infrastructure for the Pilot Marienberg Community College.
    i. 8 x Teachers houses @ K200,000.00 per house K1,600,000.00

    27 April 2012 Page 85
    37-r5t :Draft nveslAgaidon Tas’Ls-lione 3weep Final 3elpore1 Nalional ncemallve

    Con:7162 itis 71.2.dings, Limple:mesa a/Amu, anal FBI& hes Recornmendaaons.

  • Page 87 of 159

  • FINAL REPDF,11
    ii 2 x 40 Mel’ student dormitories
    @ K680,000.00 per dormitory 1(1,360,000.00
    iii. 2 x 30 Men fully furnished classroom @ K250,000.00 K 500,000.00
    iv. 1 x Kitchen and Mass Hall @ K900,000.00 K 900,000.00
    v. lx Boys Ablution Block @ K50,000.00 K 50,000.00
    vi. lx Girls Ablution Block @ K50,000.00 K 50,000.00
    vii. Freight costs @ K300,000.00 K 300,000.00
    viii. Parameter Fencing @ K500,000.00 K 500,000.00
    ix. Multi-purpose Hall @ K500,000.00 K 500,000.00
    x. Project Administration cost @ K3,000,000.00 K3,000,000.00
    Total K8,760,000.00

    Operations costs Marienberg Community College

    i Equipment maintenance @ K50,000.00 K 50,000.00
    ii. Building Maintenance @ K200,000.00 K 200,000.00
    iii. Students amenities @ K100,000.00 K 100,000.00
    iv. Student ration @ K75,000.00 per quarter (K300,000.00) K 300,000.00
    v. Office materials & supplies @ K200,000.00 I< 200,000.00
    vi. Transport & fuel @ K200,000.00 K 200,000.00
    vii. Utilities @ K150,000.00 K 150,000.00
    viii. Monitoring & Evaluation Research @ K500,000.00 K 500,000.00
    ix. Student learning & development @ K100,000.00 K 100,000.00
    TOTAL: X1,800,000.00

    7. Establishment of Pilot Wabag Community College in Wabag District, Enga
    Province:

    It was confirmed that the estimated costs for the construction works of the Pilot
    Wabag Community College were K5,060,000.00 and the operational costs were
    valued at K1,800,000.00 respectively.

    The investigation uncovered that the Department of National Planning &
    monitoring disbursed 1(5,400,000.00 and the Wabag District Treasury Office drew a
    cheque of K200,000.00 to Pilot Wabag Community College. The total public funds
    given to implement the project accumulated to K5,600,000.00 which equates for
    ninety two (92%) per cent of the total construction and operation costs.

    The Investigation Team’s project inspection conducted in Wabag confirmed that no
    construction works were done to establish the Pilot Wabag Community College.
    However, it was noted that the location was identified and initial ground works were
    done to clear and level the ground but no buildings were erected.

    The Expenditure Transaction Printout from the Wabag District Treasury Office in
    relation to Wabag Community College Vote number revealed that all the funds were

    27 April 2012 Pags- So
    Investigaiion T’insa-Tosce Sweep )1Ina1 F1e,.9ort to liae Egecultive
    Council of its ifindings, hns,olemeyda.ons, and Fuyikae2 2ecoianneTWalions.

  • Page 88 of 159

  • Tina BELPORT
    extrato, i – c;i1
    or fully committed. However, there were no tangibl y.
    infrastructure/constructions sighted during the site inspection to ascertain and verify
    the expenditure of public funds since those funds were released.

    The approved proposal plan for the construction of infrastructure for the Pilot
    Wabag Community College and the related costs were as follows:-
    i. 8 x Teachers houses @ K200,000.00 per house K1,600,000.00
    ii. 2 x 40 Men student dormitories
    @ 1(680,000.00 per dormitory 1(1,360,000.00
    2 x 30 Men fully furnished classroom @ 1(250,000.00 K. 500,000.00
    iv. 1 x Kitchen and Mass Hall @ 1(900,000.00 K 900,000.00
    v. lx Boys Ablution Block @ 1(50,000.00 1( 50,000.00
    vi. lx Girls Ablution Block @ K50,000.00 I< 50,000.00
    vii. Freight costs @ K100,000.00 I< 100,000.00
    Parameter Fencing @ 1(500,000.00 K 500,000.00
    Total K5,060,000.00

    Operations costs for Wabag Community College

    i. Equipment maintenance @ 1(50,000.00 K 50,000.00
    ii. Building Maintenance @1(200,000.00 K 200,000.00
    iii. Students amenities @ K100,000.00 I< 100,000.00
    iv. Student ration @ 1(75,000.00 per quarter (K300,000.00) K 300,000.00
    v. Office materials & supplies @ K200,000.00 K 200,000.00
    vi. Transport & fuel @ K200,000.00 I< 200,000.00
    vii. Utilities @ 1(150,000.00 K 150,000.00
    viii. Monitoring & Evaluation Research @ 1(500,000.00 K 500,000.00
    ix. Student learning & development @ K100,000.00 K 100,000.00
    Total K1,800.000.00

    The investigation uncovered that the above buildings were not erected using the
    funds disbursed by the Department of National Planning and Wabag District
    Treasury Office in total of 1(5,600,000.00.

    8. Second Phase Pilot Community College Project

    The NEC Decision No. 117/2009, Meeting No. 05/2009 dated 30t h July, 2009 noted
    the submission for the second phase of the Community College Projects Submission
    and endorsed establishment of the proposed thirteen (13) Community Colleges to
    offer Certificate, Diploma and other programs. The particulars and location are as
    follows:-
    Names of Colleges Provinces
    (i) Viviran East New Britain
    (ii) Karkar Madang
    Morobe Technical College Morobe

    27 April 2012 Page 87
    p raft Invesligailon Tasii-lrozce Sween lanai tae ors 2o Ike ilialional Egecagive
    ol a45 FrInclings, hap2enaentadons, and nulhele 1.2ecommendafionz.

  • Page 89 of 159

  • Cape Rodney Central
    Aitape Sandaun
    Pomio East New Britain Province
    Pangia Southern Highlands
    Mabiri Central Bougainville/ABG
    Alotau Milne Bay
    Rigo Central
    Lahame Eastern Flighlands
    Karamui Chimbu
    Hela Community College Southern Highlands

    These were new projects and the costs estimated was to set up a totally new
    infrastructure for the establishment of the community colleges just like Marienberg
    and Wabag pilot projects under the First Phase.

    9. Disbursement of funds to Young & Williams Lawyers

    Payments made to Young & Williams riirectly from the Department of National
    Planning & Monitoring are as tabulated hereunder.

    No Date Vote No. Chef No. Details/Particulars Amount

    . 08/10/09 229-4203-3299- 40068 Construction for Corn. K8,000,000.00
    225 College
    2. 08/10/09 229-4203-3299- 40069 Construction for Corn. K8,000,000.00
    225 College
    3. 08/10/09 229-4203-3299- 40070 Funding Com. College K4,000,000.00
    225 Facilities
    4. 11/12/09 229-4203-3228- 40677 Funding for Marienberg 1(5,000,000.00
    135 Corn. College
    5. 11/12/09 229-4203-3228- 40685 Funding for Marienberg K5,000,000.00
    135 Corn. College
    . 05/02/10 229-3909-1202- 40880 Funding Marienberg K20,000,000.00
    225 Corn. Colle e
    Total K50,000,000.00

    10. Marienberg Community College Trust Account

    a. Total Receipts/revenues accounted for by the Marienberg Community
    College Trust Account.

    Payee Method of Details/Particular Amount
    0 . Payment
    1. 12/06/07 Marienberg Direct deposit New Account 50,200.00

    27 April 2012 Page 83
    Pr ..rnvesngalAnal Tsas2c-ro:rce Sweeti? nnal IRelpe:a
    1 Encul2ve
    – –
    r:11 .2t V:201:171.5s, Lii410:17ientaVizzis, t-25 11.1 TIly,17.zere DeccrimavamlaOcns.

  • Page 90 of 159

  • .F[1 ffi EPOCITI

    bust Accoun t
    2. 29/07/08 . Marienberg Direct deposit Young & Williams 546,000.00
    I Trust Account
    3. 12/09/09 Marienberg rbirect deposit i No details 5,000.00
    Trust Account
    3. 24/09/08 Marienberg Direct deposit Young & Williams 246,000.00
    Trust Account
    4. 28/10/08 Marienberg Direct deposit Young & Williams 1,000,000.00
    . Trust Account .
    5. 25/11/09 Marienberg Direct deposit Young & Williams 500,000.00
    Trust Account
    6. 27/05/09 Marienberg I Direct deposit ESP Govt A/C 10,000,000.00
    Trust Account 1000873030
    7. 28/05/09 Marienberg Direct deposit Prov. Treasury 15,508.20
    Trust Account WWK I
    8. 15/09/09 Marienberg Direct deposit From FTD # 2,500,000.00
    Trust Account 6001598705
    P/WDL
    9. 15/10/09 Marienberg Direct Deposit BSP WWK Chq 8,400.00
    Trust Account
    10. 04/11/09 Marienberg Direct Deposit Young & Williams 728,906.86
    Trust Account
    11. 19/10/10 Marienberg Direct Deposit 10 spl clr f/o 1,843,332.71
    Trust Account Marienberg Corn
    College
    12 23/02/11 Marienberg Direct Deposit Dpt NEC-BPNG 58,374.25
    Trust Account Chq
    13 29/03/11 Marienberg Direct Deposit Young & Williams 130,000.00
    Trust Account _
    TOTAL •
    17 ) 631 ) 7221 ° 02

    b. Disburse ent of K10.0 million RESI funds to Marienberg Community
    College

    The investigation uncovered that on the 28t h January, 2009 a cheque number 1016
    for K10 million was drawn to East Sepik Provincial Treasury Office by Department
    of National Planning & Monitoring. There is a letter by the then Minister for
    Education, Hon Sani Rambi to Education Secretary Dr Joseph Pagelio dated 17 61
    November, 2008 advising the Secretary that K1Ornillion of the RESI funds to
    support the Community College project. There is no other document showing that
    this K1Ornillion was earmarked for Marienberg Community College. Further,
    Marienberg has its own direct funding from the National Budget.

    27 April 2012 Page 8S
    7i’t5t Pr.czf, hlvesItation Tasa-Fone 5we29 Final nqul to flue Alaflonal Mienfive
    Counci1 ea i s Tindings, IIsaavleabae8a . allo -sis, end. TuyElea 3ecomnienda ns.

  • Page 91 of 159

  • IFBNIAl. REPORT

    The Chairman (Michael Somare Junior) of Marienberg Community College and
    Deputy Provincial Administrator ESPA wrote to ESP Treasury Office to transfer the
    K10.0 million into the Marienberg Community College Trust Account. Consequently
    cheque number 81000228 for the amount of K10.0 million was raised and paid into
    the Marienberg Trust Account on 26 th May, 2009 by ESP.

    On the following day, 26 th May 2009, a cheque worth K1Omillion, Cheque No.
    000273 was raised by the Marienberg Community College Trust Account deposited
    into an Interest Bearing Deposit (IBD) Account at Westpac Bank – Wewak Branch.
    It was evident that interests obtained from the principle amount have been
    withdrawn and the principle amount of K10.0 has been rolled over and still held at
    the bank. From the transactions out of the IBD Account, it is believed that
    another IBD deposit had been made from the subsisting IBD account on the 15 th of
    September 2009.

    a. Payments made directly by Young & Williams into the Marienberg
    Community College Trust Account

    No. Payee Method of Particulars Amount (K)
    Payment
    7-77
    1.—. . 29/07/2008 Marienberg Direct Cheque pmt 546,000.00
    Trust Account deposit By Y&WL

    • 2. 24/09/08 Marienberg Direct •Cheque pmt 246,000.00
    Trust Account deposit by Y&WL

    28/10/08 Marienberg Direct Chq pmt by 1,000,000.00
    Trust Account deposit Y&WL

    25/11/08 Marienberg Direct Chq pint by 500,000.00
    Trust Account deposit Y&WL

    04/11/09 Marienberg Direct Chq pmt by 728,906.86
    Trust Account deposit Y&WL

    28/10/08 Marienberg Direct Chq pmt by 130,000.00
    Trust Account deposit Y&WL

    Total Amount 3,150,906.86

    27 April 2012 Page 90
    Firg. Pratft vestigation Tash-Force Sweep Final Repowt to the National Executive
    Council oT its Findings, implementations, and Is”uathe2 Recommendations.

  • Page 92 of 159

  • F0 NAL HEPIDZI

    The Young & Williams bank statements obtained from the BSP Bank shows cheques
    valued millions of kina had been drawn to pay for various goods and services.
    However, the investigation was unable to verify as the payment vouchers were not
    furnished by BSP Bank as at the time of this report. It is believed that more than
    K.20.0 million could be invested in a finance company, which is yet to be confirmed.
    It is also noted from the Young and Williams Lawyers Trust Account transactions
    that the funds for the project got mixed up with the law firms own funds and at
    times the law firm appears to use some of these funds to fund its own expenses.

    Separate books regarding the expenditure of community college funds may be
    maintained by Young and Williams Lawyers. However, what is of concern is that
    State’s project funds should not have been deposited into a private law firms trust
    account in the first place. An amendment to the Criminal Code Act Section 383A
    was done with the inclusion of subsection (3) to broaden the definition of dishonesty
    to include instances where public funds are used to meet private expenses, even with
    the intention of reimbursing.

    7. Parallel Stream Community College Roll-out

    It was uncovered that some of the funds were committed to finance Parallel Stream
    Community Colleges throughout the country. The Parallel Stream Community
    Colleges are the existing Vocational Centers administered by churches and
    government institutions established with basic and minimum facilities. It was noted
    that ten (10) vocational centers were selected to run the Community College
    Programme as Parallel Stream Community Colleges in the same campus by using the
    same facilities available.

    The investigated noted that an amount of K100,000.00 was given to each of the
    Parallel Stream Community Colleges to improve the existing infrastructure to
    accommodate sufficient students to undertake courses offered at the institutions.
    The funds were disbursed by Young & William who are the Trustee or Custodian of
    the funds to these existing Vocational Centers for face lifting before becoming
    Community Colleges upon advice and recommendation from the Community
    College Secretariat.

    The investigation is yet to ascertain how much was actually given to carry out the
    renovation and improve the existing infrastructure of the Vocational Centers before
    enrolling course participates.

    If the costs estimates to the tune of K110million for the Second Phase was to build
    new facilities like Maricnberg and Wabag, and the loan was obtained to cover for it,
    why then resorting to do maintenance at the cost of K100,000 each to those existing
    schools?

    27 April 2012 Page 9′]
    71:rt Pmft haves.nz,attioa Tas21-Fo7ce Sweep IFIna’A Il1epo0 go Ihe TxectagAvc
    ‘rJouncLI tyLrhs 7 5ags, haplameroiafloms, arsl TrzEtez 3ecoTrnmen6ialorns,

  • Page 93 of 159

  • FINAL REPORT

    8. Findings

    The total funds used for the purposes of this Community College Concept are as
    follows:

    Parliament Appropriated Amount (K)
    2009 Budget 30,000,000
    2010 Budget 20,000,000
    2011 Budget 20,000,000
    Loan as signed (US$35million) estimated PNG Kina
    equivalent 90,000,000+

    TOTAL K160,000,000+
    Identified Payments from DNPM
    DNPM payment to Young and Williams Lawyers 50,000,000
    RESI Funds paid directly to ESP and transferred to
    Marienberg 10,000,000
    DNPM Payment directly to Wabag Community College 5,400,000

    TOTAL K65,400,000

    From the above table, it can be seen that K160 million plus were raised through the
    budget as of 2011. The K5Omillion that was appropriated under the 2009 and 2010
    budgets were paid into the Young and Williams Lawyers Trust Account during those
    years as tabulated earlier hereinabove.

    A payment of K10 million was made out of the RESI funds for the Marienberg
    Community College which was remitted to the East Sepik Provincial Government
    Account and later transferred to Marienberg Community College Trust Account.
    Another payment of K5.4million was paid directly by DNPM into the Wabag
    Community College Account. In total, around K65.4million was paid out of the
    DNPM for Community College Projects.

    If only K65.4 million was remitted out of the DNPM for the community college,
    much of which are believed to have been misappropriated, what happened to the
    balance from K160million plus, which is estimated to be more than K95million?

    The investigations reveal that most of the building materials and fittings are
    prefabricated materials from China. It is no doubt that the US$35 million was a tied
    loan from the Import and Export Bank of China. As such ZTE Corporation of
    China engaged to deliver the prefabricated building materials out of the tied loan and
    deliver them to PNG. The materials are very cheap and do not equate the millions of
    kina appropriated for such. If the loan was tied to materials and the ones that were

    27 April 2012 Page 92
    irSt Prrif htvesq:IgEilonTash-Foyce Sweep Fine Report to the National Executive
    Council a its Tint Empleznentetions, and Fiarthev RecormendEtions.

  • Page 94 of 159

  • [FdNia ELETTFT
    ,
    Liscti were as a result of that loan arrangemeLit, what 1.1 1pi ‘cried to the
    riionies appropriated by the PNG Government for the successive years?

    If the US$35 million Concessional Loan is estimated at around K90m K100m, why
    was it grossly understated in the 2011 budget by stating K4Omillion instead of
    around K90 million to K100 million? What happened to the remaining balance?

    The two pilot projects of Marienberg and Wabag are yet to be completed. The site
    inspections have confirmed that the Marienberg College is incomplete and bushes
    have overgrown the project area. The Wabag Community College is at the ground
    clearing stage, without any infrastructural improvement as yet.

    The Second Phase of the Project appear to have taken another twist, with a deviation
    from building new schools to revamping existing vocational schools under what they
    call a “Parallel Stream Community College Roll-out”. The 13 extra colleges under the
    Second Phase would cost around K1Omillion each as per the subsequent NEC
    Decision. Why was K100,000 eventually given to each existing vocational School to
    make up the 13 schools?

    If the estimated costs of the Marienberg Community College were around
    K1Omillion as indicated in the initial proposal, why was K17,631,7221.02 of which
    K1Omillion from RESI funds were remitted to the Marienberg Community College
    Trust Account? The K10million was then deposited into an IBD at Wcstpac bank
    Wewak and is collecting interests whilst the project itself is left incomplete. The
    Board of the Marienberg Community College have to answer for illegally deviating
    project funds to make money. Parliament had not authorized them to raise revenue
    as is provided by the Constitution.

    The Distance Education Project would set up a headquarters in Port Moresby, where
    a data center would be established and would set up 13 community colleges with
    video conference system across the country. The viability of this education program
    which is believed to be using high technological learning apparatus including settle-
    light televised teaching programs is believed to have not been properly scrutinised by
    the Education Department prior to its adoption and establishment. Using a highly
    technological education medium to train the excluded populace of the country
    demonstrates the huge disparity that any reasonable Papua New Guinean, knowing
    all the facts of PNG, can judge that it is not viable. The program appears to have
    been imposed on the Education Department to sanction it. The Education
    Department does not seem to know much about this project. Whether it is a genuine
    project or another colour coated project to be used as a smokescreen to squander
    public funds is one of the bundles of issues that remain to be investigated further.

    The project was conveniently kept at the Department of the Prime Minister and
    NEC as the implementing agency instead of the qualified implementing authority,

    27 April 2012 Page 33
    PrPfc “havevage,loin Tas?t-Fo3c2 37p,.3 71e2oyi 8o Ilit211atloaaa2 7.,:cemathre
    T.oinctil of ‘Rs FfIza(aingi, 1:eaTilsmen .2atIons, 7 -,aythey flenonmenlag1ons.

  • Page 95 of 159

  • FINAL LlirEPURT
    which is the -Eclilta.Lon Department. Further, monies were paid into a Law Firms
    Trust Account. One should ask why development funds are paid into a law firms
    trust account. 1TFS has not cited a trust instrument duly endorsed by the Minister
    for Finance and Treasury. Out of the Young and Williams Trust Account, the
    monies were then paid into Marienberg Community College Account, where the
    then Prime Minister’s own son Junior Somare was the Chairman of the Board and a
    signatory to the account. Further, the funds apparently got mixed with the law firm’s
    own funds and in the process, the law firm may have used some of the funds to
    funds its own expenses. That is illegal and improper.

    A law firm’s trust account is solely for lawyering related payments. It should not be
    used as conduits to launder illegal funds nor shall it be used for development
    projects. Trust Accounts authorized by the Minister for Finance and Treasurer serves
    the sole purpose of catering development funds and other funds. There is no
    indication of a trust instrument approving the use of Young and William Lawyers
    Trust Account for development projects.

    9. Recomme dation

    This case needs further and detailed investigations by Fraud Squad, Ombudsman
    Commission and PNG Law Society accordingly. The Principal of Young and
    Williams Lawyers Mr Greg Sheppard, the Boards of Marienberg and Wabag
    Community Colleges, Directors of ZTE Corporation, the Community College
    Secretariat, among others need to be interviewed immediately in relation to this
    project and the whereabouts of the public funds including the concessional loan.

    Case 18: Koge Coffee and Pyrethrum Project —K5million

    1. Analysis of Payment

    On 23rd July 2009, Hon Jeffrey Nape authored a (3) page letter addressed to
    the then Minister for Treasury and Finance, Hon Patrick Pruaitch, using his
    official letterhead as the Speaker of Parliament, requesting funding of thirty
    million kina (K30.0 million) to fund Coffee and Pyrethrum projects in his
    Sinasina Yongomugl Electorate.

    The letter reached the office of the Minister for Treasury & Finance on 03rd
    August, 2010. At that time, Hon Peter O’Neill was just appointed as the
    Minister for Finance and Treasury. On 11th August, 2010, Mr O’Neill then
    made notations on the letter and marked it to his EO, with these comments
    stating ” Develop letter to Speaker that funding for Agriculture will be top priority in
    2011Dev Budget. And that this proposal should be sent to Planning.”

    27 April 20’12 Page 94
    T-irstProft :11,-avestgation “Tal.s: 11-1’ovce Sise37 71.71,z1 2e1cY:1 .
    dhe :111F22:lonal aecullve
    CDmacill ol Thadings, 1.7n3lesnen`sailons, azig Taalhe2; itlecoatuneadeAorns.

  • Page 96 of 159

  • ViiNAL REPORT –
    On 28′ 1 ‘ October. ‘‘’.010,
    the then Minister for National PI ann.ng
    i & Monitoring
    Department, Hon Paul Tiensten, directed the then Secretary, Joseph Lelang to
    organize K5.0 million cheque for this project to Koge Yoba Poramara Estate
    Pty Ltd.; ASAP. On the same day, Secretary Lelang then issued directive to
    Japheth Michael, to please proceed to release K5.0 m for this project ASAP.

    A Department of National Planning & Monitoring Drawing Account cheque
    number 44082 was drawn for K5.0 million and paid to Koge Yoba Poramara
    Estate, which was refused by the bank due to wrong payee details on the
    Cheque. Another replacement cheque No. 44282 for the same amount was
    raised on 3rd December 2010 under the correct name, Koge Yoba Estate
    Limited and deposited into the Company Account on 8t1 December 2010.

    2. Facts i evolving Project Submission, Appraisal and Approval for the K5million
    The investigation team was unable to sight the project proposal, believe that
    the three page letter served as the project proposal. If there was a proposal, it
    is not known who was engaged to prepare it as the District Agriculture officer
    has no knowledge of such project proposal for a K30 million Coffee
    Pyrethrum Project.

    Staff within the Department interviewed were also unable to provide a copy or
    recall having sited such proposal including the then Secretary. In the absence
    of the proposal the investigation team is unable to work out how this figure of
    K30. Million was reached. If there was a proposal, it did not go through the
    proper process. The whole project screening process was circumvented.

    3. Directorship and Expenditure of Funds

    According to the IPA Company extract, the Company was registered on 1st
    March 2007 with its registered place of business as Port Moresby. The
    Shareholders of the company are a Mr John Hibulu Piru and Mrs Joyce Yagi
    Piru (probably a married couple). The company does not have registered
    number of employees.

    The Bank Statement obtained from Bank South Pacific Limited reveals that
    the company account does not appear to have been operating a business with
    regular transactions. An amount of K100 was deposited to keep the account
    operational and pay the service fees. For instance, on the date that the cheque
    of K5million was deposited, the bank account balance was only K125.

    27 April 2012 a,g…=.
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    11-
    111 – c.Taa. Taacu.t1v3
    ,
    c’afilej?. o ids 21ndings,

  • Page 97 of 159

  • ENAL REPORT
    raises the question of whether the company is one of the K2 companies. It
    also raises the question of whether the company had the capacity to deliver
    the project.

    4. Findings:

    The tenor of the letter by Hon Jeffrey Nape, although political in nature, does not in
    any way justify a project worth K3Omillion or even K5million for that matter as
    released. Rather, it implicates the leader on how he has been using the highly
    esteemed office of the Speaker of Parliament to support the government. The use of
    his office as a reason to extract funds from the public coffers tantamount to abuse of
    office which needs further investigation.

    He further stated in his letter that Koge Yoba Estate Limited is a Business arm of
    Sinasina Yongomugl District Administrative Services. However, the company extract
    from IPA does not reflect such an assertion. Further inquiries have confirmed that
    the Owners and Directors of the company are not officers of the Sinasina
    Yongomugl District Administration.

    Since the payment was made, the Bank refused to clear the funds and further
    requested the duly executed contract or project proposal. None of that was produced
    and a period of more than 5 months had lapsed. Consequently, BSP Ltd raised a
    bank cheque of K5million on 12 th May 2011 and paid it back to the Department of
    National Planning and Monitoring.

    That also confirms that there was no project proposal. The three page letter by Mr
    Nape was the project proposal upon which the officers of DNPM acted. The letter,
    as alluded earlier, is not worthy of a project proposal, yet seen fit to be considered as
    viable by the officers of DNPM.

    5. Breach of Financial Management and Administrative Process

    The process of expenditure of public funds and awarding of contracts is well
    established by law. The amount of K5million falls within the jurisdiction of
    CSTB and public tenders would have been called if private companies are
    going to be involved. If the funding is for special intervention projects, then
    due consideration should have been given to value for money and avoidance
    of waste.

    The raising and paying of cheques is highly irregular and officers who
    facilitated the payment were grossly negligent in the discharge of their duties.

    6. Recommendations

    27 April 2012 Page 26
    7- . r5-tPratt 1-aves’AgalIlon. 3’as!t-Torece J.’ ;p Finel Psecufive
    tounc3.71. eff Yis Findings, knligemeaVatlens, and Tumlneri .71evem1 -12endatIons.

  • Page 98 of 159

  • :fr HAL FLEP127
    1. It is reconimended that
    a. Mr Joseph Lelang, Mr Japheth Michael and others implicated in orchestrating
    this payment should be dealt with under the Public Service Management Act
    and the GOs.

    b. Hon Jeffrey Nape, Paul Tiensten and Joseph Lelang be referred to the
    Ombudsman Commission to be dealt with accordingly under the Leadership
    Code.

    c. Hon Jeffrey Nape, Hon Paul Tiensten, Mr Joseph Lelang and Mr Japheth
    Michael as well as the directors of the recipient company be interviewed by the
    National Fraud Squad for their part in orchestrating this payment.

    Case 19: K3,400,000.00 PAYMENTS TO TOL PORT SERVICES FOR
    FUNDING REHABILITATION OF KARL PLANTATION.

    1. Analysis of Payment

    On 01 December 2009, cheque no. 40572 (Appendix 1) for K3, 400, 000.00 was
    raised in favour of TOL PORT SERVICES. The payment was for funding assistance
    for rehabilitation of KARL PLANTATION as indicated in the Requisition for
    Expenditure (FF3) and General Expenses (FF4) forms and the Department of
    National Planning and Monitoring Remittance Advice.
    The expenditure was charged under the project vote code:
    229 Department of National Planning and Monitoring
    . 4203 Other Multi-Functional Development
    3281 National Agri-Development Plan
    143 Grant Transfer: Public Authorities
    The payment voucher was supported with the following documents:
    a A minute under the letterhead of the office of the Minister, Ministry of
    National Planning and District Development which was duly signed by Hon.
    Paul Tiensten, LLM, MP on 23 November 2009, with subject: REISSUE OF
    DEPT. OF NATIONAL PLANNING AND MONITORING CHQ.#
    38249 FOR K 3.4 MILLION.
    The Minister instructed the Secretary of Department of National Planning
    and Monitoring (DNPM) to reissue the mentioned cheque to TOL PORT
    SERVICES as the newly nominated project manager of the plantation
    rehabilitation program in place of MESU INVESTMENTS LIMITED.
    The minute was marked out to P. Danggun with the following notation:
    `Approved. For cancellation & raise to Tol Port Services. Ensure we
    can get proper acquittal & project monitoring in 2010′. Signed by Mr.
    Joseph Lelang 30/11.

    27 April 2012 .age 07
    Tint. Prgft `Tas!; – 7iiirice Stneo to “the Naincnal F,:untdive
    1101i21Ci1 of P1;13 711E61121.E5, Eng FIL, AheE necommesulalions.

  • Page 99 of 159

  • MAL REPO 1f

    o A minute signed by Mr. Paul Danggun Assistant Secretary, Budgets Branch
    on 30 November 2009 and addressed to Mr. Joseph Lelang, Secretary with
    subject: REPRINT OF CHEQUE NO. 38249, AMOUNT K 3, 400, 000.00.
    MR Danggun informed the Secretary that a new requisition form is attached;
    that the said cheque raised to the payee named Mesu Investment Limited for
    rehabilitation of Karl Plantation is to be reprinted to Tol Port Services, PO
    Box 27, Kokopo, ENB; and that this cheque has to be reprinted immediately
    so that it can be disbursed to the contractor to carry out the required work
    on time.

    Note that the name of the plantation for which the expenditure was intended
    to rehabilitate was shorted to read as read KARL PLANTATION instead of
    KARLAI PLANTATION as per the original payment to Mesu Investment.

    • a copy of the Department of National Planning & Monitoring Remittance
    Advice no. 237380 for cheque no. 38249 issued on 22 March 2009 for K3,
    400, 000.00 as funding of Karlai Plantation rehabilitation. The original
    document was used as basis for Journal Entry to effect the instruction.

    • A handwritten instruction duly signed by Hon. Paul Tiensten on 16.11.09
    was noted thereon to read as follows:
    `Reissue under Tol Port Services
    P.O BOX 27
    Kokopo
    ENBP’
    ® FF3, FF4 and cheque were signed by the following officers of the
    Department of National Planning and Monitoring:

    FF3 and FF4

    I Date Name of Officer Designation Capacity
    30.11.09 Paul Danggun AS-Budget Authorised
    Requisitioning Officer
    01.12.09 Alonge Alupi AS-Finance Financial Delegate
    30.11.09 Joseph Lelang Secretary Section 32 Officer
    01.12.09 Berly Wagi Asst. Accountant Examiner
    Peter Parua Asst. Accountant Certifying Officer

    CHEQUE

    01.12.09 Peter Parua Asst. Accountant Signing Officer
    01.12.09 Jacqueline Kiap Examiner Countersigning
    Officer

    27 April 2012 Page 98
    FI:r5tPraft gnvestigaition Tas2c-Force Sweep Final Report 10 the National Executive
    COEUR Of aas Findings, Impleinentalions, and ► arthey Decornmenda .lions.

  • Page 100 of 159

  • ENAL HIEnLair

    In addition„ the cheque was collected and released to Mr. Paul Danggun on the same
    day it v. as issued as reflected in the Cheque Usage Report. However, Mr. Danggun
    did not present for verification any record to document subsequent release of said
    cheque to the named payee.

    o The cheque was negotiated with Australia and New Zealand Bank- Kokopo
    Branch on 09 December 2009 and subsequently cleared by Bank of Papua
    New Guinea on 16 December 2009. An illegible signature was noted on the
    `Endorsement of Payee’ portion of the cheque. Numbers 12620760 was
    written at the back of the cheque, presumably the bank account number of
    the payee (TOL PORT SERVICES).

    2. FINDINGS
    (a) General Findings/Conclusion

    Based on the supporting documents attached, the payment of K3,400, 000.00 to Tol
    Port Services for funding the rehabilitation of Karl Plantation was dubious and
    suspicious, let alone, anomalous. There were no proper documentation and
    submission that would warrant and justify the redirection of the payment.

    Officers of the Department of National Planning and Monitoring were tasked to
    administer the Public Investment Program towards achieving the ultimate goals of
    the government which is to reduce if not eradicate, poverty.

    Mr Joseph Lelang, the Secretary for National Planning & Monitoring, was the
    Departmental Head and therefore the Chief Accountable Officer. He was the
    Section 32 Officer who approved the payment process, made the irregularity
    possible.

    Most importantly, processes and procedures contained in the Public Investment
    Programme Guidelines and Development Project Documentation Guidelines
    established in August 2007 by the then Secretary, Mr. Valentine Kambori, MBE,
    were disregarded. These guidelines were formulated to provide guidance and ensure
    effective and quality of life in the social, economic and cultural spheres of both
    urban and rural areas of Papua New Guinea.

    Non-compliance of these established guidelines compromised the regularity and
    propriety of this transaction. It simply defeated the effort of the government to fairly
    distribute the nation’s resources through development projects reaching the remotest
    area of the country.

    Consequently, it paved the way to circumvent the procurement requirements
    prescribed under the Public Finance (Management) Act and the related Financial
    Management Manuel.

    27 April 2012 Page 9
    PrPf- havesttatiozra Tash-rogce Sweep .111Tia2 naporl to the ZatAond Executive
    Culla-122 off Lis iTly.6.1La0s, lImplementatIons, antl Pairflhere Decormendallons.

  • Page 101 of 159

  • G7H/111. REPORT –

    Equally significant finding to highlight was the violation of the direction. stipulated in
    the Appropriation Bill translated in the 2010 Budget Book of the Department of
    Treasury. The expenditure made payable to Tol Port Services was charged under the
    vote item for Grants to Public Authorities.

    The payee is a private company and apparently, not a public authority.

    (h) Detailed Findings

    1) No Valid Documents to Support Re-direction ofpayment
    Payment to Tol Port Services was based on two (2) requests/instructions of Hon.
    Paul Tiensten, the Minister for National Planning & District Development:
    o in his minute of 23 November 2009 to the Secretary for Department of
    National Planning and Monitoring; and
    o his hand-written instruction on the unused cheque no. 38249, originally
    raised to Mesu Investment Limited on March 2009.

    Both indicated that the aforesaid cheque for funding the rehabilitation of Karlai
    plantation be reissued to Tol Port Services, allegedly, the newly nominated project
    manager in place of Mesu Investment Limited.

    Proposal, sufficient information, and/or other documents detailing and assessing the
    character, capacity and trustworthiness of the new project manager were not seen on
    file to justify the purported change of project manager. Much more, the expenditure
    was not supported with the endorsement, if any, had undergone and passed the
    screening and evaluation process, and that the change of project manager was
    sanctioned.

    It would appear that Tol Port Services were using and benefiting from the
    submissions and proposals of Mesu Investments Limited. Incidentally, payment
    voucher (FF3 & FF4) and supporting documents, if any, in relation to the first
    cheque issued in favour of Mesu Investment were not on file. Its whereabouts could
    not be sanctioned.

    In the absence of important requirements, it would appear that the Secretary, Mr.
    Joseph Lelang, in his capacity as the Section 32 Officer approved the redirection of
    the payment to Tol Port Services in order to appease the instruction of the Minister
    even without valid reason and documentation to do so; and much more, even if his
    actions was not in conformity with his main mandate to safeguard public funds.

    Equally responsible of the irregular payment were other officers down the line who
    likewise succumbed to the pressure.

    Officers Involved in the Payment Process

    27 April 2012 Page 100
    7:irst PrAft- havestigalion Tas’Ic-IF ,oce fle oz1 3a gee Zanosaaa Execadve
    t’ravaell oT »5 ITIntIags, lani:;Y!!a menla .nns, e.7.2 71,71:71’san:r Ile.LTomment2Elings.

  • Page 102 of 159

  • RUM. FR [E ‘Old

    The following officers of the Department of National Planning and Monitoring whO
    initialled or signed on the FF3, FF4 and cheque were responsible in facilitating the
    irregular payments. The irregularity could have not eventuated without the
    collaboration of these officers. They were the last phase of the payment process,
    however, their failure to adhere to proper procedures attributed to the perpetration
    of such fraudulent payments. They failed miserably in the performance of their
    mandated duties and responsibilities.

    Mr. Joseph Lelang — Secretary/Section 32 Officer
    As the Secretary of the Department, Mr. Lelang was deemed the Head of the
    Department and thus the Chief Accountable Officer. His duties and responsibilities
    were enumerated under Section 5 (ACCOUNTABLE AND ACCOUNTABLE
    OFFICER) of the Public Finance (Management) Act and further defined, explained
    and expounded under Part 8 (ACCOUNTABLE AND ACCOUNTING
    OFFICER) of the Financial Management Manual.
    The main responsibilities of the Departmental Head, among others, were:
    o Safeguard public funds and propriety and regularity of expenditure from the
    funds appropriated by Parliament to his department;
    ® Make sure that his Department is organised and staffed on sound lines,
    particularly in the finance and establishment branches, to facilitate proper
    delegation of duties;
    Ensure that financial considerations are taken into account at all stages in
    9

    framing and reaching policy decisions and in their execution, for the efficient
    and economical operation of the Department as a whole;
    • Responsible for the ‘regularity and propriety of the expenditure’; thus ,
    expenditure must be within the ambit of appropriation, and within the total
    sum authorized to be spent on the vote to which it is charged. It must be for
    the purpose set out in a programme, function, activity and item of
    performance of service, detail of payee and the period of account in which
    the expenditure is charged.

    Aside from being the Head of the Department, Mr. Lelang was also the sole Section
    32 Officer who was authorized to make the expenditure decision. As Section 32
    Officer, he was duty bound to, among others, ensures that the proposed expenditure
    was according to established plans and would not result in other planned expenditure
    being delayed or aborted through lack of funds; and to ensure that proper
    procurement practices had been observed in accordance with Part 12 (Minor
    Procurement) and Part 13 (Major Procurement) of the Financial Management
    Manual.

    In addition, Mr. Lelang approved the payment despite without the signature of the
    Commitment Clerk who was supposedly responsible to ascertain that the
    expenditure was committed to the correct activity or project vote and on items it
    indicated in the space provided for in the Requisition for Expenditure.

    27 April 2012 Page 101
    Tirst llavestagailon tans-Togee wee Tine nooint to The National Executive
    Council of its Findings, iinvionentedons, and FuNiieg 2ecaaraen2a5ions.

  • Page 103 of 159

  • FONAL REEPOIYEr

    Mr. Alonge Atinpi — AS-Finance/Financial Delegate
    Part 7 Division 6 Section 30 (Roles and Duties of a Financial Delegate) of the
    Financial Management Manual enumerated the roles and duties of a Financial
    Delegate which included among others:
    G Control allocated funds so that over commitment does not take place;
    a Ensure observance of prescribed financial procedures in implementing
    expenditure decisions;
    • Review and monitor commitments and expenditure so that timely warnings
    are given on fund availability;
    a To ensure that proper commitment control procedures are enforced;
    G To initiate necessary steps to comply with prescribed financial procedures
    e.g. tender procedures or special procedures set out under Financial
    Instructions; and
    G To notify the Departmental Head of any vote that is out of control or of any
    irregularities incurred on a specified vote.

    In Section 33 (Commitment Control), Financial Delegates were further tasked and
    made responsible for commitment control, that is, to ascertain that expenditure was
    committed to the correct activity or project vote and items it pertains to.

    Mr. Paul Danggun — AS-% udget/Authorised Requisitioning Officer
    Mr. Danggun, at the first instance and before raising the Requisition for
    Expenditure, should have ascertained valid documentations consistent with what
    was required under the Public Investment Programme Guidelines and the
    Development Project Documentation Guidelines established by the Department.
    His signature made the transaction eligible for payment.
    Part 7 Division 5 Section 27 (Requisitioning of Expenditure) of the Financial
    Management Manual stipulated that the requisitioning officers should be responsible
    officers under the Activity to which the votes relate.
    It was also noted that Mr. Danggun collected the cheque in half of the payee by
    signing on the Cheque Usage Report on 01. 12. 09. The final release of the cheque
    to the named payee was no longer documented.

    Ms. Beryl Wagi — Assistant Accountant/Examiner MR.
    Peter Patna — Assistant Accountant/Certifying Officer
    Primary responsibility of the examiner and the certifying officer was to determine
    completeness of documents. Ms. Wagi examined the documents while Mr. Parua
    certified that they passed through the payment process; and more specifically, that
    the account was correct within the meaning of the Public Finances (Management)
    Act.

    Part 7 Division 6 Sub-Section 31.2 (Duties of Certifying Officers) of the Financial
    Management Manual stipulated that their duties included supervision of the claims

    27 April 2012 Page ‘102
    .Dro.,j-ct iinvesfigaTion Tas7.1-Fence atueel F5.na2 71e9org is the DIatkonal Egemlive
    Thn..65ny,:73, anzl FuOhey lilecommencla .lons.

  • Page 104 of 159

  • FINAL REPORT
    exaraination system a oci certifying that the claims tendered were correct and can be
    paid.

    It should be reiterated that the payment was based on insufficient documents; and
    was charged under a vote item for Grant to Public Authorities.

    Mr. Parua also signed as the Signing officer of the cheque.

    zii) Breaches of Established .,Procedures/Guidelines

    The PIP Guidelines and the Development Project Documentation Guidelines were
    wantonly disregarded in processing the expenditure. Claim for K3,400,000.00 was
    paid to Tol Port Services on 01 December 2009 despite prohibition and without the
    required documentations prescribed in these Guidelines:
    o Tol Port Services was a private company/contractor, therefore not eligible to
    apply directly for development funding from GoPNG’s PIP.
    • The payment was not supported with the required documents to justify the
    decision to expend, as follows:
    > Duly screened and endorsed proposal/Project Formulation Document)
    on the rehabilitation of Karl Plantation by Tol Port Services;
    > Endorsement by relevant committee on the engagement of Tol Port
    Services as the new project manager;
    > Sufficient information about the capacity, character, and trustworthiness
    of Tol Port Services to ably carry out the project on time and within
    budget; and
    • Appraisal and assessment conducted by the Development Planning and
    Programming Division (DPPD) of DNPM on the rehabilitation of Karl
    Plantation.

    • Duly executed contract between Tol Port Services and the State through the
    Central Supply and Tenders Board to ascertain procurement process was
    undertaken; and that, Tol Port Services was the newly appointed project
    manager.
    o Authority to Pre-Commit Expenditure (APC) from the Secretary of Finance to
    confirm that funds will be made available to the supplier once a contract has
    been executed and fulfilled.

    Breaches of Public Finances (Management) Act (PFIVIA)

    The amount of K3,400,000.00 falls within the jurisdiction of CSTB and there was no
    public tender on this project pursuant to the PFIVIA between Mesu Investment (old
    project manager) or Tol Port Services (the new project manager). There is even no
    evidence of COI and if it was issued, it would be unlawful as the project is not the
    kind that would attract a COI.

    27 April 2012 Page 103
    T•irst Prap Envestigation TasR-Torece Sweep Final Report to the National Executive
    Council o its lim3Rementations, and rturthee Recommendations.

  • Page 105 of 159

  • IF SQL HERDED”
    v) Violation of Appropriation (Bill) Act Erroneous Line Item of
    Expenditure

    Payment of K3, 400, 000 to Tol Port Services as funding to rehabilitate Karlai
    Plantation was charged under the National Agri-Development Plan (NADP) project
    vote code 3281 and the expenditure line item 143 intended for Grants And Transfers
    To Public Authorities.

    PNG Budget Manual prepared by the Budget Division of the Department of
    Treasury indicated that said line item was provided for expenditures relating to
    transfers in the form of grants and lump sum payments to governmental institutions
    for the implantation of programs supported or shared by National Government;
    such as grants to provincial and Local-Level Governments and Statutory Institutions.

    Undoubtedly, the set up was in line with the government’s policy to implement
    activities under this project with close involvement of sectoral agencies and all other
    key stakeholders. The project was carried under PIP Number 3003 (National
    Agriculture Development Plan) which only allowed expenditures for Grants and
    Transfers to Public Authorities (expenditure item 143).

    It should be noted that Appropriation Bill Act was passed by Parliament based on
    budget submissions which was then translated into Department of Treasury’s Budget
    Book; such that, any variations from what was in the Budget Book would be
    regarded a direct violation of the Act.

    3. Directorship, Site Inspections and Expenditure of Funds

    Hon Paul Tiensten is a Director and a Shareholder of Tol Port Services Ltd. This is also
    exemplified by the signatory to the company account of Tol Port Services Ltd at ANZ Bank
    Kokopo, in which the defendant’s biological brother, Isidor Tiensten is also a signatory.
    When the cheque was deposited in the ANZ Account Kokopo for Tol Port Services
    Ltd, several payments were made without any rehabilitation work being undertaken
    at Karlai Plantation. As such, most of the monies from that K3.4 million had been
    misused by Tol Port Services Ltd for other purposes not connected to the
    rehabilitation of Karlai Plantation. The funds have been depleted for other purposes
    and only K1.3 million had been frozen.

    4. RECOMMENDATIONS

    1. Referral of named officers of the Department of National Planning and
    Monitoring (as listed above) to Fraud Squad to determine criminal culpability
    of their actions.

    2. Interview of these officers conducted in order to ascertain extent of
    participation in the irregular payment.

    27 April 2012 Page 1C4
    Tint Pr of Lmves .ngzisior) ‘g’ash-702cs 3weep f(o Nemate. Dteciaflve
    X1 ‘ .5 TAnd7r.gs,Ikzarqezraen2anon5, madilg. ,..raeyneccamende.ons.

  • Page 106 of 159

  • [Flnin REPUEV
    3. Serious disciplinary and surcharge actions in accoruance with the Public
    Services (Management) Act and Public Finances (Management) Act,
    respectively, instituted against named officers of the Department of National
    Planning and Monitoring who were responsible for the irregular payment.

    4. Hon Paul Tiensten and Mr Lelang should be investigated by the OC under the
    leadership Code.

    Case 20: Payment and elease of K10 million to Travel Air Limited

    1. Policies and Funding Guidelines

    It was noted that Air Travel Subsidy is a new development program under Air Travel
    Services initiated by the Department of National Planning & Monitoring only in
    2010 for the 2011 budget and this is evidenced in the budget books for prior years
    that there was no allocation under this programme.

    This is confirmed in the written statements by the then Deputy Secretary (PIP) Mr
    Jacob Mera, the person who was responsible for the 2011 development budget
    formulation – as the Development Budget Controller and Assistant Secretary —
    Budget Mr Paul Danggun . As such, there were no existing policies and guidelines
    for this new Air Travel Subsidy program and the Department was yet to install such
    guidelines.

    2. Analysis of Air Freight Subsidy

    The policy as it appears was to address the pressing need of the Air Transport to the
    very remote areas where Air Nuigini can’t get to where small airlines can cater for
    and on behalf of Air Nuigini whereby the subsidy of air freight comes in handy for
    the travelling public plus the rural populace in the country. Existing third level airline
    operators like MAF, Tropic Air etc are eligible proponents to apply for this airfreight
    subsidy. Further, this analysis is confirmed in the written statements by the then
    Deputy Secretary (PIP) Mr Jacob Mera, the person who was responsible for the 2011
    development budget formulation – as the Development Budget Controller and
    Assistant Secretary — Budget Mr Paul Danggun.

    3. Facts involving Project submission, appraisal and approval for the K10 million

    o Travel Air, an unregistered company in 27 th May 2010 summited an unsigned
    business plan to the office of Minister for National Planning requesting for
    funding. Then in 2011 Travel Air, summited their second proposal again to the
    Ministers’ Office, which the Minister entertained the Proposal and directed the
    Secretary for National Planning to facilitate the payment. Hon Paul Tiensten
    made notations on the cover directing, the Acting Secretary — Ms Ruby Zaniga,

    27 April 2012 Page ‘105
    girt PrAir rInal 21epolet go g:1-Eo iVa3loao2 ncemagIvo
    j.trivestigadon Tasir-Fona Levee
    Counefti Dindangs, Implemengallons, and Tnyghey DecorimendEgioms.

  • Page 107 of 159

  • HNIAL REPORT
    in a form of request to facilitate the release of K10 million under 2011 budget to
    Travel Air dated 23 March, 2011.

    a The Acting Secretary, Ms Zarriga on the same date stamped and did a note
    requesting Acting Deputy Secretary — PIP, Mr Takale Tuna to appraise and
    advise.

    a A/Deputy Secretary, Mr Tuna on the same date, did a note to Acting First
    Assistant Secretary — IED, Mr William Sent to appraise the proposal and action
    as soon as possible.

    a The a/FAS — IED, Mr Sent did a minute dated 21″ March, 2011, a minute done
    two (2) days before business plan was submitted, containing misleading and
    falsified statements, to Mr Tuna and Ms Zarriga stating that the submission was
    endorsed by the minister, he was attaching requisition forms (FF3 & FF4) for
    their concurrence. Further stated that the funding was earmarked for subsidizing
    the activities of Travel Air, a new airline company servicing the remote areas of
    the country and the airline operates two (2) Dash 8/100 aircrafts and would
    operate under the Civil Aviation Rule.

    9
    The appraisal and approval process was facilitated on the same day, 23r d March
    2011 and on 31″ March 2011, a Cheque No.158 was made payable to Travel Air
    was raised and paid.

    4. Breach of Financial Management and Administrative Process in facilitating
    the release of K10 million

    The Minister is responsible for supervising, formulating the budget, overseeing its
    implementation and reporting to Parliament, Contrary to these and even still, the
    Minister, Mr Paul Tiensten who is not responsible for Financial Management, when
    requesting the release of K10 million to Travel Air, has taken over or assumed the
    financial administrative role of the Departmental Head, the Acting Secretary as Chief
    Accountable Officer. (Refer above on the roles of the minister)

    The Acting Secretary — Ms Zarriga as Departmental Head and Chief Accountable
    Officer,

    i) Approved a misleading and falsified pre-appraisal minute by Mr William Sent
    and on the same date signed and approved as Section 32 officer for the cheque
    to be raised.

    ii) Air Freight Subsidy was a new initiative by the Department and the policies and
    guidelines to properly administer the K10 million allocation were not yet in place

    27 April 2012 Page 106
    Tint:Draft !Inves1Aga“on Tas1A-froyce Swee;r3 Tinal Repoye8 ;:o Ate 1Izqional Elteclativ
    Council Tineings, lm3lemenialions, an IFURf9te2 Recognmencia2ions.

  • Page 108 of 159

  • ■ ••■•••••
    FdNA L 1 Eir;(0 [Fa
    but released the K10 million to Travel Air, an airline operator u.ilaLan.l of, not as
    a subsidy but to purchase a new aircraft.

    iii) When the Minister requested for the release of K10 million, she as Chief
    Accountable Officer failed to ad -vise the minister that K10 million was for
    subsidizing operating Air freight carriers and not for establishing a new airline
    company.

    Part H Section 5(d), (I) and (k) of the Public Finances (Management) Act,
    1995 were breached.

    The Acting Deputy Secretary — (PIP), Mr Takale Tuna facilitated and endorsed the
    pre-appraisal minute, although it was misleading and falsified. Again, failed to advise
    the Acting Secretary that Air Freight Subsidy was for subsidizing operating air freight
    carriers and not for purchasing new aircraft and further failed to advise that Travel
    Air’s project proposal was not included in the 2011 budget and had not gone
    through the budget formulation process in 2010 for 2011. funding.

    The Acting First Assistant Secretary — IED, Mr William Sent in his pre-appraisal
    Minute dated 21″ March, 2011, stated that the funding was earmarked for subsidizing
    the activities of Travel Air, a new airline company servicing the remote areas of the
    country and the airline operates two (2) Dash 8/100 aircrafts and would operate
    under the Civil Aviation Rule. These statements are falsified and misleading because
    K10 million to a private company requires NEC approval and for Mr Sent to say that
    “K10 million funding was ealinarked for Travel Air” does not have the basis.

    5. National Tenders & Contracts

    Part VII, Section 39 under subsections (1) (2) and (3) of the Public Finances
    (Management) Act, 1995 empowers the minister by way of notice in the National
    Gazette; establish an internal supply and tenders Board with limits (lower than the
    minimum threshold of the Central Supply & Tenders Board), policies to be applied,
    criteria for the evaluation and other rules in relation to the operation of the internal
    tenders board.

    For the purpose of this, DNPM does not have an internal Supply & Tenders Board
    but even there was one, K300,000.00 is the maximum limit and K10 million is the
    maximum limit of CSTB for supply of works and services for and on behalf of the
    State with properly constituted contracts.

    In the absence of such properly constituted contracts and not falling within the
    meaning of providing “works and services” to the State, like this K10 million to
    Travel Air (the subject) as subsidy or capital funding, the approval solely vests with
    the National Executive Council (NEC) and that authority/power cannot be assumed

    27 April 2012 Page 107
    7:1:r3t PrP,f invesi’itagion Tan-Ten:3 SweeT9 Final 3e7oz?. 2 Aalknair. E:v.Ac eive
    Connc.i ..1 oT Tintiliags, limplaarRen1a .ams, ang 7122theY Inanznyancla .e.ons.

  • Page 109 of 159

  • FINAL REPORT –
    by any Departmental Head or Tenders Board unless it. is stated under a separate Act
    of Parliament.

    Furthermore, if it was a special intervention project by the Government, then the
    beneficiary should have been stated in the Budget to avoid confusions. The funds
    were earmarked for subsidizing airfreight for the rural populace serviced by existing
    third level airlines companies such as I’IAF etc. If it was for Travel Air, it would be
    particularized such as the 2010 budget where the Government budgeted K3Omillion
    for procurement of aircraft for Air Nuigini under vote 229-1204-1-295 and
    mentioned Air Nuigini in the Appropriation Act as the recipient.

    6. Irregularities on the Payment Vouchers

    The DNPM does not have a departmental payment procedure/guideline that would
    show the financial limits attached to certain positions for approval of requisitions, as
    financial delegates and Section 32 officers for payments. This has been a very serious
    internal control weakness that should have been addressed as the Department was in
    control of the Development Budget (PIP) and its own Recurrent Budget.

    From the payment voucher, Assistant Secretary- Budget signed as authorized
    requisition officer, Assistant Secretary- Finance signed as financial
    delegate/commitment clerk and signing officer on cheque No: 000158 and Acting
    Secretary signed as Section 32 officer without stating the designated financial limit
    and for what purpose in compliance with Part 5, division 5 section 26.3 (c) of the
    Financial Instructions.

    Even if DNPM had a payment guideline, approval and release of K10 million would
    be based on a properly constituted contract for works and services to the State. As
    such, these senior officers have assumed the role of NEC, a financial management
    decision, committing and paying K10million of State’s much needed Development
    Funds to a private company that does not fall within their financial limit without due
    care can only be termed as “highly fraudulent”.

    Part H Section 5(d), (4 and (g) of the Public Finances (Management) Act,
    1995were breached.

    7. Findings

    The written statement by the Acting Director (CEO) of Civil Aviation Safety
    Authority confirming that Travel Air is currently not in operation and no aircraft
    owned by Travel Air has been registered on the PNG Register of Aircrafts as at that
    date of the payment which confirms that the statement by Mr Sent that “Travel Air
    is a company servicing the remote areas of the country and the airline operates two
    (2) Dash 8/100 aircrafts” cannot not hold water.

    27 April 2012 Page 108
    First :DrAft Investigation ‘ash-Farce Sweep Final !Report to the Pl’ational IS’aeczative
    &midi oi its Findings, lnyolenaentalions, and TaylheE Beconmendatioaas.

  • Page 110 of 159

  • FJNAML

    Inv( stigations reveal that Travel Air which is the recipient of the funds in quebtion
    was a mere business name registered with IPA on 8 th September 2010 with the
    Business Name Number 6-91851. The business start date to provide domestic air
    services as per the company extract is if October 2010. That shows that on the date
    of the first proposal dated 27 th May 2010, there was no business entity registered
    with IPA with the name Travel Air.

    Travel Air Limited, a company with the company number 1-79205 was registered on
    15 th June 2011, more than two months after the payment was made to Travel Air.
    Company extracts show that both Travel Air and Travel Air Limited are subsidiaries
    of Sarakolok West Transport Ltd, a company owned by Mr. Eremas Wartoto.

    It is uncovered that the funding proposal was not accompanied by a Certificate of
    Incorporation of the company from Investment Promotion Authority nor a COC
    from IRC. There was no evidence that Travel Air had existing aeroplanes. Further,
    there was no Domestic Aircraft Operating License under section 159 of Civil
    Aviation Act 2000 attached to the Proposal. There is also no evidence of registration
    of an aeroplane in PNG owned by Travel Air. Clearly, the business was not in
    operation so as to be qualified for the funding under this vote.

    If ever Travel Air was going to be purchasing airplanes and operating an airline
    company, it was a fact known to the people who were involved in facilitating this
    payment. No competent officer would have approved and appraised a funding of
    substantial amount of money to a purported company without all the relevant
    documentation except by conspiring to defraud. A colorful proposal without these
    very important documentation is not qualified to be paid hence it goes to show
    collusion and conspiracy to defraud the State. Some, if not all, of the officers who
    orchestrated this payment somehow knew that a company under the name of Travel
    Air Limited was going to establish an airline company.

    “Whether Business name is qualified to receive funds or a company”

    8. Recommendation s

    2. Firstly the Minister, Acting Departmental Head and the Senior Offers dealt with
    under;

    a) The Minister would be dealt with under the leadership Code, or any other
    Act appropriate.
    b) The Acting Departmental Head should be dealt with under General Order
    8.22
    c) Other Senior Officers should be dealt with under the General Order 15; and
    d) Any other captions of the General Order and Public Services anagemen) Act,
    1.995 deemed appropriate.

    27 April 2012 Page 109
    Yzirst Pmft Jnvesagallon Tan-Tome aims!) 75naR 0e or 9a the Zalional Executive
    0ounc3.1 EmaZesnoriadons, and 1u:fi1im necommeiviiEunons.

  • Page 111 of 159

  • FINAL REPORT-
    3. Concurrentl ; , the Minister, Acting Department Head and the Senior Officers
    mentioned hereinabove should also be referred to the fraud squad to be dealt with
    under the Criminal Code Act.

    4. Hon Paul Tiensten and Ms Zarriga should also be investigated by the Ombudsman
    Commission pursuant to the Leadership Code for their part in this payment.

    5. The owner of Travel Air Limited, Mr Eremas Wartoto should also be interviewed by
    the fraud squad for his part in applying, receiving and expending these funds.

    6. The funds paid out are illegal and remain as proceeds of crime in the hands of Travel
    Air Limited hence should be recovered forthwith using the Proceeds of Crimes Act
    2005 and the Taxation powers.

    10.2 More cases in Brief

    There are more cases that unfortunately could not be included under 10.1
    hereinabove as it is not the intention of ITFS to fill-up the entire report with
    individual cases. However it is proper to state those cases briefly for the purposes of
    this report.

    10.2.1 Sarakolok West Transport Ltd and Chain of Companies

    This is a company owned by Kokopo Businessman, Mr. Eremas Wartoto. The
    company and its owner, through a number of related companies, have been the
    recipient of millions of public funds.

    1) Projects (Works)

    Kerevat National High School

    A payment of K7.9million was paid under the RESI component to rehabilitate the
    Kerevat National High School. Another payment of K1, 975,006.05 was paid on a
    purported variation. The total therefore is K9,875,006.05. However, less than
    K.5rnillion was used for some incomplete and substandard work at the school which
    resulted in the closure of the school for a number of years . Criminal Investigations
    were wrapped up with arrests being made.

    Kandrian Hospital

    Manner in which contract was awarded is suspicious. The only director to Kandrian
    Limited is believed to be a driver of SWT’s Travel Car. Site inspections conducted
    reveals signs of materials purchased from China. Project is very slow with
    demolitions done but yet to erect new buildings. The total amount paid is
    K5.1tnillion.

    27 April 2012 Page 110
    FirrtPrAft Rmvestigation Tasit-Fone Sween Final Repord to the itational Diecuttive
    CtrencH Innillngs, larqiernentagions, and FaighOYMeconimeniallnons.

  • Page 112 of 159

  • ENAL j3E9J[Faf

    Amount of K6million was paid in the name of Wild Dog Plantations. Account is
    operated by the same Indian person named Krishnaraj Sathymurthy, an employee of
    SWT. Bank transactions record shows that all the funds were diverted to other
    business interests of SWT. A Cash transfer of K1.3million to SWT main Account.

    Medic Plantation

    K7.5 million was paid to Medic Plantations Limited Company. Proposal to DNPM
    under NADP to rehabilitate the rundown coconut plantation situated at Namatanai
    District of New Island Province. Apparently, the project proposal is the same one
    that was used for Wilddog Plantations by replacing Wilddog with Medic. However,
    they forgot to change some of the contents hence the name Wilddog still appears in
    some paragraphs of the proposal.

    Site inspections revealed that there was no development taking place according to
    the local leaders. Expenditures —K5million was transferred to SWT and balance was
    used elsewhere including purchasing the Plantation after the payment was made.
    Directors include Mr Timi Aisoli and Mr Joe Tobung. Mr Timi Aisoli is a grade 6
    leaver and driver who, when interviewed, appears to have now knowledge of him
    being a director of the plantation. Proposal is a fraudulent and clear indication of
    SWT involved in scheming and scamming. Only signatory to the account is the same
    Indian national Krishnaraj Sathymurthy employed by SWT who has since fled the
    jurisdiction.

    2) Projects (Supplies) -Coastal Vessels Program under Vote: 229-3909-5-201

    This is part of the rural development program particularly for the coastal areas. Its
    objective is to improve marine transportation system does enabling accessibility by
    majority of the targeted population to cost effective and appropriate shipping
    services with improved delivery of basic goods and services to enhance livelihood of
    the rural population. Its aim is to address the pressing needs of transportation for
    Maritime Provinces.

    Under the Project Component heading of this program as stated in the Budget
    documents, it is stated that “The major components will involve acquisition of new
    work boats and landing barges and identification of a management body in the
    private sector to manage the operations of the boats and barges.” The project was
    retained by DNPM as the implementing agency. Under this program, Work boats
    and landing barges were to be purchased for the 14 Maritime provinces in the
    country.

    The Coastal Vessels was appropriated under PIP#3001. In 2009, an amount of
    K13tnillion was budgeted. In 2010, an amount of K5Omillion was appropriated. In

    27 April 2012 Page 1’J
    Tir5t PrAft IavesCiiigaVion Tes’ila-Timec2 Swe:;:p lilaz .:112e ,303111.o V.ite Dialional
    COUTEC712 c :12s TraoltaEs, Jrniplenaen1v..tilons, slag 3w:r1F2ez :ZacmTimenc.1acthyils.

  • Page 113 of 159

  • ENAL REPCR7
    2011, there was no separate appropriation. However, an amount of K2Ornillion is
    believed to have been expended on the coastal vessels program through the
    Department of Transport under a vote number 259-3602-1-209. The total amount
    for this program in 2009, 2010 and 2011 is K83million. With that money under this
    program, at least 10 Maritime Provinces should have vessels operating in their
    provinces.

    MV Marunga H

    The Manus Provincial Government had applied for a vessel under the Coastal Vessel
    Program. Unbeknown to them, a payment of K7.5million was made to SWT as a
    brokerage to purchase and deliver the vessel to the Manus Provincial Government.
    When the vessel arrived, it was not delivered to Manus Provincial Government.
    Instead, SWT management approached Manus Provincial Government to sign a
    contract and purchase the vessel from SWT whereby Manus Provincial Government
    would deposit K650, 000.00 and later the final payment of Five Million Eight
    Hundred and Fifty Thousand Kina (K5, 850, 000.00). In total as per the Contract
    for Sale of Vessel, the contract requires Manus Provincial Government to pay
    Sarakolok West Transport (SWT) Ltd K6.5 million for the vessel and that is apart
    from the K7.5 million that was initially paid by the Department of National Planning
    & Monitoring for the vessel for Manus Provincial Government that was to have
    been supplied by Sarakolok West Transport (SWT) Ltd.

    The Contract for the Sale of Vessel also requires Manus Provincial Government to
    pay additional K3.425 million. In total as per the Contract of Sale for Vessel, Manus
    Provincial Government would have to pay Sarakolok West Transport (SWT) Ltd the
    sum of K9,925,000.00 and that is apart from the K7.5 million that was paid initially
    by the State, If Manus Provincial Government had paid the K9.925 million, then
    Sarakolok West Transport (SWT) Ltd would have received K17.425 million just for
    this one vessel, MV Marunga

    Criminal Investigations have led to arrests and are continuing.

    MV Kandrian

    The DNPM, under the Coastal Vessels Program paid K6.5million to Sarakolok West
    Transport (SWT) Ltd to supply a vessel to the Kandrian. District in West New
    Britain Province. SWT after having received the K6.5 million from the State made
    no attempt to deliver the vessel to the people of Kandrian District. SWT acquired
    the said vessel and kept it for their use until. the 25 th of July 2011 when the ownership
    of the vessel was transferred from SWT to Tol Coastal Shipping Services Ltd. A
    purported contract for the transfer of ownership was sighted.

    MV Warakalaio

    27 April 2012 Page 112
    ir; .;; Prof :tnvesglyalion Tas2c-Fone Swee3 Tlnal Mepoyl to he ilEflozral Enecutive
    CouncAl 7:112fInzis, izz_Nomenga ,dons, eat ner,o57amenclanons.

  • Page 114 of 159

  • FINAL REPORT
    M.V. Warakalap is a vessel that the State paid SWT Ltd to purchase and deliver to
    the people of Kokopo for the benefit of the people of Kokopo District. SWT, after
    receiving the ship and using it for a while, then negotiated with Tol Coastal Shipping
    Services Ltd and had the vessel transferred to Tol Shipping services Limited.

    Tol Coastal Shipping Services Ltd from the company extract appears to have all the
    LLG Presidents of Pomio as the Directors. When Mr Camillus Tati (Chairman) and
    Herman Yareng were interviewed, they knew they signed some documents as
    directors but do not know how the company is run. A closer look at the bank
    account records of Tol Coastal Shipping Services Ltd reveal that the signatories of
    the account are: Mr Eremas Wartoto, Mr Chris Narat (SWT Accountant) and Tim
    Rowland (SWT Manager).

    Tol Coastal Shipping Services is therefore one of those companies that SWT set up
    by using other people for the sole purpose of stealing funds from the State.

    Since this has happened, the people of Kokopo District did not have the benefit of
    having this vessel.

    Other Ships believed to have been bought from State funds

    It is firmly believed that two other vessels have been paid for by the State could not
    be located. The first vessel is named MV Doi which was paid for the people of
    Kokopo and Duke of Yoke Island. The State is believed to have paid K7.1million
    for that ship.

    Another one is a luxury sheep named FireFox. The State is believed to have paid
    K7million for that ship.

    3) Findings of SWT

    There may be others that SWT and its ring of companies may have been paid from
    the State coffers. From the cases identified so far, SWT had been paid as follows:

    1. Travel Air K10,000,000
    2. Kerevat National High School K9,875,006.05
    3. Kandrian Hospital K5,100,000
    4. Wildog Plantation Ltd K6,000,000
    5. Metlic Plantation Ltd K7,500,000
    6. MV Marunga II K7,500,000
    7. MV Kandrian K6,500,000
    8. MV Warakalap K4,800,000
    9. MV Doi (still missing) K7,100,000
    10. Fire Fox(still missing) K7,000,000

    TOTAL:. K62,375,006.05

    27 April 2012 Page 113
    FirstPrAfi; gnvesttigalion Tasfi-Trice Sweep Tina! gieynnt to the National Executive
    COURCii of its Findings, llnagementatlions, and Findley Decommendailoats.

  • Page 115 of 159

  • FONAL REPOIFF1

    It is uncovered that SWT registered a number of companies just to use them as
    conduits to obtain funds by false pretense. SWT uses its own managers to be
    signatories of those companies’ bank accounts and use other persons as directors of
    the company. When the funds are paid into those accounts, most of these funds are
    then remitted to the main SWT account or to other subsidiaries of SWT.

    Some of these vessels, such as 1WV Kandrian, are believed to be second hand and
    should have cost less than the amount paid for. A number of people in the shipping
    industry including Agmark Shipping Managing Director, when interviewed, said that
    Agmark bought a second hand vessel similar to MT/ Kandrian which costs around
    K400,000. Views from ship operators also established that a new vessel of the type
    SWT purchased would cost less than K3million. It is therefore believed that the
    vessels were grossly overpriced and the State was misled to pay on the inflated value.

    The Government’s budget appears to have been infiltrated by people with vested
    interest. The only policy under which government development programs can be
    transferred to private enterprises to manage is the much anticipated PPP policy. That
    program is yet to be approved and implemented. There is no existing legislative
    and/or policy basis upon which a particular private company could be given public
    funds to procure, register under its own name and use the assets to make profit.
    Therefore how did this justification of having a private management company to
    manage the vessels for the benefit of the coastal people come in? The end result then
    indicates how such a program was inserted in the budget.

    It is also discovered that the shipping vessels that were bought using State funds,
    were registered under SWT, used by SWT as cargo arid passenger ships, making
    more money. The maritime districts that were earmarked as beneficiaries did not
    have any knowledge whatsoever of these vessels. When the investigations closed in
    on SWT, SWT then purported to sell the vessels to the recipients of the vessels,
    conspiring to extort more funds and double dipping.

    It is therefore our considered view that Parliament was used to legislate funds
    through the Appropriation Act for a certain company under the Coastal Vessels
    Program and that is none other than SWT. Such legislation of corruption
    orchestrated by partnerships of private and public officials is a new trend in the level
    of corruption in this country, a highest level.

    11 SCHTB (K125 MILL.IO KOKOPO COMMUNHTY
    PROJECTS)
    11.1 Introduction

    27 April 2012 Page 114
    Investigation Tas2t-irozce Swee.D Final Meport to the National Eaecutive
    gonnel of its Findings, 12u9Iementatians, mai rinEetheg Iler4omsnendations.

  • Page 116 of 159

  • TIFF:DE!T
    The Central Bard, of -Papua New Guinea and .Department of Tre2sury ilavc. cained
    out their own separate investigations on the issuance of the SCITB. Some of their
    documents were furnished to ITFS pursuant to a Direction by the Attorney General
    under the Proceeds of Crime Act, 2005, which documents were considered useful to
    the scope of ITFS Investigations.

    11.2 Treasury Bills

    A Treasury Bill is a short term financing instrument (like a loan) which must be
    repaid within one year. The Government uses Treasury Bonds to borrow
    money to finance budget expenditure and so it is a loan. In this case, the then
    Treasurer, Hon Patrick Pruaitch purportedly released the Treasury bond worth
    K125million in consideration for the liquid cash from NASFUND. Those funds
    were remitted to National Capital Limited (NCL), a private company to manage and
    pay contractors.

    11.3 SCITB and Chronology of Events

    1. On September 2009 the Minister for communication and Information Hon.
    Patrick Tammur sought legal clearance from the State Solicitor on a
    Memorandum of Agreement regarding a proposal for funding of Road and
    Water Projects in Kokopo Districts of ENBP. The legal clearance sought was in
    relation to Chinese Government consideration in granting “soft interest loans”
    to the Government of Papua New Guinea for the Kokopo District, following
    discussions undertaken by the Prime Minister, Sir Michael Somare and
    Communications Minister Hon. Tammur, when they made an official visit to
    China. Under the proposal the general contractor was the China Overseas
    Engineering Group Co, Ltd (COVEC) and copies were made to the Secretary
    DoF & Secretary DoT.

    2. In October 2009 Mr Allan Waters as MD of Malco approached BLC regarding
    infrastructure funding in PNG. BLC is the Australian based parent company of
    NCL, the investment manager for Nasfund.

    3. On 27 November 2009 Hon. Tammur appointed Malco as the Exclusive
    Coordinator for fundraising, fund management and legal requirements.

    4. On 29 November 2009 Hon. Tammur appointed Malco as the joint District
    and Budget Priority Committee of Kokopo Open (sic — should be Kokopo
    JDP&BPC). Our understanding of this is that Malco is the Committee, which
    might not be in the compliance with legislative requirements. The exact Terms of
    Reference for this appointment is unclear. It appears that Hon. Tammur is the
    Chairman of the Kokopo JDP&BPC and has acted as the representative and
    authorised signatory of the Kokopo JDP&BPC in this matter.

    27 April 2012 ?age 115
    Fines :Draft hvesiigailon ash-Tone Sweva ‘s o The ZoAional Execultive
    CumIt611 a it Tindings, ag ■A’l Mecom:ineniations.

  • Page 117 of 159

  • ENAL REPURTI
    5. On 14 Dec , ..:nbc. 2009 NCL made an investment Proposal to Nasfund
    recommending that the Kokopo water and road projects through investments in
    a 10 year SCIB worth K100 million at an interest rate of 7%. This bond would be
    issued by the Treasurer subject to approval from NEC and the K100 million
    bonds was a first of a serious of issues to be undertaken over time for a total
    rising of K1.5b for community infrastructure in PNG. In addition, the SCIB as
    advised by NCL was to be tax exempt and administered or managed outside of
    the Consolidated Revenue Fund by a Fund Manager external to the Bank and
    DoT.

    6. On 15 December 2009, the very next day, Mr Rod Mitchell presented NCL’s
    proposal to the Nasfund Board. The Board approved the 10 year Bond in —
    principle that day despite both Nasfund directors Dr John Nonggorr and Mr
    Anton Sekum expressing concerns that the SCIB was outside the National
    Government 2010 Budget. It was understood that NEC approval for the SCIB
    was required.

    7. On 26 January 2010 the fornier Treasurer Hon. Patrick Pruaitch apparently
    appointed IVlalco as the exclusive coordinator for the SCITB as purported by
    Malco in its Appointment letter to Ben O’Dwyer of BLC dated 27 January 2010
    without any legal basis. The copy of the letter of appointment dated 26 January
    2010 — however a copy of a letter of appointment dated 5 March 2010 was cited.

    8. On 27 January 2010 Mr Waters wrote to BLC appointing BLC to work for
    Malco to advise, arrange funding and sub-underwriting for the SCITB Series 1.1
    (squared) with a total capital rising of K360m. The appointment also required
    them to obtain legal requirements and manage the legal process. BLC received
    fees of 0.90% worth K1.125m for structuring and advising and 3% totalling
    K3.75m for sub-underwriting. Overall the underwriting and sub-underwriting
    appears to be a sham as the issue was fully subscribed by Nasfund and there was
    no requirement of underwriting. In addition, there is a lack of analysis and
    disclosure on the underwriting and sub-underwriting arrangements to Nasfund at
    the time the investment proposal was made.

    9. On 29 January 2010 NCL revised the investment proposal (including attaching
    the Legal Advice from Peter Allan Lowing Lawyers) and make a submission to
    Mr Mitchell of Nasfund. He then advised the Nasfund Board via email that the
    10-year SCIB has been restricted to the SCITB and that there was no NEC
    approval needed for this particular investment. The Nasfund directors, via email
    on the same day, voted for the investment to proceed. Mr Sekum again
    expressed concern that the investment was outside of the 2010 Budget.

    10. On 3 February 2010 Former Treasurer Hon. Pruaitch received a proposal from
    Mr Waters of Malco to issue SCITB to fund expenditure by the Border
    Development Authority.

    27 April 2012 Ps1.0e 116
    ,
    Fir;t Prrp.; linvesfiga/ion Tzs2t-Forrte Sweep Dew:el to rne National Executive
    ComeAl air its l’AndAngs, lianpRemenlatlons, and liweihey Oecommendanons.

  • Page 118 of 159

  • Fklia REPEATT

    11. On 5 March 2010, in a Formal Appointment Letter both Ministers Hon.
    Tammur and Hon. Paul Tiensten acted on behalf of the state and appointed
    Malco as Exclusive Co-ordinator for Corporate Advising, Fund Raising and
    Fund Management and other related requirements for the Independent Statc of
    PNG. On the same date, the SCITB fund management agreement was signed by
    former Treasurer Hon. Pruaitch and NCL’s Chief Fund Manager, Mr Gadisa
    Igah, and endorsed by the Minister for National Planning & Development, Hon.
    Tiensten and Minister for Communication & Information Hon. Tammur. The
    agreement appointed NCL as the issuer, registrar, agent and fund manager for
    the SCITB 1.

    12. In addition, the Term Sheet outlining the terms and conditions of the SCITB was
    signed by Hon. Tiensten on behalf of the Independent State of PNG as
    endorsed and approved by the Ministers of National Planning & Development
    and Communication & Information.

    13. On 8 March 2010 the DoT provided advice to former Treasurer, Hon. Pruaitch,
    in response to Malco’s proposal and advised against issuing the Bills as there was
    no budget appropriation and therefore the proceeds of the issuance could not be
    legally spent.

    14. On 10 March 2010 NCL wrote to Nasfund asking for settlement of the K125m
    SCITB. This letter had the following documents attached:
    o the term sheet,
    • the NCL agreement,
    o the legal opinion,
    • legal sign-off,
    o an excel spreadsheet; and
    o a draft certificate.
    Nasfund’s Joint CEO’S Messrs. Rod Mitchell and Ian Tarutia signed off on the
    K125m SCITB and a certificate of ownership was issued by NCI,.

    15. On 12 March 2010 Malco wrote to BLC advising that the SCITB Series 1
    documentation had been signed.

    16. On 15 March 2010 Nasfund wrote to the Bank and advised that the SCITB was
    in excess of 5 0/0 of the net assets of the Fund.

    17. On 24 March 2010 DoT found out about the Fund Management agreement
    when the media (Post Courier & The National) released information about the
    financing of K125m of Kokopo’s water and infrastructure development projects
    via the issuance of SCITB 1. Nasfund’s was named as the Principal investor.
    Nasfund subsequently provided a copy of the Fund Management agreement to
    DoT at DoT’s request. DoT didn’t have any other documents at that time.

    27 April 2012 Page 117
    pint Pmft i’zIN.rest,(111galion Tas2c-Irmce Seven 71as.:11,3e?oyil .,to Zaf3e.•na.2
    +■;onnvil at t2s Tea fags, Earplarnenili-Aions, FzEntlaey 71ecanumenEqatio -As.

  • Page 119 of 159

  • REPO:ki7

    18. On 29 March 2010 the State Solicitor provided legal advice on the issue of
    Treasury Bills for the UBSA financing when Southern Highlands Provincial
    Government sought similar arrangements to fund the UBSA and related
    landowner commitments, advising that issuing Treasury Bills to fund expenditure
    that had not been authorized by Parliament would be illegal as it would breach
    Section 209(1) of the Constitution. The State Solicitor verbally confirmed that
    this advice was also applicable to SCITB 1.

    19. On 11 April 2010 in the Nasfund E-newsletter, Mr Mitchell wrote an article
    praising the SCITB by stating how much better it was than a T-Bill. Mr Mitchell
    stated that it “…is recognition that a new way has been developed to
    provide direct infrastructure in an accountable framework”.

    20. On 28 April 2010 the former Treasurer, Hon. Pruaitch, was briefed by DoT on
    the State Solicitor’s advice and he was strongly advised against issuing the SCITB
    as it would be illegal. He was also advised to rescind the Fund Management
    Agreement with NCL.

    21. In August 2010 the DoT subsequently learned from Nasfund’s E-Newsletter of
    August 2010 that the SCITB was issued and that expenditure under the SCI 1B
    had commenced in June 2010 and was being overseen by the Kokopo Joint
    Budget and Planning Committee (sic — should be Kokopo JDP&BPC) and Hon.
    Tammur for water and roads and that approximately K65m had been spent up to
    that point in time.

    22. On 14 September 2010 DoT sought and received legal advice again from the
    State Solicitor advising that the SCITB was illegal.

    23. On 11 October 2010 given the controversy surrounding this transaction ENB
    Provincial Administrator wrote to the DoT requesting explanation on the
    funding arrangement of K125m SCITB for Kokopo projects.

    24. On 19 October 2010 the then Minister for Treasury, Hon. Peter O’Neil, after
    being informed about the illegal issuance of SCITB Series 1, endorsed a press
    statement which was released to the public via the print media reconfirming
    DoT’s stance that it was the only authorized issuer of State Securities (Treasury
    Bills and Inscribed Stock) and that the SCITB was illegal and would not be
    honoured.

    25. On 19 October 2010 Malco, Nasfund and NCL were notified in writing by DoT
    about the illegality of the SCITB and advised that the SCITB will not be
    honoured.

    27 April 2012 Page 118
    ,Firr;,- rPf; liztvesligatricn itasa-Fono we nasal 3eLgoki lo the Nagionaa ES(Ccuti , ve
    Council of it Findings, ii.anNementalions, and Finfaes Pecommendalions.

  • Page 120 of 159

  • Mika REPDFT
    26. !di October 2.010 DoT received another financing proposal which included an
    appointment letter and an Agency Agreement, to fund the completion of the
    road and water infrastructure projects in Kokopo District. The source of funding
    proposed was via SCI1B Series 2.1. The proposal involved raising funds in
    October 2010 for K125m of SCITB Series 1 in 2011 and suggested that
    appropriation for the raising of these funds be included in the 2010
    Supplementary Budget.
    a) The appointment letter dated 6 October 2010 required the State to appoint
    Malco as Exclusive Coordinator to advice , structure, arrange and manage
    SCITB Series 2 on behalf of the State and BLC as a secondary underwriter.
    b) In the Agency Agreement, Malco named NCL as Issuer, Registrar, Agent and
    Fund Manager for the SCITB issuance.
    The Government did not include any appropriation for the SCITB Series 2.1 or
    Series 1.1 in its 2010 Supplementary budget or 2011 budget.

    27. On 29 October 2010 Mr Mitchell of Nasfund and one of his officers met with
    DoT Secretary Mr Simon Tosali to establish contact with DoT and see if a “way
    out of this situation” could be worked out to avoid complication getting to the
    Courts. Nasfund anticipated that this matter would end up in a bitter legal battle
    in Court, thus the meeting with DoT to amicably find a solution to this issue.

    28. On 12 November 2010 DoT responded to the ENB Provincial Administrator
    and advised that the SCITB was done outside of the budget process without the
    knowledge of DoT and further advised that the transaction was illegal.

    29. On 19 November 2010 correspondence was issued from former Attorney
    General Hon. Ano Pala stating that the SCITB was legal.

    30. On 1 December 2010 Nasfund send a scanned letter to the Bank from Hon.
    Tammur and a supporting letter by the Prime Minister to Hon. Tammur stating
    that:
    The Government would honour the SCI’113; and
    The DoT and the Attorney General’s Department had been requested to
    draft an Appropriation Bill for the expenditure to be included in the 2011
    Budget. DoT was not copied in nor had DoT received any direction to draft
    an Appropriation Bill.

    31. On 4 February 2011 an article in The National newspaper reported that the
    Prime Minister, Sir Michael Somare had approved the “issuance of certain special
    purpose securities by the State through DoT”. This prompted DoT to review how and
    /or where this approval had come about. In addition, The National newspaper
    reported that the Prime Minister had issued a media statement on Tuesday 1
    February 2011 stating that he had approved DoT to issue the SCITB on behalf
    of the State.

    27 April 2012 Page 119
    1:75t Pre ft Ravestigation Task-recce Swear Final Repo:4 to the National Executive
    Councn off its Tiradnags, hnEdemenfmtions, aced Tucthez Recommendations.

  • Page 121 of 159

  • ENAL [ETEPORT
    2. O. 5 February 2011 an article appeared in the Pacific Business newspaper
    entitled “Nasfund deal illegal”. Another article also appeared on same day in
    which ENBP Governor Hon. Leo Dion raised questions about the deal.

    33. On 7 February 2011 a media release, which was purportedly signed by the Prime
    Minister, appeared in both daily newspapers claiming that the DoT had
    confirmed that the SCITB are securities issued on behalf of the State and then
    showing the Financial Markets Division of DoT as the contact Division for any
    queries. The Prime Minister purportedly signed as both Prime Minister and
    Treasurer.

    34. On 10 February 2011 the Post Courier newspaper reported on its front page
    that Hon. Tammur was suspended by the Prime Minister for providing
    misleading advice and for using the Prime Minister’s signature on the press
    release of 7 February 2011.

    35. On 11 February 2011 the Post Courier reported that certain ministers wanted
    suspended Hon. Tammur to be reinstated by the Prime Minister.

    36. On 11 March 2011 DoT wrote to the Bank in respond to the Bank’s letter of 6
    January 2011 and maintained their stand that the SCI•13 is illegal and therefore,
    no payments were to be made to Nasfund to legitimize the SCITB.

    11.4 Findings

    11.4.1 Legality of the SLIT

    The available legal advice was that The SCITB transaction is a vehicle for raising the
    loan for the Kokopo JDP&BPC and which is repaid upon maturity of the bill based
    on the period stated on the term sheet. The funds (K125 million) in the hands of the
    Kokopo JDPBPC is therefore a loan which the National Government is required to
    repay out of the Consolidated Revenue Funds of the State upon maturity of the term
    of the Treasury bill. Consequently, it is imperative that the SCITB transaction must
    comply with all applicable laws — the Constitution, Sections 209 and 210; the Loan
    Securities Act; the Treasury Bills Act and the Public Finances (Management)
    Act. The SCITB was arranged illegally and without compliance to the mandatory
    requirements of the law.

    Those legal advises show that the arrangement was illegal and therefore the State is
    not bound by the terms of the Investment Management Agreement. Hon Patrick
    Pruaitch was advised against the arrangement yet he proceeded for the reasons
    known to himself. Although numerous other legal opinions were given saying the
    arrangement was legal, it is our considered view that no amount of legal thought can
    replace the explicit provisions of the written law in the Constitution and the other
    Acts of Parliament as stated herein.

    27 April 2012 Pace 120
    T.k?5t 5ifi; Teis?.(-Fon:e. :3?..”,M0.:9171 -.2a2 illeyey./1 to the Neiiona3 Exece.ilve
    aT3.8 7:1:aihags, lirinz4enereelVarias, an 0. 2efiona.maTo2atkns.

  • Page 122 of 159

  • R:EPDEIT
    ‘) Performing 1’7.1rportedly Petiotte.i-; -1 2 unctioilis of
    State institutions

    The Joint District Planning and Budget Priorities Committees (JDP&BPC) is
    established under the Organic Law on Provincial Governments and Local Level
    Governments, section 33A. Its composition and functions are described by the
    organic law under that provision and there is no provision in that Organic Law or the
    Local Level Governments Act that provides for a single person to be appointed as the
    JDP&BPC.

    Likewise, the public procurement process for the provision of goods and services,
    works and supplies, is prescribed by law as outlined in this report earlier. No person or
    private company can perform the functions of CSTB.

    It is apparent that Malco was appointed by the Late Hon Tammur to be the
    JDP&BPC of Kokopo. On 5 March 2010, in a Formal Appointment Letter both
    Ministers Hon. Tammur and Hon. Paul Tiensten acted on behalf of the state and
    appointed Malco as Exclusive Co-ordinator for Corporate Advising, Fund Raising and
    Fund Management and other related requirements for the Independent State of PNG.
    Malco appears to be the key person orchestrating the entire SCITB.

    When NCL officers were interviewed, they said they acted on the invoices that Malco
    issued and paid them accordingly. Malco selected the contractors and issued invoices
    on account of SCITB funds managed by NCL. NCL paid the funds upon the issuance
    of those invoices.

    Malco therefore appears to be the Kokopo JDP&BPC, Exclusive Coordinator on
    behalf of the State, the public tenders’ board, and project manager. NCL appears to be
    the mini-treasury and department of finance, paying upon the issuance of the invoices
    by Malco and collecting its management fees.

    When members of the Kokopo LLG were interviewed on their knowledge about the
    SCITB project, they revealed that Hon Tammur told them that the project had
    nothing to do with the District and need not to be approved by the JDP&BPC as it
    was arranged outside of the District. The members of the JDP&BPC were also not
    aware that Malco had replaced their functions insofar as the SCITB was concerned.

    11.4.3 Directorship and Expenditure of Funds
    The following table shows the details of recipients of the K125million.

    Company Directors Role/Purpose No. of Amount Comments
    Invoices Received
    National BLC is Management of K0.6rn as
    Capital Ltd believed to be SCITB annual fee. It
    parent is also
    • company understood

    27 April 2012 Page 12:!
    hvas1:11.7-2.Aon ST,Vr-=2:1 DIM 7:::eva2ive
    Cy,:l.F.St.:11 ai fi,Is “:”

  • Page 123 of 159

  • FINAL REPODEIT
    based • in that success
    Australia, fee of K0.51 -ri
    Bernard
    O’Dwyer
    Blackwell Bernard Underwriter as K4.86m The underwriting was
    Lombard O’Dwyer & subcontracted by questionable as the issue
    Capital (BLC) Sons, parent Malco, and was fully subscribed by
    company of structure and Nasfund
    NCL advisory fee
    Malco (PNG) Alan Waters, Kokopo Total fees K22.7m
    Ltd incorporated JDP&BPC, in 1″ Year
    in 2008. Exclusive
    Coordinator
    Nuigini Henry Lorima Provide 8 Invoices K29.6m Capacity of this
    Assets and Peter oversight and company is questioned
    Management Kakoa. manage the because it was
    Ltd Incorporated infrastructure incorporated
    in October projects immediately before the
    2009. issuance of the SCITB.
    Covec (PNG) Incorporated Yuang Zaijing 23 Invoices K11.7m
    Limited in December and the China
    1995 National
    Overseas
    Engineering
    Corporation
    Kokopo Earth There was no Kokopo Earth 1 invoice K5.6m BSP bank rejected the
    Moving Ltd such company Movers Pry Ltd Cheque due to
    with IPA. shareholders discrepancies and made
    There was one were Lucas bank Cheque on 18th
    company Entini, Luni May 2010. On
    called Kokopo Mono, Egidius 19/05/2010, Alois
    Earth Movers Mararang, Oscar Kingsley opened an
    Pty Ltd which Tammur account with May Bank
    was registered (deceased father and produced the new
    in 1981 and of Patrick), company certificate. The
    deregistered in Pilakai Tilia and payment was made to a
    1996. Lui Topailai. On company that did not
    6/04/2010, a exist.
    company under
    the name of
    Kokopo Earth
    Moving Ltd was
    incorporated and
    the sole director
    is Alois
    Kinglsey.
    JGBEE Incorporated Chris Sioni and 2 Invoices K3.9m
    Consulting in 2005 Lucy Sioni
    Engineers (believed to be
    Mr Tammur’s
    sister and her
    husband)
    Goldling Searches at Not known 1 Invoice K5.9m
    HKG Ltd IPA reveal

    27 April 20’12 Page 122
    ?in’ t Prap; havesikiahonirf-ash-Fokce Sweep Final 1.11eyri go Ilse Nab:mita! nceculive
    Counci?. of its Thadings, linp3eanenicalions, and Farlhem Pleconmendagions.

  • Page 124 of 159

  • 5 INIA IL IRV
    that there is
    no such
    company.
    From the
    Invoices, the
    business
    location
    appears to be
    Guangzhou,
    Capital City of
    Guangdong
    Province of
    China.

    There are also unexplained transactions worth millions of kina between Malco,
    Nuigini Assets Management Ltd, Malco and others. For instance, Nuigini Assets
    Management Ltd paid K6.7m to Malco. Another amount of K4.785m was
    transferred from NCL to BCL and then BLC transferred K4,962,938 back to NCL,
    deducting K90,062 in the process. A number of money laundering activities are
    believed to have transpired during these transactions.

    The SCI1J3 was structured in a way that of the K125million, K32 01million would be
    spent on fees and commissions; K27.9million was to be paid as interests over a three
    year period, leaving only K65.09million for the development in Kokopo.

    Most of the purported infrastructure projects reported to have been undertaken
    through the SCITB funding was refuted by the East New Britain Provincial
    Government. Some of these companies like Kokopo Earth Movers Ltd had most of
    its funds withdrawn on cash basis from the May Bank. Some have converted the
    cash into capital investment, unrelated to the purported purposes to which these
    funds were paid.

    It is discovered that the arrangement was engineered by people who were in the
    financial industry in Papua New Guinea for a long time. There appears to be a strong
    network between these people who have known the financial system in Papua New
    Guinea well enough that they used its weaknesses to their advantage.

    It is our finding that the entire SCITB issue was illegal, orchestrated by Nasfund
    Management and other companies and people within the financial institutions who
    had the connections. Nasfund knew or would have known that it was illegal yet
    readily agreed and sold the contributors funds in exchange for the purported
    inscribed stock. An illegal contract is void and unenforceable. For the State to
    redeem the K125million is to sanction illegality and set a wrong precedent.

    The SCITB was organised outside of the normal government procurement and
    service delivery process to avoid public tender and other check and balance
    processes. Much needed funds were therefore wasted and defrauded. The end result

    27 April 2012 Page 123
    Fint Zzavesfigailion Taat-rone Sweep FAnai Reponi ‘ho Vie iliaficzaaR Euecutive
    Catancil off Afis natialings, lavapHemeyaltlioms, asag Futher 2eccarameaulagions.

  • Page 125 of 159

  • ENAL REPORT”
    speaks it all as to why the arrangement was done outside of the normal government
    process.

    11.5 Actions Taken

    There is an amount of K55million in NCL’s accounts which was frozen by the
    BPNG. The National Executive Council in its previous decision No 51/2011
    approved the redemption of the K125million. However, this was superseded by a
    subsequent NEC Decision No 84/2011 stating that no redemption attempts should
    be made until the investigations by ITFS is complete.

    BPNG is also understood to have terminated the Investment License of NCL and
    further made a finding of Mr Rod Mitchel as not fit and proper person to run
    financial institutions.

    11.6 Recommendation
    It is recommended that:

    1) The recoverability of the funds expended on the SCITB by Nasfund Limited
    including the remaining balance of K55million in NCL accounts be reverted to
    Nasfund to take the responsibility.

    2) Individuals who orchestrated this issue including Patrick Pruaitch, Paul Tiensten,
    Rod Mitchel, Alan Waters, Ben O’Dwyer and Lawrence Akanufa be interviewed
    by the Fraud Squad for their part in this illegal and fraudulent arrangement.

    3) The SCITB was organised outside of the normal government procurement and
    service delivery process to avoid public tender and other check and balance
    processes. Much needed funds were therefore wasted and defrauded. The end
    result speaks it all as to why the arrangement was done outside of the normal
    government process.

    4) Directors of purported contractors be interviewed by the Fraud Squad for the
    expenditure of the funds on the purported projects.

    5) Further, Mr Paul Tiensten and Patrick Pruaitch be referred to the Ombudsman
    Commission for further investigations.

    12 Health
    The Health Investigations are continuing. The major allegations stem around the
    drug procurement process. Some of the actions that were taken are recorded in the
    respective appendices to this report.

    27 April 2012 Page 124
    Firit PrAft hwesligaflon `’tans-Fone sweep FAnal Lie2o21 io the Zaglonal Euectfiive
    Councli oT fits TArad:Ings, Ireqiiesnenlanons, end 17121.enez Recononentlaiions.

  • Page 126 of 159

  • RNIA1L IREPIDOTT

    13 Others
    There are other cases that are still being investigated and are continuing. Some of
    those cases have been wrapped up with arrests and other related actions. The actions
    taken are recorded in the respective appendices to this report.

    PA!’ T IV —REP±ORTS
    Unlike other investigations teams including Commission of Inquiries, ITFS is unique
    in that its structure had allowed the team to inquire into the allegations and take
    actions as and when appropriate. As such this Part covers all the actions taken so far
    using its different powers.

    14 Actions under the Criminal Code Act
    The prosecution of a criminal case starts with the arrest and charging of a person
    accused of committing a crime.

    ITFS has treated that arrest is always the last thing of the investigations. A number
    of arrests have been made and their statuses are tabulated and attached to this report
    as Appendix

    The prosecutions cases are priority as the ultimate success of the fight against
    corruption through ITFS is to see convictions are secured.

    15 Recovery Actions —Tax
    Through the tax powers, ITFS was able to recover more than K52million in tax
    revenue, some of which are still being assessed. There are more companies that are
    yet to be assessed.
    The table attached to this report as Appendix “” contains the summary of the actions
    taken as of the date of this report.

    15.1 Introduction

    This report summarises the tax enforcement action through IRC in achieving the
    Term of Reference Number 3 where persons who received funds from the
    Department of National Planning & Monitoring, SCI’113 and National Department
    of Health are brought to tax and recovery of the funds by way of garnishee order
    under Section 272 of the Income Tax Act 1959 as amended.

    27 April 2012 Page 125
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    Coundl of Ls 1.7 nelizags, lImplemenations, and 17222the?.. RecommeadziAons.

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  • FINAL IREPUITI
    1j.; Backgrudind

    The Internal Revenue Commission a member of National Anti- Corruption Alliance
    (NACA) approved on secondment to the ITFS one of its senior enforcement
    officers and later a second officer in August 2011 and January 2012 respectively.

    In accordance with the Term of Reference IRC took appropriate actions under the
    Income Tax Act to raising tax assessment on persons, both individuals and
    companies who received funds from the DNPM, SCITB and NDOH.
    The infoilliation relied on to achieving the necessary outcomes were provided by the
    relevant government departments and agencies. Based on this information and
    others obtained under the sections 365 and 366 of the Income Tax Act, tax
    assessments were raised on account of each taxpayer.

    15.3 Methodology

    The recipients of funds from the Department of National Planning & Monitoring
    and National Department of Health for tax purposes were deemed and listed as
    taxpayers
    The Flow Chart 1 & 2 below depicts the routine tax administration processes as
    regards voluntary compliant and non-voluntary compliant taxpayers.

    Flow Chart 1 — Voluntary Compliance

    Taxpayers

    Lodg ments

    il l
    Group Tax Inco e Tax GST

    Asse ments

    Taxe aised

    Tax Payments

    Recovery — Volu fary /Garnishee Order
    min

    Flow Chart 2: Non — Voluntary Compliance ,

    27April 2012 Rase 126
    in Pre gp,ves’elgatAoza Tas?c-hoses Sweep TETnai AepoL ,1 ‘2(3 file TaAinneR TneculAve
    CoaacnolAts T]aErmis, JEmplesslerAaosas, necommenda .aons.

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  • FUNIAL [FREPORTI

    Tax ayers

    Pro — Forma inco me Tax Return by IRC

    Inco

    Default Assessment under Section 229 & 230 of ITA

    Taxe Raised

    Recovery of taxes by ay of Garnishee order under
    Section 272 the Income Tax Act

    15.4 Assessments

    15.4.1 Compliant taxpayers

    Review of assessments and decision made to;
    desk and field audit to ascertaining the correctness of disclosure of assessable
    income in taxpayers income tax returns, or
    include the amounts received in the taxable income and,
    raise original and amended assessments to effect (i) and (ii) above, and
    raise additional tax by way of penalty under section 316 of the Income Tax
    Act at rates ranging 20% to 200% proportionate to taxpayers culpabilities.

    15.4.2 Non-compliant taxpayers

    These taxpayers are not registered for tax purposes and therefore are not in the tax
    system. Registrations and tax file numbers were internally processed by IRC to raise
    PRO-FORMA Income Tax Returns. Based on the Pro-Forma Income Tax Returns
    default assessments were raised under sections 229 and 230 of the Income Tax Act.

    15.4.3 Desk and Field Audit

    15.4.4 Desk Audit

    This audit is held at IRC office. Desks audit are n.o inAly concerned with
    straightforward issues or tax adjustments.

    15.4.5 Field Audit

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    First Pratt huresiigaiion TasZc-Force Smell Final :Report to ate Nagional ncecugive
    Council of ImpKeri..expIalions, ano. TuEihe3 iillecomnendaiions.

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  • EINAR.. REPORT .
    This audit is one that takes place at a taxpayer’s premise. It involves the checking of
    the taxpayers business as well as non-business records. Normally, taxpayers will be
    given prior notice of field audit.

    15.4.6 Objections, Review or Appeal and Request for Amendments

    Taxpayer’s right to objections against assessments raised, review and/or request for
    amendments are provided for under sections 245 to 258 and 232 of the Income Tax
    Act.

    15.5 Recovery of Tax aised

    Garnishee order under section 272 of the Income Tax Act served on persons,
    especially banks which held money on account of taxpayer.

    15.6 Facts & Findings
    i. Most if not all persons in receipts of funds from Department of National Planning
    & Monitoring and SCITB failed to lodge income tax returns and disclose the
    income in their return of income.

    ii. Companies, businesses and individuals received funds prior to registration with
    Investment Promotion Authority or were recently registered with IPA.

    iii. Existence of network between recipients of government funds through money
    laundering depicted on Flow Charts.

    iv. Analysis of bank statements revealed funds were depleted by project proponents as
    soon as it were credited and cleared by the banks therefore rendering recovery
    action by way of garnishee order under section 272 of the Income Tax Act
    ineffective.

    v. In relation to findings (iv) above, funds were diverted to other bank accounts,
    associates and acquisition of assets.

    vi. Field audit to taxpayers premise and project sites revealed lack of management,
    poor record keeping, incomplete projects and misappropriation of funds

    vii. Obstruction and legal action by SARAKOLOK WEST TRANSPORT LTD and
    DAVID CONSULTANT & ASSOCIATES LTD hindered tax officers in carrying
    out their duties.

    15.7 Outcomes

    i. Listed and registered seventy (70) recipients of funds from DNPM, SCI113 and
    NDOH for tax.

    27 April 2012 Page 128
    First PrAft Investigation Tasli-Foyce Sweep Final Repoil to the National EnecutAve
    Council (NT its Findings, Implementations, and Fur hex Recommendations.

  • Page 130 of 159

  • ii. Field audit to three (3) provinces which resulted in tax assessments raised.
    iii. Gross receipts from DNPM and SCITB deemed assessable income derived by
    taxpayers taken as a basis and from it no deductions were allowed to arrive at taxable
    income on which taxes are raised.
    iv. Raised tax assessments for fourteen (14) taxpayers
    v. Garnishee order under section 272 of the Income Tax Act served on banks holding
    money on account of the fourteen (14) taxpayers.
    vi Only two (2) taxpayers lodged their return of income after receiving special
    assessments raised and issued under sections 229 and 230 of the Income Tax Act.
    vii. One objection was made by a taxpayer to an assessment which has been disallowed
    in full.
    viii. Four (4) amendment under section 232 of the Income