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• THE NATIONAL PARLIAMENT
  OF PAPUA NEW GUINEA

  PUBLIC ACCOUNTS COMMITTEE REPORT TO

  PARLIAMENT ON THE INQUIRY INTO THE

  SEPIK HIGHWAY, ROADS AND BRIDGES

  MAINTENANCE AND OTHER

  INFRASTRUCTURE TRUST ACCOUNT

  PRESENTED ON:

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• (i)

  TABLE OF CONTENTS

  CONTENT PAGE

  INTRODUCTION 1

  EXECUTIVE SUMMARY 2

  CHRONOLOGY 6

  LIST OF ABBREVIATIONS 7

  COMPOSITION OF THE COMMITTEE 7

  JURISDICTION AND PURPOSE OF THE
  INQUIRY 8

  JURISDICTION 9

  THE PUBLIC FINANCES (MANAGEMENT) ACT 11

  PERMANENT PARLIAMENTARY COMMITTEES ACT 11

  PURPOSE OF THE INQUIRY 11

  THE AUTHORITY TO REPORT 12

  THE AUTHORITY TO REFER 13

  METHOD OF INQUIRY 14

  PRIVILEGES AND PROTECTION OF WITNESSES 14

  RELEVANT STATUTES 14

  THE DUTIES, POWERS AND RESPONSIBILITIES 18
  OF A TRUSTEE

  THE DUTIES ETC. OF THE HEAD OF DEPARTMENT 20
  OF FINANCE

  (ii)

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• TRUST ACCOUNTING REQUIREMENTS 22

  THE INQUIRY 24

  WITNESS UNDERSTANDING OF THEIR 25
  OBLIGATIONS

  THE TRUST INSTRUMENT 27

  THE OBJECTIVES OF THE TRUST 28

  BANK STATEMENTS 37

  ANALYSIS OF RECEIPTS AND PAYMENTS
  FROM BANK ACCOUNTS 38

  CASH BOOKS 39

  BANK RECONCILIATIONS 40

  RECEIPTS INTO THE TRUST ACCOUNT 40

  PROJECT EXPENDITURE 42

  TRANSFER OF TRUST ACCOUNT TO WAIGANI 65

  PAYMENTS PROCESSED AT WAIGANI 67

  AN ANALYSIS OF EXPENDITURE 81

  DISALLOWANCE OF EXPENDITURE BY THE 84
  COMMITTEE

  CONCLUSIONS AND FINDINGS 84

  RESOLUTIONS OF THE COMMITTEE 92

  REFERRALS 93

  RECOMMENDATIONS 95

  CONCLUSIONS 97

  1

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• THE PUBLIC ACCOUNTS COMMITTEE

  INQUIRY INTO THE SEPIK HIGHWAY, ROADS AND BRIDGES

  MAINTENANCE AND OTHER INFRASTRUCTURE TRUST ACCOUNT.

  REPORT TO THE NATIONAL PARLIAMENT

  1. INTRODUCTION

  1.1. On the 8th – 9th May 2006 the Permanent Parliamentary
  Committee on Public Accounts conducted an Inquiry into
  the Department of Finance.

  1.2. At that Inquiry, the Committee requested the Auditor
  General to undertake a review of the Sepik Highway,
  Roads and Bridges Maintenance and Other Infrastructure
  Trust Account for the period May 2002 to the 31st May
  2006.

  1.3. The Committee resolved this particular phase of the
  Inquiry was a matter of National importance and
  convened a further Inquiry into the Sepik Highway Roads
  and Bridges Maintenance and Other Infrastructure Trust
  Account in accordance with Section 17 of the Permanent
  Parliamentary Committees Act.

  1.4. On the 9th day of May 2006 a letter of Request moved
  from the Public Accounts Committee to the Office of the
  Auditor General, seeking a full Audit and Report on the
  Sepik Highway Roads and Bridges Maintenance and Other
  Infrastructure Trust Account for the period May 2002 to
  the 31st May 2006.

  1.5. The Office of the Auditor General considered the Request
  and held it to be of interest to the general public. The
  Auditor General directed that an investigation be

  2

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• 1.6. undertaken by this Office in accordance with Section
  8(2) of the Audit Act as requested.

  1.7. The Auditor General’s Office completed its investigation
  and provided Management Letters to the East Sepik
  Provincial Administrator and the Acting Secretary of the
  Department of Finance on the 12th July 2006. Those
  Management Letters requested responses by the 26th July
  2006.

  1.8. The East Sepik Provincial Administrator met with the
  Auditor General’s Office staff on the 26th July 2006 to
  discuss audit issues and subsequently responded in
  writing to the Management Letter in writing on the 1st
  August 2006.

  1.9. The Acting Secretary of the Department of Finance, Mr.
  Gabriel Yer, did not meet with the Auditor General’s Office
  staff, but provided a written response to the Office on the
  5th October 2006.

  2. EXECUTIVE SUMMARY

  2.1 The primary aims of the Inquiry conducted by the Public
  Accounts Committee were to:

  • Examine the Financial Reports that are required to be
  submitted by the Trustees to the Department of Finance;
  and

  • Ascertain whether the financial transactions conducted by
  the Trustees were in accordance with the Trust
  Instrument and Sections 15 – 20 of the Public Finance
  (Management) Act ; and

  • Ascertain whether the Department of Finance, the
  responsible Provincial Administrations and Public
  Servants have complied with the requirements of Law in
  the keeping of accounts and records in respect of the
  Trust Account; and

  • Consider the standard of management and decision
  making by Trustees of the Account with particular

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  emphasis on establishing compliance with requirements
  of Law for the accounting for and management of public
  monies held in and paid from the Trust Account.

  2.2 A summary of the conclusions of the Committee are as follows:

  • The Committee has found serious continuous breaches
  of the Public Finances (Management) Act by Trustees
  and Officers of relevant Provincial Governments, the
  Department of Finance and the Office of Rural
  Development; and

  • The Committee has found serious continuous breaches of
  the requirements of the Trust Instrument by Trustees;
  and

  • That monies in the Trust Account may not have been
  spent appropriately and for purposes set out in the Trust
  Instrument; and

  • The contracting of projects funded from the Trust
  Account have not met the requirements of the Public
  Finances (Management) Act and a number of
  contracts were identified which have been entered into
  outside the required processes – including the failure to
  process contracts through the Provincial Supply &
  Tenders Board.; and

  • Contracts have been let to companies that were not
  viable or did not exist and the Trustees and responsible
  Officers of the Department of Finance have failed in their
  duty to ensure effective management of contracts; and

  • There has been poor or non-existent management and
  supervision of Contracts and Contractors funded from the
  Trust Account; and

  • The Trustees failed in their obligation to ensure that
  payments were made only for properly completed work;
  and

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• • Contracts were not completed or were inadequately
  performed and in some cases not even commenced; and

  • The former Secretary for Finance Mr. Thaddeus Kambanei
  completely failed to meet his duties and obligations as
  either or both the Head of the Department of Finance
  and/or as a Trustee of the Trust Account. As the senior
  accountable officer, his failures deserve the strongest
  possible censure; and

  • Proper accounts and records have not been maintained
  and it has not been possible for the Committee to confirm
  the validity of payments from the Trust Account; and

  • Proper accounts and records were not maintained and
  therefore it has not been possible for the Committee to
  develop an understanding of the contracting and contract
  management processes adopted by the Trustees; and

  • Proper accounts and records have not been maintained
  and it has not been possible for the Committee to
  ascertain the source of more than K 20 million which
  passed through the Trust Account; and

  • Reports on the financial management of the Trust
  Account have not been provided to the Department of
  Finance as required; and

  • The Department of Finance has failed to fulfill its
  obligations under the Public Finance (Management)
  Act to ensure appropriate financial management of the
  Trust Account; and

  • There was no documented reason for the control of the
  Trust Account to be transferred to the Department of
  Finance in 2005. As a result, this decision lessened the
  perception of accountability and transparency relating to
  the operation of the account; and

  • There have been continual and blatant breaches of Trust
  and breaches of the requirements of the Trust
  Instrument; and

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  • K 30 million of public monies passed through the Trust
  Account. The source of only K 7 million can be identified
  because there are no proper records; and

  • Only one Contract was apparently properly tendered,
  evaluated and granted and even then the records are
  incomplete and inadequate; and

  • Failure to obey the Law and a failure to account at all for
  public monies is evident at every level of administration
  that dealt with the Trust Account throughout its entire
  existence; and

  • The Department of Finance and the Provincial
  Administrations which dealt with this Trust Account
  comprehensively failed to keep records, account for
  public monies or acquit monies applied from the Trust
  Account as they were required to do; and

  • Negligence and reckless disregard for the requirements of
  Law and the duties of a Trustee characterize all
  transactions into and out of the Trust Account – with the
  exception of only one Contract; and

  • The Committee cannot identify virtually any tangible
  benefit to the country from the expenditure of K 30
  million of public monies; and

  • The Department of Finance and the relevant Provincial
  Governments from which the Committee sought
  assistance, failed to provide any or any adequate
  documentation or information to the Committee.

  2.3 The evidence clearly shows that the Trustees of this Account
  and senior Public Servants whose duty it was to maintain
  accounts and records failed or refused to fulfil their roles to any
  acceptable standard.

  2.4 These failures were blatant and clearly the individuals
  concerned acted (or failed to act) with impunity and immunity
  – never expecting to be called to account for their behaviour.

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  2.5 Trustees failed to act lawfully, acted unlawfully, failed to act
  independently and did not begin to meet their obligations and
  duties in the management of the Trust Account and the
  expenditure of money from it.

  2.6 That a Trust Account could be abused by the very persons
  whose duty it was to protect and prudently manage such funds
  and that the operation of the Account could have reached such
  a level of incompetence and illegality with no attempt to
  require accountability, is a matter of profound National
  concern.

  2.7 There is reason to believe that similar failings and unlawful
  conduct may well attend the other 2,500 Government Trust
  Accounts.

  2.8 The Committee concludes that the Trust Account devolved to
  little better than a slush fund and that over K 30 million of
  public money passed through the Account to little benefit and
  almost no acceptable level of accountability. In almost all cases
  there were no records or accountability at all.

  2.9 There has been widespread abuse of these Trust monies and no
  desire or ability to control the excesses of the Trustees by
  responsible Officers.

  2.10 Neither the Trustees nor the Officers who failed to maintain
  records and accounts should ever again be permitted to
  assume any degree of responsibility for management of public
  monies in any capacity – but particularly as a Trustee.

  2.11 The Department of Finance has failed at all levels to protect the
  State by properly monitoring and recording the expenditure of
  public monies through this Trust Account and/or by requiring
  and enforcing accountability from either the Trustees or its own
  responsible Officers.

  3. CHRONOLOGY

  3.1 The Public Accounts Committee commenced its Inquiry into the
  Sepik Highway, Roads and Bridges Maintenance and Other
  Infrastructure Trust Account on the 8th May 2006 and

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  continued on the 13th December 2006 and the 15th January
  2007.

  4. LIST OF ABBREVIATIONS

  4.1 “PF(M)A” Public Finances Management Act

  4.2 “PAC” Public Accounts Committee.

  4.3 “The Constitution” The Constitution of the Independent State
  of Papua New Guinea

  4.4 “The Committee” The Permanent Parliamentary Public Accounts
  Committee.

  4.5 “The Secretary” The Secretary of the Department of
  Finance.

  4.6 “The Department” The Department of Finance.

  4.7 “The Trustees” The Trustees from time to time of the Sepik
  Highway, Roads and Bridges Maintenance and
  Other Infrastructure Trust Account.

  4.8 “Trust Account” The Sepik Highway, Roads and Bridges
  Maintenance and Other Infrastructure Trust
  Account.

  5. COMPOSITION OF THE COMMITTEE

  5.1 The Public Accounts Committee which made inquiry into the
  Sepik Highway, Roads and Bridges Maintenance and Other
  Infrastructure Trust Account was constituted as follows:

  5.2 13th December 2006

  Hon. Leo Hannett – Chairman

  Hon Dr. Bob Danaya MP – Deputy Chairman

  Hon Malcolm Smith-Kela MP – Member

  Hon. John Koigiri MP – Member

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  Hon. James Togel MP – Member

  Hon. Tony Aimo MP – Member

  Hon. Mathew Gubag MP – Member

  Hon. Ekis Ropenu MP – Member

  5.3 15th February 2007

  Hon. Leo Hannett MP – Chairman

  Hon. Dr. Bob Danaya MP – Deputy Chairman

  Hon. James Togel MP – Member

  Hon. Andersen Vele MP – Member

  Hon Michael Mas Kal MP – Member

  5.4 The Chairman, Deputy Chairman and Members of the
  Committee were properly and lawfully appointed and
  empowered to sit as a Public Accounts Committee.

  6. JURISDICTION AND PURPOSE OF THE INQUIRY

  INTRODUCTION

  6.1 The Public Accounts Committee, at the request of certain of its
  Members, resolved to conduct an Inquiry into the
  administration of and accountability for monies passing through
  the Sepik Highway, Roads and Bridges Maintenance and Other
  Infrastructure Trust Account.

  6.2 The Public Accounts Committee requested that a special audit
  of that Trust Account be performed by the Office of the Auditor
  General. The Auditor General conducted the audit and
  presented a Report to the Committee.

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  6.3 The Public Accounts Committee received oral and documentary
  evidence from responsible Heads of Department and current
  and former Trustees.

  6.4 The Public Accounts Committee resolved to make a Report to
  the Parliament on the Inquiry and the Committee findings.

  6.5 The Committee also resolved that its Report to the Parliament,
  should contain certain referrals and recommendations.

  6.6 At all times, the Committee has taken great care to enable
  witnesses to make full and complete representations and
  answers to any matter before the Committee – in particular
  those matters about which the Committee may make adverse
  findings against individuals or other entities.

  6.7 The Public Accounts Committee has taken care to fully consider
  all responses and evidence given before the Committee.

  6.8 All evidence was taken on oath and full and due inquiry was
  made of all relevant State Agencies where the Committee
  considered those inquiries to be necessary.

  6.9 This Committee has carefully questioned Mr. Kambanei and all
  and other Officers involved in the management of the Trust
  Account.

  6.10 Their evidence was often not responsive, was self-serving and
  ultimately these Officers sought refuge in a claim that the
  Committee had no jurisdiction to hold the Inquiry at all.

  6.11 It is perfectly clear to this Committee that these Officers
  believe that they would never be called to account for their
  actions and did not intend to account for them.

  6.12 However, on the second day of the Inquiry, Mr. Gabriel Yer,
  current Secretary for Finance, co-operated with and assisted
  the Committee – for which we are grateful.

  7. JURISDICTION

  THE CONSTITUTION OF THE INDEPENDENT STATE OF PAPUA
  NEW GUINEA.

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  7.1 The Committee finds its jurisdiction firstly, pursuant to Section 216
  of the Constitution of the Independent State of Papua New
  Guinea. That Section reads:

  “216. Functions of the Committee

  (1) The primary function of the Public Accounts
  Committee is, in accordance with an Act of the
  Parliament, to examine and report to the
  Parliament on the public accounts of Papua New
  Guinea and on the control of and on transaction
  with or concerning, the public monies and property
  of Papua New Guinea”.

  (2) Sub-section (1) extends to any accounts, finances
  and property that are subject to inspection and
  audit by the Auditor General under Section 214 (2)
  … and to reports by the Auditor General under that
  Sub-section or Section 214 (3)…”.

  7.2 The Committee has taken care to restrict its Inquiry to an
  examination of the control of and on transactions with or
  concerning the public monies of Papua New Guinea.
  .
  7.3 Whilst considering the relevant provisions of the Constitution,
  the Committee has had regard to the Final Report of the
  Constitutional Planning Committee 1974 and been guided
  by or applied the stated intentions of that Committee wherever
  necessary.

  7.4 The Public Accounts Committee has had due regard to reports
  by and conclusions of the Auditor General, but has conducted
  its own Inquiry into matters deemed by the Committee to be of
  National Importance or which arise naturally from primary lines
  of Inquiry and which are within the jurisdiction and function of
  the Committee as set forth in the Constitution.

  7.5 Whilst engaged in the Inquiry the Committee was guided by
  two definitions contained in the Constitution, which are directly
  relevant to Section 216 of the Constitution. They are:

  “Public Accounts of Papua New Guinea” includes all
  accounts, books and records of, or in the custody,
  possession or control of, the National Executive or of a

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  public officer relating to public property or public
  moneys of Papua New Guinea;”

  and

  “Public moneys of Papua New Guinea” includes moneys
  held in trust by the National Executive or a public
  officer in his capacity as such, whether or not they are
  so held for particular persons;”

  Schedule 1.2 of the Constitution.

  8. THE PUBLIC FINANCES (MANAGEMENT) ACT.

  8.1 The Public Accounts Committee also finds its jurisdiction to
  Inquire into the Sepik Highway, Roads and Bridges
  Maintenance and Other Infrastructure Trust Account in
  Section 86 of the Public Finance (Management) Act.

  8.2 That Section empowers the Committee to examine accounts
  and receipts of collection and expenditure of the Public
  Account and each statement in any Report of the Auditor
  General presented to the Parliament.

  9. PERMANENT PARLIAMENTARY COMMITTEES ACT:

  9.1 The Committee received very serious allegations of
  misconduct and maladministration by Trustees of the Trust
  Account from Members of Parliament and Members of the
  Public Accounts Committee itself.

  9.2 The Committee resolved that a full Inquiry into the operation
  of the Trust Account was a matter of National importance and
  found further jurisdiction for the inquiry in Section 17 of the
  Permanent Parliamentary Committees Act.

  9.3 That Section provides that the Public Accounts Committee can
  consider any matter to be of national importance and worthy
  of Inquiry. The Committee, as we have stated, considers this
  Trust Account and the allegations surrounding its
  administration, to be such a matter.

  10. PURPOSE OF THE INQUIRY

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  10.1 The purpose of the Inquiry conducted by the Public Accounts
  Committee was to make full and complete examination of the
  manner in which the Trustees of the Sepik Highways, Roads
  and Bridges Maintenance and Other Infrastructure Trust
  Account controlled transactions with or concerning public
  monies passing into and out of the Account, accounted for
  those monies , protected the position of the Independent
  State of Papua New Guinea, complied with the Trust
  Instrument, complied with the requirements of Law for the
  operation of such an Account, controlled and monitored
  expenditure and generally conducted themselves as Trustees.

  10.2 The Inquiry also sought to make a full and complete
  examination of the manner in which the Department of
  Finance, its responsible Officers and the relevant Provincial
  Administrations controlled, recorded, accounted for and
  acquitted transactions of public monies into and out of the
  Trust Account and thereby protected the State by complying
  with and requiring in others a compliance with all relevant
  Laws.

  10.3 The purpose of the Inquiry was not to improperly pursue or
  criticize any person or company, but to make a constructive
  and informed Report to the Parliament on any changes which
  the Committee perceives to be necessary to any item or matter
  in the accounts, statements or reports or any circumstances
  connected with them, of the Sepik Highway, Roads and Bridges
  Maintenance and Other Infrastructure Trust Account and any
  matter considered by the Committee to be worthy of report to
  the Parliament.

  10.4 Further, the intention of the Inquiry was to enable the
  Committee to report to the Parliament in a meaningful way on
  alterations that the Committee thinks desirable in the form of
  the public accounts as manifested in the operation of the Sepik
  Highway, Roads and Bridges Maintenance and Other
  Infrastructure Trust Account, in the method of keeping them, in
  the method of collection, receipt, expenditure or issue of public
  monies and/or in the control and accountability of Trustees of
  public monies.

  11. THE AUTHORITY TO REPORT

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  11.1 The Public Accounts Committee finds authority to make this
  Report in Section 17 of the Permanent Parliamentary
  Committees Act and Section 86(1) (c) and (d) (i), (ii), (iii)
  and (iv) and (f) of the Public Finances (Management)
  Act 1995.

  12. THE AUTHORITY TO REFER

  12.1 Where satisfied that there is a prima facie case that a person
  may not have complied with the provisions of the Constitution
  of the Independent State of Papua New Guinea and / or
  the Public Finances (Management) Act in connection with
  the control and transaction with and concerning the accounts of
  a public body or public moneys and property of Papua New
  Guinea, it may make referrals of that person to the Office of
  the Public Prosecutor in accordance with Section 86A of the
  Public Finances (Management) Act.

  12.2 The Public Accounts Committee is not a true investigatory body
  capable of investigating and/or prosecuting persons for
  breaches of the law. The Committee is required to refer such
  matters to the appropriate authorities and may make such
  recommendations as it thinks fit in relation to any referral
  made pursuant to Section 86A.

  12.3 The Committee is also empowered to refer for prosecution, any
  witness who fails to comply with a Notice to Produce any
  document, paper or book and / or any person who fails to
  comply with a Summons issued and served by the Committee.
  See Section 23 Permanent Parliamentary Committees Act
  1994.

  12.4 Further, Section 20 of the Parliamentary Powers and
  Privileges Act permits the Committee to refer for prosecution
  any person who, inter alia, fails to comply with a Summons to
  produce books, papers or documents specified in the
  Summons.

  12.5 As a result of the evidence taken by the Public Accounts
  Committee, it has resolved to make certain referrals of
  individuals for further investigation and possible action by law
  enforcement agencies.

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  12.6 The Committee is cognisant that to make referrals, particularly
  of a senior public servant is a very serious matter which will
  adversely reflect on the individual concerned.

  12.7 These referrals are not made lightly but only after careful
  consideration of all the evidence and unanimous resolution by
  the Committee.

  13. METHOD OF INQUIRY

  13.1 The Inquiry by the Public Accounts Committee into the Sepik
  Highway, Roads and Bridges Maintenance and Other
  Infrastructure Trust Account was a public hearing at which
  sworn evidence was taken from a small number of witnesses.

  14. PRIVILEGES AND PROTECTION OF WITNESSES

  14.1 The Public Accounts Committee has taken care to recognise
  and extend to all witnesses the statutory privileges and
  protection extended by the Public Finances (Management)
  Act 1995 and the Permanent Parliamentary Committees
  Act 1994 and the Parliamentary Powers and Privileges
  Act 1964.

  15. RELEVANT STATUTES

  15.1 The Committee was required to consider the following
  Statutes during the course of the Inquiry:

  PUBLIC FINANCES (MANAGEMENT) ACT 1995.

  15.2 The Public Finances (Management) Act prescribes the
  method and standard of the Administration of and accounting
  for public monies, public properties and assets by State
  entities in Papua New Guinea.

  15.3 Further, the Act imposes certain obligations on Public
  Servants for collection of State revenue and controls the
  expenditure of State or public monies.

  15.4 Relevant sections of the Act which were considered by the
  Public Accounts Committee during the course of the Inquiry

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  into the Sepik Highway, Roads and Bridges Maintenance
  and Other Infrastructure Trust Account are:

  (i) Section 5 – Responsibilities of Heads of Department

  This Section prescribes the duties, powers and obligations
  of Head of Department.

  (ii) Section 3 – Responsibilities of the Minister

  This Section prescribes the obligations and duties of
  relevant Ministers of State.

  (iii) Part X – The Public Accounts Committee

  This Part empowers and imposes functions and
  obligations on the Public Accounts Committee. In
  particular, the Committee was required to consider
  Section 86 (A) – power to refer officers of the
  Department to the Office of the Public Prosecutor for
  investigation and possible prosecution relating to
  breaches of the Public Finances (Management) Act
  1995 and/or the Constitution.

  (iv) Part XI – Surcharge

  This Section prescribes personal liability for certain public
  servants who fail in their obligations to collect and
  protect certain public monies.

  (v) Section 112 – Offences

  This Section prescribes disciplinary action which may be
  taken against certain public servants or accountable
  officers who fail to comply with the terms of the Public
  Finances (Management) Act 1995.

  (vi) Section 4 – Responsibilities of the Departmental
  Head of the Department responsible for financial
  management.

  This Section prescribes the function and obligations of
  the Secretary for Finance. It is relevant to assessing the

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  performance of the former Secretary (and Trustee of
  the Account), Mr. Thaddeus Kambanei.

  (vii) Section 6 – Accountable Officers -.

  This Section imposes duties on all Officers who, inter
  alia, authorizes the payment of public money. In this
  Inquiry, the Trustees were or, as a result of their
  appointment as Trustees, became Accountable Officers.

  (viii) Section 9 – Powers of Departmental Head and
  Finance Inspectors.

  This Section sets out the powers given to the Secretary
  for Finance and his Inspectors to enable access to and
  inspection of accounts and records. At all times during
  the life of the Trust Account, the Secretary for Finance
  and his Inspectors had power to enforce the terms of
  the Public Finances (Management) Act and the
  Financial Instructions and thereby bring
  accountability and responsible and lawful management
  to the operation of the Trust Account.

  (ix) Section 15 – Establishment of Trust Accounts.

  This Section prescribes the power to establish Trust
  Accounts and the manner in which that establishment
  must be done.

  (x) Sections 16 and 17 – Payments into and out of
  Trust Accounts.

  This Section sets out the nature of deposits into Trust
  Accounts and the purposes for and circumstances in
  which money may be paid out of Trust Accounts.

  (xi) Section 19 – Management of Trust Account.

  This Section was carefully considered by the
  Committee. It imposes on the Head of Department
  absolute responsibility to properly and lawfully manage
  the Trust Account – including and in particular the

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  keeping of prescribed records and monthly submission
  of those records to the Department of Finance.

  (xii) Section 21 – Closing of Trust Accounts.

  This Section became relevant when the Committee
  considered its recommendations to the Minister for
  Finance.

  (xiii) Part VIII – State Tenders and Contracts

  This Part prescribes the lawful procedures for
  procurement by the State and almost all its agencies.

  The Committee had particular regard to this Part when
  considering the legality of certain Contracts funded from
  the Trust Account – in particular Section 47A which
  prescribes Offences for breach of the prescribed
  procedures.

  (xiv) Section 68 – Accounting Records, etc.

  This Section imposes a duty on Provincial Governments
  to keep proper accounts and records of their
  transactions and affairs. This Section applied to the
  relevant Provincial Governments which benefited from
  the Trust Account.

  FINANCIAL INSTRUCTIONS

  15.5 Section 117 of the Public Finances (Management) Act
  enables the promulgation of certain Financial Instructions
  which establish detailed procedures for the handling,
  collection, expenditure, disposal of and accounting for public
  monies, property and stores.

  15.6 The Public Accounts Committee had regard to these Financial
  Instructions or Directives in the course of this Inquiry.

  15.7 In particular, the Committee had regard to Part 6 Division 1
  Para. 2.1– Accountable Officers. That paragraph reads, in
  part:

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  “…..the Departmental Head is liable under the doctrine
  of personal accountability to make good any sum which
  the Public Accounts Committee recommends should be
  “disallowed”.

  ORGANIC LAW ON THE DUTIES AND RESPONSIBILITIES OF
  LEADERSHIP

  15.8 The Public Accounts Committee has had regard to this
  Organic Law in the course of this Inquiry. Referrals and
  resolutions were considered within the terms of this Organic
  law and are more fully developed (infra).

  AUDIT ACT

  15.9 The Audit Act establishes and empowers the office of the
  Auditor General to carry out its work of overseeing and
  supervising the handling of public monies, stores and
  property by all arms of the National Government. The Public
  Accounts Committee had regard to the terms of this Act
  during the course of this Inquiry

  15.10 The Committee received considerable assistance from the
  Office of the Auditor General in the course of this Inquiry.

  PERMANENT PARLIAMENTARY COMMITTEES ACT 1994

  15.11 The Committee has had regard to Sections 17, 22, 23, 25,
  27, and 33 of the Permanent Parliamentary Committees
  Act during the course of this Inquiry.

  PARLIAMENTARY POWERS AND PRIVILEGES ACT 1964

  15.12 The Parliamentary Powers and Privileges Act 1964 sets
  forth those privileges and powers extending to Members of
  Parliament, Committees of Parliament and Officers or
  Parliamentary Staff.

  15.13 In the course of this Inquiry, the Committee had cause to
  examine this Statute.

  16. THE DUTIES, POWERS AND RESPONSIBILITIES OF A
  TRUSTEE

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• 19

  16.1 The Committee accepts that the basic duties of a Trustee are
  at least to:

  (i) Know and obey the requirements of the Public Finances
  (Management) Act and the Financial Instructions in
  the management of the Trust Account and the keeping of
  records and accounts thereof; and

  (ii) Know and obey the requirements of all other relevant
  Laws governing the operation of the Trust; and

  (iii) To acquaint himself with the terms of the Trust
  Instrument; and

  (iv) To adhere to and carry out the terms of the Trust; and

  (v) To act impartially and independently in his administration
  of the Trust Account – particularly in deciding to make
  payments from the Account; and

  (vi) To keep proper accounts and to give full information
  when required; and

  (vii) To exercise reasonable care in the management of the
  Trust. The Trustee should apply the same diligence and
  prudence as a normal man of business would to his own
  affairs.

  16.2 The statutory duties imposed on the Trustees by the Public
  Finances (Management) Act are at least:

  (i) To ensure that the Trust is properly established – Section
  15.

  (ii) To ensure that payments into the Trust Account are
  properly and lawfully available for deposit and are within
  the terms of Section 16.

  (iii) To ensure that any deposit of money into the Trust
  Account from Consolidated Revenue is properly
  authorized by an Appropriation Act.

  (iv) To ensure that all payments out of the Trust Account are
  only made for the purposes of the Account or as

• Page 23 of 101

• 20

  authorized by Law and if there is sufficient credit in the
  Account for that purpose – See Section 17.

  (v) To ensure proper management and operation of that
  Trust Account – Section 19 (2).

  (vi) To submit to the Secretary for Finance before the
  commencement of each fiscal year an estimate in the
  prescribed form, of receipts and payments expected to be
  made into and withdrawn from the Trust Account –
  Section 19 (3).

  (vii) To ensure that the Departmental Head of the Department
  of Finance has authorized payment from the Trust
  Account in accordance with the estimates approved by
  him – Section 19 (4) (a).
  (viii) Ensure that all contracts, Projects and other recipients of
  payments from the Trust Account are lawfully and
  properly established and actually exist or have performed
  before payment is approved – Part VIII.

  16. THE DUTIES, POWERS AND RESPONSIBILITIES OF THE
  HEAD OF THE DEPARTMENT OF FINANCE FOR MANAGEMENT
  OF THE TRUST ACCOUNT

  17.1 The Secretary for Finance has certain obligations for
  management of a Trust Account imposed by the Public
  Finances (Management) Act.

  17.2 The Public Finances (Management) Act makes no special
  provision for circumstances where the Secretary for Finance is
  also a Trustee of a Trust Account.

  17.3 In that circumstance, the Secretary is in the untenable
  position of directing and controlling his own actions and
  purporting to independently oversee, monitor and be
  accountable, as a Secretary, for his own performance as a
  Trustee. There can be no transparency or credibility in such
  an arrangement.

  17.4 In our opinion, this is a clear conflict.

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• 21

  17.5 In the operation of this Trust Account there was clearly a
  failure on the part of the then Secretary for Finance, Mr.
  Thaddeus Kambanei, to properly understand or perform his
  duties in either role and this conflict situation may, in part,
  explain the problems attending the management of the Trust
  Account – particularly the failure of the Department of
  Finance to perform any of its obligations to any acceptable
  standard.

  17.6 The basic duties of the Head of the Department of Finance
  imposed by the Public Finances (Management) Act, in
  respect of the management of a Trust Account, are at least:

  (i) To ensure that all the requirements of the Public
  Finances (Management) Act and the Financial
  Instructions are met by the Trustees and all responsible
  Officers of the Department; and

  (ii) To ensure that all accounts and records relating to the
  functions and operations of the Trust Account are
  properly maintained; and

  (iii) To ensure that all expenditure is properly authorized and
  applied to the purposes for which it was appropriated;
  and

  (iv) To ensure that Trustees comply with the Trust
  Instrument and all other requirements of Law in the
  operation of the Trust; and

  (v) To ensure that expenditure from the Trust is proper,
  lawful and made with due regard to economy, efficiency
  and effectiveness; and

  (vi) To safeguard public funds and ensure propriety and
  regularity in the expenditure of funds appropriated by
  Parliament. In this context the Head of any Department
  is personally liable to make good any sum that the Public
  Accounts Committee may disallow.

  (vii) Information required by the Public Accounts Committee is
  submitted to that Committee accurately and promptly;
  and

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  (viii) Proper estimates are given by the Trustees and himself;
  and

  (ix) All Reports and records including and in particular
  acquittals and accounts are given in a timely fashion and
  in proper form; and

  (x) Officers of the Department of Finance deployed at
  Provincial and District level perform their duties – in
  particular that of record keeping and accounting for the
  Trust Account and all Contracts, Projects and other
  recipients of expenditure from the Trust Account; and

  (xi) To oversee the operation of the Trust Account and ensure
  compliance by the Trustees and Officers of his
  Department with Sections 15 – 20 of the Public
  Finances (Management) Act.

  17.7 These are the basic duties imposed on Mr. Thaddeus Kambanei
  in his capacity as Secretary for Finance in respect of the
  operation and recording of the Trust Account was concerned.
  The Financial Instructions confirm these duties – Para 14.

  17. TRUST ACCOUNTING REQUIREMENTS

  18.1 The duty of the Department of Finance under the Public
  Finances (Management) Act is to ensure that complete and
  proper accounts are maintained in respect of all transactions
  involving public monies – see Para 13.4 Financial
  Instructions.

  18.2 Accounting systems and principles are prescribed by the
  Financial Instructions Appendix 1 and Part 12 et seq.

  18.3 The Trust Fund is part of the Public Account and public monies
  are payable into the Trust Account only if such payments are
  within the specific scope of any individual trust account – if
  not, the monies must be paid into the Consolidated Revenue
  Fund.

  18.4 The basic accounting requirements for Trust Accounts of the
  nature of the Sepik Highway Roads and Bridges Maintenance
  and Other Infrastructure Trust Account are at least:

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• 23

  (i) The Departmental Head responsible for the Trust
  Account will ensure proper management and operation;
  and

  (ii) Receipts and payments will be accounted for by
  Provincial and District Treasuries through the
  Department of Finance; and

  (iii) Statement of cash account will be submitted to the
  Department of Finance monthly and not later than
  seven days after the end of the month; and

  (iv) Statements of receipts and payments and the closing
  balance will be accompanied by bank reconciliation
  statements. This is necessary for incorporation of the
  trust transactions in the monthly and quarterly
  Statement of Public Accounts compiled by the
  Department of Finance; and

  (v) The Trust Account must be reconciled on a monthly
  basis with copies sent to the Public Accounts Division of
  the Department of Finance. This was the responsibility
  of the Secretary for Finance of the time; and

  (vi) All requirements of commitment control and all other
  requirements in the Financial Instructions and the
  Financial Management Manual apply to this Trust
  Account; and

  (vii) Expenditure of monies from the Trust Account will be
  processed on the prescribed Finance Forms such as
  requisitions for Expenditure, ILPOC and General
  Expenses and related forms with certain modifications
  set out in part 12 Para 14.; and

  (viii) The prescribed accounting procedures for Provincial and
  District Treasuries apply to this Trust Account and in
  particular in respect of accounting for and acquitting
  payments made in respect of projects or Contracts
  given or awarded by the Provincial authorities.

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• 24
  19. THE INQUIRY

  19.1 The Public Accounts Committee held two informal Meetings
  with prospective witnesses and persons and entities served
  with Notices to Produce information and documents, to ensure
  that the Inquiry was fully and properly prepared.

  19.2 The Committee convened the Inquiry proper on the 13th
  December 2006. The Inquiry lasted for a full day and the
  following witnesses were summoned and appeared to give
  evidence:

  • The former Acting Secretary of the Department of
  Finance and a Trustee of the Trust Account, Mr Thaddeus
  Kambanei.

  • The Chief Secretary to Government, Mr Joshua Kalinoe;

  • The then Acting Secretary for the Department of Finance
  (since confirmed in the substantive position) Mr Gabriel
  Yer.

  19.3 Research conducted by the Committee and information before
  the Inquiry suggested significant failures by the Trustees of the
  Trust Account, the Executive Managers and staff of the East
  Sepik Provincial Government, the Department of Finance, the
  Department of Planning and the Office of Rural Development to
  comply with requirements of law in the handling of and
  accounting for monies passing through this Trust Account.

  19.4 By far the most serious of these failures was that of the
  Trustees to the Account – and in particular Mr. Thaddeus
  Kambanei who was not only a Trustee of the Trust Account but
  was also Chief Accountable Officer to Government in his
  position as Secretary of the Department of Finance.

  19.5 The Committee therefore resolved to question the witnesses
  and give every possible opportunity for those persons to
  explain or correct information obtained by the Committee and
  the contents of the Report of the Auditor General. The
  Committee received no submission or further assistance from
  any person.

• Page 28 of 101

• 25

  THE INQUIRY – EVIDENCE AND FINDINGS

  20. WITNESSES UNDERSTANDING OF THEIR OBLIGATIONS

  20.1 Considering the serious lapses by senior Public Servants
  suggested by evidence and information held by the Committee,
  the Committee carefully questioned Mr Yer, Mr Kambanei, Mr
  Kalinoe and Mr John Alman, the Provincial Administrator of the
  East Sepik Province, as to their understanding and knowledge
  of the basic duties of accountability and accounting for public
  monies imposed on them by the Public Finances
  (Management) Act.

  20.2 The Committee also questioned Mr. Thaddeus Kambanei and
  Mr. Yer as to their understanding of the obligations of a Trustee
  both generally and as imposed on them by the Public
  Finances (Management) Act and Financial Instructions
  promulgated thereunder and their the duties an obligations
  imposed on Officers of the Department of Finance.

  20.3 Both witnesses were further questioned about their knowledge
  and understanding of the terms of the Trust Instrument
  establishing the Sepik Highway, Roads and Bridges
  Maintenance and Other Infrastructure Trust Account.

  20.4 All witnesses gave unequivocal sworn evidence that they had
  read, were familiar with and understood the requirements
  imposed on them by the Public Finances (Management) Act
  – particularly in respect of the management of Trust
  Instruments and accounting for trust monies, payment of trust
  monies and obligations and duties at law generally arising from
  the position of a Trustee or accountable Officers of
  Government.

  20.5 This Committee concludes that each of these very senior Public
  Servants, quite properly, clearly knew their duties and
  obligations.

  20.6 This Committee also concludes that Mr. Kambanei failed to
  comply with or fulfill these legal obligations – and did so
  knowingly and intentionally.

  20.7 Mr. Yer as the newly appointed Secretary for Finance, has
  accepted responsibility to deal with the failings of the Trustees

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• 26

  as best he now can and the Committee commends his stated
  attitude.

  20.8 Mr. Alman, in his capacity as the Provincial Administrator of the
  East Sepik Province, is apparently attempting to rectify the
  excesses of the previous administration, but with no records or
  accounts of any significance to assist him.

  20.9 Further, in light of the very serious allegations and information
  before this Committee, Mr. Kalinoe, Mr. Kambanei, Mr. Yer, and
  Mr. Alman, the Provincial Administrator of the East Sepik
  Provincial Government were each asked to advise the
  Committee as to whether they had been subject to any
  pressure, influence, or directive from any source whatsoever
  (in particular political pressure) to make any payment from the
  Trust Account or for any particular purpose and if so, what
  pressure had been brought on them, by whom and for what
  purpose.

  20.10 Each witness – particularly Mr. Kambanei – clearly stated that
  at no time had any pressure been brought upon any of the
  Trustees from any quarter to achieve any particular result or to
  influence them in any way in their conduct of the Trust Account
  and all matters associated with it.

  20.11 Mr. Kambanei’s evidence is particularly relevant. He told the
  Committee:

  “As far as the administration of the Trust Accounts are
  concerned, there is absolutely no pressure on anybody
  whatsoever insofar as expenditures out of the Trust
  Account is concerned. The prerogative of determining
  whether we … that expenditure is genuine is legitimate
  and confines within the Trustees that spells particularly
  the purpose of the Trust Account.

  …There has been no pressure at any point in time even
  to myself and in my previous capacity as Secretary …”

  20.12 In light of these clear and unqualified answers, this Committee
  accepts that every decision, action and therefore every failure

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• 27

  of the Trustees and all other responsible Officers were entirely
  their own.

  20.13 Every decision, every payment, every cheque and every failure
  to provide accounts, records or documents in accordance with
  law and therefore every failure and/or breach of law was wholly
  the responsibility of the relevant Officers and not the result of
  any duress or compliance with political or any other pressure or
  influence.

  20.14 Considering the almost total failure by the Trustees – and in
  particular Mr. Thaddeus Kambanei – to obey virtually any
  requirement of law in the management of this Trust Account or
  to comply with the Trust Instrument itself and the failure of the
  Department of Finance and other Government entities to act
  lawfully, properly and transparently in the conduct of this Trust
  Account, this Committee can only conclude that the Trustees
  and Officers responsible for these failures were totally unfit to
  hold the position which they did and that they should be
  referred to appropriate investigatory agencies to be made fully
  accountable for conduct, decisions and failures which, as we
  have said, were entirely their own.

  21. THE TRUST INSTRUMENT

  21.1 The Trust Instrument was issued by the then Minister for
  Finance, Planning and Rural Development, the Honorable Andrew
  Kumbakor MP on the 15th May 2002.

  21.2 He exercised his power as a National Minister and established
  the Trust Account under Section 15 of the Public Finances
  (Management) Act 1995.

  21.3 The Account was styled Sepik Highway Roads and Bridges
  Maintenance and Other Infrastructure Trust Account and this
  Committee finds that it was properly established in accordance
  with the terms of Section 15 of the Public Finance
  (Management) Act.

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• 28

  22. THE OBJECTIVES OF THE TRUST

  22.1 The objectives of the Trust are clearly stated in Sections 1(b)
  and 2(c) and (d) of the Trust Instrument. That Instrument was
  received into evidence by the Committee.

  22.2 The Trust Instrument states the purpose of the Trust Account to
  be:

  “to hold all monies received from the National
  Government, Provincial Government, Local Level
  Government and any other donor agencies”.

  22.3 The Trust Instrument has been carefully considered by the
  Committee. The Committee is of the view that the Instrument
  was poorly drafted, loose in its terms and provided very limited
  guidance to the purpose of the Trust. It was, in fact, an open
  invitation to abuse – and this is precisely what occurred.

  22.4 The Committee was unable to conclude whether the terms of
  the Instrument set out in Para. 22.2 were complied with because
  neither the Committee nor the Auditor General can trace the
  source of deposits into the Account.

  22.5 The Instrument states that all purchases and withdrawals on the
  Trust Account shall be for the purposes established by the Trust
  Account and shall comply with the Public Finances
  (Management) Act subject to the prescribed procedures and
  sufficient balance being available in the Account. This must
  include the proper accounting and record keeping required by
  that Act and the Financial Instructions.

  22.6 It is notable that the Provincial Administrator of the East Sepik
  Province Mr. Alman expressed the view to the Committee that
  the term “other infrastructure projects” would include
  maintenance, houses and construction of buildings and extend to
  contracts for service.

  22.7 Upon that definition, the Trust Instrument could be used for
  almost anything, provided that the purpose of the expenditure
  was physically located with the Sepik Province. It is notable that
  even this wide definition was breached when payments were

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• Page 32 of 101

• made or in projects and other matters outside the Sepik area
  and for purposes such as “financial assistance”.

  22.8 The Committee tried to ascertain how the Trustees understood
  the meaning and purpose of the Trust Instrument.

  22.9 Mr. Kambanei described his understanding of the Trust
  Instrument and the purpose of the Account in the following way:

  “It should be noted that the Trust Account itself is not
  called East Sepik Highway Trust, not only for road and
  bridge infrastructure, meaning that other
  infrastructures in relation to projects in the East Sepik
  Province. The East Sepik Highway Trust Account is
  actually a vehicle that actually delivers project
  implementation in the East Sepik and West Sepik
  Provinces. The initial purpose of the Trust when it was
  first established by former Minister for Finance and
  Planning, Honorable Andrew Kumbakor there was no
  demarcation insofar as whether it was for East Sepik or
  West Sepik Provinces.

  It was called “Sepik Highway Roads and Bridges and
  Other Infrastructure Trust Account” because the
  infrastructure cuts through both East and West Sepik
  Provinces.

  So, it became a vehicle for any funds that had been
  identified as savings to be put into the Trust Account
  then the Trust Account facilitates the payment out.
  … I would like to make it very clear that there has also
  been expenditure that goes out of the Trust Account
  which pertains to projects that are not within the fiscal
  framework of the Government.

  For instance, if you have MPs who chose to identify
  projects and get the Prime Minister to approve the
  project without having it actually included in the
  budget, then they use the Sepik Highway Trust Account
  as the vehicle. ( Our emphasis.)

  22.10 The Committee considers this evidence to be an important
  description of the understanding of the former Secretary for

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• Page 33 of 101

• Finance and Trustee of the Trust Account. It is particularly
  relevant evidence when the actual management and conduct of
  the Trust Account by the Trustees and Mr. Kambanei in particular,
  is considered.

  22.11 The Trust Account was not regarded as part of any Budgetary
  process but as a conduit for any money identified (presumably
  by Mr. Kambanei) as “savings” (no matter what their original
  designated purpose) to be applied to any unfunded project that
  attracted political favour but for which there was no approved or
  budgeted funding.

  22.12 Indeed Mr. Kambanei also told this Committee that if he was told
  to fund any particular project for which funding was not allocated
  or budgeted, it was his duty to find the money.

  22.13 In other words, as Head of Department and Trustee, his job was
  to do what he was told – not to act independently in protection
  of the public purse.

  22.14 This Committee concludes that Mr. Kambanei, by his evidence
  has demonstrated that he did not understand his role as Head of
  the Department of Finance or a Trustee.

  22.15 If Mr. Kambanei is correct, all it took to get money from the
  Trust Account was to attract the support of the Prime Minister
  and Mr. Kambanei’s only function was to find the money and pay
  it.

  22.16 This attitude is well illustrated by Mr. Kambanei’s claim that he
  made payment from the Trust Account to Jubilee University not
  on a basis of a measured decision by an independent Trustee,
  but because the Prime Minister told him to do so – a contention
  that, in fact, is incorrect.

  22.17 Not once did Mr. Kambanei state to this Committee that he was
  required to act independently as a Trustee and to comply with
  Law when exercising his discretion to make payments from the
  Trust Account.

  22.18 The Committee concludes that in his evidence is the principal
  cause of the subsequent unlawful conduct of the Trust Account
  and the complete failure to keep records and accounts of almost

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• Page 34 of 101

• any money passing through that Account and the apparent
  paralysis of the Department of Finance to oversee the Account
  and enforce the Law.

  22.19 In short, the Trustees and the Department of Finance had
  subsumed or abandoned their duties at Law in favour of
  administering public money as political facilitators rather than
  guardians.

  Accountability

  22.20 The Trust Instrument states that for proper control and
  management of the Trust Account and in accordance with
  Section 19 of the Public Finances (Management) Act, an
  account is to be established and opened with a reputable
  commercial Bank approved by the Minister for Finance. Such an
  account was opened and maintained at the Bank of South
  Pacific.

  22.21 The Committee has carefully considered the requirements in the
  Trust Instrument for the signing of cheques from the Trust
  Account. The Committee concludes that at least three and
  probably four signatories are required on all cheques and for
  transfers from the Trust Account.

  22.22 The signatories to the Account were the Secretary for Finance or
  his delegate, the Assistant Secretary Public Accounts, the
  Provincial Administrator, the Provincial Treasurer and the
  Provincial Works Manager.

  22.23 Ideally this process should have ensured strict control over
  payments from the Trust Account. In fact, the Trust Instrument
  was completely ignored in the payment of cheques from the
  Trust Account and this Committee has identified circumstances
  where cheques were signed by a Senior Government Official who
  was not a Trustee.

  Reporting Requirements

  22.24 In light of the apparent failures to adequately, properly and
  lawfully maintain reports and accounts of transactions into and
  out of this Trust Account, the Committee gave careful

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• Page 35 of 101

• consideration to Section 3 of the Trust Instrument which
  provides reporting requirements.

  22.25 Section 3 of the Trust Instrument requires that the Provincial
  Administrator of East Sepik Provincial Government or his
  delegate maintain records pertaining to the Account as required
  by the Public Finances (Management) Act.

  22.26 Further, the Trust Instrument requires that the Provincial
  Administrator furnish to the First Assistant Secretary of the
  Public Accounts Division of the Department of Finance within
  fourteen days at the end of each month, bank statements and
  bank reconciliations for the Trust Account and a Statement of
  Expenditure of the Trust Account on a monthly basis by program
  and activity.

  22.27 Section 19 (4) (d) Public Finances (Management) Act
  requires that the Provincial Administrator submit to the
  Secretary of the Department of Finance at the end of each fiscal
  year, a statement of account for the previous year.

  22.28 The Committee could not obtain evidence from the Provincial
  Administrator that this reporting obligation had been met. As a
  result neither the Trustees nor responsible Officers have met
  their responsibilities under the Public Finances
  (Management) Act or the Trust Instrument.

  22.29 In this regard, the Department of Finance has completely failed
  to maintain any responsible control over the Trust Account at all.
  It has failed to comply with the requirements of law in the
  accounting for and control of the monies passing through the
  Trust Account.

  22.30 Further, Mr. Thaddeus Kambanei, the then Secretary for Finance
  and a Trustee of the Trust Account has failed to fulfil his duties in
  either or both capacities, to any degree.

  22.31 That such incompetence and dereliction can exist at the senior
  level of the Public Service and, in particular, in the person of the
  Head of the Department responsible for financial matters is a
  matter of National concern. This is particularly so when that
  Officer took personal control of the Trust Account and seemingly
  managed it with no control or accountability that this Committee
  could identify.
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• Page 36 of 101

• 22.32 The failures of that Officer are compounded by his admission to
  this Committee that he understood the requirements of Law
  attending his positions as both the Head of Department
  responsible for financial matters and as a Trustee of the Account
  – yet failed to perform them.

  22.33 The net result of these failures by all Trustees is that over K 30
  million of public money has disappeared for little or no tangible
  benefit.

  22.34 These failures to keep accounts and records have also rendered
  this Committee and the Auditor General unable to find the
  source of all the money paid into the Account or any bases of
  Law for the payment out of almost all the money that passed
  through the Account.

  22.35 Neither could or would the Department of Finance tell this
  Committee the source of K 23 million paid into the Trust
  Account or produce any evidence showing that any payment
  from the Trust Account was lawful.

  22.36 The following Trustees were appointed during the period of the
  Trust Instrument. The Committee could find no relevant bank
  documentation for most of these Trustees who were apparently
  never made signatories to the Account. The appointments were:

  Trustees Designations Period of Appointment

  Nelson Hungraboss Provincial Administrator 2000 – Nov. 2001

  Raymond Kamnobi Provincial Administrator Nov.2001–Sept. 2002

  Fantson Yaninen Provincial Administrator Oct. 2002-Aug. 2005

  John Alman Provincial Administrator Sept. 2005 – to date

  Fantson Yaninen Provincial Treasurer Up to Sept. 2002

  Haru Yahamani Provincial Treasurer 2002 – 2005

  Binus Naugre Provincial Treasurer 2005 – June 2006

  Stanford Nahuet Provincial Treasurer June 2006 to date

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• Page 37 of 101

• Joe Asinumbu Works Manager Dow 1998 – 2003

  Brian Alois Works Manager Dow 2003 – 2005

  Paul Enemba Works Manager Dow 2005 – to date

  Accounting Books and Records

  22.37 The Trust Instrument provides that the Provincial Administrator
  maintain proper accounts and records as required by Section 19 of
  the Public Finance (Management) Act.

  22.38 This Committee finds that accounting books and records were
  completely inadequate in many respects and were not properly
  maintained as required. The Department of Finance did nothing to
  rectify this defect, – even after management of the Trust Account
  was removed to Mr. Thaddeus Kambanei in Waigani.

  22.39 The Office of the Auditor General conducted a search of the
  relevant books and records maintained in the Provincial
  Government Offices in Wewak and found the following:

  Name of records Year Status
  Computer Cashbook 2002- Incomplete compared with Bank
  2005 Stmt
  Computer Trust Transaction 2002- Incomplete compared with Bank
  Detail 2005 Stmt
  Bank Statements 2002- Incomplete
  2005
  Bank Reconciliation 2002- Partly provided, incomplete
  Statements 2005
  Payment Vouchers 2002- Incomplete – material payments
  2005 missing
  Related PEC Decisions 2002- Incomplete
  2005
  Related PSTB Minutes 2002- Incomplete
  2005
  Authority to Pre-Commit 2002- Not provided as Treasury Office
  2005 closed at the time of audit
  Paid cheques 2002- Not provided
  June 2005

  22.40 This Committee sought to obtain better documentation or records

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• Page 38 of 101

• by serving Notices to Produce on the Department of Finance, the
  East Sepik Administrator, the Department of Planning and the Office
  of Rural Development.

  22.41 The Committee received a small bundle of documents from the
  Secretary of Finance which did not add anything or relevance to
  the documents obtained by the Auditor General.

  22.42 In particular there was a complete absence of any records of
  tender procedures, assessments and awarding of tenders for
  virtually any Contract or Project funded from the Trust Account.

  22.43 This Committee finds that vouchers with a total value of K
  2,847,709 paid from the Trust Account, are missing.

  22.44 This Committee examined the relevant vouchers which were
  available for procedural and legal compliance and makes the
  following findings:

  • Payment vouchers were not signed by Financial
  Delegates, Examiners and the Certifying Officer prior to
  payments being effected. This is a breach of the Public
  Finance (Management) Act. It also represents a
  failure of essential internal controls of expenditure from a
  Trust Account and a complete breach of obligation by the
  Trustees and the Department of Finance.

  • In many instances, payment vouchers were signed by the
  same person as the Financial Delegate, Examiner and
  Certifying Officer. This is a breach of the Public Finance
  (Management) Act which requires effective separation
  of duties in the processing of payments. Such “single
  officer” processing payments represents a failure of
  essential internal controls over expenditures out of the
  Trust Fund.

  • Many instances of payments without proper supporting
  documents were also noted, indicating a failure to ensure
  proper internal controls over expenditures and the
  absence of the Certifying Officer’s role provided by
  Section 32 of the Public Finance (Management) Act.

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• Page 39 of 101

• • Payments for contracts were completely unsupported by
  any relevant contract documents such as Supply &
  Tenders Board approvals, company profiles, copies of
  actual contracts and other necessary documents such as
  progress and completion certificates to authenticate the
  payments made. This is a fundamental requirement and
  represents a complete breach of duty by all Officers
  concerned – in particular the Trustees of the Account and
  by Officers of the Department of Finance.

  • In many instances three quotations from potential
  suppliers of goods and services were not obtained and
  compared to ensure selection of the best value for money
  supplier of goods and services. This is a breach of
  Section 40 of the Public Finances (Management) Act.

  22.45 The most disturbing aspect of these failures is the fact that
  they must have been known to the Department of Finance
  and to the Trustees of the Account, yet it troubled them not
  at all.

  22.46 This appalling situation constitutes a breach of the Public
  Finances (Management) Act by every Trustee and by the
  responsible Officers of the Provincial Administration, the
  Department of Finance and the Head of that Department and
  calls for deeper and expert investigation.

  Conclusion

  22.47 Information and evidence gathered by the Committee prior to
  the opening of the Inquiry suggested that there were failures
  by Trustees to comply with almost every requirement of the
  Trust Instrument and thereby that they failed to carry out the
  duties of Trustees.

  22.48 The same information and evidence clearly showed a failure
  by the Provincial Administrator, his staff, the Department of
  Finance and all other responsible officers at every level to
  maintain virtually any accounting records. Those records
  which were provided were almost entirely incorrect or
  otherwise defective and failed to withstand scrutiny of the
  Auditors.

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• 22.49 The appalling state of management of the Account as it was
  revealed in information and evidence gathered by the
  Committee, was a matter of very great concern to Committee
  Members.

  22.50 Such failures would be totally unacceptable in junior or even
  middle level management. That such a state of affairs could
  have existed and be the result of decisions and failures of the
  most senior Public Servants in Papua New Guinea required, in
  the opinion of the Committee that these Officers be heard and
  given every opportunity to rebut, qualify, explain or correct
  the information before the Committee.

  22.51 Having given proper and full consideration of all the evidence
  including, and in particular, submissions and oral evidence
  given by Mr. Kambanei, Mr. Yer, Mr. Kalinoe and the
  Provincial Administrator of the East Sepik Province, Mr. Alman
  – the Committee must report as follows on the conduct of this
  Trust Account:

  23. BANK STATEMENTS

  23.1 The Committee finds that Bank Statements and Bank
  Reconciliation Statements were missing and could not be
  provided either to the Committee or to the Office of the
  Auditor General.

  23.2 The requirement to keep such records is absolutely basic.

  23.3 The failure to do so is either the result of complete
  incompetence (in which case all responsible officers should be
  removed from their positions) or was intentional (in which
  case all responsible officers should be removed from their
  positions). The Committee cannot find any other possible
  explanation for the missing and incomplete documentation.

  23.4 Where bank statements were obtained from the Bank,
  reconciliations have not been located and subsequent
  discrepancies revealed by reconciliation of the cash book to
  bank statements confirm that the reconciliations have not
  been carried out at all.

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• 23.5 That K30 million of public money passed through this account
  with no apparent reconciliation is an appalling revelation.

  23.6 The Auditor General concludes:

  “This represents a significant control weakness in the
  management of the Trust Account and the failure by
  the Trustees to meet the requirements of the Trust
  Instrument and the Public Finances (Management)
  Act”.

  23.7 This Committee agrees completely with that conclusion and
  maintains a very strong suspicion that Trustees and responsible
  Officers in the Department of Finance and the relevant
  Provincial Governments intentionally failed to keep these
  records or perform the accounting tasks in order to leave no
  evidential trail of misconduct.

  24. ANALYSIS OF RECEIPTS AND PAYMENTS FROM BANK
  STATEMENTS

  24.1 Receipts and payments were fully analysed from the Bank
  Statements commencing with the first deposit into the Trust
  Account on the 24th December 2001 and the last noted
  transaction on the 28th April 2006.

  24.2 This process revealed the following:

  Total Receipts 31,012,976

  Total Payments 30,251,473

  Closing balance as at 28.04.2006 761,503__

  Therefore, a total of K 30,251,473 passed through the Trust
  Account. The Law requires that every toea of this money be
  accounted for and acquitted.

  24.3 So derelict was the record keeping, accountability and
  reporting by Trustees, the Provincial Government and the
  Department of Finance that neither this Committee nor the

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• Office of the Auditor General were able to identify the source of
  funds which were made into the account.

  24.4 This Committee has conducted detailed inquiries and
  demanded production from the Department of Finance of
  information sufficient to rectify this defect. Nothing has been
  forthcoming, despite promises from Mr. Gabriel Yer, the current
  Secretary for Finance, that he would do so.

  24.5 Therefore, the position at the conclusion of this Inquiry is that
  this Committee cannot identify the source of approximately K
  23 million of public funds that passed through this Trust
  Account. The Committee knows where the money went but
  cannot find where it came from. There could be no more basic
  failure of accountability and legal obligation than this.

  24.6 As this Committee has said in the past, there is a very serious
  attitude and competence problem within the Public Service and
  particularly in the Department of Finance.

  24.7 Unless this incapacity to obey the Law is immediately
  addressed by Government – particularly in the area of fiscal
  management – the decline of Governance and the failure to
  deliver services will continue.

  25. CASH BOOKS

  25.1 Computer cash books for the years 2002 to 2005 ( insofar as
  they exist) were found to be materially inconsistent with bank
  statements.

  25.2 The Committee concludes that this is a significant failure by
  Trustees in the management of the Trust Account and a failure
  to meet the requirements of the Trust Instrument and the
  Public Finances (Management) Act and Financial
  Instructions.

  25.3 A huge amount of public money passed through this Account
  and was paid to dubious, and in many cases, plainly improper
  recipients. Cash books are a basic accounting tool. They were
  not produced or were incomplete and incorrect.

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• 40

  25.4 The Department of Finance and the Provincial Government
  failed completely to maintain proper accounting records and to
  be accountable to any competent degree for the management
  of this Trust Account.

  26. BANK RECONCILIATIONS

  26.1 It was a requirement of Section 3(b) of the Trust Instrument
  that monthly Bank Reconciliation Statements were provided to
  the First Assistant Secretary, Public Accounts of the
  Department of Finance to enable him to meet his obligations to
  monitor the Trust Account. This was not complied with.

  26.2 Further, the evidence before the Committee shows that neither
  the then First Assistant Secretary nor Department of Finance
  made any attempt whatsoever to enforce this requirement and
  had no apparent interest in doing so.

  26.3 This Committee is very concerned at the failures of a First
  Assistant Secretary of the Department of Finance to meet these
  basic requirements of law.

  26.4 The Committee concludes that the Department of Finance and
  the First Assistant Secretary of the time were either completely
  incompetent or acted intentionally to obscure any evidential
  trail and/or control over the movements of money in and out of
  the Trust Account by not requiring the provision of monthly
  Bank Account Statements.

  27. RECEIPTS INTO THE TRUST ACCOUNT

  27.1 This Committee finds that the Provincial Administrator has not
  maintained relevant revenue accounts and records for receipts
  into the Trust Account.

  27.2 Some, but not all receipt copies, collector statements, bank
  deposit butts, bank statements and related correspondence
  were produced to support receipts to the Trust Account.

  27.3 Ledger accounts were not maintained to show the sources of
  receipts and as a result receipts were not identified into each
  project.

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• 27.4 It was not possible for this Committee or the Auditor General to
  trace sources of funding into the Account and ascertain the
  purposes for which the funds were remitted. This means that
  Trust monies cannot be traced – the most fundamental
  obligation of a Trustee.

  27.5 In this regard, the Trustees failed to keep appropriate accounts
  and records, breached the Trust Instrument and the Public
  Finances (Management) Act thereby and may well be
  personally responsible for any loss arising as a result of these
  failures.

  27.6 The Provincial Administrator of the time failed to manage the
  financial aspects of the Trust Account to any degree of
  competence whatsoever in that he failed to maintain proper
  accounts and records relating to receipts, accounting records
  and bank statements.

  27.7 The Committee notes that the Department of Finance is the
  responsible Department charged with the duty of ensuring that
  these records and accounts were kept and produced as
  required by the Trust Instrument and the Public Finances
  (Management) Act.

  27.8 The Department completely failed in this duty. This is a
  particularly serious matter when it is considered that the
  Secretary of the Department of Finance was also a Trustee of
  the Account and, therefore bore a double responsibility to
  ensure proper management of the Trust Account.

  27.9 For this, and other aspects of mismanagement of the Trust
  Account, Mr. Kambanei is personally accountable but has failed
  to give any or any proper explanation for these failures.

  27.10 Mr. Kambanei, as Secretary for Finance, had a clear conflict.
  He was, by reason of Section 4 and 19 (2) of the Public
  Finances (Management) Act responsible as Secretary for
  overseeing himself as a Trustee and correcting and being
  ultimately accountable for his own shortcomings as a Trustee
  – an impossible position.

  27.11 Equally, as a Trustee, he was required to report to himself in
  the capacity of Secretary for Finance pursuant to Section 19

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• (3) and (4) (c) and (d) and then consider the adequacy of his
  own performance and obedience to the requirements of an
  Act that he himself administered.

  27.12 This conflict should have been obvious. The Committee
  supposes that it also exists in respect of every other Trust
  Account of which the Secretary for Finance is a Trustee. If so,
  the Minister for Finance should take steps to replace the
  Secretary as Trustee in order that the appearance of proper
  and transparent oversight can be maintained.

  27.13 Once again, the Committee concludes that the failures were
  systemic and systematic in every single Officer responsible
  either as a Trustee or as an accountable Officer up to and
  including the Head of the Department of Finance.

  27.14 Once again, the Committee concludes that these failures were
  either the result of gross negligence and incompetence or
  were intentional. They cannot be the result of mere oversight.

  27.15 In light of the clear pattern of failures, the Committee
  maintains a very strong suspicion that these failures were
  intentional and were designed to confound any audit in an
  attempt to trace movement of money into and out of the
  Trust Account and in particular to prevent the source of
  deposits from being traced.

  27.16 If so, all those Officers responsible should be referred for
  further investigation by expert investigatory and law
  enforcement agencies.

  28. PROJECT EXPENDITURE

  28.1 The Trust Instrument provides that all withdrawals from the
  Trust Account shall comply with the Public Finances
  (Management) Act.

  28.2 This Committee has identified many instances where
  payments and withdrawals from the Account breached the
  Public Finances (Management) Act.

  28.3 Before addressing the evidence, the Committee iterates that
  the responsible officers were carefully questioned by the

• Page 46 of 101

• 43

  Committee on their understanding of the requirements of the
  Public Finances (Management) Act.

  28.4 As would be expected from Officers of the seniority of Mr.
  Kambanei, Mr. Yer, Mr. Kalinoe and Mr. Alman, all those
  witnesses confirmed their knowledge and understanding of
  the requirements of the Public Finances (Management)
  Act.

  28.5 This Committee finds that all officers, including the Trustees,
  that were responsible for management of the Trust Account
  failed to comply with requirements of Law concerning
  expenditure from a Trust Account.

  28.6 The Committee specifically finds:

  Procurement

  28.7 Sections 39 and 40 of the Public Finances (Management)
  Act set forth mandatory steps that must be followed prior to
  contracting for the provision of services to the State.

  28.8 These requirements include the calling of public tenders and
  steps to be taken in the evaluation of these tenders.

  28.9 Clearly this process was established to ensure that the
  procurement process is fair and transparent, that the
  requirements are properly complied with and that the State
  obtains value for money.

  28.10 All tenders are to be evaluated against this specification to
  ensure that a contract protects the interest of the State and
  provides a basis for impartial evaluation of results and
  payments.

  28.11 Further, the Trust Instrument specifies the purposes for which
  Trust money can be expended.

  28.12 This Committee concludes that a number of projects included
  expenditures that were not provided for by the Trust
  Instrument.

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• 28.13 Further, this Committee finds that there have been
  expenditures from the Trust Account on matters which do not
  form any part of Sepik infrastructure – even taking that term
  at its widest definition.

  28.14 For instance, half a million kina was paid for “financial
  assistance”. The Committee sought detailed explanations as
  to each payment which made up this total, but received
  nothing from the Trustees, the Department of Finance or the
  Provincial Government.

  28.15 The Committee sets forth a summary of each project funded
  by the Trust Account and failures of law, failures to comply
  with the Trust Instrument, breaches of the Public Finances
  (Management) Act and breaches of accountability identified
  by the Committee:

  Contractor Project Amount Comments
  K
  Westco Limited Construction Yangoru 482,300 Did not follow procurement
  2002 -2003 High School processes (PSTB).
  Contractual obligations not
  fulfilled.
  Governor’s House 85,000 Information and accountable
  Maintenance documentation not available.
  Contractual Obligations not
  fulfilled.
  Angoram D.O & 105,670 Did not follow procument
  Brandi H. Sch Design procedures (PSTB).
  Green Hill Ami-Sowom Road 881,590 Did not follow procurement
  Investment Maintenance processes (PSTB).
  2002, 2003 & 2004 Information and accountable
  documentation not available.
  Maia-Nuku Road 1,119,632 Information and accountable
  Maintenance documentation not available.
  CCS Anvil (PNG) Ltd Management 79,500 Certificate of Inexpediency
  2003 Consultancy Services issued.
  May not be related to objectives
  of Trust.
  Information and accountable
  documentation not available.
  Shorncliffe (PNG) Sealing Sepik 2,524,322
  Ltd Highway & Wewak
  2003 – 2004 Town
  Sepik Project Construction 157,870 Did not follow procurement
  Managers and Angoram District processes (PSTB).
  Consultants Office
  2004 – 2005 May not be related to objectives
  of Trust.
  Information and accountable
  documentation not available.
  Baimusu Maintenance District 154,295 Did not follow procurement

• Page 48 of 101

• Contractor Project Amount Comments
  K
  Construction Ltd Treasury Houses processes (PSTB).
  2005 Ambunti Information and accountable
  documentation not available.
  May not be related to objectives
  of Trust.
  Niugini Builders District Treasury Office 305,000 Did not follow procurement
  2005 Building Pagwi, processes (PSTB).
  Angoram May not be related to objectives
  of Trust.
  Information and accountable
  documentation not available.
  Garamut Pagui Ambunti District 137,797 Did not follow procurement
  Enterprises Treasury Office processes (PSTB).
  2005 Building May not be related to objectives
  of Trust.
  Information and accountable
  documentation not available.
  SBA Limited Maintenance Jama- 50,000 Did not follow procurement
  2004 – 2005 Pagwi Road processes (PSTB).

  Brandi Secondary 632,065 Payments exceeded contracted
  School Hall amount.
  Construction Contractual Obligations not
  fulfilled.
  Department of Supervision & Pmt 1,208,700 Information and accountable
  Works Services documentation not available.
  2002, 2003 & 2004 May not be related to objectives
  of Trust.

  Sepik Highway 6,000,000 Information and accountable
  Counter Funding documentation not available.
  May not be related to objectives
  of Trust.

  Towa Plumbing & Provincial Treasury 37,556 Information and accountable
  Steel residence documentation not available.
  2005 maintenance May not be related to objectives
  of Trust.

  Kipma Builders Mobilisation cost 28,500 May be not related to objectives
  2002 of Trust.
  Information and accountable
  documentation not available.

  Sepik Project Mgrs Supervision Fee 20,934 May not be related to objectives
  2004 Angoram Dist Office of Trust.
  Information and accountable
  documentation not available.

  Melkia Investment Patigo/Pagwi Road 26, 400 Information and accountable
  Ltd Maintenance documentation not available.
  2005
  O’Brian Trust ESPG Contribution SS 1,500,000 May not be related to objectives
  Account Tuna Corp Share of Trust.
  2004 Information and accountable
  documentation not available.

• Page 49 of 101

• Contractor Project Amount Comments
  K
  Steamships Kwik Built Houses 491,567 May not be related to objectives
  Hardware Wosera District of Trust.
  2005 Treasury Information and accountable
  documentation not available.

  Telikom PNG Ltd Mt Turu Repeater 600,000 May not be related to objectives
  2005 Station of Trust.
  Information and accountable
  documentation not available.

  Bake Pty Ltd Dambui–Timbunkie 570,000 Did not follow procurement
  2004 Highway processes (PSTB).
  Maintenance May not be related to objectives
  of Trust. (National Project).
  Information and accountable
  documentation not available.

  28.16 This Committee could only find one Contract that appeared to
  have been lawfully and properly instigated and carried out.
  That contract was a project for sealing the Sepik Highway and
  Wewak Town and was given to Shorncliffe (PNG) Limited to a
  value of K 2,524,322.

  28.17 Every other Contract or Project paid for from the Trust
  Account did not, upon the evidence received by the
  Committee, comply with Law in either its procurement,
  assessment, oversight, performance (or lack of it), results,
  payment, accounting or acquittal.

  28.18 The Committee finds that the Department of Finance, the
  Trustees, Provincial Government and every other responsible
  Officer or Government arm, agency, Department or entity
  failed in its duty to identify these failures and to rectify them.

  28.19 In light of evidence and material which will be set forth later in
  this report, it is perfectly clear that incompetent conduct
  existed at the highest level of the Department of Finance and
  within the Provincial Government and that responsible officers
  were prepared to and did ignore requirements of law, their
  duties and the obligations of Trustees to facilitate improper
  ends.

  28.20 Further, requirements of the Public Finances (Management)
  Act requiring Tenders for such work were ignored and no
  records or accountable documentation were maintained.

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• 28.21 These failures are clearly illustrated by the fact that payments
  were made from the Trust Account to companies which did not
  exist, for work which had not been performed, for projects
  which did not comply with procurement procedures, in advance
  of any work actually starting and/or for projects which did not
  fall within the terms of the Trust Instrument at all.

  28.22 These payments were made without any query, demur, check,
  question or requirement for fulfillment of law by the
  Department of Finance and its officers and, to compound that
  failure, at the direction or order of the then Head of that
  Department.

  28.23 The Committee makes the following specific findings:

  Westco Limited

  28.24 This Company was apparently deregistered on the 31st July
  1995 for not submitting Annual Returns to the Investment
  Promotion Authority.

  28.25 That Company received three payments from the Trust
  Account. The Committee has examined each of those contracts
  and concluded as follows:

  Construction – Yangoru High School – K482,300.00

  28.26 The Provincial Government was not able to provide any related
  contract documents and neither the Auditor General nor this
  Committee is able to confirm any conditions of the contract
  engagement.

  28.27 However, this Committee does find that the contract did not
  follow procurement processes and that the contractual
  obligations have not been fulfilled. This is a breach of the
  Public Finances (Management) Act.

  28.28 Notwithstanding the fact that the construction company did not
  exist, that procurement processes did not occur and that the
  project has not been completed, a total of K 482,300 was paid
  to Westco Limited by the Trustees with no query or check by
  any of the Trustees or the Department of Finance.

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• Page 51 of 101

• 28.29 The Auditor General reports that his Officers visited the site of
  the project on the 6th June 2006. Two classroom buildings and
  two staff houses were completed and in use, however the two
  dormitories had not been constructed although payment had
  been made from the Trust Account.

  28.30 The Auditor General concludes the two staff houses which had
  been built were not built according to specifications and were
  too small.

  28.31 The Headmaster of Yangoru Secondary School advised that he
  was seeking reimbursement from the Trustees of part of the
  money that the School had secured from the Department of
  Finance through the then Finance Minister, Honourable Andrew
  Kumbakor MP and paid into the Trust Account to fund the
  project.

  28.32 The School has commenced legal proceedings against the
  contractor for recovery of part of the unfulfilled portion of the
  contract sum.

  28.33 This Committee sought explanation as to why contract
  payments have been made to Westco Limited prior to
  completion of the contract and what action had been taken by
  the Provincial Government to ensure completion of the
  contract. No explanation was provided.

  28.34 The Committee finds that the Trustees have failed to meet the
  procurement procedures in Sections 39 and 40 of the Public
  Finances (Management) Act in the engagement of Westco
  Limited for this project.

  28.35 The Committee finds that the Provincial Administration has
  failed to manage the contractual arrangement to ensure that
  Westco was delivering the services for which they were
  contracted prior to processing invoices for payments of K
  482,300 of public monies.

  28.36 The Committee finds that the Department of Finance failed to
  properly administer or account for this project or the monies
  expended on it and failed to take any steps when it knew that
  the contract and the payments were unlawful.

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• 49

  28.37 This Committee finds that the Provincial Administration failed to
  ensure that recovery action of monies expended was taken in a
  timely manner and it would appear that the likelihood of
  recovery is nil.

  28.38 The Auditor General reports that Westco Limited, although it
  was deregistered in 1995, continues to operate and obtain
  business from the Provincial Government. How this can occur
  is beyond the understanding of this Committee.

  Governor’s Residence Maintenance – Wewak Hill K85,000

  28.39 The Committee finds that documentation, information and
  accounts records of this Project and Contract do not exist.

  28.40 The Auditor General reports that contractual obligations of
  Westco Limited were not fulfilled, yet K85,000 of public money
  was paid to a non-existent company for work which has not
  been performed.

  28.41 The Provincial Supply & Tenders Board Meeting Minute No.
  07/2003 dated the 16th December 2003 record that the PSTB
  Chairman informed the Board Members that a contract for
  K149,685 was awarded to Westco Limited on the 3rd March
  2003.

  28.42 The Auditor General has ascertained that K85,000 was paid to
  Westco for mobilization and some demolition work was
  performed but the work has not proceeded beyond that point.

  28.43 No documentation, contract, accounts, records or any other
  data at all was received from the Provincial Administrator or
  the Department of Finance in respect of this Contract or its
  payment.

  28.44 The Auditor General inspected the work in May 2006. His staff
  reported that the building was severely damaged and unfit for
  occupation. There was no evidence of maintenance and the
  building stood decaying.

  28.45 Neither the Provincial Administrator nor the Department of
  Finance or the Trustees of the Trust Account had been able to

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• Page 53 of 101

• explain why the contractor was paid prior to completion of the
  work.

  28.46 The Provincial Administration has failed completely to ensure
  that the contractor met contract specifications and the
  payments were made only for completed work.

  28.47 This entire contract and the payments made in pursuance of it
  are unlawful and neither the Provincial Government nor the
  Department of Finance have taken any action to recover
  monies paid to the contractor or in any way attempted to
  address this serious misapplication of public monies.

  28.48 The Trustees of the Trust Account seem not to care that these
  monies have been expended for no benefit or to take any
  responsibility for those failures.

  Angoram D.O. and Brandi High School Design – K105,670

  28.49 The Committee, on the evidence before it, finds that this
  contract apparently did not follow lawful procurement
  procedures, payments were made without any evidence of
  work performed and payments were made without any control
  or accountability on the part of the Provincial Government, the
  Trustees of the Trust Account or the Department of Finance.

  28.50 Once again, the Committee finds a breach of every basic
  obligation of law and a waste and misapplication of public funds
  for no result.

  28.51 Moreover, this payment was made to a company which
  apparently did not exist – but that fact did not seem to give the
  Department of Finance, the Trustees or the Provincial
  Government Administration any concern at all.

  Greenhill Investment Limited

  28.52 This Committee, on the evidence produced to it, finds that
  Greenhill Investment was registered on the 20th November
  1992 and was de-registered on the 1st January 2001.

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• Page 54 of 101

• 28.53 The Company apparently did not exist in any capacity the time
  that it received payments from the Trust Account or contracts
  from the Provincial Government.

  28.54 These payments are a matter of concern to the Committee.
  Greenhill Investment was paid K 2,001,222 between 2002 and
  2004 for road maintenance work.

  28.55 Procurement processes were apparently not followed but
  despite this fact three payments amounting to K881,590 were
  made to Greenhill Investments for the Sepik Highway Road
  Construction Project.

  28.56 Subsequent to these payments, the Provincial Supply &
  Tenders Board agreed to a contract with Greenhill Investment
  and the balance of K 1,119,632 of the K 2,001,222 appears to
  have been paid upon the approval.

  28.57 Both the Committee and the Auditor General found great
  difficulty in tracing details of the payments due to a lack of any
  records at all.

  28.58 No attempt at all has been made by the Department of Finance
  (or any one else) to bring any accountability to this transaction.

  28.59 How contracts can be given for such large amounts of public
  money (well over the limit prescribed by the Public Finance
  (Management) Act for the calling of Tenders) and how
  contracts can be given to an apparently non-existent company
  without any control from the Department of Finance or the
  Trustees is beyond the understanding of this Committee.

  28.60 The Committee concludes that the Trustees, the Provincial
  Government and the Department of Finance failed completely
  in their duties to properly monitor, control or in any way carry
  out their obligations to properly manage this expenditure of
  public monies.

  CCS Anvil (PNG) Limited

  28.61 This Committee finds that on the 4th February 2003 a Special
  Provincial Supply & Tenders Board Meeting awarded a contract

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• Page 55 of 101

• to CCS Anvil Limited Consultants on a Certificate of
  Inexpediency.

  28.62 Why that Certificate should have been given and on what legal
  basis it was given, cannot be ascertained by this Committee
  because there are no records.

  28.63 The value of the Consultancy was K300,000. The Auditor
  General was not provided with any documentation regarding
  the basis for the issue of the Certificate of Inexpediency or any
  material showing the extent of the project to be carried out.

  28.64 A Certificate of Inexpediency can only be issued for reasons of
  emergency. What emergency could possibly justify this
  Certificate of Inexpediency is unknown.

  28.65 This Committee concludes that the Certificate was issued to
  evade the requirement of law for competitive tenders and
  therefore, that the State could not be satisfied that it obtained
  value for money.

  28.66 This Committee finds that this Consultancy was not within the
  terms of the Trust Instrument and that conclusion is supported
  by the Office of the Auditor General.

  28.67 There was no information or accountable documentation
  preserved or produced by either the Provincial Administration
  or any other witness to this Inquiry.

  28.68 A corporate plan was produced to the Auditor General but no
  other outcomes were able to be ascertained by the Auditor.

  28.69 Once again, the lack of documentation has frustrated the
  Auditor and this Committee and has made firm conclusions as
  to the propriety of these payments impossible – as no doubt
  they were intended to do.

  28.70 However, a close reading of the Trust Instrument has led this
  Committee to include that funding of CCS Anvil should not have
  been made from the Trust Instrument. There was no
  Infrastructure involved and the payment does not seem to be
  within the terms of the Trust Instrument.

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• 28.71 Further, the contract was given upon a Certificate of
  Inexpediency which cannot now be justified. The Provincial
  Administration of the time, the Department of Finance and the
  Trustees of the Account failed in their duty to properly manage
  public funds.

  Shorncliffe (PNG) Limited

  28.72 The Committee finds that there are no adverse matters raised
  in respect of this contract. This is the only project and
  payment which, our investigators suggest, was properly and
  lawfully brought about.

  28.73 However, even in this transaction, the Committee was not
  provided with any documents or records despite directing their
  production.

  Baimusu Construction Limited – Maintenance District Treasury
  Houses – Ambunti K154,295

  28.74 The Committee finds that this contract did not follow
  procurement processes as it should have done. The contract
  was therefore not lawfully granted and payment should not
  have been made to the contractor.

  28.75 The Committee and the Auditor General find that there is no
  information or accountable documentation produced or
  available and it is the conclusion of the Committee that
  documentation and records of this project have either been
  deliberately destroyed or hidden – or never existed.

  28.76 Neither the Auditor General nor this Committee can conclude
  that the project or the payments were related to objectives of
  the Trust.

  28.77 The Department of Finance, the Department of Planning, the
  Office of Rural Development and the Provincial Government can
  provide no documentation whatsoever in relation to this
  supposed contract and the Committee concludes that the
  Trustees and the Department of Finance have been derelict in
  failing to properly oversee and ensure that there was full

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• accountability and maintenance of records of the contract and
  the payment.

  Niugini Builders

  28.78 This particular project related to the Department of Finance and
  District Treasury Rollout Program.

  28.79 This program did not go through the PSTB processes and the
  Works Manager maintained no information on the project.

  28.80 This Committee could not ascertain whether Section 40 of the
  Public Finances (Management) Act and Financial
  Instructions Part 9 on Public Tendering Processes had
  been adhered to, but it is certain this payment and the work
  performed does require referral to the PSTB.

  28.81 The Auditor General is of the view that the District Treasury
  Rollout Program may not be related to the objective of the
  Trust Account – and this Committee agrees. That being so, the
  payments are inappropriate.

  28.82 The Provincial Administrator advised that all documentation
  regarding this contract has been removed and could not be
  located. He also advised that the former Provincial Treasurer
  had been removed because of personal involvement in Baimusu
  Construction Limited – See Para 28.7 et. seq.

  28.83 The Committee concludes that documents have been
  deliberately hidden or destroyed to prevent any proper and full
  investigation of the use of this money and that the entire
  contract lacked compliance with the procurement processes
  and may not have been related to the objectives of the Trust.

  Niugini Builders District Treasury Office – Angoram K305,000

  28.84 Once again, the Committee finds that this contract did not
  follow any procurement procedures and that information and
  accountable documentation is not maintained or has been
  deliberately removed or destroyed.

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• 55

  28.85 Certainly, no documentation was produced to the Auditor
  General or this Committee sufficient to ascertain whether the
  Project and contract were within the terms of the Trust
  Instrument or not.

  28.86 Once again, this Committee finds that payment has been made
  free of any check for legal compliance, or apparent oversight
  by the Trustees or the Department of Finance. Neither of those
  entities appears to have any concern as to these failures.

  Garamut Enterprises – Pagui Ambunti District Treasury Office –
  K137,797

  28.87 The Committee finds that this contract and project did not
  follow procurement procedures in accordance with Law.

  28.88 The Provincial Government, the Department of Finance and the
  Department of Planning have maintained no or no adequate
  information and accountable documentation which would
  enable either the Auditor General or this Committee to be
  satisfied that the project was within the terms of the Trust
  Instrument.

  28.89 Once again, the Committee finds that the Trustees have failed
  to carry out their obligations either pursuant to the Trust
  Instrument, the Public Finances (Management) Act or the
  Financial Instructions promulgated thereunder.

  SPA Limited – Brandi Secondary School Hall Construction –
  K632,065

  28.90 The Committee finds that the Provincial Supply & Tenders
  Board awarded a contract to SPA Limited at a meeting on the
  16th December 2003 (07/2003).

  28.91 The Tender price and contract was for the construction of a
  Hall. The Tender price was K 640,754 but the actual payment
  to the company was K 632,065.

  28.92 For reasons that this Committee cannot ascertain, two
  additional payments were made for the same project. K
  78,330 was paid to Westco Limited and a further K 38,445 to

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  the Receiver of Public Monies, Department of Works totalling
  K 116,776.

  28.93 The Total payment for the project was therefore K 748,841.

  28.94 The Provincial Administrator has confirmed that the increase in
  the tender value was not referred to the Provincial Supply &
  Tenders Board as required by Sections 39 and 40 of the Public
  Finances (Management) Act.

  28.95 Staff of the Office of the Auditor General inspected the
  construction site and reported that the School Hall was not in
  use due to poor engineering and because construction work
  had not been completed.

  28.96 Once again, this Committee finds that the total of K 748,841
  has been spent on construction however the project was
  incomplete and could not be used.

  28.97 The Provincial Administration failed to ensure that the contracts
  were properly managed and that payments were processed
  upon satisfactory completion of the work.

  28.98 The Trustees also failed to ensure that contracts were properly
  carried out and satisfactorily completed before payment was
  made.

  28.99 The Department of Finance failed to do anything at all to
  require or ensure compliance with Law.

  28.100 The Provincial Administrator has advised the Committee that
  the Works Manager will authorize/undertake a full investigation
  into the project “in due course”. The Committee is not
  optimistic that anything will be achieved in this regard.

  Jama-Pagui Road Maintenance – K50,000

  28.101 The Committee finds that this road maintenance project was
  not put through the Provincial Supply & Tenders Board process
  and the Works Division has no information or documents on the
  project.

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• 57

  28.102 The Provincial Administration has supplied no documents,
  records, files or other information on this project, despite being
  directed to do so by this Committee.

  28.103 As a result of this failure and the complete absence of any
  documents at all, the Committee can make no findings as to
  the propriety or otherwise of the payments, but queries how
  the Trustees could make any payment at all, when documents
  were neither available nor before them.

  28.104 The very basic duty of a Trustee is to ensure that monies are
  paid out lawfully and properly and upon the completion of
  projects or contracts to a satisfactory standard.

  28.105 This cannot have happened in this case and the Trustees
  should be held personally liable if a breach of trust is
  established.

  28.106 To this end, the Committee intends to refer this particular
  payment for full and complete investigation by the relevant law
  enforcement and investigatory agents.

  Department of Works – K 7, 208, 700.

  28.107 These payments are a matter of very grave concern to the
  Committee.

  28.108 Neither the Auditor General nor the Public Accounts Committee
  could find any documentation whatsoever relating to these
  payments which were expressed to be:

  a) Supervision and payment services K1,208,700

  b) Sepik Highway Counterpart Funding K6,000,000

  28.109 The Committee directed production of these documents from
  the Department of Planning, the Department of Finance and/or
  the Provincial Administration. Nothing was forthcoming.

  28.110 How these documents can simply disappear was not explained
  to the Committee.

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  28.111 This Committee concludes that the documents have been
  deliberately removed, destroyed or hidden from the Committee
  by these three agencies.

  28.112 How the Department of Finance – the very Department
  responsible for acquitting and certifying proper accountability
  for these monies can have no records at all is utterly beyond
  the understanding of this Committee.

  28.113 At best, the absence of documents suggests gross negligence
  and incompetence. At worst, it suggests corruption and a
  complete failure by the Trustees to meet any requirement at all
  imposed on them by the Trust Instrument or the Public
  Finances (Management) Act relating to accountability for
  and acquittal of public funds – particularly those funds which
  might, it would seem, have been contributed by Members of
  Parliament.

  28.114 It is the intention of the Committee to refer these two
  payments for full investigation by the Ombudsman and the
  Royal Papua New Guinea Constabulary.

  Towa Plumbing and Steel – Provincial Treasury Residence
  Maintenance – K37,556

  28.115 The Committee finds that no information, documentation, files
  or records relating to or recording this Contract or payment are
  maintained by the Provincial Administration, the Department of
  Finance or the Department of Planning.

  28.116 Neither the Auditor General nor this Committee can make any
  investigation or findings on this payment in the absence of
  documentation.

  28.117 This Committee directed the production of all available
  documents concerning this contract, but nothing has been
  produced.

  28.118 Again, the Committee and the Auditor General are unable to
  make any findings concerning this particular payment other
  than to conclude that the absence of documents was probably

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• intentional and to refer all responsible Officers for investigation
  by the appropriate Agencies.

  Kipma Builders – Mobilisation Cost – K28,500

  28.119 Neither the Auditor General nor this Committee has any
  evidence concerning the purpose of this payment.

  28.120 No documents, records, files or any other evidence was
  produced to the Auditor General or to this Committee, despite
  directives from this Committee to produce that material served
  on the Department of Finance, the Department of Planning, the
  Office of Rural Development and the East Sepik Provincial
  Government.

  28.121 Once again, neither the Committee nor the Auditor General
  make any investigation or finding on the propriety of this
  payment.

  28.122 The best that the Committee can do is refer the matter to the
  Office of the Ombudsman and the Royal Papua New Guinea
  Constabulary for a full investigation both of the payment itself
  and the missing documentation.

  Sepik Project Managers Supervision Fee – Angoram District
  Office – K20,934

  28.123 Once again, neither the Auditor General nor this Committee
  were able to find any documents, records, files or information
  at all concerning this contract, the payment or the way or ways
  in which the contract or project was procured or approved.

  28.124 Neither the Committee nor the Auditor General can make any
  investigation or finding as to the propriety and the legality of
  the contract or the payment.

  28.125 The fact that there are no documents available, despite the
  Committee having directed their production, suggest either
  that the documents have been deliberately removed or that
  they never existed.

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• 28.126 In the circumstances, the Committee refers to this contract or
  project and the payment made from the Trust Account to the
  Office of the Ombudsman for a full and complete investigation
  to the Royal Papua New Guinea Constabulary for an
  investigation of the circumstances giving rise to the payment
  and the legality of the actions of all trustees and each Officer
  involved in this particular transaction and the failure to record
  or account for any aspect of it..

  Melkia Investment Limited – Patigo/Pagwi Road Maintenance –
  K26,400

  28.127 Once again, there is no documentation, record, file or
  information available or produced to the Auditor General or this
  Committee, despite directives to do so.

  28.128 Neither the Committee nor the Auditor General can make any
  finding on the propriety and legality of this contract or the
  payment.

  28.129 Accordingly, the Committee again finds that the documents
  were either deliberately removed, destroyed or hidden and/or
  that the Trustees could not possibly have acted in accordance
  with the Trust Instrument in the absence of documentation
  before them.

  28.130 In the circumstances, the Committee refers this transaction
  and the payment to Melkia Investment Limited to both the
  Ombudsman and the Royal Papua New Guinea Constabulary for
  full and complete investigation of the legality of the actions of
  all Officers involved in this payment.

  Purchase of Shares by East Sepik Provincial Government in Tuna
  Corporation

  28.131 The Committee finds that the K 1,500,000 moved from the
  Trust Account as a 30% payment of the total cost of shares
  purchased by the East Sepik Provincial Government in South
  Seas Tuna Corporation.

  28.132 The Committee finds no assistance in the Trust Instrument on
  the question of investment of monies in the Trust Fund.

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  28.133 However, Section 57 of the Public Finance (Management)
  Act sets out the Trustees’ responsibilities in respect of
  investments.

  28.134 Section 57(2) provides for circumstances where investment of
  monies that are not immediately required may be made and
  sets forth the type of investment allowed.

  28.135 Investments of Treasury Bills with the Bank of Papua New
  Guinea are provided for as these are securities guaranteed by
  the State.

  28.136 However, this Committee cannot establish that the investment
  in South Seas Tuna was approved by the Minister for Finance
  as required by the Public Finance (Management) Act and
  concludes that this investment was not legal in that it did not
  fall in the terms of the Trust Instrument and the Trustees were
  not empowered to make it.

  28.137 Provincial Executive Council Decision No. A1/2/2000 directed
  the East Sepik Provincial Government to negotiate with the
  Joint Venture Partners in South Seas Corporation for share
  equity participation in the project.

  28.138 Neither the Auditor General nor this Committee were supplied
  with any investment register, share certificate or status report
  of this investment and the Committee is therefore unable to
  confirm the fact of the investment or the source of money used
  to make it.

  28.139 The Committee is of the view that this investment was an
  inappropriate use of Trust monies. Further, the investment
  was not an allowable investment provided by Section 66 of the
  Public Finance (Management) Act and no special approval
  had been provided as required by Section 66(2)(c) of that Act.

  28.140 Accordingly, the Committee refers this investment for full and
  complete investigation, to the Office of the Ombudsman
  Commission to the Minister for Finance and the Royal Papua
  New Guinea Constabulary.

  28.141 The Committee recommends a full investigation of the process
  leading to this payment be made together with the role played

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  by each responsible Officer and the Trustees of the Trust
  Account to establish the legality of the investment.

  28.142 The Committee notes that a further investment of K6 million
  was made in Treasury Bills with the Bank of Papua New Guinea
  from the Trust Account.

  28.143 Section 57 of the Public Finances (Management) Act
  permits investment of funds that are not immediately required
  in Treasury Bills with the Bank of Papua New Guinea. The
  Committee makes no adverse finding or recommendation in
  respect of this investment – except to refer it for full
  investigation of the source of funds used for the investment.

  Steamships Hardware – Kwik Built Houses for Wosera District –
  K491,567

  28.144 Once again, no documentation was provided to this Committee
  or to the Office of the Auditor General, despite directives from
  the Committee to produce documents, records, files and
  information concerning this payment.

  28.145 The payments were possibly made as part of the District
  Treasury Rollout Program, but this Committee simply does not
  know and cannot find that fact.

  28.146 Once again, the only conclusion that can be drawn is that the
  documents either never existed or have been deliberately
  removed, destroyed or hidden to frustrate an Inquiry by the
  Auditor General or this Committee.

  28.147 It is impossible to now conclude whether these payments were
  within the terms of the Trust Instrument or not because the
  records have not been produced.

  28.148 We can and do conclude that there may have been a breach of
  the Public Finances (Management) Act in that there are no
  records, accounts, reports or acquittals in respect of this
  contract maintained by either the Provincial Government or the
  Department of Finance.

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  28.149 The Committee therefore refers this payment and contract for
  full and complete investigation by the Office of the Ombudsman
  and the Royal Papua New Guinea Constabulary.

  28.150 This Committee again records grave concern that a significant
  amount of public money cannot be accounted for, was not
  recorded or acquitted by the Department of Finance, appears
  to have been approved by Trustees without any documentation
  and, quite possibly, falls outside the terms of the Trust
  Instrument.

  Telikom PNG Limited – K600,000 – Mt Tururu Repeater Station

  28.151 Neither the Auditor General nor this Committee were able to
  find any documentation or records relating to this payment.

  28.152 The Committee directed the production of all records,
  information and files concerning both the contract and the
  payment, but received nothing from either the Department of
  Finance or the Department of Planning or the Provincial
  Government.

  28.153 Accordingly, neither this Committee nor the Auditor General
  could make any conclusions as to the propriety and legality of
  either the contract or the payment.

  28.154 This Committee is once again left to conclude the missing
  documentation was either intentional or the result of gross
  negligence and incompetence by Trustees and the Department
  of Finance.

  28.155 This Committee cannot understand how the Trustees can
  possibly approve such payments when there were apparently
  no documents before them.

  28.156 Neither can the Committee identify the source of funds or the
  legality of their application for this purpose.

  28.157 Once again, the Committee refers this transaction and the
  payment to the Royal Papua New Guinea Constabulary and the

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• Office of the Ombudsman with a recommendation that a full and
  complete investigation be carried out to establish the legality of the
  contract, the legality of the payment and whether the actions of each
  Officers involved in this payment were lawful and justified.

  Bake Pty Limited – Dambui – Timbunkie Highway Maintenance –
  K570,000

  28.158 The Committee finds that this project was contracted through
  the Central Supply & Tenders Board and through the Office of
  Rural Development who apparently awarded the contract to the
  company.

  28.159 The total contract price was K 700,000.

  28.160 This Committee cannot establish if and from where any other
  payment was made, but has established that only K 570,000
  was paid from the Trust Account.

  28.161 The Provincial Administrator has advised that K 570,000
  represents counterpart funding for the project, but can provide
  no documentation in this regard.

  28.162 The Committee concludes that proper accounts and records
  have not been maintained by the Provincial Administration, the
  Department of Finance or the Trustees.

  28.163 No documents are held by any Government Department and
  nobody accepts responsibility for maintaining (or failing to
  maintain) those records.

  28.164 The Provincial Administration cannot now demonstrate that K
  570,000 has been lawfully expended or demonstrate any value
  for money – or indeed even demonstrate that the project was
  completed satisfactorily.

  28.165 The Trustees cannot explain why they provided 81% of the cost
  of the project, where the monies came from or how they
  managed to approve payment of K 570,000 with no
  documentation before them.

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• 28.166 There are no records of account kept by the Trustees, no
  Reports as required, no records at the Department of Finance
  or the Provincial Government and this can only be the result of
  gross negligence and incompetence or the documents have
  been deliberately removed or hidden. Whatever the situation
  all responsible Officers are in breach of their legal obligations.

  28.167 Accordingly, this Committee refers all the transaction with Bake
  Pty Limited for full and complete investigation by both the
  Office of the Ombudsman and the Royal Papua New Guinea
  Constabulary and also refers the Trustees and responsible
  officers of the Department of Finance and the Department of
  Planning and the Office of Rural Development for full
  investigation as to how and why documentary records have
  gone missing or never existed.

  29. TRANSFER OF THE TRUST ACCOUNT TO WAIGANI

  29.1 This Committee was informed by Mr. Kambanei that the
  management of the Trust Account was transferred to Waigani
  and assumed by him as Secretary for the Department of
  Finance in July 2005.

  29.2 Mr. Kambanei stated to the Committee that this transfer was
  the result of the unsatisfactory handling of the Trust Account
  by the Trustees (which this Committee notes, included himself)
  and the poor performance of the Provincial Administration and
  other unspecified Officers in the management and
  accountability standards maintained over the Trust Account.

  29.3 The Provincial Administration was not able to provide any
  formal notification of the transfer and neither this Committee
  nor the Auditor General have seen anything in writing which
  gives effect to the transfer.

  29.4 However, this Committee accepts that Section 19 (5) of the
  Public Finances (Management) Act does permit the return
  or control of the Trust Account to the Department of Finance
  and accepts that, given the appalling state of the Trust Account
  and its records up to July 2005, the transfer was justified if the
  intention was to bring any control and accountability to the
  operations of the Trust Account.

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• 29.5 This Committee and the citizens of Papua New Guinea had
  every right to expect that the Trust Account be properly,
  lawfully and competently managed by the Trustees and the
  Department of Finance, particularly from July 2005 when the
  transfer to Waigani was made.

  29.6 Regrettably, this Committee concludes that there was no
  improvement in any aspect of Trust management – in some
  respects, the mismanagement and illegality actually worsened.

  29.7 This Committee finds that Mr. Kambanei assumed complete
  and sole responsibility for the management of the Trust
  Account from July 2005. From that point in time, all decisions
  concerning expenditure from the Account were apparently
  made by Mr. Kambanei.

  29.8 Which projects would be paid, who would receive money and
  the amounts paid were his responsibility and these decisions
  were his alone.

  29.9 The evidence shows that Mr. Kambanei personally and without
  any reference to other Trustees, considered and approved each
  and every project or contract and payment out of the Trust
  Account from July 2005 onwards. He also signed the cheques.

  29.10 We reiterate that this Committee and the citizens of Papua New
  Guinea could legitimately expect proper competent, lawful and
  fully accountable management of the Trust Account from Mr.
  Kambanei who was both the Trustee and the Senior
  Accountable Officer to Government during his management of
  the Trust Account.

  29.11 Mr. Kambanei has testified on oath before this Committee, he
  had full knowlege and understanding of the provisions and
  requirements imposed on him both as a Trustee and the Head
  of Department by the terms of the Public Finance
  (Management) Act and the Financial Instructions made
  thereunder.

  29.12 This Committee finds that Mr. Kambanei has absolutely no
  excuse whatsoever for the poor or non-existent management,
  or accountability and failure to comply with the Trust

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• Instrument and his obligations as a Trustee and Head of
  Department which followed the removal of control of the Trust
  Account to Waigani in July 2005.

  29.13 This Committee has carefully considered each transaction from
  the account from July 2005 and makes the following findings:

  30. PAYMENTS PROCESSED AT WAIGANI

  30.1 Nine payments totaling K 5,813,053 were processed between
  24th November 2005 to the 24th March 2006 from the Sepik
  Highway Roads and Bridges Maintenance and Other
  Infrastructure Trust Account.

  Those payments were:

  Payees Details Cheque No. Amount

  Dept of Works WSP Nat Roads & Bridges Maint 1 2,000,000

  AOG Jubilee University Establishment of Jubilee Uni 4 1,200,000

  Green Hill Investments Upgrading Mai-Nuku Road 5 428,656
  Yangoru High School Donation commited by PM 6 10,000
  SBA Limited Upgrading Ariap-Mari Road 7 244,397
  Telikom PNG Limited Purch 4xVSAT Installation 8 200,000
  Spirit Life Bookshop 500 chairs Brandi High School 9 30,000
  Dept of Works Yambi/Avatip Road 10 200,000
  Nuku District Treasury Transfer for Nuku-Arko Rd 11 1,500,000

  TOTAL 5,813,053

  30.2 The Committee finds that each of these payments was
  variously approved by the First Assistant Secretary
  Accounting Frameworks and Standards, Deputy Secretary
  Operations and the Secretary for the Department of Finance
  in accordance with their financial delegation limits.

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• 30.3 But these approvals were, upon the few available
  documents, made without consideration of the terms of the
  Trust Instrument and resulted in expenditure that the Auditor
  General has found to be outside the scope and purpose of the
  Trust Instrument.

  30.4 Moreover, Section 2(b) of the Trust Instrument stipulates four
  signatories on all cheques and transfers from the account.

  30.5 The Committee has heard evidence from the Office of the
  Auditor General that, in light of the poor drafting of the Trust
  Instruments, it may be that only three signatures are
  required.

  30.6 However, this Committee interprets the Trust Instrument to
  require four signatories on all cheques and transfers from the
  account.

  30.7 Those signatories were the Secretary for Finance or his
  delegate, First Assistant Secretary Public Accounts, the
  Provincial Administrator, the Provincial Treasurer and the
  Provincial Works Manager.

  30.8 This Committee can find no variation of the Trust Instrument
  to change the control and management of the Trust Account
  in this regard.

  30.9 This Committee finds that the nine cheques issued for
  payment shown in Para. 30.1 hereof, were signed by the
  Secretary of Finance and the Chief Secretary to Government
  Mr. Joshua Kalinoe and the Secretary for Finance – Mr.
  Thaddeus Kambanei.

  30.10 The Secretary for Finance was a Trustee of the Account and a
  signatory to the account.

  30.11 This Committee has found that the Chief Secretary Mr. Joshua
  Kalinoe was a signatory to the Account but was not a Trustee
  at the time he signed the cheques.

  30.12 The Committee summoned Mr. Kalinoe to give evidence. Mr.
  Kalinoe told the Committee that he had been informed by Mr.
  Kambanei that he (Kalinoe) was “a signatory at the Bank”.

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  30.13 However, the Chief Secretary apparently never read or
  understood the signature requirements of the Trust
  Instrument.

  30.14 On the 12th January 2007 Mr. Kalinoe submitted to the
  Committee a written statement regarding the fact of signing
  cheques from the Trust Account.

  30.15 A covering letter from the Chief Secretary stated, inter alia,
  as follows:

  “As you are aware, I am a subordinate signatory to the
  Account but not a Manager of the Account. I have
  countersigned cheques on the recommendation of the
  Manager of the Account (Secretary for Finance),
  assuring me that all was in order to be a counter
  signatory”.

  30.16 In relevant part, the Statement of Mr. Kalinoe which was
  annexed to that covering letter states:

  “Trustee to Account

  I have been advised by the Former Secretary for
  Finance Mr Thaddeus Kambanei that the Trust Deeds
  were amended to include me as one of the Trustees. I
  also recall signing bank documents, including my
  signature as one of the alternate signatories. The other
  being the Secretary for Works.

  ……………….

  I confirm that I signed a number of cheques including
  K1.2 million for the Jubilee University on the
  recommendation of the Manager of the Fund, the
  Secretary for Finance, Mr Thaddeus Kambanei.
  I am advised by the Public Accounts Section that the
  former Minister for Finance, Honorable Bart Philemon

  has amended the original Trust Deed to include my
  name and title as one of the Trustees. This can be

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• confirmed from the Manager of the Trust, the Secretary
  for Finance.

  Illegal Signing of Cheques

  I have not signed cheques illegally. Before
  countersigning cheques I recall effecting bank
  documents with my specimen signature. I was also
  advised by the Trustee Mr Kambanei that all was in
  order and that I can sign the cheques as a
  countersigning officer.

  None of the cheques I countersigned has bounced or
  been refused by the Bank. This means my signature
  was verified and the cheques cleared accordingly.”

  30.17 This Committee sought further information and conducted
  further investigations to establish precisely the identity of the
  signatories and the Trustees to the account from July 2005
  onwards.

  30.18 In particular, the Committee required to know whether and
  when, the Trust Instrument was amended to include Mr.
  Kalinoe as a signatory or Trustee.

  30.19 The Committee finds that the Trust Instrument established by
  the Minister for Finance, Planning and Rural Development,
  Honorable Andrew Kumbakor MP on the 15th May 2002 does
  not specify Mr. Kalinoe as a Trustee and that the Department
  of Finance has confirmed that the Trust Instrument was not
  changed as Mr. Kalinoe was told.

  30.20 The Committee gave Mr. Kambanei and the Department of
  Finance every opportunity to produce evidence that the Trust
  Instrument was, indeed amended by the Honorable Bart
  Philemon MP as claimed by Mr. Kalinoe. No evidence or proof
  of this assertion has been supplied to the Committee.

  30.21 This Committee concludes that Mr. Kalinoe was never a
  Trustee to the Account.

  30.22 Why the most senior Public Servant in the country would
  assume that he was a Trustee or sign cheques without

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• 71

  checking the terms of the Trust Instrument is beyond the
  understanding of this Committee.

  30.23 The appointment as a Trustee carries with it onerous
  responsibilities and potentially, personal liabilities. The Chief
  Secretary should have checked to establish his precise
  position.

  30.24 As we have stated, the Trust Instrument required four (or
  three, if the Auditor General is correct) signatures on any
  cheque drawn on the account.

  30.25 At no time was there ever more than one Trustee signature
  on the cheques drawn on the account from July 2005. That
  signature was made by Mr. Thaddeus Kambanei.

  30.26 This Committee finds that the Trustees of the account failed
  to comply with the Trust Instrument by applying only one
  valid and recognized signature on all nine of the cheques
  drawn on the account while the Trust Account was managed
  by Mr. Kambanei.

  30.27 The Trust Instrument required the Secretary, Delegate and
  the First Assistant Secretary Public Accounts to be signatories
  to any cheque drawn on the account and those Officers were
  in a position to control expenditure from the account.

  30.28 The fact that they did not do so prior to July 2005 and the
  fact that illegality and a complete disregard of the
  requirements of the Trust Instrument, Trust obligations and
  the Public Finances (Management) Act had occurred with
  no demur, question or control from the Department of
  Finance or any of the other Trustees (including and in
  particular Mr. Kambanei), was plainly evident to this
  Committee.
  30.29 Further, the effect of Mr. Kamanei taking control of the Trust
  was simply that all payments from the Trust continued
  without the agreement of any other Trustee appointed to
  ensure the rights of the Provincial Administration and/or to
  protect these public monies.

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  30.30 The Committee notes that the action to take control of the
  Trust in July 2005 coincided with the appointment of a new
  Provincial Administrator by the National Executive Council and
  a Provincial Treasurer – appointed by Mr. Kambanei himself.

  30.31 Neither of these senior officials, both signatories to the Trust
  according to the Trust Instrument, were consulted regarding
  the action by the Secretary to assume control of the Trust or
  apparently consulted in any way concerning payments
  amounting to K 5,813,053 drawn on the Trust between the
  24th November 2005 and the 24th March 2006 on the
  authority of Mr. Kambanei.

  30.32 The Trust Account was run as a private and personal account
  by Mr. Kambanei from July 2005 with no apparent regard at
  all to the terms of the Trust Instrument, the Public Finances
  (Management), the Financial Instructions or any of the
  duties imposed on him as a Trustee or Head of Department.

  30.33 It is clear to this Committee that the Department of Finance
  has retained virtually no documentation at all by way of
  accounts, submissions, reports, acquittals or information
  concerning the expenditure from the Trust Account after it
  was managed from Waigani (or has failed to produce same to
  this Committee despite being directed to do so).

  30.34 These continuing failures to obey even the most basic
  requirements of Law in respect of a Trust Account that was
  operated from Waigani and not from a distant Province, is
  baffling and inexcusable.

  30.35 Responsibility for failure as a Trustee to ensure that these
  records were kept and the Trust Instrument obeyed, rests
  squarely with the Trustees of the time – including and in
  particular Mr. Thaddeus Kambanei.

  30.36 The identified breaches of Law and the misuse of the Trust
  Account found by the Auditor General and this Committee can
  only have occurred and continued as a result of the
  incompetence, design or complicity of the Department of
  Finance – which should have controlled the Trustees and the
  Trust Account and kept proper accounts.

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  30.37 Responsibility for these Departmental failures rests with the
  Secretary for Finance at the time – Mr. Thaddeus Kambanei.

  30.38 This Committee notes that the Provincial Administrator of the
  East Sepik Province formed the view that a number of
  payments made from the Trust Account were not provided for
  by the Trust Instrument, and has advised that it is his
  intention to seek the return by the Department of Finance, of
  the expenditure he believes to be inappropriate.

  30.39 As we have said earlier, it was appropriate for the citizens of
  Papua New Guinea to expect full and complete accountability
  and lawful conduct of the Trust Account at all times, but
  particularly from July 2005 onwards.

  30.40 It is proper for citizens to expect that a full Audit and an
  investigation of all that had gone on before that date would
  be instigated by the Department of Finance and positive steps
  taken to prosecute those responsible where failings were
  found or to recover monies which were illegally or
  inappropriately paid. Neither of these developments has ever
  occurred.

  30.41 The Committee has had regard to some of the payments
  made from the Trust Account after July 2005 and we make
  the following findings:

  Assemblies of God – Jubilee University K1,200.000

  30.42 A payment of K1,200,000 was made to the newly established
  Assemblies of God Jubilee University in Port Moresby from the
  Trust Account.

  30.43 The following documents were provided to support the
  payment:

  • A brief to the Deputy Secretary Operations from the First
  Assistant Secretary Cash Management and Expenditure
  Division, for approval of payments;

  • National Executive Council Decision No. 191/2005.
  Special Meeting No. 44/2005; and

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  • A letter from the Prime Minister to the Secretary for
  Finance dated the 11th April 2005.

  30.44 This Committee concludes as follows:

  (i) The National Executive Council Decision No. 191/2005 did
  not approve any funding to the Assemblies of God Jubilee
  University in Port Moresby.
  (ii) The Decision only directed the transfer of the Sepik
  Agricultural College excluding its assets, to the
  administration of Jubilee University as a church agency.

  (iii) A letter from the Prime Minister to the Secretary of
  Finance dated the 11th April 2005 did not give any
  instruction to make any payment to the Assemblies of
  God Jubilee University in Port Moresby.

  The letter shown to this Committee only makes mention
  of the Department of Finance delaying the sourcing and
  funding of 16 provincial projects amounting to
  K8,900,000 committed by the Prime Minister and as the
  Provincial Member for East Sepik Province.

  30.45 No documents showing any decision of the National Executive
  Council, Provincial Executive Council, Provincial Supply &
  Tenders Board or Trustees to pay K 1,200,000 to the privately
  run Jubilee University in Port Moresby to undertake
  infrastructure development projects in the East Sepik
  Province was provided for examination of this Committee.

  30.46 This Committee and the Auditor General sought further
  information, advice, records, files and information from the

  Department of Finance regarding the appropriateness of this
  expenditure from the Trust Account, but received nothing.

  30.47 This Committee refers this entire payment to the Office of the
  Ombudsman, to the Commission of Inquiry into the
  Department of Finance and to the Royal Papua New Guinea
  Constabulary for a full and complete investigation of every
  aspect of the payment including and in particular the question
  of whether Mr Kambanei, at the time he signed the cheque,

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  had any conflict of interest or acted in breach of the Trust
  Instrument, the Public Finances (Management) Act, his
  obligation as a Departmental Head, the Financial
  Instructions or any other requirement of law.

  30.48 The Committee refers the matter to the same agencies for full
  investigation of the fact that there is virtually no
  documentation provided and therefore there could have been
  virtually no relevant documentation before the Trustees when
  they decided to make this payment.

  30.49 How could the Trustees have reached an informed decision
  with no apparent submission or assessment of the proposed
  payment, the purpose of the payment and the recipient? How
  could an independent Trustee have concluded that the
  expenditure and its purpose fell within the terms and
  intention of the Trust Instrument with no documents before
  him or them?

  30.50 Where did this money come from? How was it immediately
  available for payment? How could any competent Trustee be
  satisfied that the money was lawfully deposited and available
  for expenditure for this purpose?

  30.51 This only justification made to this Committee for the
  payment was a supposed political directive to do so. We
  cannot find any such directive and must assume that Mr.
  Kambanei acted on his own in making and approving this
  payment, for reasons he has not divulged to this Committee.

  30.52 Whatever the situation, the justification proffered cannot be
  correct if the evidence of Mr. Kambanei given to this
  Committee, that no pressure or directive was given to
  Trustees at any time, is true. By his own admission, he acted
  at all times independently and freely. See Para.20.10 hereof.

  SPA Limited – Ariapan Marianberg Road Upgrading –
  K 244,397

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  30.53 The Committee finds that a part payment of K 244,397 was
  made on the 9th December 2005 to SPA Limited for the road
  upgrading from Ariapan to Marianbeg in the Angoram District.

  30.54 This Committee finds that the tendering process appears to
  have been undertaken through the Central Supply & Tenders
  Board but no documentation relating to this process was
  provided to the Committee or to the Auditor General – despite
  a directive to do so.

  30.55 The Committee finds that the total value of the Contract was
  K1.2 million but neither this Committee nor the Auditor
  General can establish the source of this funding and whether
  it was from a Member for Angoram’s District Development
  Program Funds or from other sources.

  30.56 The Department of Planning, the Office of Rural Development
  and the Department of Finance have failed to provide any
  documentation in this regard, despite directives to do so.

  30.57 Once again this Committee can make no finding as to the
  propriety of the payment except that it is clear that the
  cheque bore only one authorized signatory – when it should
  have three (or four).

  30.58 Whether the project or contract was within the terms of the
  Trust Instrument, where the funds came from and whether
  the contract itself was lawful cannot be ascertained by this
  Committee due to the absence of documentation.

  30.59 This Committee refers this particular payment and the
  circumstances surrounding it to the Office of the Ombudsman
  and the Royal Papua New Guinea Constabulary for full and
  complete investigation.

  30.60 Once again, it is clear to the Committee that there are no
  documents, information, records, files or any other data kept
  or maintained concerning this particular contract and the
  payment from the Trust Account.

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• 30.61 The Department of Finance and the then Head of that
  Department Mr. Thaddeus Kambanei failed to properly
  account for this payment from the Trust Account and there
  can be no excuse or valid explanation for this failure.

  30.62 The fact of the failure to maintain accountability and
  documentation is referred to the Office of the Ombudsman
  and the Royal Papua New Guinea Constabulary for
  investigation.

  30.63 At the very least, the evidence suggests that there have been
  breaches of the Public Finances (Management) Act and
  the Financial Instructions by accountable Officers and
  Trustees.

  Telikom PNG Limited – District Rollout Program

  30.64 By a cheque signed by Mr. Kambanei and Mr. Kalinoe, K
  200,000 was paid to Telikom PNG Limited on the 7th February
  2006 for the provision of four telesat services including
  installation in four districts of the East Sepik Province.

  30.65 The only document supplied concerning this transaction was a
  brief attached to the payment voucher within the Department
  of Finance stating that the District Treasury Rollout Program
  of the Department of Finance, funded by appropriation in the
  National Budget under Vote and Division 207, did not have
  any funds available for the above purchase.

  30.66 Consequently, approval was sought from the Finance
  Secretary to use the Sepik Trust Fund. Approval was granted
  by the Secretary (presumably in his capacity as Secretary and
  not as a Trustee) and the expenditure was incurred.

  30.67 This Committee finds that the expenditure did not meet the
  objectives of the Trust Account and is an inappropriate use of
  the Trust Account.

  30.68 The District Treasury Rollout Program is appropriated under
  Miscellaneous Vote 207 and the cost of this program should
  be paid from this vote.

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• 30.69 So far as this Committee can ascertain, the Secretary for
  Finance Mr. Thaddeus Kambanei was both a signatory to the
  Account, the authorizing Officer, the Approving Officer and a
  Trustee of the Account at the time the payment was made.

  30.70 Further, the Secretary was responsible for keeping and
  maintaining full and complete records and accounts of this
  transaction both as a Trustee and a Head of the Department
  of Finance. He failed to do so.
  30.71 It is the conclusion of this Committee that upon all the
  material before us, the Trustees could not have made an
  informed and independent decision to apply Trust Monies to
  this Project, that the purpose of the payment was not within
  the ambit of the Trust Account, that authorization to use the
  Account should not have been given, that no accounts or
  records have been kept of this payment, that none of the
  requirements of the Public Finances (Management) Act
  have been obeyed, that the Trustees did not have any
  relevant material before them to make an independent
  decision and that the Trustee obeyed his own Secretarial
  directive without any consideration at all as to the legality or
  propriety of the payment.

  30.72 The entire transaction appears tainted and is referred to the
  Royal Papua New Guinea Constabulary, the Office of the
  Ombudsman, the Commission of Inquiry into the Department
  of Finance and the Department of Personnel Management and
  the Public Service Commissioner for investigation and action
  as appropriate.

  Nuku District Treasury – K1,500,000

  30.73 This Committee finds that an amount of K1,500,000 was
  approved by the Secretary, Department of Finance, Mr
  Thaddeus Kambanei (who was also a Trustee of the Trust
  Account) and paid to the Nuku District Treasury based on a
  request from the Honourable Andrew Kumbakor MP for
  counterpart funding from the Trust Account.

  30.74 The onus to properly account for the utilization of those funds
  is vested in the Nuku District Treasury through the
  Department of Finance and also in the Trustees and
  ultimately the Secretary of the Department of Finance .

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  30.75 The Committee sought full documentation and records of this
  payment, but nothing was forthcoming from any quarter.

  30.76 There is virtually no documentation available from which this
  Committee can ascertain the purpose and source of that
  funding or payment or what happened to the money.

  30.77 It is entirely unclear whether this payment was merely a
  transfer of the Members District Development Program Fund
  initially deposited into the Trust Account or whether it
  represents additional funding from some unknown source.

  30.78 This Committee was unable to establish the reasons for the
  lump sum transfer to the District Treasury and cannot tell
  what projects may have been involved and how the Trustees
  including the Secretary of the Department of Finance and the
  Provincial Administrator intended to ensure accountability for
  this money.

  30.79 This failure to maintain records and accounts is, again, an
  open invitation to misapplication.

  30.80 Moreover, if this funding was contributed in part or whole by a
  Member of Parliament from some form of Statutory Grant, the
  failure to document, account for and acquit the expenditure
  may have dire results for the Member – who is entitled to rely
  upon Public Servants and the Trustees to carry out their duty
  to properly and lawfully account for and acquit all such
  expenditure.

  30.81 There is no evidence at all that this payment was within the
  terms of the Trust Instrument or a proper use of Trust or
  Public Monies and in the absence of documents or records, no
  way that this could be established – either now by this
  Committee or at the time by the Trustees.

  30.82 The Secretary, Department of Finance, was asked by this
  Committee and by the Auditor General to provide a full
  accountability statement for the expenditure of such a large
  amount of public funds and the reply to the Auditor General
  was as follows:

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  “This money was transferred to the Nuku District
  Treasury to fund road and bridge rehabilitation work

  i.e. consistent with the purpose of the Trust. All
  approvals and tendering will be done through the
  Sandaun PSTB.

  The District Treasury is required to ensure records are
  kept to provide full accountability to the Member and
  the Parliament for all expenditure”.

  This is not a responsive answer.

  30.83 The Committee finds that the Department of Finance has
  failed to provide any information regarding the actual
  programs, projects or contracts that the K 1,500,000 was
  intended to fund.

  30.84 There can be no guarantee that the Trustees had any control
  over the expenditure of this money or that the District,
  Provincial or National Officers responsible for accounting
  overseeing and controlling the use of this money have any
  idea what it was used for or how it was applied.

  30.85 This entire transaction is referred by the Committee to the
  Office of the Ombudsman, the Commission of Inquiry into the
  Department of Finance and to the Royal Papua New Guinea
  Constabulary with a recommendation that a full and complete
  investigation of the payment and use of this money be
  undertaken.

  Construction of Yambi/Evatip Road – K200,00

  30.86 An amount of K 200,000 was paid to the Department of
  Works Wewak for the construction of a road from Yambi to
  Evatip.

  30.87 However, neither the Auditor General nor this Committee was
  able to obtain any payment vouchers at all in respect of this
  contract. This Committee sought that information from the

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• Department of Finance but that Department failed to provide
  any information regarding the expenditure.

  30.88 There are virtually no documents and no apparent records of
  Contract performance at all.

  30.89 The Committee therefore cannot determine whether this
  payment was an appropriate use of Trust monies or even if
  the work has been carried out. The Committee cannot
  ascertain how the contract came about or where the money
  paid to the Department of Works came from or whether it was
  lawfully available at all.

  30.90 The Committee concludes that, because there were no
  documents, the Trustees could not possibly have made an
  informed or independent decision or properly used their
  discretion when deciding to release funds. They therefore
  could not have carried out their duty to act responsibly and in
  accordance with the terms of the Trust Instrument.

  30.91 Once again, the Committee refers the Department of Finance,
  the Trustees and this entire transaction to the Office of the
  Ombudsman, the Commission of Inquiry into the Department
  of Finance and the Royal Papua New Guinea Constabulary for
  full and complete investigation of the circumstances
  surrounding the payment and the project itself.

  31. AN ANALYSIS OF EXPENDITURE

  31.1 The Committee was concerned to obtain an objective view of
  the payments made from the Trust Account.

  31.2 Our investigators therefore extracted all payments from the
  available cash books for the fiscal years 2002, 2003, 2004
  and 2005 and grouped payments according to the nature of
  the expenditure, to determine the extent to which monies
  paid from the Trust fell within the scope of the Sepik Highway
  Roads and Bridges Maintenance and Other Infrastructure
  Trust Account.

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• 31.3 The analysis is set out below:

  Expenditure Item Actual Expenditure Percentage (%)
  K of total
  Roads and Bridges 6,177,098 24.48
  Building Contracts 3,560,668 14.11
  Building Material & Maintenance 3,253 0.01
  Legal & Consultancy Services 121,317 0.48
  Department of Works 6,268,079 24.84

  Office Materials 3,181 0.01
  Salaries & Wages 9,238 0.04
  Financial Assistance 551,575 2.19
  Accommodation 1,029 0.00
  Vehicle Hire 61,329 0.24
  Airfares 947 0.00
  Air Charters 42.557 0.17
  Assets 157,805 0.63
  Fuel Charges 14,847 0.06
  Other Expenditure 71,728 0.28
  Cash Advances/Traveling expenses 51,100 0.20
  District Treasury Rollout Program 41,420 0.16
  Mt Turu repeater Station 600,000 2.38
  Investments 7,500,000 29.72
  Total 25,237,177

  31.4 The Committee concludes that there are expenditures shown
  from this analysis that are not related to the objectives of the
  Trust Instrument – or that there are no documents and no
  evidence produced to show that they were within the ambit of
  the Trust Instrument.

  31.5 Air charters, vehicle hire, financial assistance (to a huge sum
  of K 551,575) salary and wages, cash advances and travel
  expenses are a few examples.

  31.6 When this exercise was undertaken it quickly became
  apparent that the Provincial Administration, the Department
  of Finance and the Trustees have retained no information in
  support of these payments or that these records never
  existed.

  31.7 Once again, the absence of documentation is inexplicable.
  The Trustees, the Provincial Administration and, in particular

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• the Department of Finance have a heavy onus to properly and
  fully account for and acquit all expenses of public money
  made from this account – and this they have failed to do.

  31.8 The effect of these missing documents is to prevent the
  Committee and the Auditor General from assessing whether
  the expenditures meet the objectives of the Trust Account.

  31.9 The Committee sought advice and information from the
  Department of Finance and the Provincial Administration on
  the payments of K 551,575 for “financial assistance”. No
  information at all was forthcoming despite undertakings by
  the Secretary for Finance, Mr. Gabriel Yer, to provide the
  information.

  31.10 In this regard, the Committee refers the Trustees, the
  Department of Finance, the Former Secretary of the
  Department of Finance and Trustee Mr. Thaddeus Kambanei,
  all Officers involved in the administration of the Trust Account
  and the Provincial Administration to the Royal Papua New
  Guinea Constabulary Fraud Squad and the Office of the
  Ombudsman to conduct a full and complete investigation of
  all the payments set forth above – and in particular for
  “financial assistance” – to establish whether any breach of the
  law has occurred in or by this payment.

  31.11 The Committee intends to also refer its Report and the Report
  of the Auditor General to the Commission of Inquiry into the
  Department of Finance for consideration as to whether the
  Terms of Reference of that Commission will permit the
  Commission to examine payments from this Trust Account.

  31.12 This Committee also refers this and every other transaction to
  the attention of the Attorney General and the Solicitor
  General with a strong recommendation that all available
  action be taken to recover this and other money from the
  persons who received and/or the persons who paid it – in
  particular the Trustees.

  31.13 This Committee is of the view that Trustees may be
  personally liable for breaches of their obligations and duties
  and we recommend that the law enforcement agencies and

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  State investigate whether this avenue will enable the recovery
  monies wrongly expended.

  32. DISALLOWANCE OF EXPENDITURE BY THE COMMITTEE.

  32.1 The Public Accounts Committee has had regard to Part 6
  Division 1 Para. 2.1 of the Financial Instructions. That
  paragraph is entitled “Accountable Officers” and states, in
  part:

  “…..the Departmental Head is liable under the doctrine
  of personal accountability to make good any sum which
  the Public Accounts Committee recommends should be
  “disallowed”.

  32.2 The Committee has considered whether, on all the evidence,
  it should, pursuant to this Instruction, disallow any of the
  expenditures made from the Trust Account.

  32.3 The Committee has concluded that the nature of the Trust
  Account and the behaviour of Trustees and responsible
  Officers needs deeper inquiry by properly resourced agencies
  before any definite conclusions as to liability should be made.
  32.4 Accordingly, the Committee will not disallow any payments,
  but instead refer them and all the actions or failures of
  responsible officers to specialist investigatory agencies of the
  State with a general recommendation that those agencies, in
  the course of their investigations, consider if and how
  wrongful payments may be recovered to the State.

  33. CONCLUSIONS AND FINDINGS

  33.1 The Auditor General makes the following conclusion in his
  Report of the 12th December 2006:

  “I am increasingly concerned by the manner in which
  Trustees discharge their obligations and legal
  responsibilities regarding the management of Trust
  Accounts.

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• Audits undertaken by this Office have found many
  incidents where Trust Accounts do not have effective
  accounting, record keeping and reporting of financial
  transactions.

  Often there is a lack of supporting documentation
  regarding decisions to expend the money from Trust
  Accounts.

  As a result it is not always possible for me to be
  assured that the Trustees are meeting their
  responsibilities regarding accountability and
  transparency of expenditure from these trust
  accounts”.

  33.2 This Committee agrees with that conclusion in respect of the
  Sepik Highway, Roads and Bridges Maintenance and Other
  Infrastructure Trust Account.

  33.3 This Committee finds that the management of this Trust
  Account by Trustees and the Department of Finance and its
  responsible Officers was amongst the worst examples of
  incompetence, ineptitude, negligence and reckless indifference
  to the Law of accountability for public monies that this
  Committee has seen in the last four years.

  33.4 The evidence before this Committee shows at least the
  following breaches of relevant Laws in the conduct of the Trust
  Account:

  (i) Failure by the Secretary for Finance Mr. Thaddeus
  Kambanei to fulfill his duties as Head of Department
  pursuant to Section 4 of the Public Finances
  (Management) Act.

  (ii) Failure by the Secretary for Finance, Mr. Thaddeus
  Kambanei to comply with and perform his duties pursuant
  to Section 5 (1) (a), (b), (c), (d), (f), (l) and (m) of the
  Public Finances (Management) Act, in that he failed to:

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• • ensure or take any steps to ensure that the
  Department of Finance complied with the
  requirements of the Public Finances (Management)
  Act in the recording, reporting and accounting for
  monies expended from the Trust Account; and

  • ensure that all accounts and records of the
  Department of Finance relating to the Trust Account
  were properly maintained or maintained at all; and

  • ensure that all necessary precautions were taken both
  by himself and by his Department to safeguard monies
  held in the Trust Account against misapplication; and

  • ensure that all expenditure from the Trust Account
  was properly authorized and applied to the purpose for
  which it was appropriated; and

  • ensure that expenditure from the Trust Account was
  incurred or made with due regard to economy,
  efficiency, and effectiveness and the avoidance of
  waste; and

  • ensure that proper estimates of expenditure of public
  monies are prepared in a form specified in the
  Financial Instructions; and

  • ensure that, at the end of each quarter of each fiscal
  year he submitted a report on financial management
  of the Trust Account in appropriate form

  (iii) Breaches of Section 6 of the Public Finances
  (Management) Act by accountable officers (including
  Trustees) in that they failed to comply with the Public
  Finances (Management) Act in respect of monies in and
  expended from the Trust Account – in particular that they
  failed to make or keep any accounts or records as
  required.

  (iv) There may have been breaches of Section 15 of the Public
  Finances (Management) Act by Trustees and Officers of
  the Department of Finance if money was moved into the

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• Trust Account from sources not included in this
  Section. This requires further investigation; and

  (v) Similarly, there may have been a breach of Section 16 of
  the Public Finances (Management) Act by Trustees if
  any payment from the Account was outside the terms of
  the Trust; and

  (vi) There are breaches of Section 19 (2), (3) and (4) (c) and
  (d) of the Public Finances (Management) Act by the
  former Secretary for Finance, Mr. Thaddeus Kambanei in
  that he failed to :

  • ensure the proper management and operation of the
  Trust Account; and

  • submit to the Department of Finance in prescribed
  form, an annual estimate of receipts and payments
  expected to be made into and from the Trust Account;
  and

  • maintain or ensure the maintenance of records
  pertaining to the Trust Account and/or to submit
  monthly details of transactions on that account; and

  • submit annual statements of the Trust Account for the
  preceding year.

  (vii) Widespread failure by Provincial authorities and Officers of
  the Department of Finance to comply with Part VII of the
  Public Finances (Management) Act – State Tenders
  and Contracts. The failure to apply properly these
  requirements properly or at all means that the State does
  not gain value for money or the advantage of an
  independent and transparent tender and evaluation process.
  These failures require full investigation and vigorous action
  against any Officer who failed in his duty pursuant to this
  Part.

  Section 47A, which prescribes Offences for any Officer who
  authorizes or permits breaches of this Part should be applied

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• to any Officer who is found to have authorized or
  permitted such a breach.

  (viii) Of Section 68 of the Public Finances (Management) Act
  by Officers of the East Sepik Provincial Government and
  other Provincial Government or Local-level Governments
  involved in or benefiting from the Trust Account in that it
  and they failed to keep proper records and accounts of
  transactions from or with the Trust Account and all
  Contracts or Projects funded from that Account in the
  manner prescribed by the Financial Instructions.

  (ix) Section 112 (1) (b) will apply to each witness appearing
  before the Committee in that they failed or neglected to
  produce documents and records when asked to do so.

  Section 112 (e) will apply to the former Secretary for
  Finance Mr. Thaddeus Kambanei for failing to provide
  Reports pursuant to Section 4 of the Public Finances
  (Management) Act – see Para 33.4 (i) supra.

  (x) Section 113 of the Public Finances (Management) Act
  will apply disciplinary action against an accountable officer
  who is found responsible for any or all financial irregularities
  in Section 102 and further liability under Section 112 of the
  Public Finances (Management) Act. This Section should
  be considered and applied if there is found to be primary
  liability in any Officer.

  33.5 Further, Section 102 Surcharge may well apply to any Officer
  who, in respect of the operation of the Trust Account, has:

  (i) failed to account for any moneys; or

  (ii) has been responsible for any improper payment of
  public monies or for payment of money that was not
  vouched and authorized; or

  (iii) has authorized or permitted a breach of procedures
  relating to the tendering processes; or

  (iv) has approved requisitions for the expenditure of public
  monies.

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• 33.6 Considering the manifest failures revealed by the evidence, this
  Committee recommends that the Surcharge provisions be
  considered by the Head of Department of Finance after due
  inquiry.

  33.7 The Committee has considered the provisions of the Public
  Finances (Management) Act, the Permanent
  Parliamentary Committees Act and the Parliamentary
  Powers and Privileges Act prescribing Offences for persons
  who fail to produce documents and information to the Public
  Accounts Committee when directed to do so. As we have
  stated, virtually no documents were produced to this
  Committee, but there is no evidence that this failure was
  deliberate on the part of any witness.

  33.8 Rather, the Committee accepts that the documents either
  never existed or were removed or destroyed before the
  witnesses (with the sole exception of Mr. Thaddeus Kambanei)
  were appointed to their positions.

  33.9 The Committee accepts that Mr. Alman and Mr. Yer were
  truthful when they stated to the Committee that they had
  searched diligently for documents, but were able to find
  virtually no records at all.

  33.10 Accordingly, no referral will be made for the inability to produce
  documents.

  33.11 This Committee is profoundly concerned that very Senior Public
  Servants acting as Trustees of public funds can so misconduct
  themselves as to be incapable of keeping, maintaining,
  producing or even finding accounts, records, information, data,
  documents and acquittals of huge sums of public money
  passing through their hands and for which they are
  responsible. This is a matter that requires further deep and
  searching Inquiry.

  33.12 The administration of this Trust Account shows a deep-rooted
  assumption that public servants can do precisely what they
  please with public funds (including Trust funds) without obeying
  any legal requirement of accountability for and control of the
  use of those public monies. This attitude has existed either
  unknown to or unaddressed by Government, for years.
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• 33.13 This attitude has also pervaded other Inquiries conducted
  by this Committee – and in fact resulted in a recommendation
  by the Committee for the establishment of the Commission of
  Inquiry into the Department of Finance.

  33.14 If the evidence before this Committee is any indication, there
  seems little or no accountability for expenditure or competent
  management of development budgets or public monies by the
  Public Service – particularly the Departments of Finance and
  Planning.

  33.15 This attitude must stem from a confidence that misconduct will
  never be detected or prosecuted – in other words, that these
  Officers are immune from being called to account for their
  actions.

  33.16 Indeed, when the Head of the Department of Finance and a
  Trustee so conducts himself, all other Officers probably
  assume that they can share that immunity.

  33.17 We have no doubt that Mr. Kambanei yielded to pressure
  from his perceived masters and was not competent or strong
  enough to bring an independent mind to the management of
  this Trust Account or to comply with the requirements of Law
  – which, by his own sworn admission, he understood.

  33.18 This attitude permeated the management of this Trust
  Account from the highest public servants in the land, right
  down to District Administration and beyond and resulted in
  uncontrolled and unproductive expenditure with no evident
  accountability.

  33.19 This situation cannot continue.

  33.20 It is the fear of this Committee that unless the Government
  makes significant changes and reforms to force improvement
  in Governance and accountability at every level, the existence
  of fiscal management in any acceptable form and therefore
  the effective delivery of services, must be doubted.

  33.21 We find money being constantly wasted, diverted, misapplied
  or simply stolen and this results in Contracts that are not
  performed or even begun, Projects that annually absorb
  money from Budgets for no result, Health Centres that do not
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• operate, schools that do not open and basic services that
  have been paid for but which do not exist (often for years).

  33.22 To our people, this results in poverty, illiteracy, disease,
  isolation, neglect and disenfranchisement from even basic
  services that it is their right to expect from Government. This
  failure will (and in parts of the country may already has)
  resulted in disillusion, disquiet and, eventually, civil unrest.

  33.23 Forcing the Public Service to be accountable for its decisions
  and actions is the first step to rescuing the situation.

  33.24 Members should bear in mind that this Trust Account is one of
  thousands – almost all of which, according to the Auditor
  General, are unaudited and therefore uncontrolled. The
  Auditor General told the Inquiry that there are 2,500
  Government Trust Accounts.

  33.25 If the management of the Sepik Trust Account is any
  indication of the standard of Trustees administration, all these
  Trust Accounts need urgent examination.

  33.26 It is this Committee’s intention to make very strong
  recommendations to the Parliament to achieve two ends:

  1. The Public Service must be brought under immediate
  control and be made accountable for its actions.

  Competence and honesty of a high order must be
  demanded and obtained from Public Servants at all levels
  – particularly from Departments which administer and
  implement Development Budgets and Trust Monies.

  2. As a result of this and other Inquiries made by this
  Committee, it is clear that management of Trust
  Accounts and large amounts of public monies cannot be
  confidently given to public servants.

  They have no ability to manage, account for or supervise
  the purposes to which those monies are allocated.

  A full reform and rebuilding of the system of
  implementation of and accounting for public monies –

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• particularly Trust monies – should be made to ensure
  the delivery of services that our citizens expect.

  No option should be ruled out – including privatization of
  service delivery.

  If reform requires the recruitment and employment of
  expert and competent Officers from outside Papua New
  Guinea, so be it. A great many other countries do so –
  including Australia – to ensure best practice and skill
  sharing by experts.

  33.27 The Committee now makes resolutions, recommendations and
  referrals:

  34 RESOLUTIONS OF THE COMMITTEE

  34.1 The following Resolutions were made unanimously by the Public
  Accounts Committee:

  1. That the Public Accounts Committee will Report to the
  Parliament on the Inquiry into the Sepik Highway, Roads
  and Bridges Maintenance and Other Infrastructure Trust
  Account pursuant to Section 86 (1) (d) Public Finances
  (Management) Act 1995 and/or Section 18 Permanent
  Parliamentary Committees Act 1994.
  2. That having read and considered a draft Report, the
  Committee resolves to accept the terms of the Report and
  to table same at the earliest opportunity.

  3. That certain matters and findings of the Committee require
  further investigation and possible action by the Royal
  Papua New Guinea Constabulary, the Office of the
  Ombudsman, the Office of the Attorney General and the
  Office of the Solicitor General.

  4. That the Secretariat is directed to make those referrals to
  the named agencies and may release and make known
  sufficient material and evidence to enable those agencies
  to commence and perform their functions.

  5. That the Report of the Public Accounts Committee into the
  Sepik Highway, Roads and Bridges Maintenance and Other
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• Infrastructure Trust Account be delivered to the Secretary
  to the Commission of Inquiry into the Department of
  Finance for consideration of its contents and such further
  action (if any) deemed appropriate by that Inquiry.

  6. That a copy of this Report be delivered to the Minister for
  Finance forthwith for his consideration.

  7. To accept the recommendations and Findings contained in
  this Report.

  8. This Committee will make a full Report on the involvement
  of the Provincial Administration of the East Sepik Province
  to the Minister of Inter Government Relations forthwith.

  35 . REFERRALS

  35.1 The Public Accounts Committee makes the following referrals
  from the evidence received in this Inquiry:

  (i) This Report is referred to the Royal Papua New
  Guinea Constabulary with a recommendation for a
  full and complete investigation into possible
  breaches of the Public Finances
  (Management) Act by the Trustees of the Sepik
  Highway, Roads and Bridges Maintenance and
  Other Infrastructure Trust Account and the then
  Secretary for Finance Mr. Thaddeus Kambanei and
  other Officers of that Department and relevant
  Provincial Governments for failure to make or
  keep records, accounts, acquittals or requisite

  documents of deposits into and expenditure from
  the Trust Account and in particular to consider
  whether these failures should be prosecuted.

  (ii) This Report is referred to the Royal Papua New
  Guinea Constabulary to consider the actions,
  performance of and claims by various Contractors
  and other recipients of money from this Trust
  Account with a view to identifying any breach of
  the Criminal Law – in particular arising from
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• incompleted performance or fraudulent or
  improper claims for payment.

  (iii) This Committee refers Mr. Thaddeus Kambanei to
  the Office of the Public Prosecutor, the Royal
  Papua New Guinea Constabulary and the Office of
  the Ombudsman with a recommendation that a
  full and complete investigation be made to
  establish whether, by reason of his failures as a
  Trustee and the Departmental Head. Mr.
  Kambanei may have breached Sections 4, 5, 17
  or 19 – or any other Section – of the Public
  Finance (Management) Act.

  (iv) This Report is referred to the Office of the
  Ombudsman for consideration as to whether any
  breach of the Leadership Code has occurred.

  (v) This Report is referred to the Offices of the
  Attorney General and the Office of the Solicitor
  General with a recommendation that those
  Officers consider the contents of the Report with a
  view to commencing action against the Trustees
  or any other responsible person to recover monies
  wrongly paid or received from the Trust Account
  and to obtain a full and complete account and
  acquittal of all monies which passed through the
  Trust Account – including and particular the
  source of those monies and the exact nature of,
  recipients of and the purposes to which all
  expenditure from the Trust Account was in fact
  applied by the recipient (s).

  (vi) The Report is referred to the Offices of the
  Attorney General and Solicitor General with a
  recommendation that those Officers consider the
  contents of the Report with a view to concluding
  whether the Trustees or any of them, have at any
  time and by any action or decision, breached their
  obligations as Trustees and, if so, to take such
  available action to enforce the rights of the State.

  (vii) The Report is referred to the Department of
  Personnel Management to consider the actions or
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• failures of Officers of the relevant Provincial
  Governments, the Department of Finance, the
  Trustees and any other person pursuant to the
  Public Finances (Management) Act – and in
  particular identified failures to maintain or
  produce any accounts, statutory records or other
  legally required documentation and to take action
  against any Officer or person who may have
  breached or failed to perform their lawful duty.

  (viii) That the Office of the Solicitor General, the
  Investment Promotion Authority and the Royal
  Papua New Guinea Constabulary investigate the
  Westco Limited, Greenhill Investment, CCS Anvil
  (PNG) Limited, Baimusu Construction Limited,
  SPA Limited and the Nuku District Administration
  in respect of all payments made to those entities
  and the use to which those monies were put,
  including and in particular whether the contracts
  were commenced or satisfactorily concluded and,
  in the case of Westco Limited and Greenhill
  Investments, to ascertain whether those
  companies existed at all. The Committee strongly
  recommends that if any breach of law is found
  against any of these companies or entities that
  prosecution is made by the relevant authorities.

  36. RECOMMENDATIONS

  36.1 This Committee makes the following recommendations:

  1. The Parliament accept this Report to the Public
  Accounts Committee concerning the management and
  operation of the Sepik Highway Roads and Bridges
  Maintenance and Other Infrastructure Trust Account.

  2. The findings and resolutions of the Committee, to be
  effective, need to be actioned by the Government,
  without delay.

  3. That the Parliament accepts the Auditor General’s
  Report dated the 12th December 2006 on the Sepik
  Highway Roads and Bridges Maintenance and Other
  Infrastructure Trust Account.
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• 4. That this Trust Account be immediately closed and
  brought under the control of the Minister for Finance.

  5. That the Internal Audit services of the Department of
  Finance be strengthened and properly funded to allow it
  to fulfill its functions and to effectively audit all Trust
  Accounts; and

  6. That the Office of the Auditor General be funded and
  resourced to enable it to conduct regular audits of all
  Government Trust Accounts; and

  7. That every Trust Account be referred to the Office of the
  Auditor General for a full and complete review, audit,
  reconciliation of and Report on each account for the last
  five years.

  8. That the Report of the Auditor General on all Trust
  Accounts be immediately tabled in this Parliament when
  it is available.

  9. That a copy of the Report of the Auditor General on
  Trust Accounts be referred to the Public Accounts
  Committee when it is available.

  10. That the persons who were Trustees of this Trust
  Account should never again be allowed to hold any
  position which requires them to manage public monies
  or be accountable for the use to which public money
  may be put in any form at all.

  11. That the Royal Papua New Guinea Constabulary be
  properly resourced and assisted to carry out a detailed
  and competent investigation of the Committee referral
  and, if necessary, to allow the commencement and
  competent presentation of any prosecution (s).

  12. That the Offices of the Attorney General and the
  Solicitor General be properly and fully resourced to
  enable a detailed and competent investigation of the
  referral by this Committee and in particular, to examine

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• and conclude on the personal liability of the Trustees
  and other Officers for monies unlawfully expended from
  the Trust Account or for which there are no records,
  accounts or acquittals and, if as a matter of law, those
  Officers are liable, to permit proceedings to be
  commenced against them for full recovery of all monies
  wrongfully paid or received.

  36.2 This Committee recommends that every existing Trust
  Instrument be reviewed by the Solicitor General and, where
  necessary, to be redrafted to ensure that the obligations on
  Trustees are firmly established and legally workable and that
  public monies are protected.

  36.3 This Committee strongly recommends that all Trustees, upon
  their appointment, should be subject to tuition and testing to
  establish that they understand the obligations, duties and legal
  position of a Trustee and their obligation to properly manage
  and properly account for all monies passing through a Trust
  Account.

  36.4 All major Trust Accounts should, several times a year, be
  subject to an unannounced and random audit by the Office of
  the Auditor General, intended to identify weaknesses or failures
  in Trust management.

  37. CONCLUSIONS

  This Committee concludes that the Trustees have failed to meet even
  their basic legal obligations under the Public Finance (Management)
  Act.

  The overwhelming attitude displayed to this Committee by these
  responsible Officers was one of disinterest and unconcern.

  This Committee also finds the Trustees and all Officers involved with
  the management of this Trust and payments from it completely failed to
  read, understand or apply the terms of the Trust Instrument – and did
  not appear to care what the document prescribed.

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• This Committee has been shocked by the completely derelict
  attitude and approach of very senior public servants toward the
  management, control and accounting for very large sums of public money

  This Committee can only conclude that if it can, with relative ease, find
  such serious failures and illegal conduct in respect of one Trust Account,
  there is every reason suppose that there is similar (or worse) misconduct
  in the management of other Trust Accounts.

  This Committee finds that this conduct continued after the Head of
  Department of Finance and a Trustee, Mr. Thaddeus Kambanei, assumed
  control of the Account. This Officer was the Chief Accountable Officer to
  Government bearing onerous obligations of Law in the conduct of this and
  other Trust
  Accounts – yet seems to have done nothing to rectify the
  abuses attending the operation of the Account.

  Indeed, those abuses and the almost total lack of accountability and
  record keeping continued uninterrupted under the supervision of Mr.
  Kambanei. Citizens of Papua New Guinea are entitled to expect and
  demand better performance from their senior Public Servants –
  particularly the Head of the Department responsible for financial matters.

  This Committee hopes that the litany of abuse and misuse of monies in
  this Trust Account will signal to the Parliament the urgent need to bring
  Trustees under control and to make them understand that they are
  accountable for the application of monies as Trustees and not as mere
  functionaries who obey directions.

  There needs to be an immediate system of training and support given
  to Trustees in order that they understand their roles and obligations.

  There needs to be an urgent reform of the Public Service and the
  systems of control and accountability which applies to its Officers.

  This Committee hopes that this Report will start a process of
  accountability and responsible management of public monies held in and
  applied from Trust Accounts and in general.