Home > Corruption, Papua New Guinea > National Provident Fund Final Report [Part 11]

National Provident Fund Final Report [Part 11]

Below is the eleventh part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002.

NPF Final Report

This is the eleventh extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.


In 1995, the structure of the senior officers and staff of the NPF was in accordance with the following charts.

Staff structure in 1995


Managing Director – Robert Kaul; General Manager – Brendon Kelly; Corporate Secretary/Legal Council – Herman Leahy; Compliance Manager – Assistant Compliance Manager – Ian Tarutia; Operations Manager – Jeffrey Bunn; Assistant Operations Manager – Nellie Andoiye; Finance and Investment Manager – Noel Wright; Assistant Finance and Investment Manager – Salome Dopeke (Exhibit 79D)


Section 19 of the NPF Act provides for the officers to be appointed by the board on the recommendation of the managing director on terms and conditions as determined by the board. SCMC approval was of course required prior to entering into contracts of employment.

In 1995, the senior management team was:-

Brendon Kelly

Mr Kelly’s contract was never submitted for SCMC approval and he was also receiving additional benefits not shown in the contract. After a dispute with Mr Kaul, his appointment was terminated with a massive irregular payout of six months rather than three months salary.

Noel Wright

Mr Wright was originally employed according to a sham consultancy agreement in 1993 as compliance officer. The SCMC approved a total remuneration package of K50,000 plus a K2000 settling in allowance and K1000 medicare allowance. In fact, NPF paid Mr Wright an “employee package” of K109,000 per annum in 1993.

After Mr Kelly departed, Mr Wright was elevated to the new position of deputy managing director with an additional “ex-gratia” payment of K2000 per month.

At the expiration of his contract on September 9, 1996, the NPF board resolved to renew his contract on a gross salary of K210,000 (varied to take account of provision of a motor vehicle and housing allowance).

In addition, Mr Wright received a significant bonus payment in 1997 and a lesser bonus in 1998.

Herman Leahy — Corporate Secretary / Legal Counsel

It is reported how Mr Leahy’s commencing remuneration of K42,000 including vehicle allowance of K16,158 was submitted for SCMC approval but it was rejected.

On SCMC’s instruction, NPF then sought SCMC approval for divisional manager’s remuneration packages totalling K36,867 plus settling in and out allowance of K1000. SCMC approval was obtained substantially with some minor variations.

NPF ignored the SCMC rejection of Mr Leahy’s package and he was paid at K54,447.56 per year excluding vehicle allowance plus an increase in non-taxable housing allowance of K18,200 per annum.

In October 1994, a dispute between Mr Kaul and Mr Leahy regarding Mr Leahy’s housing allowance was referred to SCMC which determined that the allowance was K110 per fortnight and cautioned NPF against its failure to seek SCMC approvals.

The NPF board ignored the SCMC ruling and paid Mr Leahy housing allowance of K350 per week. In addition, the board resolved to pay an additional advance payment of K12,000 to Mr Leahy under the Home Ownership Scheme. None of this was referred to SCMC.

The full details of Mr Leahy’s terms and conditions and irregular vehicle and housing allowances are reported.


The commission has found that:-

(a) Mr Leahy and Mr Fabila’s action in preparing and signing their own contract of employment in September 1998 was done without the authority of the NPF board.
(b) The NPF board was remiss in their duties by not giving full consideration to and questioning Mr Leahy and Mr Fabila about their employment contacts and in not taking the necessary action to correct anomalies.
(c) As at January 1995, Mr. Leahy’s remuneration package was void as his contract had not received SCMC approval. Throughout the period 1995 — September 1998, the remuneration package of Mr. Leahy was increased beyond CPI adjustments on several occasions, without SCMC approval and, on occasion, without board approval.

Repeated failure to seek SCMC approval for terms and conditions of other officers

After the SCMC refused Mr Leahy’s remuneration package and warned NPF about failing to comply with the SCMC Act, NPF ignored the SCMC for five years.

The board approvals for remuneration packages for the compliance manager Mr Tarutia are at paragraphs and; Operations manager Nellie Andoiye at paragraph; Finance and investment manager Mr Wright at paragraph 6.2.9; Financial controller Mr Kaviagu at paragraph and Investment analyst, Mr Mekere at paragraph

The contracts of all these national managers required SCMC approval but were not submitted to SCMC for approval. This was in deliberate breach of the SCMC Act and rendered the contracts void.

Senior management bonus scheme

In addition to the normal remuneration package, NPF board approved an ill-considered and inappropriate bonus scheme for its senior managers on February 23, 1996.

Because the bonus was payable on any annual profit over budgeted profit, it encouraged management to aim for short-term profits and to utilise inappropriate accounting techniques to artificially create “book” profits.

It was very favourable to managers and unfair to the members, whose funds were depleted to pay the bonuses.

For the 1996 year, the bonus distributed to senior staff in 1997 was K123,863.63. The 1997 bonus (paid in 1998) was K52,941.02.

The scheme is discussed in detail in Appendix 20.


(a) Mr Kaul and Mr Wright failed to properly analyse the advantages and disadvantages of setting up a bonus scheme for senior management based solely on the degree to which the fund’s apparent actual annual profit exceeded budgeted profit. Their proposal was simplistic and grossly flawed. They failed their duty to seek appropriate independent expert advice.
(b) The trustees failed their fiduciary duty to critically analyse the management bonus proposals, especially as senior management had a strong vested interest to establish the scheme which could bring them substantial personal benefits. The trustees had a duty to seek independent expert advice on this scheme, which they failed to perform.
(c) The inadequate nature of NPF’s financial planning and budgeting meant there was no way to adequately determine the proposed budget profit and whether it was exceeded by actual profit.
(d) The existence of the senior management bonus scheme attracted management to focus on short-term profits for the fund for their own personal gain in the form of bonuses and to adopt inappropriate accounting procedures for the same end.
(e) Mr. Wright’s bonus for 1996 was K4,931 in excess of his entitlement under the flawed procedures which had been adopted by the fund.
(f) Incorrect accountancy practices adopted by Mr Wright in respect of the “Bank of Hawaii Transaction” wrongly increased senior management bonus payouts.
(g) Improperly making provision for a K10 million reserve in 1996 did not reduce bonus payments for that year, which had already reached the maximum (25 per cent) payable under the formula.
When the money was released in 1997, which had been a nil profit year, it was wrongly treated as profit for that year and was used to justify a bonus payment to NPF senior management.

Continued Tomorrow

  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: