National Provident Fund Final Report [Part 29]
Below we continue the re-publication of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.
The Inquiry findings provide an unprecedented insight into the methods that are still being used today by the mobocracy that is routinely plundering our government finances. The inquiry uncovered for the first time how the Waigani mafia organise complex frauds using mate-networks, shelf companies, proxy shareholders, and a willing fraternity of lawyers, accountants, bankers and other expert professionals.
The Commission findings also reveal the one grand truth at the centre of all the corruption in Papua New Guinea: it is pure theft, no different from an ordinary bank robbery. However, if you steal the money by setting up, for instance, a bogus land transaction, the crude nature of the criminal enterprise is disguised to all but forensic experts, making it seem the perfect crime!
NPF Final Report
This is the 29th 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.
Executive Summary Schedule 3B continued
If not technically a direction, it was at the least a very strong request. Regarding Mr Lasaro however, it went further and amounted to impropriety. As Minister responsible for NPF, with responsibility for granting all-important approvals under the PF(M) Act, Mr Lasaro occupied a position of special influence over NPF.
When he followed up his initial request that NPF take up the advertising opportunity, by persistently urging the reluctant Mr Fabila to pay up in accordance with the terms of the contract (on one occasion humiliating Mr Fabila in front of Ms Bergin), the commission finds that it amounted to improper interference with the management of NPF.
Mr Lasaro should be referred to the Ombudsman Commission to consider whether there has been a breach of the Leadership Code.
(i) Mr Fabila’s ill-advised attempt to unilaterally impose a favourable discount in favour of NPF, contrary to the terms of the contract, exposed NPF to the possibility of an expensive lawsuit and cost NPF an additional K8577 in interest payments.
Universal News Inc.
Introduction of Universal News Inc.
The first record of NPF’s involvement with this organisation was through a faxed letter dated January 27, 1999 by Natalie Hughes and Alvaro Macarron. This letter thanked Mr Fabila for his warm reception and interesting interview and for his support and personal involvement in the project. Minister for Mining Masket langalio, also sent a letter introducing Universal News Inc. to Mr Fabila. This letter was not dated. However, a handwritten note on it is dated February 12, 1999. Clearly, Mr Fabila had interviewed Ms Hughes and Mr Macarron and then told Mr Leahy to take action.
Attempt by Mr Leahy to cancel the contract with Universal News Inc.
The day following the Universal News interview with Mr Fabila (January 27, 1999), Mr Leahy sent a fax to Universal News advising them that he had received instructions from the chairman of NPF to cancel the contract.
An invoice dated March 10, 1999, records that on March 10, 1999, a contract No.09810916 was entered into between Mr Fabila on behalf of NPF and Universal News Inc for junior advertising space at a cost of $US58,800. The commission has not found a copy of any such contract on NPF files.
Delay in payment to Universal News by NPF
Similar to the situation regarding the payments to World Report Limited, Mr Fabila delayed payment of the Universal News Inc. invoice. Tim Rooker, who described himself as the finance manager of Universal News, wrote a letter to NPF chairman Jimmy Maladina, on May 7, 1999 (copied to Mr Mekere) requesting full payment of the contracted amount of $US58,800. Mr Fabila endorsed the copy of Mr Rooker’s letter requesting Mr Mekere to pay half the contracted amount and the balance upon completion of the work. Mr Rooker wrote another letter to Mr Maladina (copied to Mr Mekere) requesting immediate payment of the contracted sum.
The first instalment of K79,263.28 was made on July 12, 1999. Mr Leahy approved this payment. This amount was above Mr Leahy’s delegated authority. The balance of K89,108.91 was paid on August 31, 1999. Again, Mr Leahy authorised this payment, which was above his delegated authority. The total cost to NPF was K168,372.19.
The unauthorised commitment by Mr Fabila of these expenses during this period of severe cash flow problems was improper and amounted to a serious breach of fiduciary duty. From observing Mr Fabila’s demeanour while giving evidence on several occasions and on the basis of the other oral and documentary evidence before it, the commission finds that Mr Fabila found it difficult to say no to requests and directions when he felt himself to be under pressure. In the case of these two contracts, Mr Fabila said “yes” in the face-to-face interview with the publishers’ representatives, entered into a binding contract and then regretted it when it was too late. His delaying tactics, then further aggravated the situation, causing further loss to NPF. Mr Fabila’s weakness led to him being in breach of his fiduciary duty to the members of the fund.
No Board of Trustees approval
The value of this contract was in excess of K100,000 and it therefore required Board of Trustees approval. No such approval was sought or obtained. The contract value was well above Mr Fabila’s delegated authority and he therefore did not have the legal power to sign the contract. The commission finds that both Mr Fabila and Mr Leahy may be personally liable to the fund for losses suffered by contributors for their respective actions in excess of lawful authority and that a defence of “acting in good faith” would be unlikely to succeed.
Involvement of Minister Lasaro
It seems that Minister Lasaro had some involvement in facilitating payments to Universal News Inc. as the letters demanding payment were copied to him. Mr Lasaro has denied in his sworn statement that he discussed the non-payment of the Universal News account with NPF, but he agrees that letters of demand for payment to NPF were copied to him.
Mr Fabila and Mr Leahy may be personally liable at this suit of the fund for loss suffered by the contributors of the Fund for their respective excess of lawful authority and that a defence of “acting in good faith” would be unlikely to succeed.
(a) Mr Fabila was in breach of his fiduciary duty to the members in signing the contract with Universal News Inc, especially as he suspected (with good reason) that it might be a scam;
(b) Mr Fabila failed in his fiduciary duty in not seeking NPF board approval for the contract with Universal News Inc, which was beyond his delegated financial authority;
(c) Mr Fabila may be personally liable for loss suffered by NPF as a result of his breach of duty. It is unlikely he could successfully claim to have “acted in good faith”;
(d) Mr Leahy acted in excess of his delegated financial authority in authorising the payment to Universal News lnc, as there was no board approval. This constituted a breach of his common law duty to the NPF board for which he may be personally liable.
(e) The commission is not satisfied that Mr Lasaro wrote letters of introduction for Universal Productions or that he acted improperly or inappropriately with regard to this matter.
Executive Summary Schedule 3C Entertainment and board expenses
The Terms and Conditions and Remuneration of Trustees
Schedule 3C summarises the history of payments of fees and allowances to board members up to January 1995, and considers the validity of increases in accordance with the provision of Section 6(3) of the National Provident Fund Act (the Act). Section 6(3) provides that the only valid way to increase fees and allowances is by determination of the of the Prime Minister, which would then be brought into effect by way of publication in the National Gazette. There was a valid determination of NPF’s board fees and allowances made by Prime Minister Paias Wingti on December 31, 1990, which set fees and allowances as follows:
(a) Sitting Allowance – K45 per day
(b) Meal Allowance – K35 per day
(c) Stipend – K1000 per annum paid quarterly.
No Delegation Of Prime Ministerial Powers Under Section 6 Of The Act
Section 6(3) of the Act refers only to the responsibility of the Prime Minister. The commission was not able to find any delegation of the power by the Prime Minister under Section 6(3) of the Act.
Nevertheless, at the December 1993 board meeting, the board itself approved the following fees for employer and employee representatives who were appointed under Section 6(1) subsection (d) and (e) of the Act.
(a) Annual Stipend – K1200;
(b) Sitting Allowance – K70
The commission has not been able to locate any document or national gazette notification, amending the earlier determination by Prime Minister Wingti. The board had no power under the Act to set fees and allowances for its members.
NPF Board Seeks Massive Increases Of Board Fees And Allowances
In August 1995, the board resolved to increase board fees and allowances to:
(a) Board sitting fees – K250 per sitting; and
(b) Quarterly allowance – K2000.
Mr Kaul wrote to Prime Minister Sir Julius Chan giving an encapsulated history of the fund seeking to justify the increases sought. Chairman Mr Lalatute followed up Mr Kaul’s letter with a letter to Sir Julius on February 21, 1996, but Sir Julius did not respond.
In March 1996, Mr Kaul advised the board, in his managing director’s report, that Acting Prime Minister Haiveta had approved the increase.
Acting Prime Minister Haiveta Approves K20,000 Fee for Chairman Copland
Mr Haiveta, after considering Mr Kaul’s submission regarding the expertise of Mr Copland, approved Mr Copland’s remuneration as a trustee and chairman at K20,000 per annum, which was exclusive of board sitting allowances.
Setting of personalised remuneration for the chairman of the board is not provided for in the Act and it was therefore invalid.
Acting Prime Minister Haiveta Approves Increases In Board Fees And Allowances
On May 30, 1996, Mr Haiveta determined the following fees and allowances in the National Gazette for employee and employer representative trustees:
(a) Meal Allowances – K45;
(b) Sitting Allowance – K250 per sitting; and
(c) Stipend – K2000 per quarter
These increases were backdated to January 1, 1996. Mr Haiveta had the power as Acting Prime Minister to grant the increases to employer and employee representative trustees.
(a) It was not appropriate for the managing director to lobby the Acting Prime Minister to increase the board members’ fees and allowances;
(b) The determination by Acting Prime Minister Haiveta of board member’s fees and allowances, back dated to January 1, 1996, was valid;
(c) The determination by Acting Prime Minister Haiveta of a special allowance of K20,000 per annum for Mr Copland as chairman of NPF, was not provided for in the Act and was invalid. The commission sees this as an improper action by Mr Haiveta.
Acting Finance Minister’s Invalid Determination
On May 6, 1997, Mr Konga (when he was Acting Minister for Finance) approved the following variations under the Board Fees and Allowances Act:
(a) Stipend per year
(i) Chairman – K15,000;
(ii) Deputy Chairman – K12,000;
(iii) Other members – K10,000;
(b) Attendance fee per meeting
(i) Chairman – K400;
(ii) Deputy Chairman – K300;
(iii) Other members – K300.
As the Boards Fees and Allowances Act did not apply to the NPF, Mr Konga’s approval of the above fees and allowances was beyond his power and therefore invalid. The board, however, accepted this invalid determination and implemented it. Legal officer Mr Leahy failed in his duty to the board by not advising on this matter.
(a) Acting Minister Konga acted beyond his power by purporting to approve fees and allowances for the NPF Board of Trustees;
(b) The NPF board acted beyond its power by approving an additional K50 sitting allowance for trustees other than the chairman;
(c) Herman Leahy failed in his duties to the NPF board by not checking and giving advice on Minister Konga’s invalid determination.
Finance Inspectors’ Report
The finance inspectors report shows up many specific anomalies. The commission accepts and agrees with the findings in the finance inspectors report and has decided not to make further inquiries at this level of detail. These irregularities and over-payments to the trustees seem to include instances of improper conduct and breaches of fiduciary duty by trustees who knowingly accepted payments of fees and allowances in excess of their entitlement. The commission has not inquired into the details surrounding these comparatively minor breaches but has recommended that the matter be dealt with by way of an internal audit and recovery exercise.
It is of serious concern that the NPF management and board of trustees ignored the provisions of the Act, which empowered only the Prime Minister to vary trustees fees and allowances and simply approved their own increases. It is equally serious that those decisions were not criticised by the DoF or the Auditor-General at the time nor were they commented upon by Mr Leahy – the NPF’s senior legal counsel.
It is of similar concern that Minister Haiveta’s improper conduct in granting a special K20,000 allowance to Mr Copland was not similarly subject to criticism. NPF’s successive chairmen, managing directors and finance officers failed their duty to the members of the NPF by not ensuring proper financial controls were enforced to process claims and acquittals for trustee’s fees and allowances and board expenses as criticised in the finance inspectors report.
(a) Nakikus Konga acted beyond his power when he approved new allowances and board fees in his letter to Mr Kaul dated May 6, 1997. His approval was invalid in its application to the NPF;
(b) The NPF board acted beyond its power in approving an additional K50 sitting allowances for trustees based on Minister Konga’s approval;
(c) Legal secretary Mr Leahy failed in his duty to advise the board about the review of sitting allowances for trustees;
(d) The commission accepts and agrees with the finance inspectors’ findings;
(e) The finance inspectors report discloses clear evidence of improper conduct and irregularities in the administration of board fees and allowances.
The commission recommends that the NPF board commissions an internal audit to assess and recover amounts overpaid to trustees in board fees and allowances.
TO BE CONTINUED