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Promises, promises: a decade of anti-corruption budgets and spending in PNG

August 18, 2017 1 comment

Anti-corruption suggestion box, Mombasa, Kenya (Marcel Oosterwijk/Flickr CC BY-SA 2.0)

by Grant Walton and Husnia Hushang on DevPolicy Blog

In Papua New Guinea, government responses to corruption have received a great deal of media attention over the past decade (see here and here). Despite this coverage, there is still much we don’t know about the state of the country’s anti-corruption agencies. Indeed, many struggle to provide the public with basic information about their activities. We could not obtain a copy of recent annual reports from the Ombudsman Commission, despite a request (frustratingly, you can view the covers but not the content of recent annual reports here).

To address this knowledge gap, our recent Development Policy Centre Discussion Paper tracks ten years of budgetary allocations and spending on key anti-corruption agencies: the Ombudsman Commission, the National Fraud and Anti-corruption Directorate, Taskforce Sweep, the Auditor-General’s Office and the Financial Intelligence Unit. In this blog we examine one of the three research questions we answer in the paper, namely: how have allocations for and spending on anti-corruption organisations changed over time? By comparing budgetary allocations and actual spending, we highlight the degree to which governments have fulfilled their budgetary promises.

PNG’s Ombudsman Commission is one of the few agencies in our analysis where budgeted and actual spending have mostly been in sync – that was the case until 2015 when allocations outstripped spending (Figure 1). Budgetary allocations for 2017 suggest the organisation’s funding will decline even more; on current projections the organisation will end the decade in the same financial position it was at the beginning.

Figure 1: Ombudsman Commission allocations and spending (2016 prices)

Located with PNG’s police department, the National Fraud and Anti-Corruption Directorate (Fraud Squad) plays a significant role in fighting corruption. Figure 2 demonstrates that spending on the Fraud Squad, despite its role in attempting to arrest the Prime Minister Peter O’Neill and other senior ministers, increased between 2008 and 2015. Yet there has been significant variation. Between 2011 and 2015 there were large gaps between allocations and spending, although the gap has been declining. Reduced spending in 2012 and 2013 is likely due in part to resources being reallocated to Taskforce Sweep, which was established in 2011. Budget allocations declined by 23 per cent between 2016 and 2017.

Figure 2: National Fraud Squad allocations and spending (2016 prices)

The third anti-corruption agency we examine is the Financial Intelligence Unit (FIU) – now known as the Financial Analysis and Supervision Unit – an agency with a mandate to investigate money laundering and terrorist financing. At the time the 2015 budget was announced, the media made much of the fact that the FIU was allocated less than the police band’s budget. Our analysis (Table 1) shows the difference in spending between these organisations was even worse. In 2015, in real kina 1.07 million kina was spent on the PNG police band and the FIU received 264,364 kina – so the police band received almost four times more than the FIU. For the two years data is available (2014 and 2015), spending on the FIU was less than half of allocations.

Table 1: Financial Intelligence Unit allocations and spending (kina, 2016 prices)

The Auditor-General’s Office is tasked with inspecting, auditing and reporting on accounts, finances and properties of government departments, agencies, and public corporations. Figure 3 shows that in 2012 the agency’s allocation rose above spending, and 2013 spending rose above allocations. By 2015, spending had declined to 21 million kina, and then increased slightly in 2016 to 22.3 million kina. However, funding is set to decline, with allocations reducing to 16 million kina by 2017; in real kina this is less than the agency was allocated at the start of the decade.

Figure 3: Auditor-General’s Office allocations and spending (2016 prices)

Figure 4 depicts the PNG government’s budgeted and actual spending on the short-lived but relatively successful Taskforce Sweep and the yet to be established Independent Commission Against Corruption (ICAC). After Taskforce Sweep’s role in the attempted arrest of Prime Minister Peter O’Neill, spending slumped sharply to 5 million and zero kina in 2015 and 2016 respectively. However, the amounts reportedly spent are far lower than allocations. While the O’Neill-Namah government quickly spent 7.5 million kina (non-budgeted) on the agency in 2011, since then the difference between allocated and actual spending has been significant. Just under one million (real) kina was allocated for the yet to be established ICAC in 2017. Thus, our analysis shows that the meteoric rise and fall of Taskforce Sweep was accompanied by unfulfilled spending promises.

Figure 4: Taskforce Sweep and ICAC allocations and spending (2016 prices)

To get a sense of the relative spending on each organization, Figure 5 compares actual spending over time (and allocations where spending data is not yet available) of each of these organisations. It shows that out of the agencies we examine, the Ombudsman Commission and Auditor-General’s Office are by far the most heavily funded. Traditionally, more has been spent on the latter than the former, although in 2017 this appears set to change, with the Auditor-General’s Office facing severe funding cuts. In comparison, other agencies receive paltry sums.

Figure 5: Spending on five anti-corruption organisations, 2008-2017 (2016 prices)*

*Actual spending solid lines; budgeted dashed lines. 2016 figures for Ombudsman Commission and Auditor-General’s Office from Final Budget Outcome (2016).

Figure 6 shows that overall spending on anti-corruption agencies has been less than allocations since 2012. Overall spending and allocations have been reducing since 2014; because budgetary allocations are made the year before (i.e., the 2014 allocation is made in 2013), this means that the PNG government was significantly reducing its commitment to anti-corruption agencies before Taskforce Sweep helped organise an arrest warrant for then Prime Minister O’Neill.

Figure 6: Total anti-corruption allocations and spending (2016 prices)*

*Total Anti-corruption Spending – Ombudsman Commission/National Fraud and Corruption/Auditor-General’s Office/Taskforce Sweep/FIU/Anti-corruption program Department of Finance

Amidst calls for the new government to establish an ICAC, these findings suggest anti-corruption activists and policy makers should be pressuring the PNG government to close the gap between budget promises (allocations) and actual spending. In addition, greater efforts are needed to ensure that spending on existing anti-corruption agencies does not continue to fall.

Grant Walton is a Research Fellow and Husnia Hushang is a Program Officer with the Development Policy Centre. This blog is based on the Development Policy Centre Discussion paper, ‘Promises, Promises: A Decade of Allocations for and Spending on Anti-Corruption in Papua New Guinea’ available hereCalculations for graphs and tables can be found here.


Note: We understand that it is now possible to get a hardcopy of recent annual reports from the Ombudsman Commission’s office.

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Commercial banks ‘the largest facilitators of corruption and fraud’ in PNG say the police

January 5, 2016 Leave a comment
PNG's four commercial banks

Commercial banks not only facilitate most of the corruption in Papua New Guinea – they actually profit from laundering the proceeds of crime

PNG has four commercial banks – Bank South Pacific (BSP), Westpac, ANZ and Kina (formerly Maybank) – which is owned by Rimbunan Hijau.

The Papua New Guinea Financial Intelligence Unit has described these banks as “the largest facilitators or ‘gatekeepers’ of corruption and fraud” in PNG and detailed their resistance to assisting authorities to do more to disrupt corruption.

This is explained  in a paper – Applied Forensic Accounting – Experiences from PNG Financial Intelligence Unit [520kb] – published by the FIU in 2012.

The paper also outlines the enormous scale of the corruption in PNG, the devastating impact of the routine theft of public funds on service delivery and poverty and the inability of the police to do anything about the problem as there is a complete breakdown in the law and justice sector.

The Financial Intelligence Unit was set up as part of the PNG Police in 2007 under the Proceeds of Crime Act. It has a tiny staff of only six – and not all those positions are always filled. The FIU was established, not as part of a coordinated effort to tackle domestic corruption, but in response to PNG’s obligations to the South Pacific Forum to tackle transnational crime. The FIU is very limited in its scope, supposedly focusing just on cash transactions and the proceeds of crime – rather than the far more obvious and serious disbursement of illegally acquired funds and the misuse of government cheques.

The paper describes corruption as systemic and systematic in PNG. This is backed up by PNG’s ranking of 145th out of 175 countries in Transparency International’s 2014 Corruption Perception Index.

According to the FIU, the Public Accounts Committee has stated there is a culture of impunity and no fear or risk of detection or punishment for those who steal public funds. This has created a situation where an impoverished and disillusioned people are deprived of basic services. Illegal and improper practices are rife across the entire spectrum of government and at every level. The police seem incapable or unwilling to investigate or prosecute financial crime.

The FIU paper says corruption flourishes because those in positions of responsibility have the motive – very low wages compared to cost of living and family / wantok pressures – rationalization – everyone else is doing it so why not me – opportunity – very weak or non-existent controls, lax governance and poor diligence in the banking sector – and capability – the necessary knowledge and ability to commit fraud.

The FIU says it can do little to reduce motive or capability and has therefore focused on altering the rationalization by trying to reduce the perception that nobody notices the corruption and there is no risk of detection and by restricting the opportunity for corruption through banking rules that make it harder to place the proceeds of corruption into the banking system.

The greatest challenge facing the FIU it says has not been detecting the offences and offenders but dealing with the huge number of offenders and preventing repetition of their offences. The number of offenders is too large, the FIU too small and the court system too slow to have any measurable effect using criminal prosecutions.

The lack of motivated and adequately resourced police force and court system also means that trying to control the corruption by going after the money and seizing the proceeds of crime is not seen by the FIU as a viable option as it would rely on a sufficient number of cases going through the court system. This in turn would also need a functioning public service that could provide access to sufficient information, documentation and other evidence.

Therefore the FIU has concluded the most practicable method of addressing corruption is to tackle the facilitators of the fraud – the commercial banks.

The FIU focused on two methods, encouraging the banks to report significant cash transactions and exercising due diligence in relation to government cheques.

Significant cash transaction reports focus on public servants who make large deposits well in excess of legitimate earnings. A first round of reporting identified a significant number of government employees who were repeatedly depositing amounts well in excess of their annual salary. However the banks did very little in response.

Due diligence on government cheques is a response to the fact that huge amounts of money are stolen using these instruments by people obtaining the cheques by illegal means. According to the FIU the banks claim they do not have the staff, skills or systems to allow them to differentiate between legitimate and illegitimate cheques and do not have the resources to vet them all.

The FIU implies the banks have effectively refused to cooperate and feel they are being asked to act as policemen when it should be the government’s responsibility to stop corruption. This is contrary to the fact that under the law the banks have an obligation to seek all the information they need to ensure funds they receive are not the proceeds of crime.

A collapsed public service and inadequate legislation and funding means the FIU has been forced to try and develop processes to disrupt corruption that do not rely on the criminal justice system, the agencies of the public service or require significant funding. Unfortunately the commercial banks have put up their own barriers that have further undermined the efforts of the FIU.