Below is the fifteenth 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 fifteenth 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.
Some of the commission’s recommendations regarding the NPF cover the same topics dealt with in the Superannuation Act. The commission hopes that its recommendations, which are specific to the NPF and the NPF Act will be considered as part of the general policy development, which is now occurring.
List of the Commission’s recommendations on the structure of NPF between 1995 and 1999
At the paragraphs in Schedule 1 listed below the commission has made the following recommendations:
Selections, qualifications and quality of Trustees
(a) The Minister’s powers of appointment and termination of appointment of trustees should be removed;
(b) There should be no public service representative trustees on the board of NPF;
(c) The ex officio appointment of the Secretary of DoF as chairman of the NPF Board of Trustees should be removed;
(d) The chairman should be appointed by the board;
(e) New employer representative trustees should be selected and appointed by organisations representing employers (They need not themselves be an employer);
(f) New employee representatives should be selected and appointed by organisations representing employees (They need not themselves be an employee);
(g) The organisations entitled to take part in the selection and appointment of Trustees should be specified in or under the legislation;
(h) Prior to appointment, all selected trustee designates should be vetted by the regulator and satisfy the regulator that they are fit and proper persons to be appointed as trustees;
(i) The process of applying the “fit and proper person test” should be an administrative rather than a judicial or quasi-judicial process; it must be fair but not subject to review by the courts;
(ii) The onus of establishing a person as fit and proper should be upon the applicant or organisation that has selected the applicant;
(iii) The decision should be made by a committee which could be comprised of the Chief Ombudsman Commissioner, the chairperson of Amnesty International and the president of the Law Society;
(iv) The committee should be empowered to request a police clearance and be entitled to seek the opinion of the Ombudsman Commission;
(v) There should be a right of review from the committee to the Governor of the BPNG whose decision should be final and not reviewable by the courts;
(i) The concept of fiduciary duty of trustees should be expressly stated in the NPF Act. It should also be stated whether the more stringent duties imposed by the Trustee Act apply to NPF Trustees. The commission recommends that they should
(j) The sanctions against criminal, negligent and improper conduct by trustees should be strengthened; and
(k) The concept of appointing the managing director, as a member of the board should be reconsidered. The board’s role is to appoint, direct and supervise the managing directors. The managing director’s role is to carry out the board’s policies and directions and report to the board. It is inappropriate that he/she be a member of the board and it leads to role confusion.
The appointment and termination of appointment of Trustees
(a) Remove ministers and politicians from the process for selecting and appointing trustees;
(b) There should be an express statement in the legislation that the board has the responsibility to advise the appointing authorities of pending vacancies. It should empower and oblige the board to fill casual vacancies on the board (after vetting by the regulator) until a new trustee is duly appointed by the appointing authority;
(c) Draw up a clear statement of duty for the corporate secretary to monitor the approaching expiry of appointment dates and the constitution of the NPF board generally. It should be the corporate secretary’s duty to advise the board;
(d) Sanctions to be applied at each level (management and board) for failing to maintain the required number of representative trustees on the board.
(a) The managing director/CEO should to be chosen and appointed by the board, after advertising the position on the open market. The terms and conditions of the position are to be determined by the board (including specified grounds for termination);
(b) The appointment should be by contract after the appointee has been vetted by the regulator and passed the “fit and proper person” test;
(c) The board should be obliged by legislation to prepare a detailed duty statement for the managing director to be incorporated into his contract of service;
(d) The board should be obliged to consider whether conditions of service should be left to negotiation or whether an upper limit is to be imposed. Submitting the contract to the regulator for approval should be considered.
(e) The bard should be obliged to prepare a code of conduct covering the managing director and all senior staff;
(f) There should be an annual performance review for the managing director; and
(g) There are arguments for and against the managing director being also a member of the board of trustees. As stated previously, the commission recommends that the managing director not be a member of the board.
(a) The corporate secretary should be chosen and appointed by the board.
(b) The minimum duties of the corporate secretary should be prescribed in legislation to include the duty to record and monitor the dates of appointment and expiry of the terms of trustees and to notify the managing director and chairman of all matters affecting or likely to affect the constitutional validity of the composition of the board; and
(c) The secretary (if also the legal officer) should be proactive in giving legal advice. If secretary is not a lawyer, the legal officer should have that proactive advising role at board meetings. The corporate secretary should be responsible for advising the board of all its obligations, including reporting obligations. The corporate secretary should also advise the board on its compliance.
Management of investments – weaknesses
(a) Require NPF, by legislation, to have an expressed investment policy which has been approved by the regulator;
(b) Provide for investments to be managed by a professional funds manager, which is obliged to follow prudential investment guidelines.
If this is not possible, or alternatively, make provisions for independent professional trustees to join the board, with suitable provisions for their remuneration or to oblige the board to obtain professional advice at the cost of the fund;
(c) The regulator should be given the duty and power to monitor NPF’s compliance with all its reporting obligations and the trustees should be exposed to sanctions for non-compliance;
(d) The regulator should be given the responsibility to review investment performance and the power to give directions in relation to investments and trustees to be subject to sanctions for non-compliance;
(e) The board must be obliged to report to the members (employers and employees) at least annually and members should be given access to a Complaints Tribunal. Members should also be empowered and facilitated to complain to the regulator about the performance of trustees and management and to seek the removal of trustees and officers for misconduct or non-performance;
(f) Methods of reporting to members could include the NPF’s periodical magazine, press advertisements and by communicating to relevant employer and employee organisations and placement on the website (Cost effective methods should be chosen);
(g) BPNG should be appointed the regulator of superannuation funds (including the NPF) (This has been set in place under the Superannuation Act 2000);
(h) For this system to work, BPNG will have to establish a strong regulator section and become very proactive in monitoring NPF’s compliance with investment guidelines, internal management and planning requirements and with its reporting obligations. This is not a traditional banking responsibility but it will need to be embraced wholeheartedly by BPNG so that the existing vacuum in the field of supervision and monitoring is well, truly and effectively filled.
Powers and obligations of the NPF Board of Trustees
Where possible the powers and obligations of the board of trustees should be included in the legislation by way of clear and definite statements — such as no power to borrow or no power to borrow for investments.
Such clear statements in the legislation should be supplemented by commentary in NPF’s manuals for trustees and senior officers.
Investment guidelines and directions
While the Minister retains powers over the NPF this question about the Minister’s power to issue directions to NPF needs to be resolved by appropriate legislation.
The commission, however, recommends removing the Minister’s powers to issue directions to the NPF from the NPF Act.
The Minister’s powers over NPF should not exceed his powers over other private organisations.
Investment Guideline Part (e) approval delegations
This raises the question of whether there should be any external control over NPF’s investment or whether it should be left entirely to the control of the board, in conjunction with its investment manager company.
(a) The commission recommends that there should be some device to ensure that NPF’s investments will be in accordance with prudential principles suitable for a superannuation fund;
(b) The responsibility for monitoring and approving that NPF’s investments are within prudential limits should be given to the BPNG regulator.
(c) While NPF remains subject to ministerial control its prudential limits need to be clearly specified in the legislation.
Minister Haiveta’s K1 million approval to trade in equities
(a) If it is intended to constrain the fund’s ability to acquire equities registered on overseas stock exchanges then this general approval up to K1 million per transaction needs to be reconsidered;
(b) The general approval should be worded to enable the fund to invest up to a given percent of its total assets offshore.
Minister’s approval given without seeking or obtaining DoF advice
It is recommended that a Minister’s duty to act on advice should be treated as one of the duties of leadership. It is recommended that this problem, which extends beyond the situation of the NPF, be referred to the Ombudsman Commission to consider whether to issue appropriate directions on this aspect of the duties of leadership.
Failure by DoF to provide expert advice to the Minister
The commission has recommended that the NPF should be freed from the need to obtain ministerial and DoF approvals. However, the recruitment of highly qualified professional officers into DoF still needs to be addressed to enable it to carry out its other functions. In the meanwhile, DoF should seek the advice of external consultants on significant matters, which are beyond the expertise of its own staff (at the cost of the applicant — DoF pays consultant and applicant reimburses). If the approval function resides in the BPNG regulator, the expertise must be built up within the regulatory body, which could also use expert consultants at applicant’s expense if necessary.
With regard to ministers making decisions without acting upon required departmental or appropriate independent expert advice, the Minister should be advised by the Ombudsman Commission of his duty to make decisions after receiving advice from relevant experts.
Approvals under Section 61 of the PF(M) Act
Such political approval is no longer appropriate but the commission considers that approval from an independent authority for large investments is still desirable.
Approval should be sought from the regulator who can nominate an independent expert to give an opinion. The regulator will then approve or not approve.
Approval should be sought prior to entering into the transaction or it could be contracted subject to regulator’s approval. There should be an express provision about the validity or invalidity of non-approved transactions.
Applying the PF(M) Act
The applicability of Part viii of the PF(M) Act to the NPF, which is a private employees superannuation fund needs to be reconsidered. If there are provisions which could benefit NPF, they should then probably be written into the NPF Act.
Deliberate failure by Board and management to comply with legislation
(a) There should be clear civil sanctions written into the Act making Trustees and officers personally liable for loss caused by such breaches of duty (A re-examination of the”good faith” concept to make the risk of incurring personal liability very clear);
(b) There should be criminal sanctions for deliberately disregarding the provisions of the legislation; and
(c) Such deliberate or seriously negligent failure to obey statutory duties should be specifically referred to in the legislation as breaches of the Leadership Code, subject to the Ombudsman.
Management exceeding delegated powers
(a) Clear delegations to be made by the board to management and recorded on a delegations file for reference by management and the trustees; and
(b) There should be an audit trail for delegated decisions by way of written memorandums showing reasons given and approvals obtained (and where appropriate, competitive quotations).
(a) If it is decided to allow board decision-making by circular resolution then clear provisions regarding the matter need to be specified in the NPF Act, such as:
(i) the circumstances justifying decision-making by circular resolution;
(ii) provisions for administering circular resolutions;
(iii) the subsequent ratification of circular resolutions.
(b) The commission recommends that the provisions in the Companies Act be considered as a model for adaptation.
Unauthorised expenditure of Trust funds outside the investment guidelines
(a) Departure from prescribed investment guidelines should be specified as a breach of fiduciary duty;
(b) Where Section 61 or equivalent approvals are sought, one condition of approval should be that the transaction will not result in a breach of the investment guidelines.
(a) Insert appropriate validating provisions in the Act to validate bona fide decisions despite unintended flaw in the appointment process. The provisions could be similar to those in the Company Act;
(b) Define by legislation the excusatory test. The “good faith” test is less stringent than the Common Law test which requires the conduct to be validated to have been:
* as would be done by a prudent man; and
* in good faith.
(a) The policy regarding exemptions needs to be worked up by means of a process of rational policy development involving all interested parties and then considered by government and Parliament.
It is a very complex matter beyond the scope of this commission;
(b) The commission recommends that sanctions and strong incentives be built into the legislation to encourage employers to comply with their obligation to contribute to the NPF in a timely manner;
(c) This should include automatic penalty interest for significantly overdue contributions; tax concessions on contributions paid to be made dependent on timely payment and an attractive discount for timely payment;
(d) Access to the Internal Revenue Commission database. The NPF has lists of employers and their employees for the purposes of ensuring that all relevant employer bodies contribute to NPF for all their employers and recording those contributions in respect of each employee on their memberships files.
To be continued
This week 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.
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 fourteenth 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.
Continued from Friday
Fiduciary duty of Trustees
The commission reports on the legal position of trustees resulting from the breaches of the 1993 Investments guidelines (paragraphs 220.127.116.11; 18.104.22.168; 22.214.171.124). In paragraph 126.96.36.199, the liability of management is considered.
The extent of the variations from part (a) of the guidelines, regarding the required balance in the equity portfolio is demonstrated in the following table:
The commission has reported on the variance for each of the five years.
(a) By Section 26(1) of the NPF Act, NPF was obliged to invest its funds in accordance with investment guidelines determined by the Minister. Investing outside the guidelines is a breach of fiduciary duty by the trustees.
(b) The 1993 investment guidelines were intended to specify broad categories of investment and securities and the percentage of the investment funds, which could be invested in each category, namely, Government securities 30-40 per cent, IBD 10-20 per cent, equities 20-35 per cent, properties 20-30 per cent and long-term development loans 10-25 per cent.
(c) The spread of investments within each broad category was to be controlled by a variety of devices including the need to take account of government’s economic policies — Part (b) use of only approved institutions for cash and IBD investments, strict requirements to submit plans and reports to the Minister, the requirement to obtain Minister’s approval beyond limits imposed by the Minister; and limits on the value of overseas investments.
(d)The NPF board and management disregarded the requirement to maintain the balance between the broad categories of investment required by Guideline Part (a).
There was gross imbalance in each of the five years under review, the most damaging being the huge over-investment in equities and the massive build up in overseas equities within that category.
(e) The fact that the guidelines were being breached was known to senior management and trustees and was discussed at board level. Rather than bringing the investments into line with the guideline categories, the board resolved to try and get the guidelines changed.
(f) This was a serious breach of fiduciary duty by all trustees in office during 1996, 1997 and 1998 during which period the imbalance developed (exponentially) and was allowed to remain.
(g) The trustees face being found liable at the suit of a class action by the members for losses suffered by the members because of this breach of duty. It is unlikely that a defence of “acting in good faith” would succeed, but this would need to be determined in relation to each individual Trustee by the Court.
(h) Sir Julius Chan’s intention to establish an effective monitoring system was frustrated by the fact that the NPF management and board knowingly disregarded the need to maintain an annually updated rolling five year plan and to report on investments and the investment policy and strategy on a quarterly and annual basis. This failure was a breach of duty by management and a breach of fiduciary duty by all trustees within the period under review except John Jeffery.
(j) The approval given by Minister Haiveta in 1995, which allowed the NPF to make repeated investment transactions in shares listed overseas up to K1 million at any one time, was utilised by NPF to widen the existing breach in the (K1 million maximum) control over overseas investments guidelines, so that it became a flood of overseas investments — rising from an already excessive K25,497,921 in December 1995 to K141,507 by December 1997, plus a further K55,038 overseas investments in STC and CXL.
(k) The NPF board and management also exploited the gap created by not applying sections 57(5) of the PF(M) Act to the NPF as a “public body”. The prohibition against investing more than 3 per cent of its assets in a single investment or purchasing more than 10 per cent of the assets of a single company did not apply to NPF. This enabled NPF to concentrate large-scale investments in particular companies in order to obtain positions on the controlling Boards of Directors.
ACCOUNTS AND AUDIT OBLIGATIONS
The commission reports how NPF is obliged to keep proper accounts and records to be audited by the Auditor-General.
The legislative provisions were complicated by amendments in 1995 to the Audit Act and the PF(M) Act which were inserted to replace previous provisions in the NPF Act. Section 63 PF(M) Act is intended to subsume Section 30 NPF Act and rules and Section 8 Audit Act.
Gaps in the legislative scheme
In this process of legislative reform, the Auditor-General’s previous obligation under section 30(2)(c) of the NPF Act to report on NPF’s compliance with the NPF Act has been omitted. The requirement in section 29(3) of the NPF Act for the Auditor-General to report to the Minister the result of his audit may have been omitted also.
Obligation to maintain proper accounts
NPF’s obligation to maintain proper books of account derives from Section 28 of the NPF Act. From the commission’s own experience and from auditors reports, NPF management failed dismally in this task.
Section 63 of the PF(M) Act. Obliges NPF to submit annual reports and financial statements to the Minister, with a copy to the Auditor -General for auditing so the Minister can table an audited report in Parliament.
The NPF failed to fulfil this obligation from 1997 onwards and DoF failed to follow up to enforce compliance.
Consequently, the Auditor-General was unable to audit NPF’s books after 1997. The system of annual report and auditing broke down completely.
The NPF was also obliged by section 63(2)(a) of the PF(M) Act to submit a performance management report on its operations to the Minister before June 30 of each year. Sub-section 63(5) requires the Minister to table this report in Parliament once audited by the Auditor-General. This system also broke down due to NPF’s non-compliance .
DoF fails to monitor and enforce compliance
There is a gap in the legislative system because DoF has no inherent obligation to supervise compliance with these requirements unless specifically directed by the Minister to do so. No such direction was given by the Minister.
Break down of monitoring by National Parliament
It is apparent that the concept of Parliamentary monitoring broke down because the last audited report on NPF tabled in Parliament related to the year 1994.
(a) The former requirement under Section 30(2)(c) of the NPF Act for the Auditor-General to report on NPF’s compliance with the NPF Act regarding the receipt, expenditure and investment of moneys, was accidentally omitted during 1995 legislative amendments. This left a serious gap in the provisions for monitoring NPF investment activities.
(b) Between 1996 and 1999, NPF failed to make the required annual reports and there were no remedial or rectifying actions by DoF or Auditor-General.
(c) NPF management and Board of Trustees are responsible for this failure, which was a breach of fiduciary duty by the Trustees.
(d) The PF(M) Act did not give DoF clear responsibility for monitoring or enforcing NPF’s reporting obligations and there was no Ministerial direction for DoF to carry out this role.
(e) Monitoring and rectifying NPF’s performance was left to the National Parliament, but no report has been tabled since the 1994 report.
(f) The Auditor-General did notify the Minister each time NPF failed to produce to him its annual report for auditing, though under no obligation to do so. There was no follow up by the Minister or DoF to this notification.
(g) Theoretically, the structural reporting and monitoring procedures governing NPF in relation to its investment activities, seemed adequate except for the lack of provisions for monitoring NPF’s compliance with its reporting obligations and the lack of sanctions for non-compliance.
Pursuant to section 63(2)(b) of the PF(M) Act (which replaced Section 30 of the NPF Act) the NPF, (and other public bodies) was obliged to prepare and submit to the Minister:-
(a) a quarterly report on all investment decisions;
(b) by February 28 each year a detailed report on investment performance for the previous year ending December 31;
(c) a five-year investment plan (updated each year) setting out investment policies, strategies and administrative systems to be pursued and providing forecasts of investment flows and returns.
The commission reports how NPF failed to comply with each of these requirements.
In June 1996, Mr Kaul advised the NPF board that equities were an over weighted 43 per cent of the portfolio and sought guidance from the board (This was just as Minister Haiveta gave dispensation from the need to seek approval for equity transactions of up to K1 million which resulted in an orgy of further equity investments in defiance of the guidelines). Had NPF made a genuine attempt to comply with these mandatory statutory provisions, it would have been obliged to focus on policies and strategies, to reign in its wild investment activities and to account for deviations from the guidelines. Trustees and management would also have been faced with the cold reality of audit reports from the Auditor-General. The inadequacy of DoF’s reports to the Minister and its failure to monitor NPF’s compliance with its reporting obligations are discussed at paragraphs 16.1.1, 16.1.2, 16.1.3. The Secretary of the DoF’s conflict of interest is discussed at paragraph 16.2.2.
PERFORMANCE AND MANAGEMENT PLANS
Under Section 50(2) and (3), the Secretary of the DoF was empowered to require the NPF managing director to submit performance and management plans. Section 50(4) enables the Secretary to carry out a performance review. The Secretary completely failed to use this powerful tool. It seems the reason for this was a failure to realise it was available in respect of NPF.
Section 50 of the PF(M) Act provided a powerful tool which could have been used by the Secretary of the DoF to submit a performance and management plan and to conduct a performance review. The section was not utilised, possibly through failure to understand the scope of its potential operation.
TENDERS PROCUREMENT AND DISPOSAL OF ASSETS PROCEDURES
Paragraph 18 describes how NPF was not bound by section 59 of the PF(M) Act which prescribes tenders procedures for most other public bodies but that NPF was bound to follow Ministerial directions on tenders procedures (of which there were few). Despite the lack of clear legislative guidance, the trustees were required to ensure an orderly system was followed as part of their fiduciary duty to ensure fair and financially responsible management procedures.
As it happens, management (wrongly) considered that NPF was bound by Section 59 of the PF(M) Act but mostly failed to comply.
In 1989, a Supply and Tenders Committee was established but it seems to have ceased functioning by 1993.
Full details of the acquisition of goods and services and disposal of assets between January 1, 1995 and December 31, 1999, including the spasmodic operation of tenders procedures, are reported in Schedule 9 – “Tenders Procedures and Nepotism”.
(a) The legislative provisions establishing an effective tenders system for NPF was weak as it did not fall within the definition of a “public body” to which the PF(M) Act applied for this purpose.
(b) The NPF board nevertheless, had a fiduciary duty to ensure that an effective tenders procedure was in place and being followed by management.
(c) The NPF Board of Trustees’ failure to ensure an effective tenders procedure was in operation was a breach of fiduciary duty by the trustees in office throughout the period under review.
As it happens, NPF management (wrongly) considered that NPF was bound by Section 59 of the PF(M) Act but mostly failed to comply.
(c) The NPF Board of Trustees’ failure to ensure an effective tenders procedure was in operation was a breach of fiduciary duty by the Trustees in office throughout the period under review.
(d) Senior management failed in their common law duties in this regard — particularly Mr Kaul, Mr Fabila, Mr Wright and Mr Leahy.
(e) The failures by the management and board led to nepotism, criminal offences and significant financial loss to the NPF (as detailed in Schedule 9).
MINISTERIAL APPROVAL OF MAJOR CONTRACTS
Section 61(2) of the PF(M) Act, requires that NPF obtains Ministerial approval before entering into a contract of 300,000 or more (K500,000 after October, 19, 1995) (paragraph 19.1).
This applied to all such contracts except those subject to the general dispensation from seeking approval for equity transactions up to K1 million granted by Minister Haiveta in June 1996 (paragraph 19.2). NPF preferred to apply for approval directly to the Minister, bypassing DoF’s procedures for considering such application and recommending to the Minister (paragraph 19.3).
DoF and successive ministers accepted this departure from orderly procedures, which reduced the quality of expert advice being considered by ministers before making decisions. On many occasions NPF failed to obtain required approvals from the ministers.
NPF management and the board frequently by-passed the need to obtain ministerial approval for contracts above specified levels. This existing tendency was encouraged by Mr Haiveta’s general approval in April 1996 for NPF to be permitted to enter transactions in equities up to K1 million per transaction without the need to obtain approval.
POWERS OF INSPECTION
Paragraph 20 of Schedule 1 points out how successive Ministers and secretaries of the DoF failed to exercise the powers given to them by Section 64 of the PF(M) Act to order an investigation into NPF’s failure to implement a management plan under Section 50(2) or into any other breach by NPF of the PF(M) Act.
When Mr Bai utilised this section in 1999 and directed the Finance inspectors to investigate specified aspects of NPF’s operations, it led to rapid disclosure of the irregularities reported upon in Schedule 1 and the financial crisis threatening NPF. That, in turn, led to the establishment of this commission of inquiry.
THE NEED FOR STRUCTURAL REFORM
Structural weaknesses existing under the NPF Act
The commission’s inquiries identified many structural weaknesses which contributed to the massive losses suffered by the NPF and many recommendations were made for remedying those weaknesses. Some of the recommendations were for amendments to legislation and others were of an ongoing administrative nature. The major recommendations were essentially to:
1. Remove the NPF from the control of the Minister and the DoF;
2. Reduce the degree of external control over the management of NPF’s affairs and investments;
3. Vest the control in a better qualified Board of Trustees;
4. Establish the BPNG as the external Regulator of NPF;
5. For matters still requiring imposition of external controls or guidelines the necessary powers to monitor and control should be transferred from the Minister and DoF to the Regulator.
6. In order to ensure better qualified trustees: (a) Remove all political interference from the selection and appointments process and vest power of appointment in specified organisations of employers and employees with all appointments to the board and senior management to be approved as fit and proper persons by the Regulator.
(b) Take active measures to help trustees understand and perform their roles and to understand the nature of their fiduciary duty to members of the fund.
7. Strengthen the accounting and reporting requirements and require the regulator to accept responsibility to monitor and enforce compliance;
8. Provide for prudential investment guidelines to be promulgated and enforced by the regulator;
9. Enable NPF to appoint professional fund managers onto the board of NPF or, preferably, to brief investment management to a firm of professional fund managers, which would be obliged to act within the prudential guidelines promulgated by the regulator and within policy directions of the board.
The commission’s detailed recommendations are listed at paragraph 15.4 below.
The Superannuation Act 2000
During the closing stages of the commission, there was considerable interaction between the commissioners and staff and the task force on superannuation and there was an interchange of ideas.
The task force has presented its report and the Superannuation Act 2000 was certified on May 30, 2002.
The main features of the new Act are:
1. The Act provides for licensing and regulation of the superannuation industry;
2. BPNG is the Regulator to: Authorise existing fund to continue to operate; License trustees, investments managers and fund administrators; Determine prudential standards; supervise compliance with the Superannuation Act and prudential standards; Promote, encourage and enforce proper standards of conduct;
3. It obliges authorised funds to have a licensed trustee, a licensed investment manager and a licensed fund administrator.
4. The BPNG will inquire whether applicants for licences and their officers are fit and proper persons and will apply a “fit and proper person test” before granting a licence. It may issue binding directions to licence holders and other persons engaged in the superannuation industry;
5. The Superannuation Act provides for contributions to be paid to the fund by employees and employers and for transfers of member entitlements;
6. The Act provides for mandatory and voluntary codes of conduct and penalties for breach;
7. The BPNG is empowered to prosecute and commence civil actions;
8. The Act provides for the amendment and repeal of the NPF Act, the POSF Act, the DFRBF Act and for the replacement of existing trustees and the transfer of employees.
The final structure and the preparation of prudential guidelines and control and monitoring mechanisms are still evolving.
Evolving policy development under Superannuation Act 2000
It is not within the commission’s terms of reference to participate in or contribute to that general process of policy development other than to publish findings and recommendations on structure as applicable to the NPF within the framework of the NPF Act and the reporting and monitoring scheme applicable in the period under review by the commission.
There has still been NO ACTION to cancel the huge SABL land grab, revoke the unlawful leases or stop the illegal logging in Papua New Guinea.
It is now 791 days, more than two years, since Prime Minister Peter O’Neill was told that the SABL leases were unlawful and should be cancelled.
On June 24, 2013 O’Neill was given the reports of the SABL Commission Inquiry which detail the widespread fraud and mismanagement used by foreign logging companies to gain illegal access to over 5 million hectares of land.
O’Neill has REPEATEDLY STATED the leases will be canceled and illegal logging stopped.
In September 2013 O’Neill told Parliament:
“We will no longer watch on as foreign owned companies come in and con our landowners, chop down our forests and then take the proceeds offshore”
In June 2014, announcing an NEC decision cancelling the leases, O’Neill said
“We are taking these steps to reclaim our customary land illegally lost to foreigners with the help of corrupt public servants and leaders”
“As a responsible government we want to ensure that all citizens have access to the lands of their ancestors. We will not allow our land to be lost to unscrupulous people out to con our people”
Most recently O’Neill promised a new Task Force to look at the Commission of Inquiry recommendations and legislation to cancel some of the leases, but, WE ARE STILL WAITING for the leases to be cancelled and the logging stopped.
For 791 days O’Neill has failed to ensure the SABL leases are revoked and he has been complicit in the illegal logging of our forests by foreign logging companies.
Crucially he has failed to take any action to remove the corrupt public servants responsible for the land grab or distance himself from the politicians, including key Minister’s, complicit in the illegal deals and who are now blocking any positive action to revoke the leases and stop the logging.
Prime Minister Peter O’Neill has aided and abetted the theft of logs worth hundreds of million of kina and the destruction of thousands of hectares of pristine forest.
Below is the thirteenth 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 thirteenth 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.
Continued from yesterday
OVERVIEW – OFFICERS AND EMPLOYEES
The commission reviews the situation regarding appointment and conditions of officers and employees and analyses how the flawed Hay Group methodology resulted in excessive remuneration based on job evaluations, while ignoring the occupant of the job’s capability to fulfil the requirements of the position.
The capabilities of NPF officers is then assessed according to their performance measured by reference to the findings of three key reports:
A. Auditor-General Reports 10.5.3 to 10.5.5
B. PwC Reports 10.5.5 to 10.5.7.1
C. KPMG Special Purpose Audit Report 10.5 to 10.5
These reports provide a very useful checklist of the failures of NPF management (and trustees) to perform within the structural framework of the legislation and the envisaged reporting requirements.
It is reported under the following headings:
- Auditor-General’s section 8 reports
- Audit Report Qualifications
- Other Matters
(a) Crocodile Catering Limited – Maluk Bay;
(b) Maintenance of investment ledgers /reconciliation;
(c) Eight-mile subdivision;
(d) Nine-mile subdivision;
(e) Interest paid;
(f) Contributions bank account reconciliation;
(g) Investment approach/ strategy and corporate governance; and
(h) Many problems caused by structural weaknesses.
Management’s response to the 1998 section 8 Auditor- General’s report
This raised 18 matters investigated on a sample basis as follows:-
(i) Deficiency in members’ funds;
(ii) Deloitte Tower construction costs;
(iii) Tender process;
(iv) Capital expenditure budget;
(v) Property valuation fees;
(vi) Board minutes;
(vii) Investment portfolio – tax implications;
(viii) Tax due to IRC;
(ix) Payroll tax;
(x) Property Section 73 Allotment 13 Boroko;
(xi) Nine-mile subdivision;
(xii) General ledger reconciliation;
(xiii) Creditors subsidiary ledger;
(xiv) Fixed asset register;
(xv) Bank reconciliation;
(xvi) Controls over purchases and accounts payable;
(xvii) Controls over withdrawals of member’s funds;
(xviii) Member’s funds
(a) It is very significant that during the five year period being reviewed by this commission, we find that the attention of the NPF board and senior management was taken up almost entirely with improper, sometimes illegal, matters like borrowing funds, playing the stock markets, corporate take-over games and increasing their own salaries and allowances. Meanwhile, as shown in the Auditor-General’s reports, the staff’s performance of the nuts and bolts functions of the NPF such as collecting and recording contributions, maintaining members’ accounts and the books of NPF, monitoring compliance and the like, was absolutely appalling. This was a complete failure of management for which NPF’s senior officers and Board of Trustees were responsible.
(b) Many of the incidents of maladministration investigated by this commission were also highlighted by the Auditor-General’s reports, as evidenced above. The problem was that the reports, in later years, were late (for reasons indicated) and hence did not result in timely rectification. In any event, mechanisms for ensuring that rectification occurred would not have been effective prior to the change in management in late 1999.
(c) On the evidence of the Auditor-General’s Section 8(2) and 8(4) reports, NPF senior management was seriously inept and deserved no bonuses. The Board of Trustees was in breach of their fiduciary duties in not overseeing the performance of management.
PwC Report 1999 (10.5.6) and further PwC Report 1999
These two very full reports into NPF’s investment portfolio show how NPF’s failure to follow the structure provided by legislation and guidelines had brought NPF to the verge of financial destruction.
KPMG Special Purpose Audit
The commission agrees with and adopts the following comments quoted from the KPMG Report.
“We can not comprehend the prior management and board’s investment strategy of holding significant positions in unproven resource stocks. Dividends in these companies are unlikely until after five to 10 years of operations.
The lack of understanding of risks and returns by prior board and management has transpired into the losses in 1998 and 1999. We understand that most of these shares were acquired in 1996 as part of the Government’s aim to support development mining in Papua New Guinea. A huge loss of K62 million was recorded on sale of shares during 1999.”
In overview the return on investments of the fund in 1999 is described in a word as “appalling” but attributable to bad investment decisions of the board and management made prior to January 1, 1999.
Receipt of required contributions
“Our review of the Compliance division shows various operational weaknesses and fall in productivity. This has led to defaulting and outstanding contributions being at an all-time high in December 1999 with 160 known defaulting contributors.”
“. . . the current position of the fund is a direct result of a whole host of weaknesses and failure at the board and management level to set the appropriate corporate governance measures.
“. . . these weaknesses and failures included among others lack of direction by the board and management, misunderstanding and abuse of trustees role and the politicising of decisions.”
“. . . there were inherent weaknesses in the investment division stemming from board and management override, total disregard of risks, top down decision making, lack of separation of duties, inadequate information system and a lax environment being carried on from year to year.”
Compliance and membership
“Our review indicates that both the compliance and membership functions have not been performed in an efficient and effective manner. Essential operational measures required to track and monitor performance has not been established. The following has been lacking:-
- “Staff do not have performance targets. The board and management have not set the objectives for these divisions. There were no measures in place for measuring performance;
- There are no internally documented procedures manual and guidelines to facilitate and guide the overall conduct and running of these divisions;
- Essential information for operational decision making such as aged outstanding contributions were not always readily available from the information system.”
“Our review indicates that the accounting function has not been properly performed. Basic accounting procedures have not been performed.
Weaknesses identified include:
- Untimely production of management accounts;
- Inaccurate management accounts;
- Entry of journals by junior staff without senior accounts personnel review and authorisation;
- Inadequate audit trail of journals;
- Monthly reconciliation of general ledger balances were either not performed or incomplete and inaccurate;
- A lack of understanding shown by the finance manager on certain accounting issues, thereby leading to accounting errors; and
- No proper segregation of the ordering, purchasing and accounts payable function.”
“Our review indicates that the internal controls required to ensure the efficient and effective functioning of the fund in all areas of operation were either non-existent or lacking. The weaknesses are a direct result of the board and senior management lack of direction.
The results for 1999 and 1998 is a manifestation of the continued ignorance of the prior boards and management to set the appropriate processes and systems to achieve maximum performance for the members.”
(a) The massive losses in 1998 and 1999 of K153 million were a result of poor investment decisions in 1996-1998 in PNG resource stock and STC and CXL and the NPF Tower, mostly funded by illegal borrowing;
(b) The return on investments was appalling;
(c) Operational weaknesses in NPF’s Compliance Division led to 160 known defaulting contributors in December 1999;
(d) NPF’s liabilities exceeded its assets and there were significant unrecorded commitments and contingencies. Until late 1999, NPF management had been stumbling blindly from loss to loss;
(e) No meaningful and effective trend and ratio analysis had been carried out prior to 1999 to record the turn around from healthy profit in 1997 to massive downturn in 1998 with a loss of K70.9 million at that time and with a further loss on sale of shares of K84 million in 1999;
(f) Debt to equity ratio rose from 1 per cent in 1992 to 10 per cent in 1995, to 28 per cent in 1996 to peak in 1998 at 57 per cent of equity:
(g) In early 1999, interest on the Government loan stock was being received quarterly compared with monthly operating expenses of K500,000 and interest on the Tower loan of K600,000. The fund relied on overdraft to remain liquid. This was the result of ignoring the structural constraints on investment;
(h) The internal controls for all areas of operation were either non-existent or lacking;
(i) The board’s performance until April 1999 was inept. There were six different chairmen, the last of which was committing criminal fraud against the fund. The trustees had little understanding of their role and failed to stand up to the strong personalities of Mr Copland and Mr Wright or to monitor, criticise and rectify the performance of management; and
(j) Senior management was characterised by a “combination of sheer arrogance, incompetence and political interference”. From the end of 1998 until the suspension of Mr Leahy on October 8, 1999, it contained an active criminal element.
NPF DECISION-MAKING FORUMS AND DELEGATIONS
Financial Delegations to Management
NPF board’s decisions can only be made in properly constituted board meetings unless the power has been delegated to management.
The only general delegations made by the board to management were:
July 30, 1993 Delegations to:
Managing director up to K100,000;
Financial controller up to K25,000; and
Divisional manager up to K10,000;
February 8, 1999 Delegations to:
Managing director up to K50,000;
Financial controller up to K50,000; and
Divisional manager up to K10,000.
March 8, 1999 Delegations to:
Managing director up to K100,000;
Deputy managing director up to K50,000;
Corporate secretary up to K50,000; and
Divisional manager up to K10,000.
Attempt to “doctor” minutes
At the March 8 meeting, Mr Fabila and Mr Leahy had sought to increase the managing director’s delegation to K350,000 (in order to enable two cheques for K175,000 each to be written for excessive valuer’s fees as part of the NPF Tower fraud).
The board rejected this.
The commission found that Mr Leahy directed Ms Dopeke to change the draft minutes to falsely show that his own delegation had been increased to K100,000.
Board meetings and circular resolutions
Following sub-paragraphs, the commission reports on the practices of management making decisions beyond power then seeking subsequent ratification by the board (188.8.131.52) and circular resolutions whereby the trustees were frequently asked to make important decisions by consulting a short management paper seeking a “for or against” signature – to be (sometimes) ratified at a subsequent board meeting.
Both these devices were “extra legal” and constituted an abuse of process.
Quorum at meetings
The problem of meetings attended by invalidly appointed trustees or an excessive number of trustees of a particular category is discussed at .
(a) The formal structure of bi-monthly meetings with the proper quorum of trustees attending and proper minutes being taken and subsequently confirmed was generally complied with;
(b) “Short-cuts” occurred, however, in the form of management “beyond power” decisions with subsequent board ratification and decision-making by way of circular resolutions.
These devices were extra legal and gave rise to invalid and ill-considered resolutions; and
(c) Some tampering with minutes has been found.
BOARD POLICY AND DIRECTIONS
Board “home grown” policies
The NPF board formulated few, if any, express policies or strategies. It expressly put to one side its obligation to annually update a five-year rolling plan.
There were some board statements of policy intentions:
- resolution to implement DoF jobs creation investments (paragraph 184.108.40.206), This was not followed through.
- Direction that management should pursue investment opportunities then submit them to the board (paragraph 12.2.4).
The investment guidelines – 1993
Sir Julius Chan’s guidelines should have provided NPF with a clear policy to follow on investments – but it ignored them and followed a strategy of high-risk investment in PNG resource stock (paragraph 12.2.2).
The commission reports on the trend of NPF’s investments into high-risk investments and how it sought to be liberated from the constraints of seeking (through DoF) the Minister’s approval of its equity investments. Minister Haiveta gave his approval for NPF to “trade in equity stocks within its investment portfolio which are listed on stock exchanges within the country and overseas . . . without approval provided that each investment whether a sale or purchase does not exceed a maximum level of K1 million at any one time.
This opened the floodgates for a series of unvetted transactions up to K1 million, using funds that were mainly borrowed from ANZ Bank.
This borrowing was beyond NPF’s legal power and it led to a rapid accumulation of high risk, no return investments, which would be very difficult to sell and to a massive debt.
The interest on the debt exceeded K1 million per month, which caused an acute cash liquidity crisis that threatened NPF’s solvency.
Paragraph 12 traces the evolution of these disastrous investment strategies and the continued failure by NPF management and trustees to evaluate its financial situation and direction.
When it did notice it was acting outside the investment guidelines the NPF board did not seem to realise that it was investing funds illegally and that the trustees were each in breach of fiduciary duty by doing so and would be personally liable for the massive losses, which were accumulating.
Rather than trying to rectify the situation by bringing the portfolio back into line with the guidelines, the board sought to have the guidelines changed so that the guidelines would conform to NPF’s high risk and totally inappropriate investment policy.
(a) NPF management and the board ignored the requirement to maintain an annually updated rolling five-year plan and to report on its policies to the Minister and to its members.
They failed to address strategic planning and consequently jumped from one ad hoc high-risk investment decision to the next, following the personal inclinations of Mr Wright and Mr Copland, encouraged by Minister Haiveta’s enthusiastic support.
Mr Kaul was unwilling or unable to restrain Mr Wright’s grandiose plans for NPF as a major institutional investment player.
(b) NPF’s expressed policies were confined to policies regarding staff benefits which were approached enthusiastically by management, and some schemes for members’ benefits such as education loans, long-term members bonuses and some poorly thought out and disastrous home ownership subdivisions;
(c) The absence of carefully conceived and expressed policies, the commission finds that defacto “policy trends” existed as follows:
(i) acquire high-risk, non-income producing PNG resource shares with preference for some decision making role in the hope of making longer term capital gains;
(ii) maintain flexibility and freedom from (Ministerial control and guidelines);
(iii) assert NPF’s independence and freedom from DoF as adviser, monitor and link to the Minister;
(iv) maintain willingness to depart from guidelines and to act without required Ministerial approval when necessary;
(v) a “big is beautiful and borrow to achieve it” approach to investment;
(vi) acquire a significant share holding in CXL and STC for nationalistic reasons and because those companies employed many NPF members.
(d) Following these defacto policy trends and also making ad hoc opportunistic investment decisions, taken without regard to the structural constraints, which were intended to safeguard the members’ funds, caused massive losses for NPF in 1997, 1998 and 1999.
(e) By the time of Mr Fabila’s appointment in May 1998, the damage was done and NPF faced bankruptcy.
With Mr Maladina as chairman and Mr Leahy as his willing criminal conspirator and a new Board of Trustees, the end loomed for NPF.
To a large extent, the situation was turned around by Mr Bai’s firm leadership as Secretary of DoF, the appointment of PwC and the instigation (by Mr Bai) of the Finance inspector’s investigation.
This gave the opportunity for Mr Mitchell and newly appointed trustee John Jeffery to bring both the management and board into line, remove Mr Maladina and Mr Leahy, reduce debt by asset sales and to put appropriate policies in place.
INVESTMENT GUIDELINES AND DIRECTIONS
The commission has made a detailed report on the guidelines and directions, which, under the applicable legislation, NPF was obliged to follow.
Its blatant failure to do so was illegal, and was a breach of fiduciary duty by all the trustees in office at the time.
“All monies belonging to the fund shall be,
(a) . . .
(b) invested by the board in accordance with investment guidelines issued under Subsection (2).
The Minister may from time to time issue guidelines as to the manner in which moneys held by the board shall be invested”.
Rule 32 (1)(b) provides:
“all monies belonging to the fund shall:
(b) be invested, subject to such directions as the Minister may from time to time give, in securities, debentures and other ways provided that such securities are payable both in respect of capital and of interest in Papua New Guinea.”
There is controversy whether rule 32(1)(b) is inconsistent with Section 36(1) of the NPF Act.
Rule 32(1(b) is not inconsistent with Section 36(1) of the Act and is not ultra vires of Section 61(1)(g) of the Act.
Any direction or guideline given under Rule 32(1)(b), however, must be read down, if necessary, to fit within the provisions of the Act.
There have been few directions.
The commission reports on the few direction, which have been given to NPF by the Minister.
The directions by Minister Haiveta for NPF to purchase Government securities, not to withdraw maturing deposits from the loan banks and to use new contributors funds to purchase Government securities was not a matter of issuing guidelines.
It amounted to a direction, which was beyond power and therefore amounted to improper interference with the management of the fund.
(a) Prime Minister Skate’s freeze on investments;
(b) Direction by Minister Lasaro repeating the freeze direction;
(c) Direction to purchase Treasury Bills.
The directions listed above go beyond issuing guidelines.
Those that amounted to more than mere requests were beyond power and amounted to improper interference in the management of the fund.
Failure by NPF to follow the investment guidelines has been a far more serious mater.
In paragraph 14.4.2 and following sub paragraph, the commission examines in detail each part of the 1993 investment guidelines and the effect of NPF’s failure to comply.
The important matter of Minister Haiveta’s variation of the guidelines regarding K1 million transactions in overseas equities is dealt with in detail in Appendix 21.
(a) Minister Haiveta acted improperly in failing to obtain expert or DoF advice before granting approval to trade in equities up to K1 million per transaction.
It was a very significant relaxation of Minister’s control as previously prescribed in the guidelines promulgated by Sir Julius Chan, which led to massive losses of the members’ funds.
(b) Minister Haiveta should be referred to the Ombudsman Commission to investigate whether his reckless failure to seek expert advice from DoF or elsewhere amounted to a breach of the Leadership Code.
To Be Continued on Monday
Below is the twelfth 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 twelfth 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.
Continued from yesterday
Background to April 1999 restructure
Throughout the period under review, NPF suffered from its failure to recruit well-qualified experienced officers for senior management positions.
This may explain why it sought to be liberated from the confines of the SCMC Act (paragraph 7.3) and why it ceased applying for SCMC to approve the higher salaries it was offering to attract suitable applicants.
In paragraph 7 – Background to April 1999 Restructure – the Commission reports how despite the illegally high remuneration offered, NPF still failed to attract well quality officers. During the period 1996 – early 1999, NPF promoted existing inexperienced and unskilled staff to the manager positions at high rates of remuneration (paragraph 7.2). Their poor performance is reported at paragraph 10.5 especially at 10.5.3 and following.
During this period, the plot to remove Mr Kaul and appoint Mr Fabila as managing director succeeded in May 1998.
Mr Leahy’s new contract was presented to and approved by the NPF Board on 6th November 1998. DoF had advised that Mr Leahy’s total remuneration of K121,700 was excessive. This advice was not passed on to the NPF Board by its Chairman (DoF Secretary Bai) and the contract was approved. SCMC approval was not sought.
(a) The DoF provided wrong advice to the DoF Secretary on the provisions of the NPF Act, which governed Mr Leahy’s salary.
(b) Mr Bai, as Secretary of the DoF, provided this incorrect advice to the Minister.
(c) Mr Bai, as chairman of the NPF Board failed his fiduciary duty to advise the Board that Mr Leahy’s proposed salary package was excessive (especially as he had already given such advice to the Minister).
(d) Mr Leahy, as Senior Legal Counsel, failed his duty to the NPF Board by not pointing out the correct procedures for determining his salary under the NPF Act.
(e) Mr Leahy’s contract exceeded K500,000 and thus required, but did not receive, prior Ministerial approval.
(f) Messrs Leahy and Fabila’s action in preparing and signing their own contract of employment in September 1998 was done without the authority of the NPF Board.
(g) The NPF Board was remiss in their duties by not giving full consideration to and questioning Messrs Leahy and Fabila about their employment contacts and in not taking the necessary action to correct anomalies.
Resignation of Mr Wright
Mr Wright resigned (under pressure) in January 1999 and the full extent of NPF’s losses began to become apparent. Mr Wright’s termination payments were irregular especially if it is true that he resigned voluntarily.
(a) Minister Lasaro acted beyond power in his instruction to Mr. Fabila to terminate Mr. Wright’s contract. This was a function of the NPF Board not of the Minister. Mr. Fabila also had no power to carry out this function.
(b) Mr. Fabila was in breach of his fiduciary duty to the members of the Fund and his duty to the Board in failing to inform the Board of his so called concerns about Mr. Wright and in manoeuvring to obtain Mr. Wright’s resignation, in secret consultations with Minister Lasaro.
(c) Mr. Fabila acted illegally where he authorised extra termination pay for Mr. Wright without the authority of the NPF Board. Mr. Fabila may be personally liable to reimburse NPF for the extent of the overpayments.
(d) It is very clear that political direction and interference with the administration of NPF was occurring with the willing cooperation of Mr. Fabila.
PwC was engaged and reported on severe deficiencies in NPF’s management performance.
The remuneration history of Ms Andoiye (paragraph 7.8), Mr Tarutia (paragraph 7.9), Messrs Frank and Aiwa, Ms Dopeke (paragraph 7.11) and Mr Mekere (paragraph 7.1) are reported upon.
(a) The payment of DMA to Mr Tarutia, though approved by SCMC, was not formally approved by the NPF Board as required under the Act.
(b) After commencing as an Assistant Financial Controller in June 1994, Ms Dopeke was rapidly elevated to the position of Chief Accountant for want of any better candidate. It is clear that despite her higher status and salary, she did not have the experience or skills and was not competent for that job.
Despite increases in responsibilities and remuneration, NPF managers continued to perform badly and were criticised by Mr Fabila (paragraph 7.14.1).
Political involvement of Prime Minster Skate
There are two recorded incidents of interference by Prime Minister Skate. In October 1997, he applied a ban on overseas travel by statutory authorities to NPF. This was inappropriate as NPF had overseas investments, which required NPF representatives to attend at Board meetings and there was also Crocodile Catering in Indonesia.
Minister Lasaro reinforced the ban, which continued into 1999.
In March 1999, Prime Minister Skate directed NPF to review all its investments and report to the NEC. Meanwhile he forbade NPF from making any new investments (paragraph 7.16). Whereas Mr Skate was well and truly justified in feeling concern his direction as Prime Minister was improper. There were provisions under the PF(M) Act for the Secretary DoF and the Minister for Finance to seek such reports (the Prime Minister’s direction was followed up by letters from Secretary of the DoF and Minister directing compliance).
Pricewaterhouse Coopers Report
Mr Fabila had engaged PwC to report on NPF’s investments and financial situation. PwC commented upon very serious deficiencies in NPF’s accounting procedures, reporting and management of its investments functions and the high interest rates on its debts.
PwC was particularly critical of NPF’s accounts section and recommended redefining the role of the Finance Investment Manager and correcting the deficiencies in the accounts function. The situation described by PwC at paragraph 8.2 was extremely serious.
The Hay Group
Mr Fabila also engaged the Hay Management Group to analyse NPF’s management structure and propose a total restructure.
On the evidence of the PwC report, in early 1999 the Accounts section at NPF was so weak that it endangered the capacity of the NPF Board to carry out its function to safeguard the funds of the members.
April 1999 Restructure
With the report of Hay Group in hand, the NPF Board approved the restructure but limited it to the six senior management positions, not the total restructure which had been commissioned and recommended.
Mr Rod Mitchell
Mr Mitchell was engaged as Investment Manager under a consultancy agreement with a remuneration package of K200,000 (paragraph 8.3.2) plus extras.
Despite ongoing criticisms of and disciplinary action against the existing managers they were all retained as managers of the various divisions on the increased remuneration packages recommended by Hay Group.
Mr Leahy did not advise the Board about the underlying concerns about the managers’ efficiency.
(a) NPF management (Messrs Fabila and Leahy) deliberately failed to fully advise the Board about the incompetence of senior management staff.
(b) Mr Leahy’s deliberate lie to the NPF Board about Ms Andoiye’s departure was improper conduct.
(c) During this period, senior management placed proposals for substantial increases for management before the Board for approval.
Revitalisation of management under Mr Mitchell
By September 1999, under the influence of Mr Mitchell’s leadership and energy managerial weaknesses were being addressed effectively, but the restructure was not in place.
8th October special meeting – complaints and allegations
At the October meeting, the complaints about Messrs Maladina and Leahy regarding the Waigani Land deal and related matters finally erupted. This led rapidly to Mr Leahy’s suspension and then dismissal on 30th November 1999 and to the collapse of Mr Maladina’s chairmanship in early 2000. It led also to the establishment of the Finance Inspectors investigation and, eventually, to the establishment of this Commission of Inquiry.
The matter of Mr Leahy’s termination benefits is dealt with at paragraph 220.127.116.11. Although a huge sum was being calculated he received a gross payment of K49,807.58.
SCMC approval of senior office increases
After the Hay Group recommendations for senor officer upgrades were approved by the Board, NPF, at last, returned to the SCMC for approval. With minor variations, the increases were approved in January 1999.
Senior staff grades and SCMC approvals
The senior staff were job-graded by Hay group as follows:-
The contracts were drawn up by Carter Newell and the following package was given to each of Mr Tarutia, Ms Andoiye, Ms Dopeke, Ms Marjen and Mr Mekere.
The Carter Newell package gave remuneration at the top of the grade 13 range. Messrs Tarutia and Mekere had in fact been approved at grade 11 level, so they were overpaid. Those listed as grade 11 and 12 received the appropriate remuneration for those grades).
Mr Mitchell’s package
Carter Newell prepared an appropriate employment contract for Mr Mitchell. This was disregarded and he signed instead a consultancy agreement prepared by Mr Leahy.
Mr Mitchell received a gross remuneration package of AUD175,000 per annum with 5 weeks recreation leave per year and 10 days special leave.
The contract was not submitted for SCMC approval despite a demand by SCMC. It did receive NPF Board and Minister’s approval however.
(a) The remuneration package for Messrs Tarutia and Mekere were approved by the NPF Board and the SCMC but they were being paid at Grade 13 instead of the approved Grade 11 rate.
(b) Mr Mitchell was being paid since April 1999 according to a sham consultancy agreement which had been approved by the NPF Board and the Minister for Finance (pursuant to the PF(M) Act). It was not, however, approved by the SCMC and was therefore void.
(c) The other restructured senior officer contracts were in order.
OFFICERS ENTITLEMENTS AND ALLOWANCES
The Commission has not carried out its own inquiries into these matters but has studied the excellent report of the Finance Inspectors investigations. The Inspectors selected and investigated a sample of payments and allowances to individual officers as specified in paragraph 8.6 of Schedule 1.
The Commission accepts the Inspector’s findings. It is clear that there have been major abuses, which had led to an alarming increases in expenses paid as can be seen from the following table:-
(a) There were major abuses and over-payments of expenses and allowances to Trustees and senior officers in the period under review.
(b) The Commission recommends that a full audit and recovery action be carried out.
The fairly generous remunerations for employees is reported at paragraph 9. Some attempts to set up a bonus scheme for this level of employee were rejected by the NPF Board, which did however approve a modest scheme of staff performance benefits to be administered by the managing director.
Home Ownership Scheme
The major additional benefit available to all staff, including the category of “employees” was the Home Ownership Scheme, which had been adopted in October 1993 and continued in the 5 year period under review. The rules for participating are set out at paragraph 9.2.2.
Basically a participant received an advance equal to one years gross salary for down payment on a property. The amount is progressively forgiven at the rate of 20 per cent per year. If the employee remains with NPF for 5 years no repayment will be required.
This scheme should have been, but was not, referred to SCMC for approval.
During the period under review, NPF consistently failed to refer increases in NPF staff remuneration and benefits (such as the Home Ownership Scheme) to the SCMC for approval. This appears to have been deliberate defiance of the SCMC Act by senior management and the NPF Board.
There were several “real” wage increases in the period in addition to CPI adjustments.
At the 109th NPF Board meeting on 5th May 1997 it was resolved to adopt the following policy in relation to staff salary increases:-
During the period under review, NPF consistently failed to refer increases in NPF staff remuneration and benefits (such as the Home Ownership Scheme) to the SCMC for approval. This appears to have been deliberate defiance of the SCMC Act by senior management and the NPF Board.
Throughout 1997, despite severe falls in profits, the NPF still increased benefits to staff based on performance.
When the PEA won an across-the-Board increase of 5% the NPF ruled that this could be paid to PEA members but that they must opt whether to accept that increase or remain with the NPF performance based scheme. They could not benefit from both.
At the end of the period under review, at the Special Board meeting on 8th November 1999, Mr. Mitchell indicated that the budget for 2000 would involve restricting the size of the productivity review to 5% and that local leave fares would be reviewed. Nevertheless, there was still a relaxed attitude to spending members funds as entertainment expenses would still be K5,000 for the managing director, K2,000 each for the corporate secretary and general manager and that K1,600 would be budgeted for the staff Christmas party which included a K100 voucher for each employee at Stop and Shop.
(a) The repeated failures to obtain SCMC approvals to improvements in employees’ remunerations reflected a cavalier approach to employment laws by NPF Board and management.
(b) The attempt to implement the coherent total staff restructure recommended by Hay Group was restricted to 6 senior positions.
(c) The total remuneration of NPF employees, including performance based percentage increases and access to the NPF home ownership scheme, compared favourably with the remuneration of similar employees in private enterprise and the public service.
More than two-years after the SABL Commission of Inquiry reported on the illegal SABL land grab, the government has come up with yet another bull shit excuse for its failure to implement the Commission recommendations!
The government does NOT need legislation to cancel the leases [the courts have already cancelled at least six] and even if it were true, why only start now???
The simple truth is the government is up to its neck in the corrupt deals with the logging industry and has no intention of ever stopping the illegal logging or returning stolen land to its rightful owners…
Govt plans to cancel SABLs
Source: The National [aka The Loggers Times]
THE Government is working on legislation to cancel Special Agriculture Business Leases, Minister for Lands and Physical Planning Benny Allan says.
Allan said the department tasked its legal division last week to start working.
The National Executive Council set up a taskforce to look at the SABL issue based on recommendations from the SABL report that was tabled in Parliament in 2013.
The legislation, Allan said, was to help the department cancel the licences of log exporters operating through the Forest Clearance Authority.
“At the moment, we cannot cancel any SABL so we have to come up with that legislation. And so we are now working on that,” Allan said.
“Once it comes out, we will use that legislation to cancel those ones that we feel have not met the requirements.
“Only those recommended by the taskforce team we will cancel and allow those genuine SABLs to continue, so that is where we are now.”
The legislation means abolishing provisions of the Land Act that allows the granting of SABLs.
Through SABLs, foreign companies have over the years used customarily owned land intended for agricultural projects to develop unlawful logging operations.
Allan said he had directed the legal division of the Lands Department to start working on the legislation as soon as possible.
The SABL report was presented to Prime Minister Peter O’Neill in March 2013 following a commission of inquiry that uncovered massive fraud and issuance of leases without proper processes, resulting in about 5.5 million hectares of PNG land taken by foreign companies.
Last week, Secretary for Lands and Physical Planning Romilly Kila Pat said six of the SABLs investigated were before the courts for judicial review.