FINAL REPORT AUGUST 2018 - PNGi...

Ombudsman Commission of Papua New Guinea

Investigation into the alleged improper awarding of the Namatanai District Agriculture Development Program

Contract to KPE Investment Ltd by the Namatanai Joint District Planning & Budget Priority Committee

FINAL REPORT AUGUST 2018

https://upload.wikimedia.org/wikipedia/commons/5/5a/Flag_of_New_Ireland.svg

https://upload.wikimedia.org/wikipedia/commons/5/5a/Flag_of_New_Ireland.svg

Table of Contents i

TABLE OF CONTENTS

TABLE OF CONTENTS ................................................................................................................ i

ABBREVIATIONS ........................................................................................................................ iii

CHRONOLOGY OF EVENTS ................................................................................................... iv

EXECUTIVE SUMMARY ........................................................................................................... vi

1.0 JURISDICTION AND PURPOSE OF INVESTIGATION ........................................ 1

[1.1] INTRODUCTION .......................................................................................................... 1

[1.2] JURISDICTION OF THE OMBUDSMAN COMMISSION ......................................... 1

[1.3] PURPOSE OF THE INVESTIGATION ......................................................................... 3

[1.4] METHOD OF INQUIRY ................................................................................................ 3 [1.5] PEOPLE WHO GAVE EVIDENCE BEFORE THE OMBUDSMAN

COMMISSION ............................................................................................................... 3 [1.6] OMBUDSMAN COMMISSION NOT CONFINED TO REPORTING ON

LEGALITY OF ADMINISTRATIVE CONDUCT ......................................................... 4

[1.7] DEFINING ―WRONG CONDUCT‖ ............................................................................. 4

[1.8] THE PROVISIONAL REPORT ...................................................................................... 4

2.0 FINDINGS OF FACT....................................................................................................... 6

[2.1] GENERAL ....................................................................................................................... 6

[2.2] 2013 NATIONAL BUDGET ............................................................................................ 6

[2.3] NATIONAL GOVERNMENT GRANTS ...................................................................... 8

[2.4] NEW IRELAND PROVINCIAL GOVERNMENT BUDGET .................................... 11

[2.5] FINANCIAL INSTRUCTION NO.01/2013 .................................................................. 12

[2.6] PSIP, DSIP AND LLGSIP ADMINISTRATIVE GUIDELINES ................................... 16 [2.7] NAMATANAI JOINT DISTRICT PLANNING & BUDGET PRIORITY

COMMITTEE DECISION No. 05/01/2013 ON 22 FEBRUARY 2013 ......................... 23

[2.8] KPE INVESTMENT LIMITED .................................................................................... 25

[2.9] ISSUANCE OF CERTIFICATE OF INEXPEDIENCY ............................................... 26 [2.10] AUTHORITY TO PRE-COMMIT APPROVED BY THE NEW IRELAND

PROVINCIAL ADMINISTRATION ........................................................................... 27 [2.11] NAMATANAI DISTRICT AGRICULTURE DEVELOPMENT PROGRAM

CONTRACT AWARDED TO KPE INVESTMENT LTD .......................................... 28

[2.12] PAYMENTS MADE TO KPE INVESTMENT LTD .................................................... 30

[2.13] DISTRICT TO CONTINUE FUNDING OF KPE INVESTMENT LTD .................... 31

[2.14] DEPARTMENT OF IMPLEMENTATION AND RURAL DEVELOPMENT ........... 34

[2.15] HON. BYRON CHAN’S RESPONSE ........................................................................... 35

[2.16] MR. LINUS YIPMA’S RESPONSE .............................................................................. 36

3.0 FINDINGS ........................................................................................................................ 38

[3.1] FINDING No. 1 .............................................................................................................. 38

[3.2] FINDING No. 2 ............................................................................................................. 38

[3.3] FINDING No. 3 ............................................................................................................. 39

[3.4] FINDING No. 4 ............................................................................................................. 39

[3.5] FINDING No. 5 ............................................................................................................. 40

Table of Contents ii

[3.6] FINDING No. 6 ............................................................................................................. 41

[3.7] FINDING No. 7 ............................................................................................................. 41

4.0 RECOMMENDATIONS ............................................................................................... 42 [4.1] CONSTITUTIONAL FRAMEWORK FOR MAKING

RECOMMENDATIONS .............................................................................................. 42

[4.2] RECOMMENDATIONS CONCERNING PARTICULAR INDIVIDUALS.............. 42

[4.3] RECIPIENTS OF RECOMMENDATIONS ................................................................ 43

[4.4] RESPONSIBLE MINISTERS ........................................................................................ 43 [4.5] MINISTERS RESPONSIBLE FOR FOLLOWING UP

IMPLEMENTATION OF RECOMMENDATIONS ................................................... 43

[4.6] DUTIES OF RECIPIENTS OF RECOMMENDATIONS ........................................... 43

[4.7] RECOMMENDATIONS .............................................................................................. 44

RECOMMENDATION No.1 ................................................................................... 44



RECOMMENDATION No.4 .................................................................................. 47




5.0 CONCLUSION ................................................................................................................ 52

6.0 RELEVANT LAWS ........................................................................................................ 53

[6.1] CONSTITUTION ......................................................................................................... 53

[6.2] ORGANIC LAW ON THE OMBUDSMAN COMMISSION .................................... 55 [6.3] ORGANIC LAW ON PROVINCIAL GOVERNMENT AND LOCAL

LEVEL GOVERNMENTS ............................................................................................ 55

[6.4] PUBLIC FINANCE (MANAGEMENT) ACT 1995 .................................................... 56

[6.5] FINANCE MANAGEMENT MANUAL ..................................................................... 60

[6.6] INCOME TAX ACT 1959 ............................................................................................. 60

[6.7] PSIP, DSIP & LLGSIP ADMINISTRATIVE GUIDELINES 1B/2014 .......................... 63

7.0 APPENDICES .................................................................................................................. 65

Abbreviations iii

ABBREVIATIONS

APC Authority to Pre-Commit Chairman Chairman of the Namatanai Joint District Planning and Budget Priority

Committee CoC Certificate of Compliance CoI Certificate of Inexpediency CSTB Central Supply and Tenders Board DMT District Management Team DoIRD Department of Implementation and Rural Development DSIP District Services Improvement Programme FF3 General Expenses Form FF4 Requisition for Expenditure Form JDP&BPC Joint District Planning and Budget Priority Committee LLG Local Level Government LLGSIP Local Level Government Improvement Programme MP Member of Parliament NDADP Namatanai District Agriculture Development Programme PSIP Provincial Support Improvement Programme PSTB Provincial Supply and Tenders Board.

Chronology of Events iv

CHRONOLOGY OF EVENTS

2012 30 October The National Executive Council, in Decision No: 102/2012, directed

for Service Improvement Program and funding to be done on key sectoral basis. That is, the Service Improvement Program and its funds will be based on infrastructure, health, education, law and order, economic and agriculture and administration.

20 November The National Government through the Department of Treasury

published the 2013 Recurrent Budget Estimates of Revenue and Expenditure for Statutory Authorities, Provincial Governments, Debt Services and Trust Accounts.

2013 22 February Namatanai Joint District Planning and Budget Priority Committee

(JDP&BPC) in its Meeting No: 01/2013 approved the allocation of K1million funding for the delivery of agricultural goods and services by KPE Investment Ltd. Mr. Linus Yipma, Namatanai District Administrator, certified the Resolution No. 5/01/13 on even date.

15 April Amendments made to Sections 39B and 47B of the Public Finance

(Management) Act 1995. 2 July Namatanai District Administration and KPE Investment Ltd signed

the Contract Agreement.

25 July Internal Revenue Commission issued a Certificate of Compliance to KPE Investments Ltd.

14 August Mr. Linus Yipma, Namatanai District Administrator raised a

Requisition for Expenditure form and General Expenses Form to pay K300,000.00 to KPE Investment Ltd for services rendered for the execution of the Namatanai District Agriculture Development Programme (NDADP). Mr. Ralph Kotauga, the then Provincial Treasurer approved on the same day.

16 August Mr. Monovi Amani, the then Provincial Administrator, New Ireland

Province approved the Authority to Pre-Commit (APC) to release K1,000,000.00 to the Namatanai District Administration.

Namatanai District Administration raised a Certificate of

Inexpediency (CoI) to waiver the public tender process to award the contract to KPE Investment Ltd.

27 August Namatanai District Administration and KPE Investment Ltd signed the same Contract Agreement.

Chronology of Events v

10 September Paying Officer verified the Provincial Treasurer’s signature on the General Expenses Form after he corrected the Account Code and changed the amount from K1, 000,000.00 to K300, 000.00, that was paid to KPE Investment Ltd.

24 September KPE Investment Ltd is registered with the Investment Promotion

Authority. 18 October KPE Investment Ltd released its financial report on how it spent the

funds totalling K260,953.15 to deliver goods and services to the farmers in the Namatanai District.

23 October Mr. Neville Tomon, the then Acting District Planner and Mr. Linus

Yipma, Namatanai District Administrator approved the Requisition for Expenditure Form for the second payment of K300,000.00 to KPE Investment Ltd.

29 October Mr. Neville Tomon, the then Acting District Planner signed and

received the cheque for K300,000.00 as the Claimant. 9 December Mr. Linus Yipma, Namatanai District Administrator as Section 32

Officer approved the Requisition for Expenditure form for KPE Investment Ltd to be paid for services rendered.

10 December Mr. Linus Yipma, Namatanai District Administrator approved the

General Expenses Form for K300,000.00 as final payment. 16 December Mr. David Manil, the then Acting District Treasurer for Namatanai

District as the Financial Delegate endorsed the General Expenses Form by crossing out K400,000.00 and replacing it with K300,000.00 to be paid to KPE as final payment.

23 December The Hon. Byron Chan, MP and Chairman for the Namatanai

JDP&BPC presented KPE Investment Ltd’s report for 2013 to the Namatanai JDP&BPC.

2014 13 January The Namatanai JDP&BPC in its Meeting No. 01/2014 agreed for

changes to be made to have continuous funding of the KPE Agriculture Development Plan Implementation project.

30 April The Namatanai JDP&BPC in its Meeting No. 2/2014 a decision was

made that the District Administration will continue to engage KPE Investment Ltd to implement the NDADP.

Executive Summary vi

EXECUTIVE SUMMARY

Overview

This is the Final Report of an Own Initiative investigation into the allegation of improper awarding of Namatanai District Agriculture Development Program (NDADP) Contract to KPE Investment Ltd by the Namatanai Joint District Planning & Budget Priority Committee (JDP&BPC) The Ombudsman Commission conducted this investigation after it was alleged that the NJDP&BPC failed to comply with the Organic Law on the Provincial Governments and Local Level Governments and the Public Finance (Management) Act 1995 and the Finance Management Manual when it awarded the Contract for the delivery of Agricultural goods and services to farmers in Namatanai District in New Ireland Province to KPE Investment Ltd and made payments to the Contractor. The following allegations were investigated: 1. Whether the Namatanai Joint District Planning and Budget Priority Committee

followed the procurement process provided by the Public Finance (Management) Act 1995, to award the Contract for the Namatanai District Agriculture Development Program to KPE Investments Limited.

2. Whether the Namatanai District Administration and the New Ireland Provincial

Administration complied with proper procedures when they made payments to KPE Investment Ltd for services rendered.

Principal findings

1. In the opinion of the Ombudsman Commission, the conduct of Hon. Byron Chan, MP and Chairman of the Namatanai Joint District Planning and Budget Priority Committee was wrong when he instructed the members of the Namatanai Joint District Planning and Budget Priority Committee to award the Contract for the Namatanai District Agriculture Development Programme to KPE Investment Ltd.

2. In the opinion of the Ombudsman Commission, the conduct of the Internal Revenue

Commission in issuing a Certificate of Compliance to KPE Investment Ltd was wrong because KPE Investment Ltd was not a registered entity with the Investment Promotion Authority at that time.

3. In the opinion of the Ombudsman Commission, the conduct of Namatanai Joint

District Planning and Budget Priority Committee was wrong when it made a decision to award the Contract to KPE Investment Ltd, a company that was not registered with the Investment Promotion Authority at that time.

4. In the opinion of the Ombudsman Commission, the conduct of Mr. Linus Yipma,

Namatanai District Administrator was wrong when he awarded a Certificate of Inexpediency to avoid public tendering the project.

Executive Summary vii

5. In the opinion of the Ombudsman Commission, the conduct of Mr. Monovi Amani, the then Provincial Administrator, New Ireland Province was wrong when he approved the Authority to Pre-Commit without a Provincial Supply and Tenders Board decision number.

6. In the opinion of the Ombudsman Commission, the conduct of Mr. Ralph Kotauga,

the Provincial Treasurer was wrong when he endorsed and approved payments to KPE Investment Ltd.

7. In the opinion of the Ombudsman Commission, the conduct of Mr. Linus Yipma,

Namatanai District Administrator was wrong when he entered into a Contractual Agreement with KPE Investment Ltd knowing that proper procedures under Section 40 of the Public Finance (Management) Act 1995 had not been complied with.

Recommendations

1. The Ombudsman Commission recommends that the Chairman of the Namatanai JDP&BPC must strictly comply with Section 33 (A) of the Organic Law on Provincial and Local Level Government and Section 39B of the Public Finance (Management) Act 1995.

2. The Ombudsman Commission recommends that the Internal Revenue Commission

ensure that all new companies must be registered with the Investment Promotion Authority and have met all requirements before issuing Certificates of Compliance.

3. That the Ombudsman Commission recommends that the Namatanai JDP&BPC

must strictly comply with Section 33A of the Organic Law on Provincial Government and Local Level Governments and not perform roles and functions that are outside of its jurisdiction.

4. The Ombudsman Commission recommends that the New Ireland Provincial

Administration must ensure that the Namatanai District Administration strictly comply with Part 40 of the Public Finance Management Act 1995 and Part 13, Division 4, Clauses 13 and 14 of the Finance Management Manual when requesting or issuing of the Certificate of Inexpediency.

5. The Ombudsman Commission recommends that the Provincial Administrator for

the New Ireland Provincial Administration must strictly comply with Section 47B of the Public Finance (Management) Act 1995 and Part 13, Division 3 of Clause 9 (c) of the Finance Management Manual when approving Authority to Pre-Commit Forms.


Treasury must strictly comply with the Public Finance (Management) Act 1995 and the Finance Management Manual and conduct their own due diligence checks before authorizing the Namatanai District Treasury Officers to raise cheques to pay contractors.


Administration and the Namatanai District Administration must ensure that proper tender and procurement procedures are strictly followed in accordance with the

Executive Summary viii

Section 40 & 42 of the Public Finance (Management) Act 1995, Part 13 of the Financial Management Manual and the PSIP, DSIP & LLGSIP Administrative Guidelines.

Jurisdiction and Purpose of Investigation 1

1.0 JURISDICTION AND PURPOSE OF INVESTIGATION

[1.1] INTRODUCTION

This is an investigation by the Ombudsman Commission on its Own Initiative to establish whether or not there was any wrong conduct surrounding the alleged improper awarding of Contract and payment to KPE Investment Ltd by the Namatanai Joint District Planning and Budget Priority Committee (JDP&BPC), the Namatanai District Administration and the New Ireland Provincial Administration. Notices were issued under Section 17(1) of the Organic Law on the Ombudsman Commission to Mr. Monovi Amani, the then Provincial Administrator for New Ireland Provincial Administration and his successor Mr. Moses Makis advising them of the Ombudsman Commission’s intention to investigate this matter on 29 September 2014.

[1.2] JURISDICTION OF THE OMBUDSMAN COMMISSION

The Constitution empowers the Ombudsman Commission to investigate on its own initiative or on complaint by a person affected by any conduct on the part of any governmental body or an officer or employee of a governmental body in the exercise of a power or function vested in it, him or her by law in cases where the conduct is or may be wrong, taking into account, amongst other things, the National Goals and Directive Principles, the Basic Rights and the Basic Social Obligations. Section 217(1) of the Constitution establishes the Ombudsman Commission. Section 217(1) of the Constitution states:

“There shall be an Ombudsman Commission, consisting of a Chief Ombudsman and two Ombudsmen”.

Section 217(5) of the Constitution states that in the performance of the Commission’s functions, under Section 219 of the Constitution the Commission is not subject to direction or control by any person or authority. Section 217(6) of the Constitution states that the proceedings of the Commission are not subject to review in any way, except by the Supreme Court or the National Court on the ground that it has exceeded its jurisdiction. Section 217(8) of the Constitution defines conduct. Section 217(8) states:

(a) any action or inaction relating to a matter of administration; and (b) any alleged action or inaction relating to a matter of administration.

Section 218(a), (b) and (c) of the Constitution specifies the purposes of establishing the Commission. Section 218(a), (b) and (c) states:


―The purposes of the establishment of the Ombudsman Commission are— (a) to ensure that all governmental bodies are responsive to the needs

and aspirations of the People; and (b) to help in the improvement of the work of governmental bodies and

the elimination of unfairness and discrimination by them; and (c) to help in the elimination of unfair or otherwise defective legislation

and practices affecting or administered by governmental bodies‖ Section 13 of the Organic Law on the Ombudsman Commission also specifies the purpose of establishing the Commission. Section 13 of the Organic Law on the Ombudsman Commission states:

―For the purposes of Section 219(1)(a) (functions of the Commission) of the Constitution the functions of the Commission, in addition to the functions specified in Section 219(1), (b), (c), (d) and (e) (functions of the Commission) of the Constitution, are to investigate, on its own initiative or on complaint by a person affected, any conduct on the part of –

(a) any State Service or a member of any State Service; or

(b) any governmental body, or an officer or employee of a governmental

body; or

(c) any other service or body referred to in Section 219(a) (functions of the Commission) of the Constitution that the Head of State, acting with, the advice of the National Executive Council, by notice in the National Gazette, declares to be a service or body for the purpose of this section‖.

Section 219(1)(a)(ii) of the Constitution states the functions of the Commission. Section 219(1)(a)(ii) of the Constitution states: ―Subject to this section and to any Organic Law made for the purposes of Subsection (7), the functions of the Ombudsman Commission are—

(a) to investigate, on its own initiative or on complaint by a person

affected, any conduct on the part of—

(i) any State Service or provincial service, or a member of any such service; or

(ii) any other governmental body, or an officer or employee of a governmental body‖.

The New Ireland Provincial Administration, the Namantanai District Administration and the Namatanai JDP&BPC are governmental bodies created by statute, namely the Organic Law on the Provincial Governments and Local Level Governments.


The Ombudsman Commission therefore has jurisdiction to inquire into the question of whether the Namatanai District Administration and the Namatanai JDP&BPC decision to award the contract for the supply of agricultural goods and services in all the six Local Level Government areas in order to implement the Namatanai District Agriculture Development Programme (NDADP) was proper.

[1.3] PURPOSE OF THE INVESTIGATION

The purpose of this investigation is to determine whether any of the conduct under investigation was wrong and to determine whether any laws or administrative practices were defective in relation to the decision of the Namatanai JDP&BPC, the Namatanai District Administration and the New Ireland Provincial Administration.

[1.4] METHOD OF INQUIRY

The Ombudsman Commission issued a notice on 29 September 2014 under Section 17(1) of the Organic Law on the Ombudsman Commission to the Provincial Administrator and Chairman of the Provincial Supply and Tenders Board (PSTB) advising of its intention to investigate the allegation. Section 17(1) of the OLOC states:

Before investigating any matter within its jurisdiction, the Commission shall inform the responsible person of its intention to make the investigation.

The Ombudsman Commission obtained documents and other evidence from a number of sources and used its powers under Section 18 of the Organic Law on the Ombudsman Commission to require people to produce documents and information. Section 18 states:

(1) Subject to the provisions of this Section and of Section 19, the Commission may from time to time require any person who in its opinion is able to give any information relating to any matter that is being investigated by the Commission to furnish to it that information and to produce any documents, papers or things that, in the opinion of the Commission, relate to any matter being investigated by it and that may be in the possession or control of that person.

[1.5] PEOPLE WHO GAVE EVIDENCE BEFORE THE OMBUDSMAN

COMMISSION

The following people were called and gave evidence before the Commission: No. Name Designation

1 Mr. Moses Makis Acting Provincial Administrator 2 Mr. Robin Brown Namatanai District Administrator 3 Mr. Ralph Kotauga Provincial Treasurer 4 Mr. Isaac Gunugu Provincial Works Manager


[1.6] OMBUDSMAN COMMISSION NOT CONFINED TO REPORTING ON LEGALITY OF ADMINISTRATIVE CONDUCT

When the Ombudsman Commission conducts an investigation, it is not confined to reporting on whether or not there have been breaches of the law. The Ombudsman Commission’s constitutional mandate is broader than this. It is authorized to report on what, in its opinion, is ―wrong conduct‖, irrespective of whether that conduct has been in accordance with the law.

[1.7] DEFINING ―WRONG CONDUCT‖

The Constitution gives some guidance to the Ombudsman Commission when it is deciding whether a conduct is ―wrong‖. Section 219(2) of the Constitution states:

Subject to Subsections (3), (4) and (5), and without otherwise limiting the generality of the expression, for the purposes of Subsection (1)(a) conduct is wrong if it is-

(a) contrary to law; or (b) unreasonable, unjust, oppressive or improperly discriminatory, whether or not it is in

accordance with law or practice; or (c) based wholly or partly on improper motives, irrelevant grounds or irrelevant considerations;

or (d) based wholly or partly on a mistake of law or of fact; or (e) conduct for which reasons should be given but were not,

whether or not the act was supposed to be done in the exercise of deliberate judgment within the meaning of Section 62 (decisions in ―deliberate judgment‖).

The above list is not exhaustive. The phrase ―and without otherwise limiting the generality of the expression‖ indicates that conduct which does not fit into any of the descriptions in subsections (a) to (e) may still be regarded as wrong. The Ombudsman Commission is entitled to regard conduct as wrong, even if the conduct does not appear in the list of descriptions given in Section 219(2) of the Constitution.

[1.8] THE PROVISIONAL REPORT

Whenever the Ombudsman Commission prepares a report of this nature, it has a duty to observe procedural fairness. Section 17(4)(b) of the Organic Law on the Ombudsman Commission imposes this duty.

Section 17(4)(b) states:

(4) Nothing in this Law compels the Commission to hold any hearing and no person is entitled as of right to be heard by the Commission except that …

(b) the Commission shall not make any comment in its report that is adverse to or

derogatory of any person without – (i) providing him with reasonable opportunity to be heard; and (ii) fairly setting out his defence in its report.

In order to discharge its duty of procedural fairness, the Ombudsman Commission distributed a Provisional Report of this investigation into the ―alleged improper awarding


of the Namatanai District Agriculture Development Program Contract to KPE Investment Ltd by the Namatanai Joint District Planning & Budget Priority Committee‖ in the months of May and November 2017. Accompanying the Provisional Report was a direction, pursuant to Section 21(1) of the Organic Law on the Ombudsman Commission that all evidence, documents, papers and things referred to, including all findings and opinions, shall not be published without the consent in writing of the Ombudsman Commission. Breach of this direction is a criminal offence. The following people were given a copy of the Provisional Report and were invited to respond to the Commission’s preliminary findings:

No. Name Tile Date Delivered

Responses Received by OC

1 Hon. Bryon Chan MP Member for Namatanai District and Chairman of NJDP & BPC

27/05/2017 9 June 2017

2 Mr. Linus Yipma Former Namatanai District Administrator

25/05/2017 23 June 2017

3 Mr. Ralph Kotauga Provincial Treasurer 26/05/2017 No Response 4 Mr. Monovi Amani Provincial Administrator 2/11/2017 No Response 5. Ms. Betty Palaso Internal Revenue

Commissioner 04 July 2018

12 July 2018 No comments on the Provisional Report by Ms. Betty Palaso.

The Commission has discharged its duty of procedural fairness and natural justice by giving the above persons the opportunity to respond to the Provisional Report within 21 days from the date of our letter. Hon. Byron Chan, MP responded to the findings of the Ombudsman Commission’s Provisional Report on 9 June 2017. Hon. Byron Chan, MP consented to the findings of the Commission’s Provisional Report. The Letter of response reads:

As a Chairman DDA Namatanai, I realised a lot of District Administrative

failure from content of the report now been exerted on me. Procedural issues

demonstrated by my District Administrations clearly demonstrate

incompetence’s. After an audit conducted, KPE was also brought into light, I

immediately suspended my District Administrator Mr Linus Yipma and advised

the board. The Ombudsman Commission after receiving the response from Hon. Byron Chan, MP and Chairman of Namatanai Joint District Planning & Budget Priority Committee compiled the Final Report with its Recommendations for publication and tabling in Parliament as required under Section 23 of the Organic Law on the Ombudsman Commission.

Findings of Fact 6

2.0 FINDINGS OF FACT

[2.1] GENERAL

This chapter deals with the events leading up to the Namatanai Joint District Planning and Budget Priority Committee’s (JDP&BPC) decision on 23 February 2013 to award a Contract worth K1, 000,000.00 for the implementation of the Namatanai District Agriculture Development Programme (NDADP) funded through the District Services Improvement Programme (DSIP) funds to deliver Agricultural goods and services to all six Local Level Government areas in the Namatanai District.

[2.2] 2013 NATIONAL BUDGET

On 30 October 2012, the National Executive Council (NEC) through its Decision No: 102/2012 directed for the Service Improvement Programme (SIP) funding to be done on key sectoral basis. That is, the SIP and its funds will be based on Infrastructure, Health, Education, Law & Order, Economic & Agriculture and Administration. The Decision further approved the breakdown of the SIP into percentages as follows: Key Sector %

1. Infrastructure 30%

2. Health 20%

3. Education 20%

4. Law & Justice 10%

5. Economic & Agriculture 10%

6. Administration 10%

The NEC made the decision to further break down the 10% Administration allocation as follows:

1. General Administration 3%

(support to JPP&BPC/JDP&BPC and Project Management Team (PMTs)

2. Electoral (MP) Office Operational Support 3%

3. Project Mobilization costs 4%

Findings of Fact 7

Comments The NEC Decision No.102/2012 was made in order for Government Grants to reach the people. These Government Grants, the Provincial Services Improvement Programme (PSIP), District Service Improvement Programme (DSIP) and Local Level Government Service Improvement Programme (LLGSIP) which are tied down to sectors and all project(s) are to be funded in compliance with the sector requirements. These measures are to allow funds to be channeled down to the Districts and the Local Level Governments (LLGs) where the majority of the population is located. The NEC Decision was for Districts and LLGs to be allocated K10 million and K500,000.00 respectively annually under the SIP was for the Districts, Wards and villages to implement development projects as per the break-up of the SIP percentage. It was noted that the bulk of the development funding goes to Infrastructure Sector (30%) while Economic and Agriculture Sector receives 10%. Hence, the break-up of the DSIP funds of K10 million is as follows: Key Sector % Amount

1. Infrastructure 30% K3.0 million

2. Health 20% K2.0 million

3. Education 20% K2.0 million

4. Law & Justice 10% K1.0 million

5. Economic & Agriculture 10% K1.0 million

6. Administration 10% K1.0 million

Total 100% K10.0 million

The Administration Sector (10%) of the DSIP is further broken down as follows:

6. Administration % Amount

6.1 General Administration 3% K300,000

6.2 Electoral (MP) Office Operational Support 3% K300,000

6.3 Project Mobilization costs 4% K400,000

Total 10% K1.0 million

In line with the relevant policies, the development projects under the Recurrent Budget must be identified and categorized into one of the various sectors in order to qualify for funding from that particular sector. Therefore, the SIP Grants are seen to be distributed fairly and equitably to all the development partners and the people get the maximum benefit of the Government’s PSIP, DSIP and LLGSIP policy at the District and local level in line with the National Government’s policy on empowering the Provinces, Districts and LLGs.

Findings of Fact 8

[2.3] NATIONAL GOVERNMENT GRANTS

In 2013, Honourable (Hon.) Don Pomb Polye, the then Minister for Treasury, presented the National Budget outlining the National Government’s economic and development policies. Below are extracts taken from ―Volume 1 of the Economic and Development Polices: Growing Our Future: Empowering our people for inclusive and sustainable growth‖.

ECONOMIC AND DEVELOPMENT POLICIES CHAPTER 1. BUDGET OVERVIEW 1.2 2013 BUDGET – OVERVIEW AND REVENUE The 2013 Budget will be PNG‘s first budget to reach K13.0 billion. Even with its large size, it has been framed to be a responsible budget given PNG‘s increase expenditure on the Medium Term Development Enablers (Infrastructure, Education, Health, Law & Order and Land), in particular at the sub-national level. Expenditure in these key areas are estimated to increase by 50.0 per cent from around K5.0 billion in 2012 to K7.5 billion in 2013. This is a very significant ―step-up‖ in investing for our future. This Budget is set against assumptions of a modest increase in activity in the global economy in 2013 in comparison to 2012. This is as a result of a potential reduction in uncertainty relating to the fiscal crisis in the Euro area and the United States, as well as continuing monetary policy accommodated and gradually easier financial conditions. Revenue is anticipated to grow slowly relative to recent years. Total revenue and grants are expected to total K10,481.9 million, up 3.2 per cent from 2012 levels. As a share of GDP, this represents a decline from 31.1 per cent in 2012 to 29.5 per cent in 2013. It is also framed within a planned budget deficit of around 7.2 per cent of GDP for 2013, with the level of deficit being reduced so that it returns to surplus by 2017. In addition to borrowing for the anticipated deficit in 2013, there will be a need to raise additional financial to maintain the PNG Government‘s share of the PNG LNG project given the recently announced increase in costs for the project.

1.3 2012 BUDGET – EXPENDITURE AND FINANCING Total Expenditure and Net Lending in 2013 is estimated to be K13,030.8 million, which is PNG‘s biggest eve budget. This indicates a K2,470.7 million or 23.4 per cent increase to the 2012 revised estimate. There are three key expenditure highlights in this Budget. First, there will be an 87 per cent increase in funding for sub-national levels of Government, primarily through a K1,492.0 million per year program of direct funding. Second, support for the key enablers of infrastructure, education, health and law and order will increase by 50.9 per cent, from around K5.0 billion to K7.5 billion. Third, there will be a major commitment to sustained planning, design, costing and implementation of key Nation Building Productive Infrastructure Investments, with K12.1 billion committed over the next five years. Details of the key revenue and expenditure areas for 2013 and indicative forward estimates through to 2017 are set out in detail in the following pages. CHAPTER 9. DEVELOPMENT STRATEGY 9.1 2012 DEVELOPMENT BUDGET STRATEGY

Findings of Fact 9

…The 2013 Development Budget Strategy aims to empower Provinces, Districts and LLGs for effective participation in inclusive and sustainable growth to diversify our economy and expand our productive base, and therefore improve livelihoods. This strategy is supported by high impact and productive investments in the 2013 Development Budget, providing access and opportunities to the rural majority through roads infrastructure to lay the foundations for sustainable growth. The 2013 Development and Capital Investment Funding is structured around the following principles:

1. Directing resources to the Provinces, Districts and LLGs; 2. Delivering a policy-driven Budget in line with the Alotau Accord and MTDP; 3. The appropriation of funding across all sectors of the economy, with particular focus

on the MTDP Key Enablers so as to maximize social and economic returns; 4. Redirection of expenditure towards the MTDP enablers and away from lower priority

and ineffective programs, so as to guarantee tangible outcomes and clear, measurable impacts;

5. Close alignment with the Service Delivery Funding as well as funds held in Trust

Accounts so as to minimize duplication of resources and ensure the sustainability of Investments made; and

6. An effective and aligned relationship between Government, National Agencies, Sub

National Agencies and our development partners. The Development Budget for this year is K5.8 billion or 44.0 per cent of the total 2013 Budget for Papua New Guinea. The Government is committing to priority infrastructures that connect all of Papua New Guinea and allows the effective implementation of projects and services across other key sectors such as health services delivery and education. To invest in our future, the Development and Capital Investment Funding has grown to finance these targeted investments that accelerate sustainable and inclusive growth. 9.2 DEVELOPMENT BUDGET 2013 9.2.3 Development Budget 2013 The Government‘s new directive to target resources at the provincial, District and LLG levels will increase the 2013 Development Budget by K1.4 billion to K5.8 billion. The Development Budget is distributed to Provinces, Districts and Local Level Governments through the Provincial Services Improvement Programme (PSIP), District Services Improvement Programme (DSIP), Productive Infrastructure Investment projects, the Alotau Accord priority areas, Fixed Commitments, and Critical New & Ongoing projects.

Components Description Kina Million % of DB PSIP K5.0 million per district (89) 445.0 12.0 DSIP K10.0 million per district (89) 890.0 23.0 LLG K0.5 million per LLG (314) 157.0 4.0 Hela/Jiwaka K30 million per province (2) 60.0 2.0 Fixed Commitments 626.1 16.0 (inc loan counterpart) 0.0 New Productive Infrastructure Investments

569.0 15.0

Other Priority Infrastructure Investments

332.0 9.0

PM‘s Commitments 29.0 1.0 Alotau Accord Priorities 235.0 6.0

Findings of Fact 10

National Expenditure 467.2 12.0 Total 3,810.3 100.00

Through the ORD allocation guidelines for the DSIP, PSIP and LLG Support, direct funding will be distributed accordingly: 30:0 per cent will be allocated to infrastructural investments, 20.0 per cent to health, 20.0 per cent will be allocated to infrastructure investments, 10.0 per cent to the economic sector and 10.0 per cent to the administrative sector. Provinces with a good transport network will be more cost effective as compared to provinces with poor transport networks. According to the recently published ‗2012 Budget Fiscal Report‘ by the National Economic and Fiscal Commission, increasing funds to provinces over the years has increased the provinces‘ ability to improve service delivery, particularly those that are unable to generate adequate internal revenue. 9.2.5 District Services Improvement Programme (DSIP) The DSIP funds will be disbursed to district treasuries‘ operating accounts. Administration of these funds will be guided by the NEC endorsed ORD guidelines (2012). A total of K890.0 million or 23 per cent of direct financing will be disbursed at K10.0 million per district. Table 41 shows the total DSIP funds to be distributed to districts within each province. Table 41: District Services Improvement (DSIP) Allocation in the 2013 Development Budget to District Treasuries Operating Accounts (Kina Million).

Province DSIP total Province DSIP total Western/Fly River Gulf Central NCD Milne Bay Oro Southern Highlands Enga Western Highlands Simbu

30.0 20.0 40.0 30 40

20.0 80.0 50.0 70.0 60.0

Eastern Highlands Morobe Madang East Sepik Sandaun Manus New Ireland East New Britain West New Britain Autonomous Bougainville Region

80.0 90.0 60.0 60.0 40.0 10.0 20.0 40.0 20.0 30.0

Total 890.0

Comments In its Economic and Development Policies, the National Government empowered the Provinces, Districts and LLGs through its 2013 National Budget Appropriations. It allocated to the Provinces K445.0 million, the Districts K890.0 million and the LLGs K157.0 million under its SIP policy. At the District level there are two types of Grants been allocated, the first is the District Support Grants (DSG), which are Conditional Grants tied down to approved projects. The other is the DSIP Grants and these are Grants that a Member of Parliament has say over how it should be distributed at the District level. The DSIP is commonly referred to as the Member’s Discretionary Funds. In 2013, the Department of Finance allocated K10 million of the DSIP funds directly into the District Treasuries of each of Kavieng and Namatanai to fund projects that were identified by the Namatanai JDP&BPC for funding allocations in 2012. It was noted that the DSIP amount was high and that there was already issues of abuse and misuse of the DSIP funds dating back to 2009. It was also noted that the Districts

Findings of Fact 11

lacked the capacity to manage the DSIP funds and there was poor record of reporting the expenditure of DSIP funds. On these grounds, the NEC, the Department of Finance and Department of Implementation and Rural Development (DoIRD) established the NEC Decision No.102/2012, the Financial Instruction No.01/2013 issued by the Department of Finance and the PSIP, DSIP and LLGSIP Administrative Guidelines issued by the Department of Implementation and Rural Development to control and regulate the expenditure of the SIP funds, especially the DSIP and LLGSIP funds. Therefore, in order for an Open Member of Parliament to be eligible for the following year’s DSIP funds, the Open Member of Parliament must fully acquit all the DSIP funds that had been expended for that year in accordance with the above NEC Decision, the Financial Instruction No.01/2013 and the PSIP, DSIP and LLGSIP Administrative Guidelines.

[2.4] NEW IRELAND PROVINCIAL GOVERNMENT BUDGET

In November 2012, the National Government through the Department of Treasury published the 2013 Recurrent Budget Estimates of Revenue and Expenditure for Statutory Authorities, Provincial Governments, Debt Services and Trust Accounts. It was during the 2013 Budget that the National Government increased the DSIP amount to K10 million and LLGSIP Grants to K5 million. Below is an extract for New Ireland Provincial Government.

587 New Ireland Provincial Government 587

A. Appropriation Bill (in thousands of Kina)

Code Description Actual Appropriation

2011 2012 2013 2521 11233-000-00-252110 11233-000-00-252115

Grants to Provincial Governments Recurrent Unconditional Grants to Provinces & LLGs Administration Grants Others Service Delivery Function Grant

39,837.7

148.2 37.3

110.9

39,185.3

76.2 25.3 50.9

41,281.3

76.3 25.4 50.9

2522 11233-000-00-252212 11233-000-00-252215 11233-000-00-252220 11233-000-00-252225 11233-000-00-252230 11233-000-00-252235 11233-000-00-252245 11233-000-00-252250 11233-000-00-252255 11233-000-00-252260

Recurrent Conditional Grants to Provinces & LLGs Primary Production Function Grant Staffing Grant Teachers Salaries (TSC) Public Servants Leave Fares Teachers Leave Fares Village Courts Allowance Health Function Grant Education Function Grant Transport/Infrastructure Maintenance Grant Village Courts Function Grant

39,689.5

547.3 10,775.6 24,007.1

366.7 890.8 188.9

1,160.1 771.2 930.1

51.7

39,109.1

307.5 14,380.5 20,949.1

366.7 890.7 188.9 848.3 579.3 570.4

27.7

41,205.0

230.8 15,459.0 22,206.0

366.7 890.7 188.9 783.7 555.4 496.1

27.7 11234-000-00-252290 11235-000-00-252290 11236-000-00-252290 11237-000-00-252290 11238-000-00-252290 11239-000-00-252290 11240-000-00-252290 11241-000-00-252290 11242-000-00-252290

Grants to Local Level Government Murat Local Level Government Lavongai Local Level Government Tikana Local Level Government Namatanai Local Level Government Sentral Niu Ailan Local Level Government Konoagil Local Level Government Tanir Local Level Government Nimamar Local Level Government Kavieng Urban Local Level Government

1,127.0 27.7 141.1

156.4 144.2 143.1 65.4 67.1

100.8 281.2

1,188.1 29.0

147.5 163.5 152.8 151.6 69.2 71.0

106.8 296.7

1,288.1 31.1

158.0 175.2 166.5 165.1 75.5 77.4

116.4 322.9

GRAND TOTAL 40,964.7 40,373.4 42,569.4

Findings of Fact 12

Comments In addition to the allocation of K10 million as DSIP funds to Hon. Byron Chan, MP and Chairman of the Namatanai JDP&BPC for Namatanai District, the National Government in 2012 and 2013 allocated K307,500.00 and K230,800.00 as Primary Production Function Grants under the Recurrent Conditional Grants to the Provincial Government and the LLGs to fund activities and projects identified, approved and factored into the Provincial Budgets for implementation. The National Government allocated K152,800.00 and K166,500.00 as LLG Grants for the same corresponding years under the Recurrent Conditional Grants to Namatanai LLG to fund approved projects and activities at the LLG level. This was in addition to the K500,000.00 that was allocated as LLGSIP funds to the nine LLGs in Namatanai and Kavieng Districts.

[2.5] FINANCIAL INSTRUCTION NO.01/2013

On 01 January 2013, Mr. Steven Gibson, the then Secretary, Department of Finance, approved and issued Financial Instruction No.01/2013 for the implementation of the PSIP, at the Provincial level, DSIP at the District level and LLGSIP at the LLG level. The relevant section of the Financial Instruction is cited below:

4.0 PROGRAM IMPLEMENTATION PROCESS

1.1 Project Identification and Selection PSIP projects will be identified, selected and approved by the JPP&BPC with the Governor as Chairman/Chairperson in a manner consistent with the respective Five Year Rolling Development Plans of the Province and the Sectoral Key Priority areas identified by the National Government.

1.2 DSIP projects will similarly be identified, selected and approved by the JDP&BPC

with the open Member of Parliament as Chairman/Chairperson. The selection must also be consistent with the existing Five Year Rolling Development plan for the District and the Sectoral Key Priority areas stipulated by the National Government.

1.3 PSIP Projects & Plan

The selected project must be designed, documented and scoped, in consultation with Technical Team (DIRD Field Officers, Provincial Works Managers and other Sector Managers.

1.4 Information on Projects to DIRD

Provinces and Districts through the respective Joint Planning and Budget Priorities Committee (JPP&BPC or JDP&BPC) as is applicable, are to submit lists of their prioritized Provincial and District projects together with duly completed PFDs to the DIRD to assist the Department with confirmation of consistency with policy, planning the provision of oversights and monitoring implementation.

1.5 Project Budgets

The project budgets shall be derived from the PSI, DSIP and LLGSIP (Project Grants) as appropriated. Relocation of PSIP and DSIP funds to other projects shall

Findings of Fact 13

not be permitted unless authorised by the Department of National Planning upon recommendation by DIRD upon an application to the effect.

5.0 PROCUREMENT

5.1 Existing Procedures to Apply

The existing procurement procedures and public tendering requirements shall apply to all PSIP, DSIP and LLGSIP projects after the necessary selection by the JPP&BPC or JDP&BPC whichever is applicable.

5.2 Minor Procurement Arrangements

Minor procurement, i.e., procurement below K5,000 shall be supported by three verbal quotations but the particulars must be noted in a Register of Quotations to ensure that quotations have actually been obtained. The Particulars shall include date, time, name of suppliers and name of the quote giver and receiver.

Three quotations are required in writing for expenditures or purchases from K5001 and below K500,000.

5.3 Major Procurement

All purchases above K500,000 shall require written quotations from suppliers upon an invitation to bid under open tenders as per Section 40 of the Public Finance (Management) Act either through the Provincial Supply and Tenders Board (PSTB) or the Central Supply and Tenders Board (CSTB) subject to the limit of financial authority of the board. For consideration of such tenders, submissions will need to be supported by duly approved Authority to Pre-Commit related (APCs).

5.4 The Requirement for APC

Failure to obtain a duly authorised and approved APC where one is required will negate the evaluation of the tender by the relevant Supply and Tenders Board. A contract purportedly entered into without the necessary APC signed by the Provincial Administrator is null and void for the intended purpose.

5.5 Waivers and Certificate of Inexpediencies

The Minister for Finance may, upon application to the effect, waive public tender requirement (not procurement procedures) for projects and/or contracts not exceeding K500,000 under Section 40(3) of the Act. The applicable circumstances must be noted accordingly in the application for the ministerial waiver, the Register and File. A supply and tenders Board may, where it considers it inexpedient upon an application to the effect, issue a Certificate of Inexpediency, thus negating public tendering. This provision may however be cautiously applied and other only in cases of natural calamities, emergency and where an ―only supplier‖ is concerned.

6.0 TECHNICAL EVALUATION FOR AWARD OF CONTRACTS

6.1 Technical Evaluation Committee

There shall be a Technical Evaluation Committee (TEC) for each Province and District comprising: A representative from Provincial Works Unit, the District Administrator and Provincial Planner to evaluate quotations or tender bids and recommend as follows:

Findings of Fact 14

TEC Recommendations

(i) All recommendations from the TEC for quotations below K500,000 to the Joint District Planning and Budget Priorities Committee (JDP&BPC) for evaluation, selection and award of contract.

(ii) All recommendations from the TEC for tender bids for projects of and over

K500,000 to the PSTB through the Administrator for selection and award of contract.

(iii) The PSTB shall refer all intended contracts beyond its financial delegation of

K5m to the CSTB for award and execution. (iv) In any situation of doubt, the Provincial or District Treasurer is to advise on

the requirements of the Public Finance (Management) Act.

6.2 Standard Contract

A standard contract prepared on behalf of the State shall be signed between the Chairman of the PSTB/CSTB on behalf of Government/State and the Contractor as is appropriate.

6.3 Lodgment of Project and Contract Documents with National Planning

A copy of the signed contract (including delivery schedules and the billing or claims schedule) shall be furnished by the Provincial or District Administrator where appropriate, to the Department of National Planning and Monitoring, within one (1) week of the signing of the agreement.

7.0 RELEASE OF FUNDS

7.1 Quarterly Warrants

Total PSIP, DSIP and LLGSIP funding shall be controlled centrally through Warrant Authorities based on cash-flows and availability of cash-funds by Treasury and Finance Department. Related cash disbursements shall be based on Quarterly Warrants and/or in accordance with Government directions on the matter.

7.2 Recording Warrants Received

Information on released PSIP, DSIP and LLGSIP funds shall be kept by the relevant Finance Office (Treasury) in the Province or District under the different components/projects of the program as depicted, reflected or displayed by the allocations and Chart of Accounts in the PGAS database.

7.3 CFCs and Delegations

The Provincial and/or District Administrator are responsible for the distribution of funds through CFCs, and for the related administration, accounting and reporting on the funds as distributed to projects under implementation.

8.0 PROCEDURE FOR CLAIM AND PAYMENT

8.1 Payments Generally

Findings of Fact 15

All payments out of the accounts holding PSIP, DSIP and LLGSIP funds shall comply with the issued Guidelines; this Finance Instruction and other requirements of the Public Finance (Management) Act where applicable.

8.2 Acceptance of Claims

Claims shall be accepted only upon certification by the Provincial Works Unit that the deliverables in question have been made and received as per the terms and conditions of contract and schedules of payments/billings as provided in the Service or Supply Contract. Under no circumstances should forward payments be entertained or made.

8.3 Verification and Examination

All claims by Contractors for amounts between K5000 and K500,000 submitted for payment shall be examined, verified and certified by the project manager in the Province or District and endorsed or approved for payment by the responsible Provincial or District Administrator using the payment schedules.

8.4 PGAS Processing and Recording

The Provincial or District Treasurer shall make all authorised payments to contractors and furnish payment reports to the JPP&BPC or JDP&BPC whichever is applicable through the Provincial or District Administrator using the payment schedules.

8.5 Keeping of Accounts

The District Treasurer is to maintain proper accounts and records of financial transactions and assets acquired from DSIP, PSIP and LLGSIP funds in accordance with the Public Finance (Management) Act and the Organic Law on Provincial and Local Level Governments using the appropriate PGAS system.

8.6 Bank Reconciliations & Cheque Usage Reports

Cheque Usage Reports are to be proved regularly to Banks to support the cheque clearance processes. Provincial and District Treasurers will prepare Bank Reconciliations monthly and forward certified copies of such reconciliations and copies of the relevant bank balances to the Department of Finance within 14 working days each month end. No manual cheque books are to be used in the disbursements funds and/or payments.

8.7 Asset Register

In addition to keeping records and accounts, the Provincial or District Administrators shall make sure that the Treasuries or Finance Accounting Offices keep up to date Asset Registers of fixed assets acquired through PSIP, DSIP and LLGSIP development funds.

Comments This Financial Instruction No.01/2013 was issued under Section 117 of the Public Finance (Management) Act 1995 and it superseded all existing Financial Instructions before it. The Finance Instruction outlines how the PSIP, DSIP and LLGSIP are to be used and what processes to follow in order for the SIP Grants to be accessed and payments made to the Suppliers of Goods and Services to implement projects.

Findings of Fact 16

In this case, the Namatanai JDP&BPC and the District Administration did not comply with the Financial Instruction No.01/2013 and the Public Finance (Management) Act 1995. In that they did not followed the tender and procurement procedures leading up to the awarding of Contract to service providers. This investigation found that in 2012 the Namatanai LLG and the New Ireland Provincial Government did not include in their budget the Namatanai District Agriculture Development Programme (NDADP) as part of the Five Year Development Plan. Hence, this NDADP was not factored in the 2013 Budget. This investigation also found that in 2013, Hon. Byron Chan, MP and Chairman of the Namatanai JDP&BPC received his DSIP funds of K10 million and during the Namatanai JDP&BPC meeting he informed the Members present that he had broken up the DSIP into various Key Sectors. As for the Economic & Agriculture Section he had allocated K1,000,000.00 as funding for the NDADP. The Namatanai JPD&BPC and the District Administration processed the Namatanai JDP&BPC Decision and made cheque payments to KPE Investments Ltd to deliver agricultural goods and services to the farmers in Namatanai District.

[2.6] PSIP, DSIP AND LLGSIP ADMINISTRATIVE GUIDELINES

On 01 January 2013, Mr. Paul Sai’i, Secretary, Department of Implementation and Rural Development (DoIRD) also approved and released the Department’s PSIP, DSIP and LLGSIP Administrative Guidelines. Below is an extract:

Section 2 Purpose of PSIP, DSIP and LLGSIP Administrative Guidelines

2.1 The purpose of this Administrative Guidelines is to assist agencies involved in the implementation of the Provincial Services Improvement Program (PSIP), District Services Improvement Program (DSIP) and Local Level Government Service Improvement Program (LLGSIP) on the requirements they should meet in selecting, approving, procuring and implementing projects funded under the PSIP, DSIP and LLGSIP.

2.2 The Administrative Guidelines should be read in conjunction with the PSIP, DSIP

and LLGSIP Financial Instructions No: 01/2013 of 1st January 2013 by the Secretary for the Department of Finance.

2.3 All the provisions of the Financial Instructions referenced above are applicable in

the use of these Guidelines. Section 3 Objective and Principles 3.1 Objectives of the PSIP, DSIP and LLGSIP

The primary objective of the PSIP, DSIP and LLGSIP is to provide minimum service delivery standards through re-establishment of basic infrastructure and facilities, including socio-economic activities for essential services such as health, education, law and justice, quality water and sanitation, transport (air, sea and land), communication and rural electrification.

3.2 Principles of the PSIP, DSIP and LLGSIP

Findings of Fact 17

The key principles of the PSIP, DSIP and LLGSIP are: greater ownership, affordability, value-adding, sustainability, leadership, and optimum resource utilization. Underpinning the key principles is the Government‘s Policy of ―Achieving National Equity in Development through the Strengthening of Basic Services Infrastructure‖. The theme of the policy encapsulates the spirit of the PSIP, DSIP and LLGSIP and is directly related to the Ten Guiding Principles of the Medium Term Development Plan (MTDP 2010-2015), DSP (2010-2030) and Vision 2050.

The key features of PSIP, DSIP and LLGSIP are:

(a) Sweat Equity: Local communities are important partners of the PSIP, DSIP and LLGSIP therefore should participate directly in the implementation of the projects and programs.

(b) Driven by the Provincial Management Team (PMT) and District Management Team (DMT): PMT and DMT to manage the PSIP, DSIP and LLGSIP in their respective Provinces and Districts, ensuring that Provincial and Local Level Governments and Administrations can sustain and resource any future recurrent and development financing needs.

(c) Involvement by Members of Parliament and Presidents of Local Level

Governments: Members of Parliament and Presidents of LLG provide Political Leadership and facilities initiatives to address funding and other (capacity, policy, etc) gaps and constrains.

(d) Partnership among All Stakeholders: The program components will be delivered

using existing systems and processes of the Government, encouraging public-private partnerships (PPP), agreements with development partners and other forms of external support aligned with Government‘s initiatives.

(e) Value for money: PSIP, DSIP and LLGSIP projects shall follow all required

procurement procedures and ensure they receive good value for goods and services.

(f) Value added and Economies of scale: The focus shall be on impact projects,

encouraging expansions of the value added chain, and on economies of scale.

Section 4 Sectoral Development Funds Allocation and Disbursement

1.6 Funding to Provinces, Districts and Local Level Governments aims to empower effective participation to diversify the economy and expand productive base, thereby improving livelihoods.

1.7 NEC Decision NG 102/2012 of 30th October 2012 directed the PSIP, DSIP and

LLGSIP funds be broken down into the following six (6) sectors:

30% Infrastructure Services Support;

20% Health Services Improvement;

20% Education Services Support;

10% Law & Justice Services;

10% Economic Sector Support; and

10% Administration.

The NEC Decision approved the increase in current Administrative Fes from 30% up to 10.0% of the total Appropriation. This 10% is to be broken down into the following categories:

Findings of Fact 18

3% General Administration Component for Administration Support including Joint Provincial/District Planning and Budget Priority Committees (JPP&BPCs and JDP&BPCs) and Provincial Project Management Team (PPMT), District Project Management Team (DPMT);

3% Support Fund for travel and project and project identification and monitoring activities by the Chairperson of JPP&BPC, Chairperson of JDP&BPC and the LLG Council Chairperson or their delegates; and

4%Project Scoping and Mobilization Costs and related activities by PPMT, DPMT and PWU as defined in Project Identification Documents (PID), Project Formulation Documents (PFD) approved by JPP&BPC and JDP&BPC for scoping and implementation, respectively;

1.8 Disbursement of Funds is upon availability of Cash Flow Statement and funding

on a quarterly basis.

1.9 Funds for PSIP, DSIP and LLGSIP may be moved from one priority section to another except for Administration component, provided that the following conditions are met:

There must be JPP/JDP&BPC/LLG Council approval in line with 5 Year Development Plan;

This/these must be justified in a letter to the Minister of Planning;

Minister of Planning assesses and may/may not approve the submission in consultation with DIRD and DoF Secretaries.

Section 5 Project Identification, Selection and Approval at three (3) different Levels

5.3 Provincial Level

i) The JDP&BPCs in consultation with Provincial Administration Sectoral Advisers and other interested parties identify projects and submit proposals through the Chairpersons of JDP&BPCs to JPP&BPC. Legitimate associations and individuals may also present their proposals directly to the PPMT, who will register and direct the proposals to the JPP&BPC.

ii) JPP&BPC selects and prioritizes proposals and submits the PIDs of

prioritized proposals to PPMT or PWU for scoping and technical assistance up to the formulation of PFDs.

iii) The JPP&BPC is composed of the PEC member appointed by the Governor,

as the Chairperson, all Chairpersons of the JDP&BPC (or nominees), Representatives of Church, Women and Youth.

iv) The PPMT or PWU sends completed PFDs to JPP&BPC for review,

endorsement and budget allocation for the approved projects.

v) JPP&BPC sends copy of approved projects and budget to Provincial Administrator, District Administrators, and DIRD.

5.4 The role of Provincial Project Management Team (PPMT), District Project

Management Team (DPMT) or Provincial Works Unit (PWU) shall be project scoping, documentation and appraisal in consultation with relevant provincial, district and local level government sector advisors and national agencies; and provide technical advice to JPP/JDP&BPC and LLG Councils. Their scoping and mobilization expenses should be covered out of the 4% Mobilization and Scoping

Findings of Fact 19

component prescribed in paragraph 4.2, for all PSIP, DSIP and LLGSIP PIDs they process.

5.5 PPMT shall comprise of the Provincial Administrator as Chairperson, Provincial

Works Manager as Deputy Chairperson, Provincial Planner, Provincial Treasurer and appropriate sector advisors. DPMT shall comprise of the District Administrator as Chairperson, District Engineer (cases where there is no District Engineer, then the Provincial Civil Engineer) as Deputy Chairperson, District Planner, District Treasurer and appropriate sector advisors.

5.6 In the event Department of Works (DoW) and other sector agencies are unable to assist in the scoping and documentation for new infrastructure, upgrade, maintenance and renovation of existing infrastructure, it could be outsources in consultation with DIRD.

5.7 The relevant provincial, district and local level government sector advisors shall

provide all technical oversight for the PSIP, DSIP and LLGSIP implementation. 5.8 All copies of Project Documentations and Contract Agreements shall be submitted

by the Provincial and District Administrators to relevant national agencies consistent with the Financial Instructions for compliance.

Section 6 Project Documentation Requirements

6.4 For projects valued up to K5,000 the requirements are the following; i) Letter of Request from proponents ii) Supporting letter from appropriate authorities iii) Project Formulation Document iv) Three verbal quotes

6.5 For projects valued above K5,000 and below K5,000,000

i) Project Formulation Document ii) Three written quotes iii) Pro-Forma Contract Document iv) Other requirements as per relevant sectors

6.6 For Projects valued at K500,000 and K5,000,000

i) Project Formulation Document ii) Minor/Major Contract Documents iii) Authority to Pre-Commit (APC) iv) Other requirements as per relevant sectors

6.7 For Projects valued at K5,000,000 and below K10million

i) Project Formulation Document ii) Major Contract Document iii) Authority to Pre-Commit (APC) iv) NEC Approval v) Other requirements as per relevant sectors

Section 7 Procurement, Tendering and Selection Process 7.1 Procurement

Findings of Fact 20

7.1.3 Provincial Level

i) For procurements valued up to K5,000 three verbal quotations to be registered, are required for approval by Provincial Administrator.

ii) For procurements valued over K5,000 and below K500,000 three written

quotation and pro-forma contract are required for approval by the Provincial Administrator.

iii) For procurements valued at K500,000 and below K5,000,000 an APC and a

minor/major works contract are required for approval by PSTB. iv) For procurements valued at K5,000,000 and below K10,000,000 an APC and a

major contract are required for approval by CSTB. v) For procurements valued at K10,000,000 and above, an APC, scrutiny by

CSTB and a major contract are required for approval by NEC and forwarded to Governor General to execute.

vi) For non-functioning Provincial Supply and Tenders Board (PSTB). Procurements valued at K500,00 and below K5, million, all project and tender

documents shall be referred to DIRD to facilitate, in consultation with relevant national government agencies and forward to Central Supply and Tenders Board (CSTB to tender and award.

7.2 Tendering and Selection

The Tendering and Selection Process takes place at three (3) levels:

7.2.3 Provincial Administrations

(i) The PPMT shall comprise of the Provincial Administrator as the Chairperson, Provincial Civil Engineer as Deputy Chairperson, Deputy Provincial Administrator–Field Services, Provincial Planner, affected District Administrators, and Provincial Treasurers or their nominees and appropriate sector advisors.

(ii) Districts and other interested parties will be supported by the Provincial Administrator to prepare PIDs for submission to PPMT or PWU.

(iii) The PPMT or PWU shall receive, register and undertake appraisal of

submitted PIDs, assisting in the formulation of PFDs. PPMT or PWU shall access the 4% Scoping and Mobilization component of PSIP to carry out these duties.

(iv) The PPMT or PWU through the relevant provincial advisors shall prepare

tender and contract documents, in coordination with PSTB and CSTB, where appropriate.

(v) For projects valued below K500,000 PPMT or PWU shall call for tender and

award contracts on behalf of the JPP&BPC.

(vi) For projects valued at K500,000 and below K5,000,000 PPMT or PWU shall forward the prepared documents to PSTB to tender and award contracts, and the PSTB shall execute the contract on behalf of the State.

(vii) For projects valued at K5,000,000 and below K10,000,000 PPMT or PWU shall forward the prepared documents to CSTB to tender and award contracts.

Findings of Fact 21

(viii) DIRD to facilitate where required.

Note: As a standard practice PPMT (provincial level) and DPMT (district and LLG levels) shall be engaged in the Tendering and Selection process. In cases where PPMT or DPMT is non-functional or non-existent, the PWU may be utilized.

7.2.4 Non-Functional PSTB Where PSTB in non-functional, project scope and documents including JPP&BPC and JDP&BPC Budget Resolution, PFDs and related project documents from relevant sector agencies, shall be submitted by Provincial Administrator and District Administrator to DIRD for appropriate action.

(i) The DIRD receives, registers and undertakes appraisal of PFDs approved under PSIP, DSIP and LLGSIP to ensure that submissions are complete and meet all compliance requirements.

(ii) A submission failing the appraised shall be referred back to the relevant

Provincial and District Administrators with appropriate recommendations, for corrections/and re-submission.

(iii) Where appropriate, a project submission passing the preliminary assessment

criteria shall be recommended for the CSTB to tender. (iv) At the close of the tender period, the DIRD and relevant agencies that are

part of the Tenders Evaluation Committee (TEC), shall evaluate all responsive bids, and submit recommendations to the CSTB.

(v) The CSTB shall deliberate on the TEC‘s recommendations before awarding

the contracts.

(vi) The CSTB shall execute the contract on behalf of the State. (vii) Terms of Reference and Composition of TEC:

TOR

o Evaluate Bids: compliance to relevant laws (IPA Registration Documents, COC, Insurance etc), financial and technical capacity, business standing, company profile, bid amount.

Composition

o DIRD (Chair), DNPM, DoW, DoF, Treasury and other relevant agencies depending on the sectoral nature of the project/s.

Section 8 Payment Process

8.1 Provincial Administrators, Provincial Treasurers, District Administrators and District Treasurers and LLG Council Managers shall receive, register and evaluate all invoices and relevant payment documents and pay the Contracts and Service Providers progressively.

8.2 Details of payment should be recorded in DIRD Cheque Release Form and

approved by the JPP&BPC/JDP&BPC Chairman or LLG Council President with respective Provincial Administrator, District Administrator and LLG Council Managers.

Findings of Fact 22

8.3 It is mandatory foe the Provincial and the District Administrators as well as Provincial and District Treasurers to ensure that all projects, including those projects procured by PPMT and DPMT, PSTB and CSTB are implemented according to the conditions of the contract.

8.4 For every contract, 10% of the total contract value shall be retained according to

the time period specified in the contract. If the Project Manager is not satisfied with the works done, especially in the case of the defaulting contractors, he/she can recommend to the Provincial or District Administrators for the amount retained, to be forfeited to the State and returned to the Consolidated Revenue Fund (CRF).

Comments This investigation found that Hon. Byron Chan, MP and Chairman of Namatanai JDP&BPC and the District Administration did not comply with the procedures outlined above. This investigation also found that during it Meeting No.01/2013 on 22 February 2013, Hon. Byron Chan, MP and Chairman of Namatanai JDP&BPC informed the Namatanai JDP&BPC members that he had allocated K1,000,000.00 for the delivery of agricultural goods and services to all the farmers in Namatanai District under the NDADP. The Namatanai JDP&BPC engaged KPE Investment Ltd as the Contractor to implement the programme. According to the Guidelines, the process is as follows: The District Project Management Team submits a completed PFD to the JDP&BPC for its endorsement. Once it is endorsed, then the funds are made available for implementation. In this case, the Namatanai JDP&BPC awarded the delivery and supply of agricultural goods and services to KPE Investment Ltd without following the procurement process provided under Section 40(1)(b) of the Public Finance (Management) Act 1995, Clause 5.3 of the Financial Instruction No.01/2013 and Section 7 of the PSIP, DSIP and LLGSIP Administrative Guidelines. In accordance with Section 7 of the PSIP, DSIP and LLGSIP Administrative Guidelines, the Namatanai District Administration should have sent a copy of the Namatanai JDP&BPC Decision to the DoIRD to facilitate the procurement process through the appropriate Provincial Supply and Tenders Board. This investigation also found that at the time the Namatanai JDP&BPC awarded the contract to KPE Investment Ltd there was no functional PSTB to carry out the procurement process. That is, in the absence of a PSTB, the Namatanai JDP&BPC and the Namatanai District Administration should have complied with Section 7.1.3(vi) of the PSIP, DSIP and LLGSIP Administrative Guidelines. This particular project and tender documents should have been referred to the DoIRD to facilitate, in consultation with relevant national government agencies. In the absence of a PSTB, the CSTB is requested to assist. This did not occur.

Findings of Fact 23

[2.7] NAMATANAI JOINT DISTRICT PLANNING & BUDGET PRIORITY COMMITTEE DECISION No. 05/01/2013 ON 22 FEBRUARY 2013

On 22 February 2013, the Namatanai JDP&BPC held its first Meeting No.01/2013 at Kavieng Village Resort outside of Namatanai District. It was during this meeting that Hon. Byron Chan, MP and Chairman of the Namatanai JDP&BPC informed the Members that:

4. DISTRICT SERVICES IMPROVEMENT PROGRAMME OF K10 MILLION FOR 2013 Chairman informs committee of the breakup that he had gone through with concern authorities before prioritising the breakup for the K10 million for 2013

1. NAMATANAI TOWN PLAN – K600,000.00 2. DISTRICT ADMIN IMPLEMENTATION – K300,000.00 3. 5 YEARS DISTRICT PLAN – K100,000.00 4. NAMATANAI DISTRICT AGRICULTURE – K1,000,000.00 (KPE TASK TO

IMPLEMENT) WITH S/HOLDERS 5. TRANSPORT (ELA MOTORS) 2TRUCKS, 6BOATS, 4MOTOR VECHILE –

K1,000,000.00 6. DIGICEL FOUNDATION – K750,000.00 7. TELIKOM PNG LTD – K250,000.00 8. ROOFING IRON PROGRAM (YOUTHS) – K1,000,000.00 9. SAWMILLS AND CHAINSAWS – K900,000.00 10. LAWNMOVERS&STRING MOWERS – K100,000.00 11. WARD DEVELOPMENT PROJECTS – K2,700,000.00 12. POLICE CAPACITY PROGRAMMES – K300,000.00 13. DISTRICT ADMIN – (MATALAI LLG) – K100,000.00 14. LLG PRESIDENT PROJECT FUNDING 94XPRESIDENTS0-K800,000.00 15. LLG PROJECT IMPLEMENTION FUNDING (4XLLG ADMINISTRATION –

K25,000.00 each) – K100,000.00 TOTAL – 10MILLION

DPI Coordinator thanks the member for the 1million for the Agriculture five year plan and will work with other stakeholders to implement this plan.

RES: 05-01-13: THAT THE NAMATANAI JDP & BPC APPROVES THE ABOVE

BREAKUP OF DISTRICT SERVICES IMPROVEMENT PROGRAM FOR 2013 FOR THE IMPLEMENTATION.

On even date, Mr. Linus Yipma, the then Namatanai District Administrator, certified the Resolution. Below is an extract:

SUBJECT: FUNDING FOR NAMATANAI DISTRICT AGRICULTURE DEVELOPMENT PROGRAM

On the 22nd of February 2013, the JDP & BPC: ENDORSED AND APPROVED FUNDING OF K1,000,000.00 FOR AGRICULTURE DEVELOPMENT PROGRAM WITH IN NAMATANAI DISTRICT WHICH WILL COVER THE SIX LOCAL LEVEL GOVERNMENTS, TANIR, CENTRAL NIU AILAN, NIMAMAR, MATALAI, KONOAGIL AND NAMATANAI TO BE FUNDED UNDER THE DISTRICT SERVICES IMPROVEMENT PROGRAM 2013.

THE PROGRAM TO BE IMPLEMENTTED BY KPE OFFICE SUPPLIES LIMITED.

Findings of Fact 24

Comments In every District, there exists a District Management Team (DMT) that is comprised of the District Administrator, the District Treasurer, District Planner and other Senior District Officers. The roles and functions of the DMT are similar to that of the Provincial Administration, but with limited financial powers and responsibilities. One of the roles and functions of the DMT is to award contract(s) to contractor(s) at the District level in order to provide goods, services and works to the people in the Districts. This investigation found that the Namatanai District Administration did not have a DMT. Therefore, there was no proper authority to evaluate and verify the scope of the project before it was given to the Namatanai JDP&BPC to source funding. In spite of this strict requirement, the Namatanai JDP&BPC decided to award the contract to KPE Investment Ltd. This was contrary to Section 33A(3), (a), (b), (c), (d), (e) and (f) of the Organic Law on the Provincial Governments and Local Level Governments which states:

33A. Joint District Planning and Budget Priorities Committee

1.0 The Joint District Planning and Budget Priorities Committee shall have the following functions:-

(a) To oversee, co-ordinate and make recommendations as to the overall district

planning, including budget priorities, for consideration by the Provincial Government and the National Government; and

(b) To determine and control the budget allocation priorities for the Local Level Governments in the district; and

(c) To approve the Local Level Government budgets for presentation to the Local Level Government and make recommendations concerning them; and

(d) To draw up a rolling five year development plan and annual estimate for the district; and

(e) To conduct annual reviews of the rolling five year plan. (f) To approve disbursement of District Support Grants and other Grants.

The above provision of the Organic Law on Provincial Government and Local Level Governments, shows that the functions of the Namatanai JDP&BPC, does not include awarding of contracts to contractors. Regardless of this legal restriction, the Hon. Byron Chan, MP and Chairman of Namatanai JDP&BPC together with those members who were present at that meeting decided to award the contract to KPE Investment Ltd. In the process, the Namatanai JDP&BPC bypassed the Provincial Supply and Tenders Board (PSTB) contrary to Section 39B of the Public Finance (Management) Act 1995. Section 39B of the Public Finance (Management) Act 1995 states:

(1) The Minister may, by notice in the National Gazette, establish such number of Provincial Supply and Tenders Boards as he, on the advice of the Departmental

Findings of Fact 25

Head of the Department responsible for financial management, thinks necessary to control and regulate—

(a) the purchase and disposal of property and stores; and (b) the supply of works and services,

for any amount up to K5,000,000.00 or such lesser amount as the Minister, on the advice of the Central Supply and Tenders Board, may determine by notice in the National Gazette, for and on behalf of the State in the provinces.

The Namatanai JDP&BPC also failed to request the New Ireland Provincial Administration to facilitate the tendering of the contract with the assistance from the PSTB to comply with Section 40 of the Public Finance (Management) Act 1995. There is no evidence indicating that the PSTB conducted an open tender. Section 40(1) of the Public Finance (Management) Act 1995 states:

(1)…Tenders shall be publicly invited and contracts let for the purchase or disposal of property or stores or the supply of works and services the estimated cost of which exceeds the prescribed amount.

[2.8] KPE INVESTMENT LIMITED

KPE Investment Ltd is a local Sole Trading company founded and owned by Mr. Kunibert Kanai of Section 10, Allotment 22, Tanga Street, Kavieng, Papua New Guinea. On 25 July 2013, the Internal Revenue Commission (IRC) issued a Certificate of Compliance (CoC) to KPE Investment Ltd for tax purposes. On 24 September 2013, KPE Investment Ltd was incorporated with the Investment Promotion Authority (IPA) and its Headquarters is located in Kavieng from where it operates. Comments This investigation found that KPE Investment Ltd was not a registered entity with the Investment Promotion Authority (IPA) when it was awarded the contract for the NDADP by the Namatanai JDP&BPC on 22 February 2013. It was established that KPE Investment Ltd did not have the financial capability to undertake a contractual agreement. This investigation also found that, at that material time KPE Investment Ltd was not a registered entity with the IPA and that it did not have a Certificate of Compliance (CoC). On 25 July 2013, however, the IRC issued a CoC to KPE Investment Ltd prior to KPE Investment been registered with the IPA. Therefore, the issuance of the CoC by the IRC to KPE Investment Ltd prior to KPE Investment Ltd been registered was improper. Also the awarding of the contract to KPE Investment Ltd by Namatanai JDP&BPC was improper and contrary to Section 42 of the

Findings of Fact 26

Public Finance (Management) Act 1995 as the KPE Investment Ltd did not meet the requirements. Section 42 of the Public Finance (Management) Act 1995 states:

42. CONSIDERATION OF TENDERS. (5) In examining a tender, the Board shall give consideration to the capacity,

experience, integrity, financial status and past performance of the tender and such other matters as it thinks relevant.

[2.9] ISSUANCE OF CERTIFICATE OF INEXPEDIENCY

On 16 August 2013, the Namatanai District Administration raised a Certificate of Inexpediency (CoI) to waive the public tender of the NDADP Contract and instead to award the Contract to KPE Investment Ltd by stating the following:

―The only supplier recommended and endorsed by Namatanai JDP&BPC‖.

On even date, Mr. Monovi Amani, the then Provincial Administrator, New Ireland Province signed and approved the Authority to Pre-Commit (APC) to release funds totalling K1,000,000.00 to the Namatanai District Administration. Comments A Certificate of Inexpediency (CoI) can only be issued under four (4) situations as outlined in Part 13, Division 4, Clauses 13 and 14 of the Financial Instructions. Section 40(3)(b) of the Public Finance (Management) Act 1995 states that the Central Supply and Tenders Board (CSTB) or the PSTB are the only authorities to approve and issue CoI. Section 40(3)(b) of the Public Finance (Management) Act 1995 states 40. TENDERS FOR PROPERTY, STORES, WORKS AND SERVICES

(3) The preceding provisions of this section do not apply to the purchase or

disposal of property or stores or the supply of works and services –

(b) in respect of which a Board certifies that the inviting of tenders is impracticable or inexpedient;

In addition to Section 40(3)(b) of the Public Finance (Management) Act 1995, Part 13, Division 4, Clause 13 of the Finance Management Manual states:

13. A ―Certificate of Inexpediency‖ cannot be issued to retrospectively cover a contract already executed.

Furthermore Part 13, Division 4, Clause 14 of the Finance Management Manual states:

14. Certificates of Inexpediency will only be issued in situations where a declared:

a. Natural Disaster, or b. Defence Emergency, or c. Health Emergency, or

Findings of Fact 27

d. Situation of Civil Unrest

exists, and procurement processes must be undertaken urgently, to remedy the situation.

In this case, the issuance of a CoI by the Namatanai District Administration for the NDADP Contract was done in order to waiver the open tender process. It was the intention of the Namatanai JDP&BPC to award the contract to KPE Investment Ltd. The reason that KPE Investment Ltd was the only supplier available was wrong as there was no such situation that warranted the issuance of a CoI. The Namatanai JDP&BPC and the Namatanai District Administration failed to comply with the procedures and processes involved in the tender and procurement of government contracts in accordance with the Public Finance (Management) Act 1995 and the Finance Management Manual.

[2.10] AUTHORITY TO PRE-COMMIT APPROVED BY THE NEW IRELAND PROVINCIAL ADMINISTRATION

An Authority to Pre-Commit (APC) is an instrument used by government bodies and agencies to request the Heads of Departments and Provincial Administrators to formalise and approve the release of funds for approved projects or contracts to deliver goods, services and works in the Provinces and Districts. An APC application must have an APC number to indicate it was registered by the Provincial Treasury or the Department of Finance. It must also contain the CSTB or PSTB number to it in order for funds to be released to fund the contract. On 16 August 2013, Mr. Monovi Amani, the then Provincial Administrator, New Ireland Province signed and approved the APC for the release of funds totalling K1,000,000.00 to the Namatanai District Administration. Comments The funding of K1,000,000.00 from the DSIP was used to pay KPE Investment Ltd for the delivery of agricultural goods and services to farmers in all the six LLG areas in Namatanai District. The method of payment was in instalments. That is, the first K300,000.00 was paid in September 2013, while the second payment of K300,000.00 was done in October 2013. On 10 December 2013, the Namatanai District Administration made the last payment of K400,000.00 in Kavieng town for the Fisheries and Coconut projects. Evidence shows that an APC was approved after the Contract was awarded to KPE Investment Ltd. This was contrary to Part 13 Division 3 of the Clauses 9(c) of the Finance Management Manual which states:

c. Obtain an ―Authority to Pre-commit‖ (APC) Expenditure and other requirements.

The process for obtaining an Authority to Pre-Commit Expenditure (APC) is clearly documented in Attachment 1 to Part 13 of this manual. An APC confirms that funds will be made available to the supplier once a contract has been executed and fulfilled. A Supply and Tenders Board must not invite a tender without an APC having been issued.

Findings of Fact 28

This was contrary to the above mentioned regulation as it would have been quite impossible for the Contractor to know the Contract amount of K1,000,000.00 and lodge its bid and in the process winning the Contract. Hence, this indicated that KPE Investment Ltd was aware of the amount of money that was involved in regard to this particular Contract. This was evident when Mr. Monovi Amani, the then Provincial Administrator, New Ireland Province as the Section 32 Officer approved the APC for K1,000,000.00 of the DSIP funds to be released to fund the implementation of the NDADP.

[2.11] NAMATANAI DISTRICT AGRICULTURE DEVELOPMENT PROGRAM CONTRACT AWARDED TO KPE INVESTMENT LTD

The Namatanai District Agriculture Development Programme (NDADP) is one of the mechanisms that the Namatanai District Administration factored into its development budget to provide agricultural goods and services to enable farmers in the District with funding from the DSIP in which K1,000,000.00 is allocated annually. On 2 July 2013, Mr. Victor Garava, the General Manager for KPE Investment Ltd wrote to the Chairman for the District Project Management Team and advised him that KPE Investment Ltd accepted the contract. On even date, the Namatanai District Administration and KPE Investment Ltd signed a contract agreement for KPE Investment Ltd to implement the NDADP in 2013 by delivering goods and services to farmers in all the six LLG areas in the Namatanai District.

On 27 August 2013, Mr. Linus Yipma, the then Namatanai District Administrator, representing the State and the Managing Director for KPE Investment Ltd signed the Contract Agreement. The same document and its signing was witnessed by the District Planner on 10 September 2013. Clause 4 of the Contract Agreement stated the following:

4. The Employer hereby Covenants to pay the Contractor 100% of the contract as lump sum, the amount of One Million Kina (K1,000,000.00) as approved by the Namatanai JDP&BPC of its meeting Resolution No. 5/01/13 dated February 22nd 2013. In consideration of the execution and completion of the works wherein the Contractor‘s price or such other sum as may become payable under the provisions of the Contract at the time and in the manner prescribed.

Comments It is a requirement under the Public Finance (Management) Act 1995 that all government contracts shall go through the normal tender and procurement process. It is also a requirement that the Government of Papua New Guinea (GoPNG) shall do business with entities that are registered with the Investment Promotion Authority. Hence, in no other circumstance, except during those instances as outlined in Section 39 of the Public Finance (Management) Act 1995 shall a contract be exempted from public tender. Evidence shows that the contract for the delivery of goods and services to the farmers in the Namatanai District did not go through the open tender process as required under Section 40 of the Public Finance (Management) Act 1995.

Findings of Fact 29

That is, Mr. Linus Yipma, the then Namatanai District Administrator, as the Chairman of the District Project Management Team wrote to Mr. Victor Garava, the General Manager for KPE Investment Ltd and advised him that KPE Investment Ltd had been awarded the contract. In light of this, it was obvious that Mr. Linus Yipma, the then Namatanai District Administrator failed to comply with Section 40 of the Public Finance (Management) Act 1995 and in particular Part 13 of the Finance Management Manual which is briefly outlined below.

1. District Administration identifies a need in the District and prepares scoping of the project to be forwarded to the Namatanai JDP&BPC requesting for funding.

2. The Namatanai JDP&BPC identify and approve funding for the project.

3. The Namatanai JDP&BPC tasks the Technical Evaluation Committee (TEC) to prepare a project submission.

4. The TEC gets all the information and ensures that all those Bidders are registered entities with the Investment Promotion Authority. The TEC then forwards its report to the District Project Management Team who assesses it.

a. If the amount is within the District Administration’s financial limits of K500,000.00 or less, it will be dealt with at the District level.

b. If the amount is above the District Administration’s financial limits of K500,000.00, then it has to be forwarded to the Provincial Administration.

5. If it is established that the amount is above the District Administration’s financial

limit, then the Provincial Administration is asked to assist with conducting the tender process.

6. The Provincial Administration through the PSTB conducts an open public tender inviting all interested Bidders to submit their bids for the contract within a specific period of time.

7. Bids are collected and the TEC evaluates the bids and compiles a technical report containing its recommendation for the PSTB.

8. The PSTB assess the TEC’s report and if it is satisfied with the TEC’s recommendations, awards the contract to the successful Bidder.

The Namatanai JDP&BPC and the Namatanai District Administration failed to comply with the above process. It is the role of the District Administrator to provide sound advice to the Namatanai JDP&BPC and guide the Members in their decision making process. However, in this case Mr. Linus Yipma, the then Namatanai District Administrator failed to provide sound advice and guidance that led to the Namatanai JDP&BPC making its

Findings of Fact 30

decision to award the contract to KPE Investment Ltd. Instead, he facilitated by raising and issuing a CoI to waive the open tender process.

[2.12] PAYMENTS MADE TO KPE INVESTMENT LTD

Before any contract is awarded or activity is implemented, the Provincial Administration and District Administration shall ensure that there are funds available to implement the projects. On 16 August 2013, Mr. Monovi Amani, the then Provincial Administrator, New Ireland Province signed and approved the APC for K1,000,000.00 to the Namatanai District Administration. Therefore, below is what transpired in the period between 14 August 2013 to 16 December 2013. On 14 August 2013, Mr. Linus Yipma, Namatanai District Administrator raised a Requisition for Expenditure form and General Expenses form to pay of K300,000.00 to KPE Investment Ltd. On even date, Mr. Ralph Kotauga, the Provincial Treasurer, certified that the account code was correct even though the figures in the Programme Budget Account Code field did not clearly indicate the Account code on the Requisition for Expenditure Form. On even date, Mr. Ralph Kotauga, the Provincial Treasurer, certified and endorsed the General Expenses form for the payment of K300,000.00 to be paid to KPE Investment Ltd. On 10 September 2013, the Paying Officer verified Mr. Ralph Kotauga’s signature, who is also the Financial Delegate and certified the General Expenses form and made adjustments by writing over the Account Code and changing the amount from K1,000,000.00 to K300,000.00 which was paid to KPE Investment Ltd. On 18 October 2013, KPE Investment Ltd released its financial report on how the funds were spent indicating that in October 2013, K260,953.15 was spent in delivering the goods and services to the farmers in the Namatanai District. On 23 October 2013, Mr. Neville Tomon, the then Acting District Planner authorised the Requisition for Expenditure Form for the second payment of K300,000.00 which was signed by Mr. Linus Yipma, the then Namatanai District Administrator. On 29 October 2013, Mr. Ralph Kotauga, the Provincial Treasurer certified that the account from which the K300,000.00 was to be drawn from was correct. On even date, Mr. David Manil, the then Acting District Treasurer did a breakup of the payment and stated 10% tax amounting to K30,000.00 against KPE Investment Ltd. On even date Mr. Neville Tomon, the then Acting District Planner signed and received the cheque for K300,000.00 as the Claimant. On 9 December 2013, Mr. Linus Yipma, Namatanai District Administrator as Section 32 Officer approved the Requisition for Expenditure Form for KPE Investment Ltd to be paid for services rendered.

Findings of Fact 31

On 10 December 2013, the Requisition Officer raised the Requisition for Expenditure Form by filling in the blanks requesting for payments to be made to KPE Investment Ltd for services rendered as per the contract agreement. On even date, Mr. Linus Yipma, the then Namatanai District Administrator approved the Requisition for Expenditure Form for K30,000.00 as reimbursement of 10% GST charged on the claim for K300,000.00. On even date, Mr. Linus Yipma, Namatanai District Administrator approved the General Expenses Form for K300,000.00 as final payment. On 16 December 2013, Mr. David Manil, the then acting District Treasurer as the Financial Delegate endorsed the General Expenses form by crossing out K400,000.00 and replacing it with K300,000.00 to be paid to KPE Investment Ltd as final payment. Comments The funding of the K1,000,000.00 from the DSIP was used to pay KPE Investment. Hence, the method of payment was done in piecemeal basis, that is, it was done in instalments of K600,000.00 for the first two payments and the last payment of K400,00.00 to KPE Investment Ltd. Prior to any financial forms been raised by the relevant agency, there is a procurement process that must be followed by all government agencies and bodies. The payment process begins with the identification of the source of funds and ends with the receipt of the cheque by the Claimant. In this case evidence shows that Mr. Linus Yipma, the then Namatanai District Administrator forwarded an APC together with a Requisition for Expenditure, the General Expenses Forms and a CoI Form to Mr. Monovi Amani, the then Provincial Administrator to approve. Note that there was no PSTB decision attached with the APC Form for Mr. Monovi Amani, the then Provincial Administrator, to assess and then approve for the DSIP funds of K1,000,000.00 to be released. In spite of this missing vital document, Mr. Monovi Amani, the then Provincial Administrator, approved the APC allowing for funds to be released. The first and second payments of K300,000.00 were used to purchase 4,230 Oil Palm seedlings from New Britain Palm Oil, 64,000 Cocoa seeds and polybags and a variety of food seedlings and associated materials. While the final payment of K400,000.00 was released in 30 April 2014 to pay for the fisheries and coconut projects which were the other two components of the NDADP.

[2.13] DISTRICT TO CONTINUE FUNDING OF KPE INVESTMENT LTD

On 23 December 2013, the Namatanai JDP&BPC held a meeting during which the Chairman for the Namatanai JDP&BPC Hon. Byron Chan, MP presented a report for the year ending by KPE Investment Ltd. Below is an extract of the Meeting Minute and 2014 DSIP Appropriation:

Findings of Fact 32

2014 DISTRICT SERVICES IMPROVEMENT PROGRAM PROJECT SUBMISSIONS: See Attached Listings per LLG. The Chairman encouraged the JDP&BPC Representatives to work closely with the LLG to avoid duplication of funding in their respective areas. KPE DISTRICT AGRICULTURE PROJECT IMPLEMENTATION REPORT: The Chairman presented a report for the year ending by KPE INVESTMENTS for the implementation of the District Agriculture Program which was awarded by the JDP&BPC. The report consisted of – *the seedling nurseries establishment for cocoa, oil palm and coffee *establishment of the KPE Investments office next to Kokobala house in Namatanai DISCUSSIONS ON KPE INVESTMENT REPORT G. LALI: He requested that there be greater transparency and cooperation between the project implementer and the LLG especially in the case of Central were seedlings were delivered without the knowledge of the President. He also highlighted the need for not only supply of seedlings but also the management of crops and their markets. M. SINGAN: Stressed the need for the project to have been given to the DPI officers to implement and that these officers should be involved in the rollout of this District project to enable proper selection of recipients and coordination of training and crop management and post harvesting process. CHAIRMAN: The JDBPPC Chairman clarified that this report was to invite recommendations to improve the program rollout since KPE INVESTMENTS was accountable to the JDBPPC. He further asked the members of the JDP&BPC to move a motion to appropriate a K1,000,000.00 for the LLG and DISTRICT DPI officers to be engaged in the monitoring of the rollout program by KPE INVESTMENTS. Breakup as follows - DISTRICT OFFICERS K50,000.00 LLG OFFICERS (6) K60,000.00 (K10,000.00 EA) Motion: That K110,000.00 be appropriated from the remaining DISTRICT SERVICES IMPROVEMENT PROGRAM 2013 for the monitoring of the KPE INVESTMENTS District Agriculture Plan implementation and that the District receive K50,000.00 and the six LLG receive K10,000.00 each.

NAMATANAI – JDP&BPC AGENDA – DISTRICT SERVICES IMPROVEMENT PROGRAM 2014 APPROPRIATION

MAJOR PROJECTS: 1. DIGICEL PROJECT – K2,750,000.00 2. Welcome Solar Lights – K890,000.00 3. PANASOA Monitoring System – K900,000.00 4. KPE Agriculture – K500,000.00 TOTAL – K5, 544,000.00

Findings of Fact 33

On 13 January 2014, the Namatanai JDP&BPC during its Meeting No.01/2014 agreed that changes be made to have continuous funding of the KPE Agriculture Development Plan Implementation project. On 30 April 2014, in the Namatanai JDP&BPC Meeting No.2/2014 the following decision was made. Below is an extract:

3.9 KPE AND OTHER PROJECTS 1. KPE Investments to receive K500,00.00 this year 2014 to complete outstanding projects

for 2013. PIP funding for Namatanai District Agriculture Development Plan. K5.78m to be

submitted to the Prime Minister to seek funding and require JDPNPC approval for funding.

Resolution No:11/2014 Moved: G. Lali Seconded: J. Pandi All in favour. The Chairman commented on assistance from Sir Michael Somare for projects received

and no other funding arrangements for the last 15 years or so. Monies owing to us are to be paid by the current government of Hon. Peter O‘Neill. KPE Ltd Officials presented a project report for the JDPBPC members information only. The Chairman to secure funds from outer sources to complement projects roll out in the

District President M. Singan expressed concern over cocoa production and what is to be achieved under the program.

President M. Singan remarked on bad working relations from his LLG officers. Further

comments were made on District Treasury officers not doing enough to process payments on time for projects implementation.

Resolution That the report be accepted by JDPBPC and that all LLGs have access to copies of

certain information. Moved: President M. Singan Second: S. Tovado All in favour.

Comments The Namatanai JDP&BPC and its members are not empowered by law to award contracts for any project in the District to any Contractor. The only authority that awards contracts is the PSTB. However, regardless of this, Hon. Byron Chan, MP and Chairman of Namatanai JDP&BPC together with its members made the decision to award the contract to KPE Investment Ltd. They also went further and decided to continue the engagement of KPE Investment Ltd as the preferred Contractor to continue delivering the agriculture goods and services.

Findings of Fact 34

[2.14] DEPARTMENT OF IMPLEMENTATION AND RURAL DEVELOPMENT

On 13 August 2014, Mr. Paul Sai’i the then Acting Secretary, DoIRD wrote to Mr. Robin Brown regarding the KPE Agriculture Plan Development Implementation project. Below is an extract of the letter:

SUBJECT: TERMINATION OF CONTRACT FOR KPE CONSULTANCY SERVICES

Please be advised that there are number of projects from the 2013 DISTRICT SERVICES IMPROVEMENT PROGRAM funds that did not go through the compliance process of procurement of goods and services under the Public Services Management Act, the District Services Improvement Program Administrative Guidelines and the Financial Instructions. The Joint District Planning and Budget Priority Committee (JDP/BPC) does not have powers to award contracts. The District Project Management Team (DPMT) is the mandated entity to award, tender and pass resolution for projects below the threshold of K500,000. In the case of Namatanai, a DPMT is not established therefore any procurement by JDP/BPC is null and void. A particular company, KPE Consultancy Services was awarded an agriculture project by the JDP/BPC for an agriculture project including vehicles which is in breach of the policy guidelines hence this contract must be immediately terminated. All assets purchased through District Services Improvement Program funds must be returned to the district administration and registered in the Asset Registry. Failure to comply will result in punitive measures to be taken and the assets will be impounded by the authorities. Other projects that did not go through the Provincial Supply Tenders Board (PSTB), as there is no established DPMT, must be terminated through JDP/BPC and proper documentation of projects be resubmitted and approval of those submissions be forwarded to PSTB for tender and awarding. Furthermore, a number of equipments such as computers/accessories, solar lightings have not been supplied however full payments were made. These are public funds which must be properly accounted for as normal audit by the Auditor General will be carried out during the duration of the program.

On 27 February 2015, Mr. Moses Makis, the acting Provincial Administrator, New Ireland Province informed the Ombudsman Commission that Mr. Monovi Amani, the then Provincial Administrator, New Ireland Province had confirmed that on 22 February 2013, the Namatanai JDP&BPC awarded a contract of K1,000,000.00 to KPE Investment Ltd for agriculture projects in the Namatanai District. Comments Mr. Robin Brown, the then Namatanai District Administrator wrote to Mr. Paul Sai’i the then acting Secretary, DoIRD and requested for advice on the matter. In response to Mr. Robin Brown, Mr. Paul Sai’I, the then acting Secretary, DoIRD advised that the Namatanai JDP&BPC did not have the authority to award any contract to contractors as clearly stated in his letter dated 13 August 2014 that stated:

―The Joint District Planning and Budget Priority Committee (JDP/BPC) does not have powers to award contracts‖.

Findings of Fact 35

In light of this, the authority that was supposed to have approved and awarded the contract to a contractor was the District Management Team (DMT), however, this authority at the District level was not in existence at that time. Mr. Linus Yipma, the then Namatanai District Administrator should have approached the PSTB and requested assistance in tendering the contract. Hence, the PSTB should have taken carriage of this matter and conducted an open tender by inviting interested Bidders to bid for the contract. In addition to the above, Mr. Paul Sai’i the then acting Secretary, DoIRD advised Mr. Robin Brown, the then Namatanai District Administrator that since the project did not go through the normal process, the Namatanai District Administration had the authority and powers to terminate the contract and instruct KPE Investment Ltd to return all assets purchased through the DSIP Funds to be returned to the District Administration as public funds had been used to purchase those assets.

[2.15] HON. BYRON CHAN‘S RESPONSE

On 24 May 2017, Hon. Byron Chan, MP and Chairman for Namatanai JDP& BPC responded to the Ombudsman Commission’s findings in the Provisional Report. Below is an extract:

Attention: Ombudsman Michael Dick Dear Ombudsman Commissioner, RE: PROVISIONAL REPORT OF THE INVESTIGATION INTO THE ALLEGED IMPROPER

AWARDING OF THE NAMATANAI DISTRICT AGRICULTURE DEVELOPMENT PROGRAM CONTRACT TO KPE INVESTMENT LTD BY THE NAMATANAI JOINT DISTRICT PLANNING AND BUDGET PRIORITY COMMITTEE.

My dear Ombudsman Commissioner, I am writing as a Chairman JDP& BPC Namatanai, requesting 21 days to reconfirm facts pertaining to above report and respond back to your office. Your letter dated 5/5/17 was delivered on 27/05/17 by Mr. Moang. As a Chairman DDA Namatanai, I realised a lot of District Administrative failure from content of the report now been exerted on me. Procedural issues demonstrated by my District Administrations clearly demonstrate incompetence‘s. After an audit conducted, KPE was also brought into light, I immediately suspended my District Administrator Mr Linus Yipma and advised the board.

The JDP& BPC (now known as District Development Authority) Board have been fully brief of the audit findings and made several resolutions to have all assets of KPE impounded and all agricultural establishments transferred to District agricultural officers. I would require one of your officers to sit down and go through as the findings of all administrative neglects from District Administration to Provincial administration. On DDA Namatanai records, our deliberations of incompetence‘s of District Administration has promoted in drastic removal of incumbent District Administrator, Mr. Linus Yipma as per administrative audit recommendations. Your consideration for 21 days extension effective as at the above date would be very much appreciated. Yours faithfully, (Signed) …………………………………………………….. HON. BYRON CHAN, MP Minister for Mining & Member for Namatanai

Findings of Fact 36

Comments Hon. Byron Chan, MP and Chairman of the JDP&BPC, after noting the findings from the Provisional Report, suspended Mr. Linus Yipma, as the then Namatanai District Administrator for failing to provide sound advice to the Namatanai JDP&BPC to follow proper procurement processes and comply with the Finance (Management) Act 1995. Hon. Byron Chan, MP and Chairman of the JDP&BPC also advised the Namatanai JDP&BPC of the findings and made resolutions to have all the assets back from the KPE Investment Limited and transferred to Namatanai District agriculture officers.

[2.16] MR. LINUS YIPMA‘S RESPONSE

On 23 June 2017, Mr. Linus Yipma, the then Namatanai District Administrator responded to the Ombudsman Commission’s findings in the Provisional Report. Below is an extract of Mr. Yipma’s response:

Dear Chief Ombudsman, RE: MY RESPONSE TO THE ALLEGED IMPROPER AWARDING OF NAMATANAI

DISTRICT AGRICULTURE DEVELOPMENT PROGRAM CONTRACT TO KPE INVESTMENT LTD BY THE NAMATANAI JOINT DISTRICT PLANNING AND BUDGET PRIORITY COMMITTEE

The above matter refers. Thank you for the opportunity given to me as the former Acting District Administrator of Namatanai District to provide a response to the above program contract which was awarded during my term. Sir, since the investigation commenced I was not given any opportunity to present some facts and or documents to the investigation team accept that I received a copy of the Report itself on the 25/05/2017 at 10.00 AM hand delivered by Mr. Samuel Moang and a female officer from the Ombudsman Commission at my residence in Namatanai town, New Ireland Province. Since, I got replaced from the office, three (3) different District Administrators namely Mr. Robin Brown, Mr. Kuniberth and lately Mr. Dennis Kosam took office. I have had difficult in re-checking all information presented in this Report as accessibility has been very slow within the twenty one (21) days as agreed which is due today Friday 23 June 2017. My brief response to the report is that there was no intention of breach of various laws or guidelines in the process of the awarding of contract to KPE Investments Ltd by the Namatanai District enjoy benefits of projects funded by the Government through the JDP & BPC. While my brief report is provided, I will continue to consult the current administration and re-check again the various contents of the Report and to further present to your office to your office as part of the continuing investigations. Yours sincerely, (signed) ………………………… Linus Yipma

Findings of Fact 37

District Coordinator & Former District Administrator

Comments Mr. Linus Yipma, the then Namatanai District Administrator stated that he had no intention to breach the laws, processes and procedures and guidelines when he facilitated the JDP&BPC with awarding the NDADP contract to KPE Investment Limited. This investigation found that at that material time when the Namatanai JDP&BC in its Meeting No.01/2013 on 22 February 2013, made its decision to award the NDADP contract to KPE Investment Ltd, Mr. Lunus Yipma, the then Namatanai District Administrator, was present in that particular meeting. However, there is no evidence to show that Mr. Linus Yipma, the then Namatanai District Administrator did provide sound advice to the Chairman and other members of the Namatanai JDP&BPC in regard to their roles and functions as outlined in Section 33A of the Organic Law on the Provincial Government and Local Level Governments. There is also no evidence to show that Mr. Linus Yipma, the then Namatanai District Administrator complied with Section 39A of the Public Finance (Management) Act 1995, Finance Management Manual, Financial Instruction No.01/2013 and the PSIP, DSIP and LLGSIP Administrative Guidelines. However, it was evident that at that material time the New Ireland Provincial Administration did not have a functional PSTB to deliberate and award the NDADP contract to KPE Investment Ltd. In this case, Mr. Linus Yipma, the then Namatanai District Administrator should have written to the New Ireland Provincial Administration and to the Secretary for DoIRD to assist with tendering of the NDADP contract due to two main factors; (1) the Namatanai District at that material time did not have a District Management Team in place; and (2) that the Namatanai JDP&BPC did not have the legal powers to award contracts to any contractors.

Findings of Wrong Conduct 38

3.0 FINDINGS

[3.1] FINDING No. 1

In the opinion of the Ombudsman Commission, the conduct of Hon. Byron Chan, MP and Chairman of the Namatanai Joint District Planning and Budget Priority Committee was wrong when he instructed the members of the Namatanai Joint District Planning and Budget Priority Committee to award the Contract for the Namatanai District Agriculture Development Programme to KPE Investment Ltd. Reasons 1. The Namatanai JDP&BPC does not have the authority to award contracts to any

contractor. It is the role and function of the Provincial Supply and Tenders Board as per Section 33A of the Organic Law on Provincial Governments and Local Level Governments.

2. The appropriate authority to have dealt with this matter was the District Management Team. At the time when the allegations arose and at the time of the investigation, the Namatanai District Administration did not have DMT in place.

3. In addition to this, the financial limit of the District Administration is K500,000.00

and hence the District Administration did not have the financial capacity.

Reference: The facts to this finding are on page 22.

[3.2] FINDING No. 2

In the opinion of the Ombudsman Commission the conduct of the Internal Revenue Commission in issuing a Certificate of Compliance to KPE Investment Ltd was wrong because KPE Investment Ltd was not a registered entity with the Investment Promotion Authority at that time. Reasons 1. On 25 July 2013, the Internal Revenue Commission issued a Certificate of

Compliance to KPE Investment Ltd for tax purposes.

2. On 24 September 2013, KPE Investment Ltd was incorporated with the Investment Promotion Authority under the Companies Act 1997 and issued a Company number 1-90155.

Reference: The facts to this finding are on pages 24.


[3.3] FINDING No. 3

In the opinion of the Ombudsman Commission the conduct of Namatanai Joint District Planning and Budget Priority Committee was wrong when it made a decision to award the Contract to KPE Investment Ltd, a company that was not registered with the Investment Promotion Authority at that time. Reasons 1. The Namatanai JDP & BPC awarded the Contract to KPE Investment Ltd, on 22

February 2013. KPE Investment Ltd was not a registered company with the Investment promotion Authority.

2. It was established that KPE Investment Ltd was registered on 23 September 2013, five months after the contract was awarded to it.

3. This was in direct breach of the Financial Management Manual and went against

good procurement practices.

References: The facts relevant to this finding are on page 24.

[3.4] FINDING No. 4

In the opinion of the Ombudsman Commission the conduct of Mr. Linus Yipma, Namatanai District Administrator was wrong when he awarded a Certificate of Inexpediency to avoid public tendering the project. Reasons

1. On 16 August 2013, the Namatanai District Administration raised a CoI to waive

the public tender of the NDADP contract and awarded the contract to KPE Investment Ltd. This was in breach of Section 40 of the Public Finance (Management) Act 1995.

40. Tenders For Property, Stores, Works And Services

(1)…Tenders shall be publicly invited and contracts let for the

purchase or disposal of property or stores or the supply of works and services the estimated cost of which exceeds the prescribed amount.

(3) The preceding provisions of this section do not supply to the purchase

or disposal of property or stores or the supply of works and services – (b) in respect of which a Board certifies that the inviting of tenders

is impracticable or inexpedient;


2. Part 13, Division 4, clauses 13 and 14 of the Finance Instructions state:

13. A ―Certificate of Inexpediency‖ cannot be issued to retrospectively

cover a contract already executed.

14. Certificates of Inexpediency will only be issued in situations where a declared:

a. Natural Disaster, or b. Defence Emergency, or c. Health Emergency, or d. Situation of Civil Unrest

Reference: The facts to this finding are on page 25 and 26.

[3.5] FINDING No. 5

In the opinion of the Ombudsman Commission the conduct of Mr. Monovi Amani, the then Provincial Administrator, New Ireland Province was wrong when he approved the Authority to Pre-Commit without a Provincial Supply and Tenders Board decision number.

Reasons 1. On 16 August 2013, Mr. Monovi Amani, the then Provincial Administrator, New

Ireland Province signed and approved the APC for the release of funds totalling K1,000,000.00 to the Namatanai District Administration.

2. Part 13 Division 3 of Clause 9(c) of the Finance Instructions states

c. Obtain an ―Authority to Pre-commit‖ (APC) Expenditure and other requirements.


3. Mr. Monovi Amani, the then Provincial Administrator was aware that there was no

PSTB decision number written on the APC form as is the requirement in Part 13 of the Finance Management Manual.

Reference: The facts to this finding are on pages 26 and 27.


[3.6] FINDING No. 6

In the opinion of the Ombudsman Commission the conduct of Mr. Ralph Kotauga, the Provincial Treasurer was wrong when he endorsed and approved payments to KPE Investment Ltd. Reasons 1. Mr. Ralph Kotauga, the Provincial Treasurer was aware that the PSTB did not meet

and deliberate on the Contract for the Namatani District ADP.

2. Mr. Kotauga, was therefore aware that there was no PSTB decision awarding the contract to KPE Investment Ltd.

3. Mr. Kotauga, deliberately ignored the inconsistency and processed the DSIP funds to

be channelled to the Namatanai District Administration to pay KPE Investment Ltd.

Reference: The facts to this finding are on pages 29, 30 and 31.

[3.7] FINDING No. 7

In the opinion of the Ombudsman Commission the conduct of Mr. Linus Yipma, Namatanai District Administrator was wrong when he entered into a Contractual Agreement with KPE Investment Ltd knowing that proper procedures under Section 40 of the Public Finance (Management) Act 1995 had not been complied with. Reasons 1 On 27 August 2013, Mr. Linus Yipma, Namatanai District Administrator entered into

a Contract Agreement with KPE Investment Ltd when he knew that proper procedures were not complied with in accordance with Section 40 of the Public Finance (Management) Act 1995.

2 The APC form was not properly filled and endorsed as there was no PSTB decision

number written on it to facilitate the payment process nor was there a copy of the PSTB decision attached to the APC form to verify the document.

Reference: The facts to this finding are on pages 24, 25 and 26.

Recommendations 42

4.0 RECOMMENDATIONS

[4.1] CONSTITUTIONAL FRAMEWORK FOR MAKING RECOMMENDATIONS

As indicated in Chapter 1, the general purpose of this investigation is to determine whether any of the conduct under investigation was wrong, or whether any laws or administrative practices were defective. The Commission is expressly authorized to form such opinions by Section 22(2) of the Organic Law on the Ombudsman Commission. If, after making its investigation, the Commission comes to the conclusion that some of the conduct was wrong or that any law or administrative practice was defective, it is authorized to make recommendations. Such recommendations are made under Section 22(2) of the Organic Law on the Ombudsman Commission. Section 22(2) OLOC:

If in any case to which this section applies the Commission is of the opinion that any service, body, person or other appropriate authority should – (a) consider the matter further; or

(b) take certain specific action; or

(c) modify or cancel any administrative act; or

(d) alter any regulation or ruling; or

(e) explain more fully any administrative act; or

(f) do any other thing,

the Commission shall report its opinion and the reasons for its opinion, to the Minister responsible for the relevant service, body or person and to the Permanent Head or statutory head responsible for the service, body or person, and may refer the matter to the Public Prosecutor if action by him is warranted and may make such recommendations as it thinks fit.

In this chapter, recommendations are made based on the findings of wrong conduct and defective administration referred to earlier in the report. Each recommendation is set out as follows:

o The recipients (i.e. the persons to whom the recommendations are directed) are identified.

o The main reason for making the recommendation, are stated.

[4.2] RECOMMENDATIONS CONCERNING PARTICULAR INDIVIDUALS

We recommend that some individuals have their continuing public employment carefully reviewed. The Ombudsman Commission is of the opinion that holders of public offices must continue at all times to be accountable for their actions, even if they have left the position in

Recommendations 43

which they were found to have committed the wrong conduct and are occupying new positions.

[4.3] RECIPIENTS OF RECOMMENDATIONS

When we make recommendations we are obliged by Section 22(2) of the Organic Law on the Ombudsman Commission to identify the service, body, person or other appropriate authority who has to carry them out. We are also obliged by Section 22(2) of the Organic Law on the Ombudsman Commission to report our recommendations to both the Minister and, if appropriate, the permanent or statutory head responsible for the service, body or person who has to carry out the recommendations. In relation to each recommendation made in this Chapter, recipients of the recommendations are listed as follows:

first, the service, body or person we are asking to do things is identified;

secondly, the Minister responsible for that service, body or person is identified;

thirdly, if appropriate, the permanent or statutory head responsible for that service, body or person is identified.

[4.4] RESPONSIBLE MINISTERS

Section 148 of the Constitution provides that each department, section, branch or function of government must be the political responsibility of a Minister. The Prime Minister has the power to determine the titles, portfolios and responsibilities of the Ministers. At the time of the preparation of this report, the service, body or persons to whom specific recommendations are being directed were the responsibility of the Ministers set out in the table below.

[4.5] MINISTERS RESPONSIBLE FOR FOLLOWING UP IMPLEMENTATION OF RECOMMENDATIONS

Minister for Finance and Treasury

Minister for Provincial Affairs & Inter-Governmental Relations In the event that the title or responsibilities of the Minister changes after the date of this report, the responsibility for notifying the Ombudsman Commission of the steps being taken to give effect to its recommendations will pass to the Minister who, from time to time, has political responsibility for the services, bodies or persons who received our recommendations.

[4.6] DUTIES OF RECIPIENTS OF RECOMMENDATIONS

The fact that our opinions on things to be done are expressed in the form of ―recommendations‖ does not mean that recipients are entitled to ignore them. Each recipient is required under Section 22(3) of the Organic Law on the Ombudsman Commission to notify the Ombudsman Commission in writing within 30 days after the day

Recommendations 44

of the service of the report, of the steps proposed to be taken to give effect to our recommendations. Section 22(3) states: If the Commission so requests, the responsible Minister, Permanent Head or statutory head as the case may be, shall, within such period as is specified by the Commission, notify the Commission as to the steps (if any) that he proposes to take to give effect to its recommendations.

Accordingly, there is a duty placed on each recipient of a recommendation to notify the Commission; and if it is proposed not to implement any recommendation, there is a further duty to give cogent and convincing reasons why the recommendations cannot or should not be implemented. These duties arise due to the combined effect of the Constitution and the Organic Law on the Ombudsman Commission. A failure to comply with these duties may result in the Ombudsman Commission commencing enforcement proceedings in the National Court pursuant to Section 23 of the Constitution.

[4.7] RECOMMENDATIONS

After receiving responses from those who were issued the Provisional Report, the Ombudsman Commission now presents below its recommendations as the findings of wrong conduct.

RECOMMENDATION No.1

The Ombudsman Commission recommends that the Chairman of the Namatanai JDP&BPC must ensure strict compliance with Section 33(A) of the Organic Law on Provincial and Local Level Government and Section 39B of the Public Finance (Management) Act 1995. Reasons 1. The Namatanai JDP&BPC does not have the legal authority to award contracts to

any contractor as per Section 33A of the Organic Law on Provincial Government and Local Level Governments.

Section 33A of the Organic Law on Provincial Government and Local Level Governments states:


4. The Joint District Planning and Budget Priorities Committee shall have

the following functions:-

a. To oversee, co-ordinate and make recommendations as to the overall district planning, including budget priorities, for consideration by the Provincial Government and the National Government; and

Recommendations 45

b. To determine and control the budget allocation priorities for the Local Level Governments in the district; and

c. To approve the Local Level Government budgets for presentation to the Local Level Government and make recommendations concerning them; and

d. To draw up a rolling five year development plan and annual estimate for the district; and

e. To conduct annual reviews of the rolling five year plan. f. To approve disbursement of District Support Grants and other

Grants. Section 39B of the Public Finance (Management) Act 1995 states: (6) In respect of Provincial Supply and Tenders Boards established under

Subsection (1) the Minister may make Rules, not inconsistent with this Act or the Financial Instructions, prescribing—

(a) the manner of inviting tenders publicly; and (b) the method of dealing with tenders; and (c) the criteria to be applied in the evaluation of tenders; and (d) the appointment by the Boards of advisers in technical matters; and

(e) the keeping by the Boards of records of the performance of each successful tenderer; and

(f) the manner of regulating the disposal of property no longer required by the State; and

(g) the method of obtaining and dealing with quotations for— (i) the purchase and disposal of property and stores; and (ii) the supply of goods and services.

2. It is clear that the roles and functions of the JDP&BPC do not include awarding

contracts to contractors. This particular role is performed by the District Management Team at the District level.

3. However, upon instructions from Hon. Byron Chan, MP and Chairman of the Namatanai JDP&BPC, the Namatanai JDP&BPC made its decision to award the NDADP contract to KPE Investment Ltd.

4. Hon. Byron Chan, MP and Chairman of the Namatanai JDP&BPC therefore abused

the position of the Chairman of the JDP&BPC when he instructed the members of the Namatanai JDP&BPC to perform the role of the District Management Team, which is contrary to Section 33A of the Organic Law on Provincial Government and Local Level Governments.

Recipients

Governor for New Ireland Province

Members of the Namatanai JDP & BPC

Provincial Administrator, New Ireland Provincial Administration

District Administrator, Namatanai District Administrator.

Recommendations 46

RECOMMENDATION No.2

The Ombudsman Commission recommends that the Internal Revenue Commission ensure that all new companies must be registered with the Investment Promotion Authority and they have met all requirements before issuing Certificates of Compliance.

Reasons 1. The Certificate of Compliance (CoC) was issued by the Internal Revenue

Commission before the KPE Investment Limited was registered with the Investment Promotion Authority.

2. KPE Investment Limited did not have the financial capacity to undertake a

contractual agreement with Namatanai JPD & BPC. 3. Hence, the issuance of CoC by the Internal Revenue Commission to KPE Investment

Limited was improper and the contrary to Section 42 (5) of the Public Finance (Management) Act 1995 and Section 354C of the Income Tax Act 1959 as KPE did not meet the requirements.

Recipients

Commissioner of Internal Revenue Commission

Chief Executive Officer, Investment Promotion Authority


District Administrator, Namatanai District Administration.

RECOMMENDATION No.3

That the Ombudsman Commission recommends that the Namatanai JDP&BPC must strictly comply with Section 33A of the Organic Law on Provincial Government and Local Level Governments and not perform roles and functions that are outside of its jurisdiction.

Reasons 1. The Section 33A (3)(a), (b), (c), (d), (e) and (f) of the Organic Law on Provincial

Government and Local Level Governments outlines the role of the JDP&BPC.

2. Mr. Linus Yipma, the then Namatanai District Administrator, was aware that Namatanai District Administration did not have a District Management Team (DMT) in place to conduct the tender and procurement process and procedures within the Namatanai District.

3. Mr. Linus Yipma, was also aware that the District Administration had a financial limit of K500,000.00 and hence the District Administration lacked capacity to conduct the tendering process at the District level.

Recommendations 47

4. In spite of this, Mr. Linus Yipma failed to formally write to and consult the Department of Implementation and Rural Development (DoIRD) as required under Section 7.1.2(iii) of the PSIP, DSIP & LLGSIP Administrative Guidelines 1B/2014. This was due to the fact that at the Provincial level, there was a nonfunctional Provincial Supply and Tenders Board (PSTB).

5. Furthermore, Mr. Linus Yipma failed to properly advice the Namatanai JDP&BPC

members that since the Namatanai District did not have a DMT and that the Provincial Administration did not have a functional PSTB, it was appropriate for the District Administration to formally write to and request DoIRD to assistance conduct the tender and procurement process.

6. However, when the Namatanai JDP&BPC awarded the NDADP contract to KPE

Investment Ltd on 25 July 2013, KPE Investment was not yet a registered company with the Investment Promotion Authority (IPA). KPE Investment Ltd was later registered with the IPA on 23 September 2013.

Recipients

Secretary, Department of Implementation and Rural Development

District Administrator, Namatanai District Administration

Chairman of Namatanai JDP & BPC

Chief Executive Officer, Investment Promotion Authority.

RECOMMENDATION No.4

The Ombudsman Commission recommends that the New Ireland Provincial Administration must strictly ensure that the Namatanai District Administration comply with Part 40 of the Public Finance Management Act 1995 and Part 13, Division 4, Clauses 13 and 14 of the Finance Management Manual when requesting or issuing of the Certificate of Inexpediency.

Reasons 1. On 16 August 2013, the Namatanai District Administration raised a Certificate of

Inexpediency (CoI) to waive the public tender of the NDADP contract and awarded the contract to KPE Investment Ltd when there was no situation on the ground that warranted the issuance of a CoI. Section 40 of the Public Finance Management Act 1995 states:

(1) Tenders shall be publicly invited and contracts let for the purchase

or disposal of property or stores or the supply of works and services the estimated cost of which exceeds the prescribed amount.

(3) The preceding provisions of this section do not supply to the purchase or

disposal of property or stores or the supply of works and services –

(b) in respect of which a Board certifies that the inviting of tenders is impracticable or inexpedient.

Recommendations 48

2. Part 13 Division 4, Clauses 13 and 14 of the Finance Instructions outlines the

reasons that will warrant for the issuance of the Certificate of Inexpediency.

13. A ―Certificate of Inexpediency‖ cannot be issued to retrospectively cover a contract already executed.

14. Certificates of Inexpediency will only be issued in situations where a

declared:



3. The Namatanai District Administration did not have the authority to conduct a

tender and procurement process on a contract that was above its financial limit.

4. The granting and issuance of the CoI is the role of the CSTB and PSTB and not the District Administration or the Provincial Administration.

Recipients

Governor of New Ireland Province

Secretary, Department of Finance


District Administrator , Namatanai District Administration.

RECOMMENDATION No.5

The Ombudsman Commission recommends that the Provincial Administrator for the New Ireland Provincial Administration must strictly comply with Section 47B of the Public Finance (Management) Act 1995 and Part 13, Division 3 of Clause 9 (c) of the Finance Management Manual when approving Authority to Pre-Commit Forms.

Reasons 1. On 16 August 2013, Mr. Monovi Amani, the then Provincial Administrator, New

Ireland Province signed and approved the Authority to Pre-Commit (APC) Form for the release of funds totalling K1,000,000.00 to the Namatanai District Administration.

2. Section 47B of the Public Finance (Management) Act 1995 states:

(1) The Finance Departmental Head may issue to a Departmental Head an Authority to Pre-commit Expenditure in relation to the purchase of real

Recommendations 49

or personal property or for the supply of goods or services where the Finance Departmental Head is satisfied that —

(a) in the case of proposed expenditure exceeding K100,000.00 —

(i) the provisions of this Part have been complied with in

relation to the purchase or supply; and (ii) funds will be available to meet the proposed schedule of

payments for the purchase or supply; and

(b) in the case of proposed expenditure not exceeding K100,000.00, the circumstances of the proposed expenditure are such that it is appropriate to authorise the Departmental Head to enter into a contract for the purchase of real or personal property or stores or for the supply of goods or services notwithstanding that the full amount of funds to meet the payment required under the contract is not immediately available.

(2) An Authority to Pre-Commit Expenditure under Subsection (1) shall

specify —

(a) the purchase of real or personal property or stores or the supply of goods or services to which it relates; and

(b) the maximum amount to which the Authority extends. (3) An Authority to Pre-Commit Expenditure under Subsection (1)

authorises the Departmental Head to enter into a contract for the purchase of public property or for the supply of goods and services specified in the Authority to the extent of an amount not exceeding the maximum amount specified in the Authority.

3. Part 13 Division 3 of Clause 9(c) of the Finance Instructions states:

(c) Obtain an ―Authority to Pre-commit‖ (APC) Expenditure and other requirements.


4. Mr. Monovi Amani, the then Provincial Administrator was aware that there was no

functional PSTB in the Provincial Administration. He was also aware that there was no DMT in the Namatanai District Administration.

5. Hence, Mr. Monovi Amani, being aware that there was no PSTB or CSTB decision number written on the APC Form as is the requirement in Part 13 of the Finance Management Manual, nevertheless approved and forwarded the APC Form to Mr. Ralph Kotauga, the then Provincial Treasurer and Mr. Linus Yipma, the then Namatanai District Administrator.

Recommendations 50

6. This was blatant disregard of the set rules and procedures outlined in the above mentioned laws and regulations.

Recipients

Governor of New Ireland Province


District Administrator, Namatanai District Administration.

RECOMMENDATION No.6 The Ombudsman Commission recommends that the New Ireland Provincial Treasury must strictly comply with the Public Finance (Management) Act 1995 and the Finance Management Manual and conduct their own due diligence checks before authorizing the Namatanai District Treasury Officers to raise cheques to pay contractors.

Reasons 1. There are several documents that the Provincial Treasurer must cite and approve or

endorse before issuing instructions to his officers to action. These documents are:

i. Contract Agreement ii. Bill of Quantities iii. CSTB or PSTB decision iv. A properly filled APC Form v. Any other correspondences endorsing the contract

2. Mr. Ralph Kotauga, the Provincial Treasurer, was aware that New Ireland Provincial

Administration had a non-functional Provincial Supply and Tenders Board (PSTB). Hence, there was no PSTB decision number issued to validate and verify that a PSTB had met and awarded the NDADP contract to KPE Investment Ltd.

3. Also there was no CSTB number to indicate that this particular contract was forwarded to the Department of Implementation and Rural Development (DoIRD) to assist with requesting the CSTB to conduct the tender and procurement process.

4. Mr. Ralph Kotauga, the Provincial Treasurer was also aware that the issuance of the

Certificate of Inexpediency (CoI) was not proper as at that time, there was no situation present in Namatanai that warranted a CoI to be issued to waiver the public tender of the NDADP contract.

5. Mr. Ralph Kotauga, the Provincial Treasurer, was also aware that the Namatanai

JDP&BPC’s engagement of KPE Investment Ltd was wrong however, he proceeded to advice his officers in the Namatanai District Treasury to raise three cheque payments two cheques worth K300,000.00 each and the last payment of K400,000.00 all in favour of KPE Investment Ltd.

Recipients

Secretary, Department of Finance


Recommendations 51


Provincial Treasurer, New Ireland Provincial Treasury

RECOMMENDATION No.7

The Ombudsman Commission recommends that the New Ireland Provincial Administration and the Namatanai District Administration must ensure that proper tender and procurement procedures are strictly followed in accordance with the Section 40 & 42 of the Public Finance (Management) Act 1995, Part 13 of the Financial Management Manual and the PSIP, DSIP & LLGSIP Administrative Guidelines.

Reasons 1. On 27 August 2013, Mr. Linus Yipma, Namatanai District Administrator entered into

a Contract Agreement with KPE Investment Ltd when he knew that proper procedures were not complied with in accordance with Section 40 of the Public Finance (Management) Act 1995.

5. The APC Form was not properly filled and endorsed as there was no PSTB/CSTB

decision number written on it to facilitate the payment process.

6. There was no copy of the PSTB/CSTB decision attached to the APC Form to verify the document.

Recipients

Secretary, Department Finance



Provincial Treasurer, New Ireland Provincial Treasury.

Conclusion 52

5.0 CONCLUSION

All public officials must understand their roles and responsibilities to conduct their duties in compliance with the rules and laws for the good of our people and the country. The non-compliance of the laws/regulations is questionable as to whether our decisions and actions are contrary to laws meaning and there is no transparency and accountability in the services that we deliver in the government agencies that we served. This Report highlights the irregularities in the awarding of the Namatanai District Agriculture Development Project by the Namatanai JDP&BPC to KPE Investment Ltd. That is, the procurement process outlined in the Public Finance (Management) Act 1995, Financial Management Manual, Finance Instruction No: 1/2013 and the PSIP, DSIP and LLGSIP Administrative Guidelines were not strictly followed. This Report highlighted the fact that in the absence of a functional Provincial Supply and Tender the responsible head of the Province or District, in this case, it is the Namatanai District Administrator must consult the Secretary for the Department of Implementation and Rural Development (DoIRD) and request assistance. The Secretary for DoIRD will formally write to the Chairman of the Central Supply and Tenders Board (CSTB) and request him to conduct a public tender of the contract. The issuing of a Certificate of Inexpediency (CoI) to waiver the public tendering of a contract was improper as there was no natural disaster, defence or health emergency or civil unrest situation in Namatanai District that warranted the issuance of a CoI. The Namatanai JDP&BPC, Namatanai District Administration and New Ireland Provincial Administration did not meet the expectation of the people and the State in complying with the administrative processes and procedures required to procure the goods and services that was needed by the people. The officers of the New Ireland Provincial Administration, Namatanai District Administration, New Ireland Provincial Treasury, Namatanai District Treasury and members of Namatanai JDP&BPC are to take note of the findings and recommendations made in this Report and make special effort to correct the irregularities identified in this Report for the good of New Ireland Province, Namatanai District and the people Papua New Guinea. The leaders whom the Commission directs their recommendations are asked to carefully consider the recommendation and implement them.

……........................…...……..... .…….................................. MICHAEL DICK RICHARD PAGEN CHIEF OMBUDSMAN OMBUDSMAN Port Moresby October 2018

Relevant Laws 53

6.0 RELEVANT LAWS

[6.1] CONSTITUTION

Five National Goals and Directive Principles are proclaimed in the preamble to the Constitution. No.4 relates to natural resources and the environment. 4. Natural resources and environment We declare our fourth goal to be for Papua New Guinea's natural resources and environment to be conserved and used for the collective benefit of us all, and be replenished for the benefit of future generations. WE ACCORDINGLY CALL FOR - (1) wise use to be made of our natural resources and the environment in and on the

land or seabed, in the sea, under the land, and in the air, in the interests of our development and in trust for future generations; and

(2) the conservation and replenishment, for the benefit of ourselves and posterity, of

the environment and its sacred, scenic, and historical qualities, and (3) all necessary steps to be taken to give adequate protection to our valued birds,

animals, fish, insects, plants and trees. Section 148 of the Constitution is concerned with the functions and responsibilities of Ministers. 148. Functions, etc., of Ministers.

(1) Ministers (including the Prime Minister) have such titles, portfolios and responsibilities as are determined from time to time by the Prime Minister.

(2) Except as provided by a Constitutional Law or an Act of the Parliament, all

departments, sections, branches and functions of the Prime Minister is politically responsible for any of them that are not specifically allocated under this section.

(3) Subsection (2) does not confer on a Minister any power of direction or control

Section 217 (1) of the Constitution establishes the Ombudsman Commission. Section 217(1) of the Constitution states: 217. The Ombudsman Commission.

Relevant Laws 54

(1) There shall be an Ombudsman Commission, consisting of a Chief

Ombudsman and two Ombudsmen‖.

Section 217 (5) of the Constitution states that in the performance of the Commission’s functions, under Section 219 of the Constitution the Commission is not subject to direction or control by any person or authority. Section 217 (6) of the Constitution states that the proceedings of the Commission are not subject to review in any way, except by the Supreme Court or the National Court on the ground that it has exceeded its jurisdiction. Section 217 (8) of the Constitution defines conduct. Section 217(8) states:

(a) any action or inaction relating to a matter of administration; and (b) any alleged action or inaction relating to a matter of administration.

Section 218 (a), (b) and (c) of the Constitution specifies the purposes of establishing the Commission. Section 218(a) (b) and (c) states: 218. Purposes of the Commission. The purposes of the establishment of the Ombudsman Commission are—

(a) to ensure that all governmental bodies are responsive to the needs

and aspirations of the People; and (b) to help in the improvement of the work of governmental bodies and

the elimination of unfairness and discrimination by them; and (c) to help in the elimination of unfair or otherwise defective legislation

and practices affecting or administered by governmental bodies. Section 219 of the Constitution lists the functions of the Ombudsman Commission. The first of these functions is: 219. Functions of the Commission.

(a) to investigate, or its own initiative or on complaint made by a person affected, any conduct on the part of-

...(any governmental body or an officer or employee of any such body) specified by or under an Organic Law in the exercise of a power or function vested in it or him by law in cases when the conduct is or may be wrong, taking into account amongst other things, the National Goals and Directive Principles…‖

Relevant Laws 55

[6.2] ORGANIC LAW ON THE OMBUDSMAN COMMISSION Section 13 of the Organic Law on the Ombudsman Commission also specifies the purpose of establishing the Commission. Section 13 of the Organic Law on the Ombudsman Commission states:

For the purposes of Section 219(1)(a) (functions of the Commission) of the Constitution the functions of the Commission, in addition to the functions specified in Section 219(1), (b), (c), (d) and (e) (functions of the Commission) of the Constitution, are to investigate, on its own initiative or on complaint by a person affected, any conduct on the part of –

(c) any State Service or a member of any State Service; or

(d) any governmental body, or an officer or employee of a governmental body;

or (c) any other service or body referred to in Section 219 (a) (functions of the

Commission) of the Constitution that the Head of State, acting with, the advice of the National Executive Council, by notice in the National Gazette, declares to be a service or body for the purpose of this section.

[6.3] ORGANIC LAW ON PROVINCIAL GOVERNMENT AND LOCAL LEVEL GOVERNMENTS


5. The Joint District Planning and Budget Priorities Committee shall have the

following functions:-

a. To oversee, co-ordinate and make recommendations as to the overall district planning, including budget priorities, for consideration by the Provincial Government and the National Government; and

b. To determine and control the budget allocation priorities for the Local

Level Governments in the district; and c. To approve the Local Level Government budgets for presentation to

the Local Level Government and make recommendations concerning them; and

d. To draw up a rolling five year development plan and annual estimate

for the district; and e. To conduct annual reviews of the rolling five year plan.

Relevant Laws 56

f. To approve disbursement of District Support Grants and other Grants.

[6.4] PUBLIC FINANCE (MANAGEMENT) ACT 1995

39B. Provincial Supply and Tenders Boards. (1) The Minister may, by notice in the National Gazette, establish such number of

Provincial Supply and Tenders Boards as he, on the advice of the Departmental Head of the Department responsible for financial management, thinks necessary to control and regulate—

(a) the purchase and disposal of property and stores; and (b) the supply of works and services,

for any amount up to K5,000,000.00 or such lesser amount as the Minister, on the advice of the Central Supply and Tenders Board, may determine by notice in the National Gazette, for and on behalf of the State in the provinces. (2) A Provincial Supply and Tenders Board shall comprise the following:—

(a) the Provincial Administrator (the Deputy Provincial Administrator to be his alternate), ex officio, who shall be the Chairman; and

(b) the Provincial Works Manager (the Advisor Technical Services to be his

alternate), ex officio; and (c) the Advisor Planning and Budgeting (the Deputy Advisor Planning and

Budgeting to be his alternate), ex officio, and (d) the Provincial Treasurer (the Provincial Expenditure Accountant to be his

alternate), ex officio; and

(e) a member (and his alternate) who has an unimpeachable and impeccable reputation and has relevant experience or demonstrated understanding of commercial and/or actual procurement/contracting practices nominated by the Provincial Chamber of Commerce or, where there is no such body, the Papua New Guinea Business Council.

(3) Where the Minister agrees with a nomination for membership of a Provincial

Supply and Tenders Board under Subsection (2)(e) from a list of three nominees submitted by the organization concerned, the nominee approved by the Minister—

(a) shall be appointed as a member of the Provincial Supply and Tenders Board

by the Minister by notice in the National Gazette; and (b) shall be appointed for a period of three years; and

Relevant Laws 57

(c) holds office upon such terms and conditions as are determined by the

Minister by notice in the National Gazette; and (d) is eligible for re-appointment. (4) At a meeting of a Provincial Supply and Tenders Board— (a) the Chairman or, in his absence, a person appointed by the members from

their number as chairman for that meeting, shall preside; and (b) matters arising shall be decided by a majority of the votes of the members

present; and (c) the person presiding has a deliberative, and in the event of an equality of

votes on any matter, also a casting vote; and (d) the quorum shall be three members; and (e) the procedures of the meeting are as determined by the Board. (5) The Minister may at any time terminate the appointment of a member of a

Provincial Supply and Tenders Board, other than an ex officio member, for ill health, corruption, incompetence or impropriety and may appoint another person in his place.

(6) In respect of Provincial Supply and Tenders Boards established under Subsection

(1) the Minister may make Rules, not inconsistent with this Act or the Financial Instructions, prescribing—

(a) the manner of inviting tenders publicly; and (b) the method of dealing with tenders; and (c) the criteria to be applied in the evaluation of tenders; and (d) the appointment by the Boards of advisers in technical matters; and

(e) the keeping by the Boards of records of the performance of each successful

tenderer; and (f) the manner of regulating the disposal of property no longer required by the

State; and (g) the method of obtaining and dealing with quotations for—

(i) the purchase and disposal of property and stores; and (ii) the supply of goods and services.

Relevant Laws 58

40. Tenders for property, stores, works and services

(1)…Tenders shall be publicly invited and contracts let for the purchase or disposal of property or stores or the supply of works and services the estimated cost of which exceeds the prescribed amount.

(3) The preceding provisions of this section do not apply to the purchase or disposal

of property or stores or the supply of works and services –

(b) in respect of which a Board certifies that the inviting of tenders is impracticable or inexpedient;

42. Consideration of tenders.

(5) In examining a tender, the Board shall give consideration to the capacity,

experience, integrity, financial status and past performance of the tender and such other matters as it thinks relevant.

47b. Authority to pre-commit expenditure. (1) The Finance Departmental Head may issue to a Departmental Head an Authority to

Pre-commit Expenditure in relation to the purchase of real or personal property or for the supply of goods or services where the Finance Departmental Head is satisfied that —

(a) in the case of proposed expenditure exceeding K100,000.00 —

(i) the provisions of this Part have been complied with in relation to the

purchase or supply; and (ii) funds will be available to meet the proposed schedule of payments for

the purchase or supply; and

(b) in the case of proposed expenditure not exceeding K100,000.00, the circumstances of the proposed expenditure are such that it is appropriate to authorise the Departmental Head to enter into a contract for the purchase of real or personal property or stores or for the supply of goods or services notwithstanding that the full amount of funds to meet the payment required under the contract is not immediately available.

(2) An Authority to Pre-Commit Expenditure under Subsection (1) shall specify — (a) the purchase of real or personal property or stores or the supply of goods or

services to which it relates; and (b) the maximum amount to which the Authority extends.

Relevant Laws 59

(3) An Authority to Pre-Commit Expenditure under Subsection (1) authorises the

Departmental Head to enter into a contract for the purchase of public property or for the supply of goods and services specified in the Authority to the extent of an amount not exceeding the maximum amount specified in the Authority.

Relevant Laws 60

[6.5] FINANCE MANAGEMENT MANUAL Part 13 and 14 deal with major procurement of government goods, services and works by the Supply and Tenders Board. Part 13 Division 3, Clause 9 c. Obtain an ―Authority to Pre-commit‖ (APC) Expenditure and other requirements.


Part 13 Division 4, Clauses 13 and 14 of the Finance Instructions outlines the reasons that will warrant for the issuance of the Certificate of Inexpediency. 13. A ―Certificate of Inexpediency‖ cannot be issued to retrospectively cover a contract

already executed. 14. Certificates of Inexpediency will only be issued in situations where a declared:



[6.6] INCOME TAX ACT 1959

354C. Issue of certificates. (1) Where—

(a) application is made to the Commissioner General under Section 354B for the issue of a tax clearance certificate in respect of an act or thing proposed to be done by the applicant; and

(b) the Commissioner General is not authorised by Section 354D to refuse to

issue the certificate or, if he is so authorised, he is of the opinion that it is not necessary, for the purpose of protecting the revenue of the State to withhold the issue of the certificate,

Relevant Laws 61

then, subject to Subsection (2), the Commissioner General shall issue the certificate. (2) The Commissioner General may, before issuing a certificate under Subsection (1),

require the applicant, or any other person or persons, to give to the Commissioner General such undertaking or such undertakings in relation to the proposed act or thing as the Commissioner General considers necessary for the purpose of protecting the revenue of the State being an undertaking or undertakings which the Commissioner General is satisfied will be carried out.

(3) The Commissioner General may require any person who gives, or any persons who

give, an undertaking for the purposes of Subsection (2) to agree to pay to the State in the event of a breach of the undertaking such amount as is specified in or is to be ascertained in accordance with, the undertaking, and, if a court is satisfied that a breach of the undertaking given for the purposes of Subsection (2) has occurred, the court may order the person, or all or any of those persons, as the case may be, to pay to the State as a debt due to the State such amount, not exceeding the amount so specified or to be ascertained, as the court determines to be appropriate having regard to all relevant matters, including the nature and extent of the breach, the circumstances in which the breach took place and the nature and extent of any benefit or advantage in relation to the application or operation of this Act which will be, or may reasonably be expected to be, received or obtained, or has been, or could reasonably have been expected to have been, received or obtained, by that person, by one or more of those persons, or by any other person, as a result or by virtue of the breach.

(4) A court may, for the purposes of Subsection (3), treat a person as a person who will

receive or obtain or has received or obtained, as a result or by virtue of a breach of an undertaking, a benefit or advantage in relation to the application or operation of this Act, if the person has not become, or could not reasonably be expected to have become, or will not become, or may not reasonably expected to become liable to pay tax or the liability of the person to pay tax has been, or could reasonably be expected to have been, or will be, or may reasonably be expected to be reduced, by reason that—

(a) the person has not, or could not reasonably be expected to have derived, or

will not, or may not reasonably be expected to, derive income that the person would have, or could reasonably be expected to have derived, or will, or could reasonably be expected to, derive, if the breach had not taken place; or

(b) the person has, or could reasonably be expected to have incurred, or will, or

may reasonably be expected to, incur, a loss or outgoing that the person would not have, or could not reasonably be expected to have, incurred, or will not, or may not reasonably be expected to, incur, if the breach had not taken place,

but this subsection shall not be taken as limiting the generality of Subsection (3).

Relevant Laws 62

(5) The Commissioner General may institute a proceeding in any court, being a court

having jurisdiction in proceedings for the recovery of debts up to an amount of not less than the amount that could be recovered in that proceeding, for the recovery on behalf of the State of a debt referred to in Subsection (3).

354D. Grounds on which issue of certificates may be refused. (1) Where application is made to the Commissioner General, under Section 354B for

the issue of a tax clearance certificate in respect of an act or thing proposed to be done by the applicant, the Commissioner General may refuse to issue the certificate if the applicant does not satisfy the Commissioner General that the act or thing will not, or may not reasonably be expected to, involve or assist in, or be associated with, the avoidance or evasion, whether in Papua New Guinea or elsewhere, of Papua New Guinea tax by the applicant or by another person and, without limiting the generality of the foregoing, does not satisfy the Commissioner General that— (a) a person (whether or not the applicant), either alone or in association with

another person and whether in Papua New Guinea or elsewhere, as a result or by virtue of the doing of the proposed act or thing or of an associated act or thing proposed to be done or done— (i) will not, or may not reasonably be expected to, receive or obtain; or (ii) has not, or could not reasonably be expected to have, received or

obtained, a benefit or advantage in relation to the application or operation of this Act and the act or thing, or the associated act or thing— (iii) would not be done, or could not reasonably be expected to be done in

the same form or in the same way; or (iv) would not have been done, or could not reasonably have been

expected to have been done, or done in the same form or in the same way,

but for that benefit or advantage; and (b) as a result or by virtue of the doing of the proposed act or thing or an associated act

or thing proposed to be done or done, an amount of Papua New Guinea tax that will become, or may reasonably be expected to become, or has become or could reasonably be expected to have become payable will not be, or may not reasonably be expected to be, or has or has not been, or could not reasonably be expected to have been, able to be collected.

Relevant Laws 63

(2) A person may, for the purposes of Subsection (1), be treated as a person who will receive or obtain or has received or obtained, as a result or by virtue of the doing of an act or thing, a benefit or advantage in relation to the application or operation of this Act, if the person has not become, or could not reasonably be expected to have become, or will not become, or may not reasonably be expected to become, liable to pay tax or the liability of the person to pay tax has been, or could reasonably be expected to have been, or will be, or may reasonably be expected to be, reduced, by reason that— (a) the person has not, or could not reasonably be expected to have derived, or

will not, or may not reasonably be expected to, derive income that the person would have, or could reasonably be expected to, derive if the act or thing had not been, or were not, done; or

(b) the person has, or could reasonably be expected to have, incurred, or will,

or may reasonably be expected to, incur, a loss or outgoing that the person would not have, or could not reasonably be expected to incur, if that act or thing had not been, or were not, done,

but this subsection shall not be taken as limiting the generality of Subsection (1). (3) For the purposes of this section—

(a) the Commissioner General may have regard to arrangements, understandings and practices not having legal force in the same manner as if they had legal force; and

(b) the fact that an act or thing is, forms part of or relates to an ordinary

business or family dealing is irrelevant. (4) Where the Commissioner General refuses to issue a tax clearance certificate, he

shall cause to be served on the applicant for the issue of the certificate notice of the refusal.

[6.7] PSIP, DSIP & LLGSIP ADMINISTRATIVE GUIDELINES 1B/2014

Section 7. Procurement, Tendering and Selection Processes 1.1.1 District Level (iii) For procurement valued at K500, 000 and below K 5,000,000, an APC and a

minor/major works contract are required for approval by PSTB. 7.2.2 District Administration

Relevant Laws 64

(vi) For projects valued at K5, 00,000 and below K5, 000,000 DPMT or PWU shall forward the prepared documents to PSTB to tender and award the contract, and the PSTB shall execute the contract on behalf of the state.

(viii) DIRD to facilitate where required

7.2.4 Non- Functional PSTB

Where PSTB is non-functional, project scope and documents including JPP & BPC and JDP & BPC Budget Resolutions, PFDs and related project documents from relevant sector agencies, shall be submitted by Provincial Administrator and District Administrator to DIRD for appropriate action.

(i) The DIRD receives, registers and undertakes appraisal of PFDs approved

under PSIP, DSIP and LLGSIP to ensure that submissions are complete and meet all compliance requirements.

(ii) A submission failing the appraised shall be referred back to the relevant Provincial and District Administrators with appropriate recommendations, for corrections/and re-submission.

(iii) Where appropriate, a project submission passing the preliminary assessment criteria shall be recommended for the CSTB to tender.

(iv) At the close of the tender period, the DIRD and relevant agencies that are part of the Tenders Evaluation Committee (TEC), shall evaluate all responsive bids, and submit recommendations to the CSTB.

(v) The CSTB shall deliberate on the TEC’s recommendations before

awarding the contracts. (vi) The CSTB shall execute the contract on behalf of the State.

(vii) Terms of Reference and Composition of TEC:

TOR

o Evaluate Bids: compliance to relevant laws (IPA Registration Documents, COC, Insurance etc), financial and technical capacity, business standing, company profile, bid amount.

Composition

o DIRD (Chair), DNPM, DoW, DoF, Treasury and other relevant agencies depending on the sectoral nature of the project/s.

Relevant Laws 65

7.0 APPENDICES

Relevant Laws 66

Relevant Laws 67

Relevant Laws 68

Relevant Laws 69

FINAL REPORT AUGUST 2018 - PNGi...

Documents

Transcript of FINAL REPORT AUGUST 2018 - PNGi...