National Provident Fund Final Report [Part 10]

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

NPF Final Report

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

Continued from yesterday

Henry Fabila

Prior to the effective termination of Mr Kaul’s appointment, Minister Lasaro purported to terminate Mr Kaul’s appointment and to appoint Mr Fabila without prior consultation with the NPF board as required.

He issued a press statement to this effect. Subsequently, a token consultation with the board was undertaken and the Minister directed the reluctant board to add Mr Fabila’s name to a panel of people recommended for appointment.

At the last minute, Minister Lasaro absented himself from PNG and the previously prepared statutory instrument revoking the appointment of Mr Kaul and appointing Mr Fabila was signed by Acting Minister Sir Mekere Morauta.

Mr Fabila then signed a contract of service with NPF drawn up by Carter Newell, contrary to the provisions of Section 15(e) of the NPF Act, which required his conditions to be set by Ministerial determination.

The procedures for revoking of Mr Kaul’s appointment and appointing Mr Fabila were contrary to the NPF Act and the conduct of Prime Minister Skate and Minister Lasaro amounted to improper interference with the management of NPF.

Mr Leahy failed to advise about these breaches of the NPF Act.

Terms and conditions of Trustees (including Managing Director)Legislation

Terms and conditions of employer and employee trustees are to be determined by the Prime Minister

The only valid determination was by Prime Minister Paias Wingti on December 31, 1986, followed by a valid variation by Acting Prime Minister Haiveta in March 1996.

Section 27 provides for expenses such as airfares, accommodation and reasonable out of pocket expenses of trustees in connection with performance of the board’s functions to be met by the fund.

Trustees terms and conditions

During the period under review, there were several purported determinations of trustees terms and conditions, some of which were invalid:-

(a) NPF board decision of December 2, 1993.
This resolution invalidly increased the sitting allowance from K45 per day to K70 per day and the annual stipend from K1000 per annum to K1200. It was invalid so at the commencement of the period under review on 1st January 1995, trustees terms and conditions were being paid under an invalid board resolution.
(b) Determination by Acting Prime Minister Haiveta on May 30, 1996, of a fee of K20,000 per annum to chairman Copland.
This was beyond power and therefore invalid.
(c) Determination by Acting Prime Minister Haiveta on May 30, 1996, to increase trustees sitting allowance to K250 per sitting and annual stipend to K2000 per quarter backdated to January 1, 1996.
This was within power and was valid.
(d) Determination by Acting Minister Konga of May 6, 1997, under the Boards (Fees and Allowances) Act purported to increase annual stipend to K10,000 per annum and sitting fee for chairman and trustees to K400 and K300 respectively.
This was invalid, as the Board (Fees and Allowances) Act did not apply to the NPF. Even though the non-applicability was realised, the NPF board resolved to accept the extra K50 sitting fee.

Findings

(a) At the commencement of the period under review i.e. January 1, 1995, the NPF trustees’ entitlements and allowances were being paid in accordance with an invalid resolution approved by the NPF board on December 2, 1993.
(b) The increases to trustees fees and allowances approved by Acting Prime Minister Chris Haiveta and gazetted on May 30, 1996, were valid and effective from January 1, 1996.
(c) Chris Haiveta’s approval of a fee of K20,000 per annum for chairman Copland was invalid and ineffective.
(d) The DoF failed to provide an effective mechanism for reviewing fee structures for board members and abrogated its responsibility to advise the Minister on these issues.
(e) Mr Leahy failed his duty as corporate secretary/legal counsel to give correct professional advice on these issues.
(f) Acting Minister Konga’s approval of increases in fees and allowances for NPF trustees in May 1997 was invalid.
(g) The NPF board acted without power, on July 4, 1997, when it resolved to pay an extra K50 sitting allowance to the trustees.
(h) Mr Leahy failed his duty to properly advise the NPF board on these matters.

Board expenses

During the period under review actual board expenses rose alarmingly.
* Shown as K19,667 in 1999 comparative;
+ Shown as K10,369 in 1999 comparative;
ø Shown as K8434 in 1999 comparative; and
xx Shown as K81,147 in 1999 comparative

The Secretary of the DoF Brown Bai directed an investigation by the Finance inspectors under Section 64 of the PF(M) Act into expenses for 1998/1999.

It showed gross irregularities and over payments. The inspectors report is set out in detail in Appendix 16.

The commission carried out further inquiries into unjustifiable expenses paid to Mr Kanau.

Findings

(a) The commission adopts the findings of the Finance Inspectors regarding irregular payments and overpayments to trustees in 1998-1999.
(b) The payments to Mr Kanau between June 19 and 23, 1999 regarding travel to Kimbe and car hire allowance and payments in August 1999 on compassionate grounds for accommodation and car hire were improper and excessive and should be recovered.
(c) Both Mr Kanau and Mr Fabila are personally liable to repay the funds spent by Mr Kanau.
(d) The commission recommends that the NPF carry out a complete audit of all trustees’ expenses and allowances during the five years under review and institute proceedings for recovery of overpayments.

Some trustees also received remuneration by representing NPF on the boards of other companies.

This issue is reported in the schedules relating to NPF’s investment in those companies.

Managing Director’s terms and conditions

The NPF Act provides that the managing director’s terms and conditions shall be determined by the Minister from time to time, acting with the advice of the NPF board.

There have been two managing directors in the period under review, Mr Kaul, and Mr Fabila.

Both of them signed contracts of employment contrary to the requirements of Section 15(2).

Mr Kaul

Mr Kaul’s initial contract was signed in July 1993 and it included a provision for payout in the event of early termination.

This was inconsistent with the statutory provision, which guaranteed his security of tenure.

SCMC approval was given to Mr Kaul’s contract but the board did not give advice to the Minister on Mr Kaul’s conditions and there was no determination by the Minister as required by Section 15(2).

Mr Kaul’s contract of re-employment in July 1996 contained a more generous early termination clause.

His payout was increased from three to six months’ salary.

SCMC approval for the new contract was not sought or obtained.

It was, therefore, void, under the provisions of the SCMC Act (See paragraph 5.4.4.4 for details of Mr Kaul’s contract).

Findings

(a) The terms and conditions for renewing Mr Kaul’s employment in May 1996 at the end of his first term did not follow the procedures prescribed in Section 15 of the NPF Act, which required a duly gazetted determination by the Minister after consultation with the NPF board.
(b) Mr Kaul’s new terms and conditions of service were never referred to or approved by the SCMC and the agreement was therefore void as provided in the SCMC Act.
(c) Mr Kaul gave false and misleading information to Minister Lasaro on October 23, 1997, that his remuneration conditions had been approved by the SCMC.

Mr Fabila

Mr Fabila’s contract of employment was prepared by Carter Newell lawyers apparently without reference to Section 15(2) of the NPF Act.

The contract was approved by the NPF board without proper deliberation.

SCMC approval was not sought or granted.

Findings

In the case of their own salaries and conditions of service, both Mr Kaul and Mr Fabila proceeded contrary to the provisions of the NPF Act, bypassing the need for obtaining board approval before seeking the approval of the Minister and the SCMC.

There was fundamental misunderstanding of powers and functions of the Minister as set out in the NPF Act.

Continued TOMORROW