Eastern Highlands Grandee Smith-Kela Implicated in Trust Account Plunder

It began in 2008 with K7.4 million in unexpended funds.

The public money should have been returned to consolidated revenue by the East Highlands Provincial Government.

Instead, it was taken off the grid.

According to the Ombudsman Commission, the Eastern Highlands Provincial Government illegally set up a trust account, aided by Cathy Ali, Acting First Secretary in the Department of Finance and Paul Makeso, Acting Treasurer in the Provincial Administration.

Image: The Ombudsman Commission has published its findings in a lengthy report.

The trust account was opened on 20 August 2009 with the Bank of South Pacific, Goroka Branch, at Cathy Ali’s request; she ‘assumed and exercised ministerial powers she did not have’. Account signatories included Mr Makeso, and the Provincial Administrator, Mr Munare Uyassi.

The Ombudsman Commission observes: ‘The Eastern Highlands Provincial Government and the Eastern Highlands Provincial Administration under the leadership of Hon. Malcolm Smith-Kela, MP, Governor and Mr. Munare Uyassi, established the Trust Account without approval from the Minister for Finance and/or the Secretary for Finance, contrary to Section 15 of the Public Finance (Management) Act 1995’.

When the account was closed on 14 January 2011 just K391,891.26 remained. In between there was a feeding frenzy.

According to the July 2018 report issued by the Ombudsman Commission – which contains the Eastern Highlands findings – its investigation uncovered a mass of improper contracts and payments. Half a million of which, the Ombudsman claims, went to two businesses fully owned by the then Eastern Highlands Governor, Mr Smith-Kela.

Funds Abused

According to the Ombudsman Commission expenditure from the illegally created trust account failed to follow the rigorous procurement requirements set out in the Public Finance (Management) Act 1995, section 40. ‘The Top Management Team [Eastern Highlands Provincial Government]’, the Ombudsman Commission argues, ‘awarded contracts at random to various Contractors, without tendering the projects, through the Provincial Supply & Tender Board’.

One of the trust account payments was made to the company Pacific Building & Fabricating Limited. According to the Ombudsman Commission: ‘By a letter dated 31 March 2009, Mr. Munare Uyassi [Provincial Administrator] wrote to the contractor, advising that the PSTB in its Decision No.4/2009 awarded the project for the ― Construction of Lufa High School Science Lab for the amount of Four Hundred & Fifty Thousand Kina (K450,000.00)’.

Pacific Building & Fabricating Limited was owned by the then Governor for Eastern Highlands, Mr Malcolm Smith-Kela. Put differently Mr Uyassi was writing to his political boss, Smith-Kela, to tell him that his private company had been awarded a K450,000 contract, via a procurement process condemned by the Ombudsman Commission.

According to the Ombudsman Commission ‘On 24 November 2009, Pacific Building & Fabricating Ltd was paid K100,000.00 on Cheque No.114049’.

The Ombudsman was unable to determine whether the remaining contract price was subsequently paid to Pacific Building & Fabricating Ltd. However, the Ombudsman  does note that ‘there was no rehabilitation work done nor was the new science laboratory constructed’.

If this serious allegation is accurate, the K100,000 payment could constitute misappropriation, a criminal offence under the Criminal Code 1974.

Then there is the example of Akogere Estate Ltd, which is a business arm of the Eastern Highlands Provincial Government. K476,000 was paid from the trust account to Akogere Estate Ltd for two road maintenance projects, despite the fact Akogere was set up for real-estate investment, not construction. That in itself is a red flag.

According to the Ombudsman Commission K476,000 was allocated to replenish Akogere Estate Ltd’s accounts after it had to make immediate payments to various subcontractors under orders from the Governor, Mr Malcolm Smith-Kela.

The Ombudsman Commission was unable to uncover all the companies which received payment from Akogere Estates Ltd, which is a matter of serious concern. However, the Ombudsman did note on 13 October 2009 Pacific Helicopters issued an invoice for K15,730 to Akogere Estate Ltd for using its helicopter to inspect the road and bridge maintenance work.

Pacific Helicopters is fully owned by Malcolm Smith-Kela, who was at the time Eastern Highlands Governor. It is claimed by the Commission of Inquiry into the Department of Finance, that Pacific Helicopters has obtained millions in contracts from the government outside the mandatory tendering process.

Diagram: The two Smith-Kela firms implicated in the Ombudsman Commission findings

The Ombudsman Commission concludes: ‘Akogere Estate Ltd is the business arm of the Eastern Highlands Provincial Government, involved with Real Estate development. It was not a construction company. Akogere Estate Ltd became involved when Hon. Malcolm Smith-Kela, MP directed it to fund commitments he made. The amount due for reimbursement was K120,000.00. However the amount of K238,500.00 and K237,500.00 respectively were reimbursed to Akogere Estate Ltd. There is no evidence of PSTB [Provincial Supply and Tender Board] involvement in engaging contractors for the road works’.

Governor Malcolm Smith-Kela was not the only beneficiary of apparently improper payments made from the illegally constituted trust account. There were many more instances documented in the Ombudsman Commission report.

Take the example of PNG Toner & Ink Supplies Ltd. The Eastern Highlands Administrator, Mr Munare Uyassi, wrote to PNG Toner & Ink Supplies Ltd – a firm owned by Lae businessman Mr George Ipi – to inform the company of exciting news it had been awarded a contract to supply school materials at the value of K626,318. The contract was signed on 28 July 2009.

This was quite an amazing business achievement, given PNG Toner & Ink Supplies Ltd was not actually incorporated until 13 September 2011.

Not surprisingly the Ombudsman concludes: ‘This was highly irregular and wrong’.

Another example documented in the report involves K156,400 which was used to purchase a 10 seater Land Cruiser for the Provincial Government’s Office of Corporate Services.

According to the Ombudsman Commission the Provincial Government’s ‘Top Management Team approved to divert funds intended for Teachers’ Leave Fares to purchase … [the] Motor Vehicle’.

It appears that Eastern Highlands’ students and teachers were among the biggest losers, given all the above examples touch upon the education system in some way.

The Ombudsman's Curious Conclusions

The Ombudsman Commission is a fundamental institution essential to good governance. It is also a decimated and demoralised institution.

While the Commission should be applauded for struggling along in hostile conditions, sadly the conclusions in its report on the Eastern Highlands Provincial Government signals an agency lacking in confidence and vigour.

First off, while the Ombudsman in its finding of facts alleges that a business owned by the then Eastern Highlands Governor, Mr Smith-Kela was awarded a large contract through a flawed procurement process for work that evidently was not done, nothing is noted about this finding in the conclusion. Nor is there a related recommendation.

Or when a company is awarded a large contract and it does not actually legally exist, this sounds like a matter needing further investigation by the RPNGC. The Ombudsman Commission does not refer PNG Toner & Ink Supplies Ltd to authorities.

When it comes to the public officials involved in this illicit episode, the Ombudsman Commission simply states: ‘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 which they were found to have committed the wrong conduct and are occupying new positions.’.

Other than that the Ombudsman Commission report quite literally consists of a series of recommendations that all boil down to a single statement, the government should follow the law.

Given the time and money invested in such an investigation, the public expect better than this. At the very least the Ombudsman Commission needs to use its position to better understand why and how public servants, politicians, and businessmen collude in improper ways, looking at the institutional, market and regulatory conditions that allow such conduct to prosper.

Its recommendations in turn need to do more than simply say ‘follow the law’. The Ombudsman Commission must deliver opinions that offer new ideas for reforms that can erode the opportunity structures and institutional weaknesses that allow illicit conduct to thrive within particular agencies.

And where public servants and business people engage in illegal behaviour, the Ombudsman Commission must call them out in their recommendations, looking at the full spectrum of action that could be taken to censure these individuals.

If a criminal prosecution is unlikely to succeed, owing to the challenges of conducting complex white-collar crime prosecutions in a prosecutorial environment lacking in capacity, resources and willpower, the Ombudsman Commission needs to find alternative methods for censuring those found to be involved in improper and/or illegal conduct.

This will require some left field thinking. For example, the Ombudsman Commission could recommend that the government debar companies from applying for public contracts for a certain period, publishing a public list of ineligible firms. This would echo a practice widely adopted by international financial institutions such as the World Bank.

It in effect uses commercial damage and public shaming to encourage responsible corporate conduct.

The Ombudsman Commission could also recommend that where contracts have been illegally awarded that efforts be under taken to recovery illicitly awarded public moneys. At the very least this would deny to the conspirators the spoils of their illegal activity.

Additionally, the Ombudsman could use its institutional power to breath down the neck of supply and tender boards ensuring all awards are published online, in a timely and comprehensive manner.

And where abuse is found the Ombudsman Commission could  engage the public – raising awareness and strengthening knowledge – through the use of the mass and social media.

If the Ombudsman Commission does not find its teeth very soon, it will lose the one safeguard essential to its survival, public confidence (although it appears anecdotally public confidence in the commission has dropped substantially over the past decade). And without public confidence the jackals which the Ombudsman Commission was set up to combat, will feed merrily on the national watchdog.