Fraud, corruption and mismanagement – a window into the failings of the DSIP system
A recently published report by the Office of the Auditor General gives a unique but distinctly worrying glimpse into the world of the District Development Authorities and their mismanagement and misuse of government funds.
District Development Authorities are the local government bodies tasked with delivering improved local services and infrastructure in each of the eighty-nine open electorate seats across Papua New Guinea.
Each DDA receives K10 million a year in funding under the District Service Improvement Program. But, as the Institute of National Affairs executive director, Paul Barker, recently highlighted, there is a complete lack of accountability for how the Authorities use that public money.
Governance oversight, transparency and checks and balance are supposed to come from the Department of Implementation and Rural Development (DIRD) and the Auditor General. However, a lack of funding means neither office are able to conduct regular audits on the performance of the DDAs.
The value that such audits could deliver has been highlighted in a unique, one-off assessment, conducted by the Office of the Auditor General, of the performance of the Gazelle District Development Authority in East New Britain.
What the Auditor General uncovered was a fundamental failure to properly manage the DSIP funds with fraudulent ghost projects and corruption underpinned by a complete absence of proper record keeping or accountability. The Auditor General also documented a pattern of mismanagement, failures and abuse that can only be assumed to be replicated in many, if not most, of the 89 DDAs across the country.
The Auditor General has recommended local police open at least two fraud investigations and that staff be held accountable for millions of Kina in wasted expenditure. Whether there is the political will or police resources necessary to follow through on these recommendations remains to be seen.
Below, PNGi presents a summary of the Auditor General’s findings.
Since the 1980s the national government has allocated funding to Members of Parliament to spend in their electorates. Originally known as Electoral Development Funds they were replaced in 2007 with the District Service Improvement Program (DSIP).
DSIP funds are intended to finance basic infrastructure and improve service delivery. Since 2013, it has been mandated that at least 40% of the funds are to be spent on health and education.
The District Development Authority Board is the decision making body with control over the DSIP funds. Each District Development Authority Board is chaired by the local MP. The board also includes each of the Local Level Government Presidents.
In September 2017, the newly elected Member of Parliament for the Gazelle District in East New Britain, Jelta Wong, invited the Auditor General to conduct an audit of the performance of the Gazelle District Development Authority.
The Gazelle District is located in East New Britain Province. It is a mainly rural area that extends from the boundaries of the towns of Kokopo and Rabaul south-west to the border with West New Britain. It’s long coastline encircles a mountainous inner region. The District comprises five Local Level Government areas.
The Auditor General’s inquiry examined the authenticity of the District Service Improvement Program payments and compliance with procurement processes, procedures and applicable legislation.
In total the Gazelle District received K58 million in DSIP funding between 2007 and 2016. As at 31 August 2017, Gazelle District had a balance of K10 million sitting in its accounts.
The audit looked in detail at expenditure for the years 2013-16.
The audit found the Gazelle District Development Authority had not complied with government procurement processes, DSIP procedural requirements or applicable legislation.
The Auditor General described these failures as ‘serious’. They were compounded by a failure to maintain proper documentation including invoices, payment vouchers, contractual agreements, tender documents, quotations, certificates of completion, bank reconciliations, asset registers and meeting minutes.
The audit found ‘a number of suspicious and potentially fraudulent transactions’. This included a number of ‘ghost’ projects where there was nothing to show for the expenditure, and projects that were left incomplete or were substandard despite the full costs being paid.
The ‘ghost’ projects include K3 million spent to build a market in Kerevat. At the time of the audit, the Auditor General claims, the plot of land remained empty, with nothing having been built.
The audit found there was no contract for the project, the costs were over inflated, and there had been no public tender despite being above the K500,000 threshold. Additionally, no progressive reports were filed to justify the payments made.
Despite all these failures, K3 million was paid out for construction costs with ‘nothing to show for that expenditure’.
The Auditor General has recommended “all officers involved in the project should be held accountable and investigated for possible intention to commit fraud”.
The Gazelle District Development Authority Board (GDDA) also spent K489,782 on the Tokiala Fibre Glass project. A site inspection revealed the project did not exist except for a fenced area and a small makeshift office. According to the Auditor General, the Chairman of the GDDA was in a serious conflict of interest in relation to the this project.
“The Chairman of the GDDA was a director of the company [engaged to build the fibre glass project] when it was registered with the IPA on the second of February 2015, and the audit found that directives were issued by the chairman to pay for invoices that related to the this project for year 2015-2016”.
Although not named by the Auditor General, Malakai Tabar was the local MP and Chair of the GDDA Board from 2007-17. He variously occupied the positions of Minister for Higher Education and Minister for Transport.
PNGi contacted Mr Tabar for comment on the findings of the audit but did not receive a reply.
Investigations by PNGi have confirmed that Malakai Tabar was listed as both a director and shareholder of Islands Fibreglass and Fabrication Services Limited when the company was registered in early 2015. He was also previously a joint-owner of a registered business with an almost identical name, Islands Fibre Glass and Fabrication Services.
Mr Tabar was subsequently removed as a director and shareholder of Islands Fibreglass and Fabrication Services Limited Limited after the BSP bank refused to credit the company account with funds from the GDDA. It appears a diligent BSP staff member raised concerns over the MP’s apparent conflict of interest. Although Tabar was then removed as a director and shareholder and the company changed its name to satisfy the bank, he was reinstated to the Board in 2019.
The Auditor General’s investigation found that there was no contract in place with the GDDA for the Tokial fibreglass project, the costs had been over-inflated, there was no public tender despite the costs being over the K500,000 threshold and no progressive reports were filed to justify the payments.
Despite payment of K489,782 for the years 2015 and 2016, ‘the audit infection of the site revealed the amount of work done does not reflect the amount of money spent’.
The Auditor General has recommended a fraud investigation be conducted into the payments made by the GDDA for the fibreglass project.
Failed Health Projects
As well as ghost projects, the Auditor General’s investigation also revealed a number of incomplete health projects where considerable sums of money appeared to have been wasted.
The Utmei Aidpost upgrade instigated at a cost of K321,000 is one of a number of such projects..
A physical inspection found the construction had never been completed. The aidpost was unoccupied, unused and covered in overgrown bush. As a result, local people had been left ‘with no access to health services’.
The audit states no contract had ever been signed with the construction company, the project was not tendered, the costs had been over inflated and there were no progress reports to justify the payments that had been made.
Another failed health project by the same contractor involved the construction of duplex building to house on-call nurses at the Kerevat Rural hospital.
Although the construction company had been paid the full cost of K320,000, an audit inspection found the house was incomplete with no water connection or electricity. The house was unoccupied and terminate infestations had already started to rot the wood. Also, the house was located 5kms and 30 minutes travel time from the hospital, which made its utility questionable.
Again, the audit states that there was no contract with the construction company, the costs had been overinflated and there were no progressive reports filed to justify the payments made.
With no proper housing available for on-call nurses, despite expenditure of K320,000, the nurses at the hospital continue to use a cramped storage room as temporary living quarters.
The Auditor General has called for the construction company ‘to be held accountable for the gross wastage of GDDA funds’.
Despite failing to complete the Utmei Aidpost and the nurses housing projects, the audit found that the same contractor had already been awarded new projects.
“The GDDA have shown gross negligence of their roles and responsibilities to ensure that much needed services and infrastructure is provided to the people of the Gazelle district.”
Further failed projects uncovered by the audit included an incomplete X-ray room renovation for which K121,588 had been paid.
As with other projects, the audit found the costs of the project had been over inflated. Additionally, there were no progressive reports filed to justify the payments made and normal procurement processes were breached in engaging the contractor.
Also, health standard design requirements had not been followed and the construction was evidently undertaken by a private individual and not a registered business, which is a further breach of Finance Act and DSIP guideline requirements.
A physical inspection revealed the x-ray room was incomplete and the equipment purchased was sitting idle in a staff office.
The audit revealed another K30,000 paid to an individual to complete maintenance services at the hospital.
“Audit inspection … could not verify and confirm the work that was done by the individual that was paid K30,000 on 24 December 2014 for maintenance services at the Kerevat Rural Hospital. The GDDA also did not provide any details as to the work done, why an individual was engaged, or who requested and approved this work.”
The GDDA’s failure to maintain proper records, says the Auditor General, was in breach of the requirements of the Public Finance (Management) Act and Finance Instructions, and ‘increased the risk of irregularities, fraud and error’.
The failure to keep proper records and comply with the requirements of the PF(M)A was despite the District having a full finance team comprising a Treasurer, Accountant and two accounts officers stationed at the District Treasury Office.
Despite managing more than K58 million in DSIP funds over a nine year period, the Auditor General found the District Treasury had no filing cabinets, files were stacked in public corridors, minutes of meetings were not filed, contract files were not maintained and personnel files were poorly managed.
There were limited processes in place to manage or monitor the progress of projects or the performance of contractors. In addition there was limited use of signed contracts. These ‘malpractices’ had resulted in value for money not being achieved’ and many infrastructure projects that had been fully paid for ‘remain either incomplete or completed to a substandard level’.
The failure to use competitive tendering had ‘increased the risk of irregularities and fraud’ and the limited use of contracts meant there was ‘limited recourse against non-performing contractors’.
Compounding these issues, the Auditor General found the management of assets was ineffective. The fixed asset register was incomplete and poorly maintained. As a result ‘a large number of assets’ could not be found or were identified as damaged. Poor asset management created another opportunity for ‘theft’.
The Auditor General also found the District’s strategic planning framework had not been fully implemented and was not operating as intended. Key documents including the five-year District Development plan, approved budgets and prioritised list of projects were not being followed. Asa result, ‘spending has not been well-directed, and funds have been spent on projects outside the aims of the DSIP’.
Further misuse of funds
As well as paying for ‘ghost projects’ and incomplete projects the audit found the GDDA was wasting money on consultancy fees and, in particular, payments to the Gazelle Restoration Authority, a consultancy arm of the East New Britain Provincial government.
One particularly egregious example highlighted by the Auditor General was the Vuravurai road project. In this instance, the GDDA spent almost its entire annual infrastructure budget, K1.8 million, on a project to re-seal 300m of an existing road. All project tender and contracting arrangements were managed by the Gazelle Restoration Authority, for which it charged a consultancy fee of K500,000.
Zooming out, the audit also uncovered a general failure to follow the DSIP spending guidelines and ensure the funds were spent as directed. According to government guidelines, DSIP spending should be directed to five priority sectors: infrastructure (30%), health (20%), education (20%), law and justice (10%) and economy and agriculture (10%).
However, of K38.05 million in DSIP funds received between 2013-16, only K20.1 million was spent on the required sectors. Almost half the money (47%) was spend in other areas and was ‘un-accounted for’.
As a result, over a four year period, District spending on health, education, law and order and the economy and agriculture was less than 50% of what was allocated and given in DSIP funds. This means that in the areas of health and education, for example, while the District should have been spending almost K8 million on each sectors, it spent less than K1 million.
Spending outside the approved sectors for DSIP funds, included spending on ’tokens of appreciation’, wages, school fees and sustaining the District business arm, the Gazelle District Road Maintenance Unit.
The Gazelle District Road Maintenance Unit was formed in 2007 when heavy plant and machinery was acquired to be used in development projects. However, no proper planning was done to assess whether the unit could sustain itself, and with no other sources of income the unit was dependent on DSIP funds to pay staff and maintain its fleet.
While ‘a considerable amount’ of DSIP funds had been given to the Gazelle District Road Maintenance Unit, the total amount could not be ascertained. The Auditor General did find, however, that contractors who were using Gazelle District Road Maintenance Unit machinery were invoicing the District for the hire.
“This practice poses a high risk of fraud because GDDA should not be paying contractors for machinery that they already own… the risk of theft and fraud is very high”.
The Auditor General noted that the abuse of DSIP funds and the ‘malpractices’ in the management of the Gazelle District Road Maintenance Unit were denying the District of ‘much-needed services and infrastructure’. It is also noted by the Auditor General that public officers and contractors ‘dealing in corruption’ can be imprisoned for up to seven years under the Criminal Code.
The Auditor General also found that in 2015/16 District Development Authority staff were paid K125,898 in “‘tokens of appreciation’ for working overtime and/or reasons known only to them”. Most of the payments went to ‘senior public servants’ who were already paid a fixed salary to carry out their duties.
“Receiving such tokens is seen as Double Dipping [and] is an abuse of public funds”.
A further K200,000 was paid in wages to ‘casual staff’, all 13 of whom had been employed for more than three years, well in excess of the maximum allowable period of 6 months.
K1.3 million was paid in school fee assistance between 2015-16, this the Auditor General claims was a clear breach of the requirement to spent DSIP funds on ‘service improvements’ and not ‘grants to individuals’.
The audit also found a fraudulent payment of K18,000 had been made to the Aim Global Networking pyramid money scheme.
“Appropriate action should be taken against the Education Coordinator all officers charged with overseeing school fees with regards to the suspicious payment”.
The Auditor General’s performance audit of the Gazelle District Service Improvement Program for the years 2013-16 concludes that:
“The desired outcomes of the DSIP are not being achieved and certain areas of focus of the DSIP are receiving little or no benefit.”
The report finds a general culture of mismanagement and poor record keeping. This, it appears, has contributed to the waste of public funds on non-existent or incomplete projects, fraud and corruption.
The report recommends a number of police investigations. It also recommends that ‘senior public servants’ guilty of double-dipping, and officers and contractors responsible for the waste of public monies, be held accountable through ‘disciplinary/legal’ action . The Auditor General recommends a general review of the quality and qualifications of DDA staff with a view to ‘upskill current staff or advertise for skilled personnel that are efficient and effective in delivering tasks and programs’.
While one would hope the Auditor General’s recommendations will be fully implemented, it is sobering to note how dated the findings already are.
The Auditor General’s report focuses on matters that occurred between 2013-16, already some six to eight years ago, which will vastly diminish the chances of effective retributive or compensatory legal action.
Although the Auditor General’s investigation was requested in 2017, the final report was not created until December 2020 and only published in 2022. Such delays, which might largely be attributable to a lack of financing and resourcing, mean that the effectiveness of the process are gravely diminished.
Finally, the audit report reflects the findings in just one out of eighty-nine Districts across the country. Given the declining state of basic public services throughout the country, there is no reason to doubt that the abuses and mismanagement revealed in the Gazelle are widespread.
Before the new government begins to pour another K1 billion in the failed DSIP pot it should instead pay for a performance audit of every DDA and ensure the audit recommendations are implemented before new funds are given. Otherwise the monies will inevitably fail to achieve any meaningful improvement in the lives of the majority of the population.