K53 Million in Health Dept Contracts Go To Gang of Red Flag Firms: Part I

The COVID-19 pandemic has reminded the world that there is no dignity unless people, all people, have access to quality healthcare. In PNG this dignity is frequently denied to the public, save for those who can afford private hospitals, or medical tourism abroad. With COVID-19 depleting a depleted health infrastructure, people are angry.

Image: One of many angry social media posts from frustrated citizens

Now more than even it is critical to shine a spotlight on health spending to ensure taxpayer funds are being used to good effect.

In a remarkable, and it seems one-off act of transparency, the Department of Health (DoH) published online a 2015 quarterly progress review of all major infrastructure projects being delivered under its oversight. It contains critical details often denied to the public. Principally, major health infrastructure data, including contracts awarded, the recipient companies, and work progress.

The report was distributed to the Prime Minister, Health Minister, Departmental Secretaries, National and Provincial health officials, in addition to the Australian Department of Foreign Affairs, and NZAid.

The level of detail provided in the report was enough for PNGi to do a basic stress test, to see if these contracts exhibited traits which heighten the chances public money was put at risk.

PNGi identified serious red flags in a significant number of infrastructure contracts awarded to private companies, which in total costed the PNG taxpayer K53 million. A sizeable number of these red flags simply put were utterly glaring, and should have been apparent to the Central Supply and Tender Board, and those included in the monitoring process, including NZAid and the Australian Department of Foreign Affairs.

Chief beneficiaries of these infrastructure contracts include:

  • a politically exposed Port Moresby lawyer, Felix Kange, accused previously of serious malfeasance, who subsequently shot his wife in the head,
  • a new-start shell company whose sole female shareholder shared the surname and address of an outgoing Commerce Secretary (she was also director of his consultancy firm, slammed for misappropriation), Steven Mera. Mera was accused by the Public Accounts Committee and a Commission of Inquiry of being involved in graft (all of which was on the record at the time the award was made)
  • the controversial Malay-PNG businessman, Sir Poh, whose medical supplies arm has been accused of winning major contracts through graft, and then delivering substandard products,
  • a questionable Malaysian logging firm Uni Rise Limited, rebuked by Oro Governor Gary Juffa.
  • a company, Gold Bell Construction, accused by the national fraud squad of being involved in grand larceny, and which has sustained additional criticism from Eastern Highlands Governor, Peter Numu.
  • whilst the biggest winner of large scale contracts accounted in this quarterly report was William Onglo, a current MP.

It cannot be inferred on the basis of red flags that these infrastructure contracts were secured illegally. Red flags, however, are widely accepted due diligence signals commonly associated with illegal activity or mismanagement. Therefore, they do provide a strong evidentiary basis for exercising heightened scrutiny of flagged awards to ensure they do not breach key laws, such as the Criminal Code and/or the Public Finance (Management) Act.

Now onto the results of the evaluation. Every major contract over K1 million published in the quarterly review was examined, focusing on  the integrity of the successful contractor. To do that PNGi examined a range of indicia commonly used by banks, international anti-corruption organisations, and regulatory authorities, when looking to ascertain whether an actor represents a serious risk, or not. This includes things like the company’s compliance with laws and regulations, whether its financial reporting look accurate, the track record of its directors and shareholders, and any ties of the company, or its personnel, to senior public officials, to name just a few areas of concern.

This PNGi report will focus on the contracts that exhibited the most red flags.

A Gun-Toting Lawyer: The Felix Kange Contract

The 2015 DoH report notes a K1.3 million contract award, made by the Central Supply and Tender Board (CSTB) to National Construction Engineering Services Limited. The contract was for the construction of a Provincial Transit Medical Store in Kiunga, Western Province. Things were not going to plan.

The quarterly update states: ‘Construction in progress – 70% completed. Due to very long delays in construction work NDoH has recommended to CSTB for termination of the contract. Awaiting CSTB for termination’.

Were there prior red flags the CSTB and DoH should have detected regarding National Construction Engineering Service? Yes.

National Construction Engineering Services is actually a registered name for a business that started operating on 9 August 2013, according to Investment Promotion Authority records. The business name is owned by a private limited company, NACES Limited.

NACES Limited was incorporated on 11 May 2010. Its sole shareholder is Felix Kange. Kange is also the company’s sole director.

NACES Limited has not filed any annual returns. This violates section 215 of the Companies Act 1997. Section 215 states: ‘The board of a company shall ensure that there is submitted to the Registrar for registration at least once in each calendar year within 14 days after the annual meeting of the company, an annual return in the prescribed form or in a form’. Directors  who fail to observe this law are liable to a fine of K10,000 upon conviction for this offence.

Further checks revealed NACES’ owner, Felix Kange, is a lawyer, and the principal at Kange Lawyers. He is also the son of a former MP for Ialibu/Pangia MP, Pundia Kange (the seat is currently held by former PM, Peter O’Neill). Kange is originally from Maia village, Pangia, Southern Highlands Province.

According to Financial Action Task Force recommendations on politically exposed persons, Kange as an immediate family member of a former MP, is a politically exposed person. Politically exposed persons is a concept used in anti-corruption and anti-money laundering risk analysis. It recognises that politically connected individuals present a higher risk of malfeasance, especially in a highly corrupt governmental system. Therefore,  close scrutiny is required of any risky transaction they may be involved in, such as public procurement contracts.

A basic media search revealed more concerning information. This is from a front page report published in the Post-Courier during 2010.

So having asked some very basic questions about National Construction Engineering Services the red flags from a due diligence perspective include:

  • Relatively new company, with no substantive track record in the construction sector.
  • Company owned and managed by an individual, who is primarily a lawyer, not a builder.
  • The owner is from a politically powerful family in the Southern Highlands.
  • Company has breached regulatory requirements by not submitting annual returns.
  • The company principal is accused of serious financial misdealing.

This should have put the CSTB and DoH on heightened alert. Though they could not have anticipated what would later transpire with Kange. During 2016 Felix Kange shot and killed his wife Regina Morove. Kange claims it was an accident. He was later charged with murder.

Mysteriously the last record PNGi could locate relating to this charge was a court decision refusing Mr Kange’s request for bail. There is no subsequent media report, or online court report, indicating the charges were dropped, or that Mr Kange’s case went to trial. However, EMTV reporting from 2018 indicate Felix Kange is out of custody. According to  EMTV he was soliciting police assistance to evict residents from a land plot. Residents claimed they are the customary owners with legitimate title. Felix and his father, they argue, obtained the land through improper means.

No record could be found documenting the outcomes associated with the contract awarded to National Construction Engineering Services Limited by the DoH.

Company accused of grand theft wins K11 million 'internal contract'

Unlike other contracts evaluated in this series, which were awarded by the Central Supply and Tender Board, the DoH report states that a K11 million contract allocated to Gold Bell Construction for construction work at Mt Hagen General Hospital, was awarded through ‘Internal Contract: A. 1. 1 WHPHA 2013 01’.

It is well established law under the Public Finance (Management) Act that a contract of that magnitude can not be awarded by internal contract, or even via a provincial level supply and tender board hearing. It would fall under the mandate of the Central Supply and Tender Board and NEC. This is the first red flag.

Turning then to Investment Promotion Authority filings. Gold Bell Constructions is a registered business name. During 2013 it was owned by a Mr John Sia and Margaret John Gabriel.  John Sia also co-owns Asia Pacific Investments with Simon Sia, which trades under the name Bintangor Trading.

According to news reports from 2019 Simon Sia was arrested over misappropriation and money laundering, charges that directly implicate Gold Bell Construction.

The Post-Courier reports that according to ‘detective chief superintendent Matthew Damaru, who is the director of the National Fraud office in Konedobu, the company Konkua allegedly raised two cheques of K1.4 million and K4.5 million and paid to Asia Pacific Investment Limited and Gold Bell Construction Limited’. Damaru states

The purpose of the payment to the Asia Pacific Investment Limited was for the company to supply necessary coffee producing chemicals and K4.5 million to Gold Bell Construction Limited was to build a new coffee factory at Konkua village … However, investigations revealed that none of these projects were implemented, it was also revealed that the entire funding was expended on the personal business transactions that were not related to coffee rehabilitation project.

Damaru continues:

When Sia was apprehended and subsequently interviewed, it was claimed that the entire K5.9 million was drawn down by former Member for Kainantu late Sailom Beseo and the directors of Konkua Coffee Development Agency … However, bank transactions records showed that all the monies were paid into Mr Sia’s company accounts and were used to pay for goods and services supplied to Bintangor Trading Limited … The total of K4.5 million was laundered into his personal bank account, with the matter reported to the police for investigation by the deputy chairman of the Konkua Coffee Development Agency on behalf of its directors.

The outcome of this case is currently not known.

Following Sia’s arrest, Eastern Highlands Governor, Peter Numu, called for further investigation into Asia Pacific Limited and Gold Bell Construction. One PNG reports: ‘Numu is calling on the Police Minister, Bryan Kramer, to direct the Fraud Squad to dig deeper into the two companies dealings, saying millions of kina in government cheques have been paid over the years into their accounts for projects throughout the 8 Districts in the province.’

The Auditor General has also raised concerns over a lack of documentation relating to a Gold Bell Construction contract.

The fact a company implicated in misappropriation by police was awarded a K11 million DoH contract through an ‘internal’ mechanism – rather than an open, public tender overseen by the CSTB – prompts serious integrity concerns that require formal investigation, especially in light of the additional concerns raised by Governor Numu.

William Onglo Wins A Health Contract Bonanza

One company, PNG Constructions, in particular stood out in the Department of Health report for the significant number of contracts awarded. These contracts included:

  • K2.5 million to build a Baro Community Health Post at Vanimo/Green, West Sepik Province.
  • K3.7 million to build a Community Health Building at Yasubi, Okapa District, Eastern Highlands
  • K7.5 million to refurnish of the Kavieng Hospital operating theatre
  • K855,150.55 to build a Provincial Transit Medical Store in Madang.
  • K 1 million to build a Provincial Transit Medical Store in Mendi, Southern Highlands.
  • K 1 million to build a Provincial Transit Medical Store in Goroka, Eastern Highlands.

In total PNG Constructions – in this report alone – had been awarded K16.5 million in contracts. Of the large contracts documented in the DoH quarterly report, PNG Constructions had won the lion-share.

According to corporate filings, PNG Constructions Limited was incorporated on 30 November 1999. Its sole shareholder and director during this period when these contracts were awarded was William Onglo. Onglo is a current Member of Parliament for the electorate of Kundiawa Gembogl. He was first elected in 2017. Onglo served briefly as Defence Minister in the O’Neill government during 2019.

The last annual return filed prior to the DoH contracts being awarded is dated 10 June 2009 and relates to the 2008 financial year. In other words by 2013, PNG Constructions Limited was not compliant with the companies law. According to this return the company had 5 full time employees and 3 part time, with assets of K352,228.

Unusually the annual return for 2009 appears to have been completed a decade later on 17 December 2019. The corporate registrar’s stamp is dated 14 April 2015. It is not clear why.a documented signed in 2019, is stamped 2015.

A series of returns for subsequent years were also submitted in 2019.

For the years 2009 and 2010 company assets were now valued at K1,550,00, with liabilities of K250,000. PNG Construction Limited reports 5 full time employees and 3 part time. By 2011 assets had dropped to 1,200,000 and liabilities had increased to 300,000, so too had full time employees, there were now 15, and no part time staff. Then in 2012 PNG Constructions reported assets of K1,400,00 and liabilities of K200,000, again with 15 full time employees. Why is this noteworthy? Normally when studying financial data it is unusual in business records dealing with complex financial affairs to find round numbers such as the above. We would expect to see figure such as K275,612. This does not prove the annual financial returns are false. The returns are at the very least irregular.

Other concerning information was on the public record relating to PNG Constructions Limited at the time the award was made.

In a letter dated 21 June 2010, William Onglo and PNG Construction Limited, had been accused by an individual Philip Putaya from Hulia LLG, of conspiring with Tumbi Yari, the Acting District Administrator for Komo Margarima District, Southern Highlands.

The letter includes what is purported to be bank statements for the Treasury Operating Account for Komo-Magarima District. In the month of December 2009, K28.4 million is paid out to PNG Constructions. Putaya demands immediate investigation.

Unfortunately members of the public are not in a position to verify the authenticity of these bank statements, or the story of the alleged payments they document. It is, therefore, impossible to verify these claims. However, from a due diligence perspective, this information is a critical lead. Before a DoH contract is awarded, a thorough process would authenticate the leaked documents, and if they proved real, Onglo would then be questioned on the seemingly irregular payments to see if a satisfactory answer could be provided.

It is not clear whether such due diligence took place. In light of wider findings presented in this PNGi investigation, it is doubtful such checks were made.

Another piece of relevant evidence was found in the court database. It involves a 2018 National Court decision delivered by Justice Canning. Justice Canning concludes in this decision that an individual by the name of William Onglo obtained 4 hectares of state land in Nine Mile, NCD, by fraud.

While this is concerning from a due diligence perspective, two qualifications need to be made. This decision was delivered after the DoH contract awards, so it is not a matter tender boards could have been aware of. It is also cannot be verified if the William Onglo cited by Justice Canning is the same William Onglo from PNG Constructions. That would require additional verification.

However, given the wide-spread procurement weaknesses evident in the DoH, and the significant number of contracts awarded to PNG Constructions, this case is still a cause for concern from a risk perspective. If we add to that the potential a principal of the company may have been involved in fraud, this would significantly increase the risk, and would warrant thorough investigative auditing to ensure all proper processes were observed.

Part II

That is it for Part I. Tomorrow PNGi will publish Part II of this series. It will examine contracts awarded to:

  • a new-start shell company whose sole female shareholder shared the surname and address of an outgoing Commerce Secretary, accused by the Public Accounts Committee and a Commission of Inquiry of being involved in graft (all of which was on the record at the time the award was made)
  • the controversial Malay-PNG businessman, Sir Poh, whose medical supplies arm has been accused of winning major contracts through graft, and then delivering substandard products,
  • a questionable Malaysian logging firm Uni Rise Limited, rebuked by Oro Govenor Gary Juffa.

Stay tuned.