National Housing Corporation: Still Rotten

Inside the National Housing Corporation

On a windy Sunday afternoon back in 2013, I sat in a park with former residents of a National Housing Corporation (NHC) apartment block in North Waigani.

Despite being legal tenants, they were forcefully evicted by  armed gangs. Evidence suggests these gangs were paid for by the taxpayer, after the NHC hastily secured K30,000 for the exercise (see below).

Women and children were thrown out onto the street in the rain, with their belongings soaked under the unrelenting storm clouds. Those who resisted were beaten.

Residents were from all walks of life. Civil servants, lawyers, administrators, and engineers. Their ordeal began several years earlier when the NHC asked residents to vacate the property so renovations could take place.

The property was barely 13 years old – residents smelt a rat. It transpired the NHC wanted to sell off the virtually new property.

When residents refused to leave, they claim the NHC attempted to smoke them out.

They would not accept rental payments. Squatters were allegedly allowed on to the property; with them came a range of problems including drugs and prostitution. Finally came the armed gangs.

The NHC’s Managing Director told the media that the property had been sold off for a profit to private investors – evidently to Malaysian investors – stating: “The initial cost of the money to erect the hostel in 1997 was K7 million so we made about K4.1 million profit”

When a registered valuer’s opinion was sort by residents, the report concluded that the apartment complex was worth approximately K37 million, over triple what the property was sold for.

This was one of numerous occasions where NHC staff have been accused of selling properties at grossly reduced rates. For example, it was alleged in legal proceedings before the National Court that ownership of one NHC block of flats in Port Moresby

… had been transferred from the NHC to Mr [Francis] Pumbu at a time when Mr [Paul] Asakusa was managing director. The NHC sought declarations and orders that would nullify the transfer to Mr Pumbu, claiming fraud and illegality in the transfer to him and breaches by Mr Asakusa of fiduciary and legal duties to the NHC which allegedly amounted to a conspiracy between him and Mr Pumbu to defraud the NHC. It was claimed amongst other things that Mr Asakusa had agreed to transfer the land to Mr Pumbu without NHC Board approval at a significantly undervalued price of K140,937.50, it being alleged that the actual market value was nine times that sum.

This is just one more example of the National Housing Corporation being embroiled in controversy; the court archives contain a much longer list of litigation by aggrieved customers.

The O’Neill government attempted to stem the rot within the NHC, by transferring part of the national housing estate into the hands of a private, state owned vehicle: National Housing Estate Limited. This was akin to putting out a fire with rocket fuel. Unlike the NHC, National Housing Estate Limited was not on a statutory footing, and has even failed to meet the basic regulatory requirements set out in the Companies Act.

Accordingly, it was with great trepidation that I read the most recent Auditor General’s report on the NHC. It made for predictably depressing reading.

Auditor General Findings

First, lets turn to the private arm of the NHC – the National Housing Estate Limited.

The report card in this respect is short and sharp. The Auditor General notes: “The Company had not submitted its financial statements for the years ended 31 December 2010, 2011, 2012, 2013, 2014, 2015 and 2016 for my inspection and audit despite numerous reminders from my Office”.

The Auditor General would be advised not to hold his breath, the Investment Promotion Authority is still waiting on a much more modest set of documents for the same years.

Indeed, NHEL executive chairman Kevin Aihipum told the Post-Courier in early 2017: “We have engaged an accredited accounting firm and people from the Auditor General’s office to go through our books in preparation to submit a final report to IPA”.

Still the wait continues.

_{Screenshot: The National Housing Estate Limited’s last annual return was submitted in 2009.}

So at present the private arm of a public body that has a documented history of mismanagement and fraud, is operating entirely in the dark. We can only guess at what lurks in these shadows.

Moving on to the National Housing Corporation itself.

Established by the National Housing Corporation Act 1990, the NHC has a mandate to address Papua New Guinea’s housing situation through building and maintaining public housing stock, which can be leased or sold to eligible persons. The corporation is also empowered to conduct housing research, and report back to the Minister. Underpinning these different roles, is the NHC’s overarching mission ‘to promote orderly and economic urban development’ (s28, National Housing Corporation Act 1990).

Previous investigations into the NHC have produced worrying results.

In a 2009 report the Public Accounts Committee observed: “Political patronage and appointment on grounds other than merit has characterized the appointment of Senior Managers to the Corporation for many years”.

According to the Public Accounts Committee, “the National Housing Corporation’s systems of accounting and recording public monies, property and stores collapsed at least twenty years ago”. The significance of these failings are underlined by the committee, “this would be serious in any Corporation but in a Corporation managing a huge property portfolio and complicated and complex Housing Schemes, it was clearly a prescription for failure and misconduct”.

The most recent Auditor General report finds if anything the situation in the NHC has gotten worse.

The Auditor General notes that NHC management made a sobering disclaimer when presenting the corporation’s financial statements for inspection:

The management declared deficiency in the preparation of the financial statements of the Corporation due to ongoing major internal control lapses including lack of proper accounting system, lack of proper record keeping, nonexistence of accounting manual, absence of fixed assets management and registers and lack of debtors control system.

The Auditor General observes this in effect was a confession:

The declaration indicated that the Directors and the management had failed to comply with the requirements of the Public Finances (Management) Act 1995 (PFMA) by not maintaining proper records and books of accounts to enable me to conduct the audit in time as required by Section 63(4) of the PFMA.

Perhaps not surprisingly what the Auditor General was able to see, did not inspire confidence.

The audit report observes: “Controls over billing, collection of revenues, and accounting of debtors and revenues had been very deficient. The Corporation’s incomes were not properly managed and were exposed to abuse and fraud”.

The report continues: “The Corporation did not maintain a Fixed Assets Register in 2013. This was a very serious internal control lapse. The Corporation without having a Fixed Assets Register posed a high risk for loss of its properties. Also, valuation of the properties was not done periodically to establish fair values at any given point of time.”

The serousness of the situation was underlined: “I carried out property inspection at NHC Head Office, Lae, Madang and Goroka and noted that the Corporation owns and had in its custody properties with values that can run into hundreds of millions of Kina”.

Probably the most disarming moment in the Auditor General’s findings – of which there are many – was when he reflects on payment procedures within the NHC: “The Corporation issued many cashable cheques in 2013 to its staff members and other service providers. From the sample of 111 payments vouched, 86 payments totalled K743,130 were issued in “Pay Cash” cheques”.

Keep in mind this was only a sample – the true total of payments made through “pay cash” cheques would be greatly amplified. The seriousness of this grave practice was again underlined in the audit findings: “Issuing cashable cheque promotes fraud, abuse and corruption and was not an acceptable business practice“.

The ‘anything goes’ attitude within the NHC was perfectly captured in this audit observation: “A cashable cheque valued K29,800 was issued after alteration being made to the original invoice amount of K19,800. Also, another invoice was altered upwards from its original value of K19,200 to K29,800 and finally paid at K30,000”.

Then there are matters that seem to warrant immediate criminal investigation – though were resources not an issue all of the above would fit the criteria for criminal investigation. Take this audit observation:

Two (2) cheques totalled K50,000 were made to the former Chairman of the Corporation, being an Ex-Gratia payments. Powers of approving ex-gratia payments were vested with the Secretary for Finance, Minister for Finance and NEC. However, approval from these authorities were neither sought nor granted.

It continues:

The Corporation in 2013 sold some of its properties with a total value of K11,283,770 as disclosed in the income statement. Documents and records in relation to sale of the properties including tender documents, contract of sale, and settlement statements were not provided for my review. Record keeping was very deficient and the management was unable to retrieve and provide all the necessary information and documents on the properties sold.

It doesnt end there, though. There is a further litany of irregularities observed by the Auditor General:

• Three (3) cashable cheques totalled K21,500 were paid to an officer of the Corporation. The amount paid was claimed for vehicle allowance in lieu of providing a fully serviced vehicle (car) for 62 days at the rate of K300 per day by the officer. However, the actual amount paid was above the original invoice of K18,600. Also, the payment made was irregular and did not comply with the Salaries and Conditions Monitoring Committee determinations;
• In one instance overtime allowance of K1,000 each was paid to thirty-seven (37) staff members including the Senior Executives of the Corporation. There was no proper basis for paying the Senior Executives. Also, it is improper for Senior Executives to approve overtime payments for themselves;
• An officer who had been terminated from employment was paid K10,000 as part payment of K25,000 awarded for damages caused as a result of the employment termination. I noted that the compensation award of K25,000 was agreed through verbal discussion between the officer and management of the Corporation. I could not obtain legal evidences to determine validity and appropriateness of the management making the award and paying the claim;
• I noted that a motor vehicle was hired from a company at the rate of K1,000 per day between January and March 2013. Three (3) payments totalled K99,000 was made in April 2013. Hiring of vehicles in Port Moresby at such an high rate of K1,000 per day was wasteful and unwarranted. The K99,000 spent could have been used to buy a new vehicle;
• A total of K19,000 was paid as entertainment allowances to the Managing Director in “Pay Cash” cheques. Entertainment allowances of Chief Executive Officers of all Statutory Authorities come as part of their salaries which are paid fortnightly. No acquittals were available for my review to determine the validity and appropriateness of the payments;
• Sixteen (16) payments totalled K127,000 had no payment vouchers and supporting documents on file.

Feeling dizzy yet?

Given that these problems have been longstanding in the NHC, it might well be asked – why has nothing been done. Mungu provides one possible explanation:

One prime reason is that many people in higher public and political circles have vested interests in that organization. It is also strongly believed that any investigations conducted into the affairs of NHC would reveal the dealings of several political leaders, bureaucrats and their associates who have plundered that  organization of its assets and resources. It has been used as a cash cow for politicians, cronies and officials over the years at the expense of ordinary Papua New Guineans where their rights to affordable shelter have been abused through such dealings.

A knee-jerk reaction to all this may be, abolish the NHC and leave housing to the private sector. Alas, as numerous PNGi investigations have revealed, this sector is just as heavily impacted by fraudulent transactions, designed to rig markets and inflate profits.

The ideal of a national housing estate for working families in Papua New Guinea remains a noble goal. That it has been sullied by deplorable management is a great shame, it has left families much poorer as a result.

What struck me most forcefully when meeting with North Waigani residents, was their strength and integrity. Perhaps its time for resident cooperatives to assume control over NHC properties and management – so the organisation is directly accountable to the people. If other NHC apartment blocks feature the same cerebral and forensic characters as North Waigani, the rot might find its match.