Office of the Prime Minister
APIA

30 March 2015

Afioga Papali’itele Niko Lee Hang
Officers of Parliament Committee

TALI A LE MALO I LE LIPOTI A LE KOMITI FAAPALEMENE (OPC) MA LE LIPOTI A LE PULE MA SUETUSI SILI – SAMOA LAND CORPORATION (SLC)
 

1.  I refer to your letter dated 24 January 2015 that was published in the Samoa Observer on the Sunday edition 15 March 2015. I also refer to your letter to the Attorney General dated 19 August 2014 referred to in your letter of 24 January, to the Officers of Parliament Report (OPC) relating to the Samoa Land Corporation (SLC) for period ended 30 June 2010 and 30 June 2011, and the Auditors Report relating to SLC from July 2009-June 2010 and July 2010-June 2011. Since you have already apologised at our Caucus meeting of 23 March last Monday to put finality to SLC issues, and my own subsequent reciprocal apology given to square off in a typical HRPP cultural and brotherly based dispute resolution mechanism, this response is merely to close the chapter on the OPC Report on any seemingly unfinished business!

2.  Before I address the issues in your letter, I want to stress that the response by the Government in Parliament is to the report of the OPC. Accordingly the Government is not obliged to respond to any other issues or allegations not raised within the OPC in its report. Therefore in this response, I will refer to the issues raised specifically by the OPC that correspond to the matters you have raised in your letter of 24 January.

3.  I now provide the following responses to your letter of 24 January in the hope of clarifying the Government’s response to the OPC report and providing you and the OPC with a better understanding as to the reasons for the Government responses to these issues.

Release of Retention Funds

4.  The concern raised by the OPC is technically correct that the retention money should not have been released before the end of the defects liability period.

5.  However the Minister was the authorised person on behalf of Government who signed the contract and he was also the Chair of the Board of SLC at the time. Therefore, he had the legal authority to approve any variations to the contract and the release of the retention money is a variation to the contract. This may not have been good practice, but he still had legal authority to do so.
As for collusion, there was no evidence presented in the audit report or the report of the OPC that specifically supports the allegation of collusion. Accordingly even though the payment of the retention before the expiration of the defects liability may not be consistent with good contract management practices, it does not amount to an infringement of the law or the criminal offence of corruption. To prove the criminal offence of corruption, the following two elements need to be proven beyond reasonable doubt:
i.  an office holder in the service of the Independent State of Samoa corruptly accepts or obtains any bribe which is money or valuable consideration); and
ii.  The bribe is in respect of anything done or to be done by him or her in his or her official capacity.

6.  There was no evidence to support corruption or any other criminal offence.   It   is important to note that Retention Funds belonged to the contractors and the Minister must exercise his discretion with wisdom in the release approval especially where the quality of the work performed is unquestionable and the  contractors’ cash flow requires urgent Ministerial intervention to prevent delays in project completion.  In a developing country like Samoa, the reality is many contractors do not have healthy cash flows.  Hence, a Minister often needs to think positively and pragmatic to promote competition and development.

Withholding tax

The OPC identified the fact that 10% of the contract price was not withheld by SLC for taxes when it paid out the contract price to one of the contractors.  The OPC further stated that SLC’s failure to withhold the 10% tax enhanced the risk of favouritism and collusion.

7.  The Controller and Auditor General did not address this issue in his report.

8.  There is a requirement for all Government Corporations, Authorities and Public Bodies to withhold 10% from payments that are made for services supplied to them and these amounts are required to be remitted to the Ministry for Revenue. The withholding of amounts from payments is called ‘source deduction’ and it is provided for under the Income Tax Administration Act 1974 (clause 8, Third Schedule) and Income Tax Rate Act 1974 (clause 13, Second Schedule) (as these were the applicable Tax Acts at the relevant time before the passing of the new Income Tax Act 2012).

9.  SLC has explained that they were not aware of this requirement for source deduction and as such no deductions were made when payments were made pursuant to the construction contract.  It is not an offence if source deductions are not made. The only offence under the Act is if a person makes a source deduction and does not remit the deduction to the Ministry.

10.  The failure to withhold tax deductions as source deductions does not support an allegation of corruption nor is it an offence. Even with the failure to withhold source deductions, the contractor would still be liable to pay this 10% as part of their assessable income tax to the Ministry for Revenue.  Again the 10% withheld is moneys from the contractors subject to full refund if the tax liability which is assessed at the end of the year is much less than the WT Withheld!

11.  Regarding your references to the SPG, I cannot respond to these as I do not have sufficient information of your allegation in order to make an informed response.

Middleman Company

12.  The main factor identified by the OPC in its report with regard to the hiring of this company and the associated costs for purchases including the purchase of the water rig, is that SLC failed to follow Government policies and procedures with regard to procurement and tender. The OPC noted that the failure to observe these policies and procedures were due to the Minister for SLC putting pressure on “everyone” to proceed in order to complete the facilities in time for the Games. And pressuring the workers to work work work to a time schedule is a virtue!  Even though the purchase of the rig was approved by the Tenders Board (that you had chaired at the time) and by Cabinet subsequently, the lesson learnt is vigilant monitoring and follow up. The establishment of the new Ministry for Public Enterprises should assist with this type of monitoring. And you, Papalii, is now the Associate Minister for the Ministry of Public Enterprises!  Your new role was therefore deliberate.

13.  The SLC concedes that this company in question had done work for the South Pacific Games (SPG) and established a good reputation with them since then. After the SPG when SLC needed a company to assist with its various technical purchases, it was decided that this company be approached.

14.  It is noted that neither the OPC nor the Controller and Auditor General’s reports refer to any actual evidence of corruption or bribery or any other criminal offence.

15.  There was no evidence that the Minister or anyone else in SLC obtained any monetary or other benefit by directly engaging this company.

SLC land benefits

16.  The OPC report identified that the employees of SLC were entitled as part of the employment benefits to buy land from SLC at 60% of the market value. It was also identified that the GM of SLC bought land from SLC under this policy but for less than 60% of the current market value.

17.  The Controller and Auditor General’s report also noted whether this 60% was too excessive as an employment benefit.

18.  The interpretation of the policy that was approved by the SLC Board was that employment benefits were for sale of land at 60% of the market value at the time of the policy, or if an employee came in later then at the time that employee started employment with SLC. So the value of the land is not the current market value at the time of sale, but the market value at the time the employee started with SLC.

19.  Accordingly I understand this is the reason why the SLC GM bought the 2 parcels for the price that she did. The value was determined at the market price at the time when the policy was made, not the current market rate at the time of the sale.

20.  Regarding the question as to why the GM was sold two parcels of ¼ acre each, I am not aware of any policy with the SLC that limits the sale to employees to one parcel.

21.  In any case, this form of employment benefit for employees of SLC has been discontinued for some time as part of Governments policy to keep these employment benefits uniform throughout the service and Government corporations.

SLC Headquarters

22.  The OPC identified incomplete works and poor workmanship of the construction of the Headquarters specifically with regard to the non-operation of the elevator. Comments were also made as to the increase in the price of the contract and the management of the contract in relation to variations.

Elevator

23.  The elevator is and always has been in working condition. The elevator had not been used because the subcontractor of the main contractor had refused to turn on the elevator as it has not received from the Contractor payments for works rendered under the contract.

I am advised that the elevator has been turned on and is in working condition
.

24.  When SLC recommended to Cabinet that the contract be awarded to the Contractor, their recommendation included the requirement for the Contractor to construct an elevator. It was only later that they made a variation to change the supplier of the elevator which required the increase in price, because the Contractor could not supply/build the elevator themselves.

Variations

25.  There were 4 variations to the contract.

Variation No. 1
a.  The first variation was to replace all original proposed louvres with aluminium solid pane and grey tinted type and for inclusion of water tanks.
b.  The inclusion of the water tank was to catch and store water for use of the Headquarter.

Variation No.2
c.  The second variation was for the upgrade of the lift. According to Board papers, the variation to change the contractor for the construction of the elevator was premised on the fact that the original contractor did not have an office in Samoa or conducted regular maintenance of elevators compared to OTIs- the new contractor.

Variation No. 3
d.  The third variation was for the inclusion of partitions. SLC required the contractor to construct the partition together with the construction of the Headquarter.  The partition was necessary for the division of offices and rooms within the Headquarter and was made so that the building could be functional and ready to be occupied and used by SLC at the completion of the construction.

Variation No. 4
e.  The fourth variation was for the upgrade of air condition units. Rather than having a centralized air conditioning system (as planned) SLC request that small individual units be installed for each room of the building. The justification was that the smaller air conditioning units saves electricity. If an employee needed to stay behind to work, he or she will only use the air conditioning in his or her room. Instead of turning on the entire centralized air conditioning unit yet only one person is using it. This is pure common sense in action.

26.  All these variations were approved by the Board for SLC; hence this is why there is a discrepancy in the approved cost of the contract by Cabinet and the actual cost.

27.  As can be seen, there were valid reasons for the variations as summarised above and these reasons were no doubt taken into account by the SLC Board and assisted them in making their decision to approve the variations.

Landscaping and signage contracts

28.  The OPC suggests that the landscaping contracts and signage contracts were awarded with favour to companies or entities belonging to the then Minister/Chairman’s wife and son-in-law.

29.  The Controller and Auditor General’s report did not identify this specific issue.

30.  With regard to the landscaping contract for the SLC headquarters, there were 3 bidders who submitted bids for this contract. On 20 December 2010, the SLC Board considered these 3 bids and awarded the landscaping contract for the SLC HQ and Golf Course to the two lowest bidders as is consistent with Government procurement policies.

31.  These lowest bids had no reference to anyone related to the then Minister for SLC. Nor has there been evidence provided to SLC that anyone within the Minister’s immediate family were legally connected or involved in these businesses. Further these bids were approved by the SLC Board, therefore it was not a decision made solely by the former Minister.

32.  With regard to the signage contract, it is well known that there is not much in terms of selection in Samoa of this type of specialised skill especially 5 years ago. Accordingly SLC made enquiries to various signage companies and no other local signage company could provide the size of the sign with the materials (alucobond) required to be manufactured and erected in time for the Official Opening of the building.  The costs included importation of materials from overseas, fabrication, as well as installation.  Accordingly Star Signs was the only company able to provide the products within the required time. This was the reason why this contractor was awarded the contract.

Lessons learnt and way forward

33.  I do not deny that the issues raised by the OPC in relation to SLC have highlighted some areas within Government entities that require improvement. The Government’s response to the OPC report dated 12 October 2014 (“Government’s response”) also acknowledges this. In fact this is exactly why procedures and processes such as audits and screenings by such bodies as the OPC are required – to identify areas of weakness so there can be improvement.

34.  Because the Government has recognised these weaknesses and identified these areas of improvement, THERE HAVE BEEN IN FACT REMEDIAL ACTIONS PUT IN PLACE SINCE THESE ISSUES WERE BROUGHT TO LIGHT BEFORE PARLIAMENT. AS STATED IN THE GOVERNMENT’S RESPONSE, THE GOVERNMENT THROUGH THE MINISTRY OF FINANCE HAS ESTABLISHED AN INTERNAL AUDIT FORUM WHICH WILL BE TASKED WITH IDENTIFYING INTERNAL CONTROL ISSUES IN MINISTRIES AND CORPORATIONS AND TO COME UP WITH STRATEGIES FOR REMEDIAL ACTION.

35.  Furthermore, the new Ministry for Public Enterprises will help further monitor the effectiveness of public bodies and with you Papalii as Associate Minister of the new Ministry directly involved!

36.  However perhaps the most significant and marked improvements that have been displayed since include the speedy UPDATE BY MINISTRIES AND PUBLIC BODIES OF AUDITS, FINANCIAL STATEMENTS AND ANNUAL REPORTS TO PARLIAMENT. This was DISPLAYED IN THE LAST PARLIAMENTARY SESSION WHERE THE REPORTS FROM MINISTRIES AND PUBLIC BODIES WERE UP TO DATE (2013 AND 2014) WERE SUBMITTED. This is a SIGNIFICANT IMPROVEMENT FROM THE PREVIOUS YEARS.  As you Papalii were appointed by me as the Minister of Finance for Public Bodies as well between 2006 to 2011 who should have been more mindful of these responsibilities, you certainly should have remembered the well-known principle that people who lived in glass houses should never be the first to throw stones.

37.  The Controller and Auditor General has also indicated that they are now 100% updated in the submission of their financial statements, audits and reports to Parliament due to the cooperation and assistance of the Ministries, Public Bodies, Constitutional and Parliamentary Offices and other offices of the State.

38.  This indicates that there is great improvement in upholding the virtues of accountability, transparency and good governance within the Government since the issues relating to the OPC report came to light in Parliament.

39.  In relation to the SLC, there were 12 clear recommendations in the OPC report. The Government and SLC have responded to all these recommendations through the former Minister’s Ministerial testament in 2014 and in the Government’s final response read and approved in Parliament last week. Corrective action has also been taken by SLC and the Government in relation to the issues raised in the report and these will be followed up by the Audit Office.

Conclusion  

40.  In conclusion, I must applaud the OPC together with other investigative actors including the Audit Office, for their collective role in the accountability and good governance process, as ultimately it is their recommendations that have contributed to the great improvement in the work of the Government through its Ministries, Public Bodies, Constitutional office and other offices in submitting the relevant reports to Parliament on a more timely manner and for taking corrective action where necessary.

41.  In addition, I hope I have managed to explain with clarity and sufficiency the responses to your issues and as well as the rationale behind those responses, to avoid anymore misunderstanding and confusion as to the Government’s response to the OPC report.

42.  The Government continues to work to the best of its ability to ensure effective measures are in place to address issues raised by the OPC and the Controller and Auditor General and that implementation of such measures are monitored closely going forward.

 

Hon. Tuilaepa Fatialofa Lupesoliai Dr. Sailele Malielegaoi
PRIME MINISTER

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