By EDNAL PALMER

Most of the Economic Stimulus Package (ESP) payments that were made to the productive and resources sector through the Ministry of Finance system and through Imprest Account were corrupt, according to an audit report.

Grants paid to this sector accounts for the highest payout from the ESP’s $309 million package.

A total of $134,788,000 was paid to this sector, which included small businesses, farmers and the productive sector.

The Audit found that three payment methods were used – $59.9 million was paid through the Ministry of Finance and Treasury Payment System, $33.5 million was paid through the Imprest Account and $41.2 million paid through Constituency Offices.

The Office of the Auditor General (OAG) Audit Report found that payments made through the three payment methods to this sector endured significant procurement breaches.

Grants Paid through MOFT payment system

“Grant applications were not standardised and varied considerably in details provided. 

“Applications sighted by the OAG did not always address pre-determined selection criteria. 

“Most of the direct payments were payments made to suppliers to provide material and supplies to individual beneficiaries. 

“Applicants selected their own supplier without any requirement for a competitive process. 

“MoFT told us that the general bid waiver had been discussed and approved by the Central Tender Board (CTB), however, we note the bid waiver was for future procurements, and we consider the Public Financial Management Act 2013 does not provide for advance blanket procurement approvals, as was attempted here. 

“Such a process undermines controls and the effectiveness of procurement rules. Moreover, a copy of the bid waiver was not provided to the OAG.”

The Report further stated that other direct payments were for grants to businesses in the export industries to allow them to continue to buy products. 

“The OAG was not provided with any of these applications but some grants appear to have been gifts with no conditions attached.

“There was no requirement for these larger businesses to repay the Government once they had sold the product the grant allowed them to buy. 

“Smaller grants were applied for purposes consistent with the ESP and often made a difference to communities. 

“However, issues arose with the provision of grants and materials including some recipients not receiving any payment for amounts that had been approved, applicants not receiving what they applied for (for example receiving goods rather than cash payments), which was of much less benefit to them. 

“Also, recipients often received less money than that applied for which meant that they could not undertake the proposed activity. In some cases, applicants received different materials than they needed for their business.”

The ESP Oversight Committee in response to the above issue said applicants sometimes received less funding than they applied for due to limited available funding.

Grants paid through Imprest Account

Cash grants totalling $33.5 million were paid to farmers and local produce handling businesses. $7 million was paid to tourism businesses. 

“Applications were not always filed with payment forms or payment documentation, so it was not possible for the OAG to confirm that all payments were made in response to valid applications. 

“The payment process breached expected internal control procedures in that officers personally signed for many payments for beneficiaries but provided no evidence that they had handed the payment on to the designated person. 

“This was the case with almost a third of the payments made through the Imprest Account. 

“This was a significant breakdown of internal control – allowing government officers to sign for payments for beneficiaries who may not even be aware they are due to receive payment or how much they are to receive was a major fraud risk. 

“Funding through the Imprest Account was important for applicants to meet their household needs, but applicants told us they were frustrated by decisions to approve less than the amount applied for which was often unexplained. 

“Reduced funding also caused problems, for example, applicants could not complete projects or had to delay them until they could find further funding. 

“We identified one government officer who had personally signed for 251 Imprest Account cheques worth approximately $6.8 million. 

“The officer was also involved in encouraging and preparing applications for individuals. This created potential conflict of interest issues by the person being involved in both the application and approval of grants.”

The OAG recommended that the MoFT ensure it has rules to ensure government officers who receive cash, or cash cheques, on behalf of a third part are authorised to do so.

“Rules should also be in place to confirm the third party has received the funds. Management Response.”

The ESP Oversight Committee welcomed the recommendation saying they will ensure this loophole is not repeated. 

“Under the reference Policy, an internal control mechanism was put in-place, and in some cases, officers consented to facilitate the release in good faith without any favour. 

“The Committee however, cannot rule out conflict of interest from some officers. The Committee agree that such cases needed to be further investigated.”

Grants paid through Constituency Development Offices 

$41.3 million was paid to Constituency Development Offices to distribute to constituents. In most cases the offices received $600,000 in 2020 and a further $200,000 in June or July 2021. 

“Applications were called for from Members of Parliament, but it appears some Constituency Development Offices of some MPs received grants even though they did not apply. 

“One Constituency Development Office the OAG spoke to did not realise the funds were ESP funds. There was little reporting on how the funds were used. 

“Apart from confirming that these funds were paid to Members of Parliament through the MoFT payment system there was no practical way, through any documentation review, of confirming how the funds were used.”

The OAG recommended that in the future where funds are provided to a Constituency Development Office to distribute, the Constituency Development Office be required to comply with the relevant procurement rules, document its decision-making process and outcomes sought, and report on all distributions.

The ESP Oversight Committee in response said these will be further strengthened in the future. 

“Under the reference Policy, grants are disbursed directly to the constituencies for the purposes as provided in the request. 

“It is the sole decision of the Offices to manage the procurement of goods and services for the applied projects. This is similar to all SIG grants related support to all Constituencies.”

Background

The Solomon Islands Government developed the ESP to boost the economy to compensate for the expected economic downturn resulting from COVID-19 and the State of Public Emergency introduced to curtail the spread of COVID-19. 

The ESP was approved by Cabinet and published on 6 May. Applications for support were accepted starting 26 May 2020. The aim of the ESP was to enable businesses and households to continue to produce, trade, employ people, spend, and boost aggregate demand in the economy. 

The administration of the ESP was the responsibility of the ESP Implementation and Oversight Committee (the ESP Oversight Committee), comprised of senior officials which involved Ministries with the Permanent Secretary of MoFT being the Chairman. The ESP had five major types of funded assistance: 

• Direct payments to support State-owned enterprises and to the Development Bank of the Solomon Islands; ($80 million); 

• Direct support for government activities, specifically education and provincial government health facilities; ($15 million); 

• Grant payments to small business in the agriculture, forestry, fisheries, and tourism sectors as well as to other businesses in the form of rent support ($119 million);

• Completion of significant infrastructure projects ($90 million); and 

• Engagement of women, youths, and students to monitor State of Emergency Regulations; ($5 million).