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Improper Acquisition of 16 Vehicles for the SANMA Provincial Games in 1997 [2001] VUOM 2; 2001.05 (26 July 2001)

REPUBLIC OF VANUATU

OFFICE OF THE OMBUDSMAN

PUBLIC REPORT

ON THE

IMPROPER ACQUISITION OF
16 VEHICLES FOR THE
SANMA PROVINCIAL GAMES
IN 1997

26/07/2001

7312/2001/05

------------------------------------

SUMMARY

This report describes how the Vanuatu Government through the Ministry of Internal Affairs failed to properly plan for the acquisition of sixteen vehicles properly plan to acquire sixteen vehicles for the transport of government officials, game participants and others during the Sanma Provincial Games in May 1997.

Due to the Ministry of Internal Affairs failure to organise adequate transport arrangements, there was a last minute rush which resulted in the Ministry of Finance approaching only Asco Motors to supply the vehicles, without contacting any other potential suppliers. After the games, the vehicles were then sold duty and tax free. This resulted in the Government losing Vt7,130,127 in revenue which should have been collected. In turn, the people of Vanuatu were deprived of money. This is a blatantly inexcusable management decision.

The Ministry also did not comply with procurement procedures as required by the Finance Regulations. It failed to invite tenders to supply the vehicles and as a result other vehicle dealers did not have the opportunity to make a bid to supply the Games.

The Ombudsman recommends that in future, the Ministry of Internal Affairs and every other Ministry must ensure that proper transport arrangements are made in good time for such events.

Also, if car rental companies or the Land Transport Association can supply and meet this short term need for vehicles at reasonable rates, this would be a commendable cost cutting measure on the part of the government, and the Games Organizers. This approach would be more in line with the principles of Comprehensive Reform Program (CRP).

TABLE OF CONTENTS

1. JURISDICTION

1.1 The Constitution and the Ombudsman Act allow the Ombudsman to examine the conduct of Government, related bodies and leaders. This includes looking into the defects in laws and administrative practices, including the improper acquisition of vehicles for the Sanma Games.

2. PURPOSE, SCOPE OF INVESTIGATION AND METHODS USED

2.1 The purpose of this report is to present the Ombudsman's findings as required by Article 63 of the Constitution and Section 34 of the Ombudsman Act.

2.2 The scope of this investigation is to establish the facts about the acquisition of sixteen vehicles from Asco Motors in May 1997 and also to establish:

1. The total revenue lost by the Government by allowing the vehicles to be imported duty and tax free, and
   
2. Whether the conduct of the Government was proper and in line with the procurement procedures as set out in the Financial Regulations.
   

2.3 This Office collects information by informal requests, summons, letters, interviews and research.

3. RELEVANT LAWS, REGULATIONS AND RULES

The Government Financial Regulations

3.1 Regulation 361 states that:

Where the cost of a specific work or service exceeds 1 million vatu, at least three (3) written tenders must be obtained. These tenders must be submitted to the Central Tenders Board for valuation and for the awarding of the contract^[1].

4. OUTLINE OF EVENTS

Acquisition of the vehicles

4.1 In May 1997 the Provincial Games were held in Luganville, Sanma Province from 3^rd to 10^th May 1997. There were about nine hundred athletes who travelled to Sanma from the other Provinces for the games, including game officials.

As the Government did not have enough vehicles in Luganville to transport government officials during the games an order was placed with Asco Motors in Vila to arrange and supply 12 vehicles to be used in Luganville.

4.2 On 11^th April 1997 the President of the Provincial Games Council, Mr Joe Carlo, requested Asco Motors to supply a quote for twenty vehicles to be used for transport during the games (Appendix A). He further stated that due to the very late notice that the Ministry of Internal Affairs had given to his committee and in view of the time factor, Asco Motors was requested to submit a quote for that number of vehicles. The General Manager of Asco Motors confirmed on 14^th April1997 that they were willing to supply sixteen vehicles. However, he requested a letter from the Customs Department to advise him that the vehicles were to be exempted from duty and service tax. In addition some agreement must be reached between the Games Council and Asco Motors as to the payment of shipping costs and insurance to Santo from Port Vila. (Appendix B).

4.3 On 29^th April 1997 the Private Secretary in the Ministry of Finance Mr Simeon Poilapa requested Asco Motors to supply 12 vehicles for the games and that the vehicles be exempted from Customs duty. The vehicles should then be shipped to Santo before 30^th April 1997 (Appendix C). These vehicles were later shipped to Santo in early May 1997.

4.4 On 2^nd May 1997 the Acting Minister of Finance, the late Fr. Walter Lini, wrote to the General Manager of Asco Motors in Vila requesting the supply of four additional vehicles. He assured the General Manager of Asco Motors that the four vehicles would also be exempted from duty (Appendix D). This increased the number of vehicles to sixteen.

Insurance

4.5 On 30^th April 1997 the Second Secretary in the Office of the Prime Minister
Mr William Tari, informed Asco Motors that because the vehicles had to be shipped to Santo, the Government would meet the cost of insurance and freight for the 16 vehicles. Following this, in a meeting in October 1997, the Council of Ministers approved that Vt859,239 be paid to the insurance company for the vehicles. This was paid in November 1997.

4.6 On 12^th May 1997 the acting First Secretary, Mr Peter Taurakoto, wrote and advised the President of the Sanma Games that the insurance cover ended as of the date of that letter. He further advised that any department wishing to purchase any of the vehicles had to earmark them and settle with Asco Motors.

Granting of Exemption

4.7 On 22^nd May 1997 after the games, a meeting was held with representatives from Asco Motors, the Private Secretary of the Ministry of Finance, Mr Simeon Poilapa and the Director of Customs Department Mr John Simbolo. It was agreed at the meeting that the used vehicles would be sold without duty and service tax (Appendix E). Following this meeting, the Director of Customs gave his approval under his powers under schedule 3 of the Customs Tariffs Act for the vehicles to be sold by Asco Motors free of duty and service tax.

The Ombudsman was informed by the Director of Finance, Mr Jeffrey Wilfred, that due to this arrangement the Government lost Vt7,130,127 in duty and tax on the sixteen vehicles (Appendix F).

The Ombudsman was informed in February 1999 by Asco Motors that there were no vehicles imported for the Sanma games. All the vehicles supplied were from Asco Motors ex stock in Vila. The used vehicles were later sold by Asco Motors to the general public excluding duty and tax.

5. RESPONSES

5.1 In reply to the Working Paper the former Private Secretary in the Ministry of Finance, Mr Simeon Poilapa, stated that it was the failure of the Ministry of Internal Affairs at the time to make proper arrangements for the event. As a result there was a rush at the last minute to get things together and he had to ask Asco Motors to supply the vehicles. He further stated that he had no idea about the four additional vehicles which were requested by the Acting Minister of Finance.

5.2 There were no other responses received by the Ombudsman.

6. FINDINGS

Finding 1: The Ministry of Internal Affairs failed to ensure that the transport arrangements for the Sanma Provincial Games were made in good time.

6.1 This failure by the Ministry of Internal Affairs caused the Government to rush at the last minute to secure vehicles to be shipped to Santo. This resulted in the unnecessary spending of Vt859,239 on the cost of freight and insurance for the vehicles. There is nothing on record to show that attempts were made for alternative arrangements to secure vehicles in Luganville for transportation of games officials.

Finding 2: The Ministry of Internal Affairs failed to comply with the procurement procedures set out in the Financial Regulations.

6.2 The Ministry of Internal Affairs did not follow the Ministry of Finance Financial Regulations. The request to Asco Motors to supply sixteen vehicles was a service and was covered by tenders procedures. As a result only one car dealer was approached and there was no competitive tendering. This gave Asco Motors a monopoly in supplying vehicles to the government and removed any opportunity for competitive pricing from other car dealers.

Finding 3: The Government lost a substantial amount in revenue as a result of granting exemptions on duty and tax to Asco Motors for the vehicles.

6.3 The Government lost Vt7,130,127 on duty and tax on the vehicles which were shipped to Santo to be used by the Government officials. The Ministry of Internal Affairs could have arranged to hire vehicles from hire car companies in Luganville which would have saved the Government Vt7 million plus shipment and freight costs. As a result of this arrangement the people of Vanuatu lost over Vt7 million in revenue. This went to the benefit of the few Government officials by providing them with comfortable vehicles to be paid for out of the public revenues of Vanuatu.

If the arrangements were made properly, hiring of cars and other bigger vehicles for ten days at an appropriate cost of Vt150,000 per vehicle would have cost a fraction of the Vt7 million loss in revenue.

7. RECOMMENDATIONS

7.1 Recommendation 1: The Ministry of Internal Affairs should ensure that preparations for such major events are made well in advance.

Last minute preparation demonstrates lack of proper planning. This represents maladministration on the part of the Ministry and departments involved in the preparation work on the Sanma Games. Preparation for future events such as this should be made well in advance to prevent unnecessary last minute spending.

7.2 Recommendation 2: The Ministry of Internal Affairs should seek legal advice if it is in doubt about whether a service provided to them is covered by the Procurement Procedures in the Financial Regulations.

Government Ministers are required to follow procurement procedures for obtaining goods and services. The guidelines are clearly set out in the Financial Regulations. If a Ministry is in doubt, it should seek legal assistance on the issue to avoid charges of alleged maladministration.

7.3 Recommendation 3: The Ministry of Internal Affairs should consider hiring vehicles from local licensed car dealers and or the Land Transport Association for such future events.

Hiring vehicles from licensed hire car companies and Land Transport Association would save the Government losses in revenue from exemptions in duty and tax payable on new imported vehicles for such events. If rental car dealers can supply vehicles at a reasonable price this would save the Government substantial revenue on duty and taxes on new vehicles. Licensed car hire companies can certainly meet this need and at a fraction of the cost.

8. CONCLUSION

8.1 The Ministry of Internal Affairs and every other Ministry should ensure that proper transport arrangements are made in good time before such major events. The Ministry and officers involved should follow the Financial Regulations and make sure that other options are taken to eliminate such unnecessary losses in revenue.

9. INDEX OF APPENDICES

1. Letter from Mr Joe Carlo, President of the Provincial Games Council to the General Manager of Asco Motors.
   
2. Letter from Mr D J Pullin, General Manager of Asco Motors to MR J Carlot, President of the Provincial Games Council.
   

100. Letter from Mr Simeon Poilapa, Private Secretary of the Ministry of Finance to Mr David Pullin, General Manager of Asco Motors.
     

4. Letter from Hon. Fr Walter H Lini, Acting Minister of Finance to Mr David Pullin, General Manager of Asco Motors.
   
5. Letter from representative from Asco Motors, Mr Narongo S Raikatalau to the Director of Customs Department.
   
6. Letter from Director General of Finance, Mr Jeffrey Wilfred to the Ombudsman.

^[1] While the vehicles were not purchased directly by the government, it is the view of the Ombudsman that the supply and use of 16 vehicles is a service to the government which falls within regulation 361.