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Friday, March 09, 2007

Debate about loans taken by FNPF manager : What did the auditors and the Board members do?

The Fiji National Provident Fund (FNPF) saga continues today with a story in the Fiji Sun about the loans taken by former Deputy General Manager of FNPF from Home Finance Company Limited (HFC) - a subsidiary of FNPF. The loans were supposedly provided without due consideration given to repayment ability and were made at very low interest rates (interest rates that might have been much lower than what they were borrowed at by the lending institution).

The point that I wanted to make is that the former manager of FNPF was not the only one that participated in this particular transaction. For such high loans to be granted, the Board of Directors of the lending institution would have had to be involved. The auditors also should have gone through the documentation/loan when making an assessment about the "going concern"/viability of the lending institution.

So what were they doing? The following questions need to be answered :
  • who made the credit analysis of the loan applications and what did he/she recommend;
  • who gave the approval for the loans to be granted?
  • what was the role of the Board of Directors in this approval?
  • what did the external auditors come up with when making their annual audits to be able to attest to the "going concern" or viability of the lending institution?
Another separate issue to look at would be the relationship between FNPF and Home Finance Company Limited. To protect the interests of members of FNPF, were funds lent to HFC at arm's length or were they another sub-optimal allocation? What is the extent of the exposure of FNPF to HFC? What is the status of that exposure? Are they current i.e. being repaid? At what rates were they offered?

There definitely is more to this.

In the meantime, here is the story that was in today's Fiji Sun.

"$1.2m loans for fund exec : Your money is secure, FNPF chief assures

The suspended deputy general manager of the Fiji National Provident Fund obtained loans totaling $1.2 million from a financial institution in which the fund is a major shareholder and financier.

Home Finance Limited had approved separate loans for different properties for Fotino Investments Limited, a company owned by Foana Nemani and her spouse.

Mrs Nemani holds a majority of the shares in the company. Fotino Investments Ltd was formed in 2003 and had obtained loans of $242,500 for less than 35.4 perches, $242,500 for 33.2 perches, $120,000 for 35.4 perches, $120,000 for 33.2 perches and $649,000 for 1 rood: 6.1 perches. By September 2003, advance payments made to the company had totalled $362,500.

Fotino Investments was charged a rate of 5.75 per cent interest. Transactions spanned a period of two years from 2003 to 2005.

The FNPF owns 75 per cent of shares in HFC and is the sole lender of money for loan distribution by the company. HFC chief executive officer Freddie Keshwan said because of confidentiality of customer information he was in not a position to comment.I regret to advise that I am unable to provide you with any responses to the questions you have raised without a formal and specific written consent of the customer concerned," said Mr Keshwan.

Mrs Nemani had obtained a $576,736 housing loan from the FNPF when the valuation of the property was $430,000. Annually since 2003 Mrs Nemani continued to take additional loans for the upgrading of her property.

Documents of an internal audit allege that she abused her position and authority to take loans when the value on the property was lower than the loan amount. It said that if there is a demand on mortgage, the fund would not be able to fully recover the balance of her loan. Mrs Nemani was charged at a rate of 3.625 per cent, the rate applicable to FNPF staff who take loans for residential purposes. The repayment term of the loan was increased to a period of 15 years (balance of her retirement age) when she took the initial loan in 2000.

The additional five loans were approved on the remaining balance of the repayment period, however she requested an additional loan of $105,000 in March last year and requested that all her loans for the property be recalculated over 15 years.

By requesting that her repayment is spread over a period of 15 years, Mrs Nemani failed to act in the best interest of the fund, the report alleges. Mrs Nemani, says the report, used $41,194 of the $110,000 approved for the upgrade of this property in May 2005 to clear her loan at Merchant Finance.

The fund had approved the additional loan, under the condition that the money was to be used to add value to the house.

Meanwhile, in a statement issued yesterday, acting CEO Parmod Achary assured FNPF members that their funds were secure. He said the FNPF had served members for 40 years and would ensure their financial security during their working lives and on retirement.

"Nothing has changed," said Mr Achary. "Members' funds continue to be safe and secure. The FNPF is committed to providing efficient and effective service to its members and will continue to ensure that members receive their pensions, their benefits, and services to which they are entitled.

"As a good corporate citizen, the fund has always acted in the best interest of Fiji as its total assets make up 60 per cent of the country's Gross Domestic Product.

Most importantly, the FNPF continues to be a responsible steward of the funds with which we are entrusted." The FNPF board meeting will meet today or next Tuesday depending on the availability of members."

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