12 Mar, 2012
ADB Debars Consultants For Inflating Travel Expenses, Flouting Integrity Rules
Consultants concocting airline documents to justify false expense claims is one of numerous integrity violations reported by the Asian Development Bank in an internal investigation report made public on March 12. The Report by the Office of Anticorruption and Integrity (OAI) is part of the ADB’s continued internal and external efforts to raise “awareness of, and resistance to, the corrupt and fraudulent practices that undermine ADB’s developmental objectives and its fight against poverty.”
According to the report, “Since 2007, the ADB has significantly enhanced its approach to the issues of fraud, corruption, collusion, and coercion. ADB Management has emphasized accountability and integrity in its operations, and continues to reaffirm ADB’s “zero tolerance” approach to fraud and corruption in a myriad of ways notably by requiring all ADB staff to undergo training on integrity awareness.”
The report says that in 2011, OAI received more complaints (225) than in any other year. In addition, at the beginning of 2011, OAI had 95 open complaints from the previous years. Ninety-four complaints were converted into investigations in 2011; 117 were closed while 109 remain open for further inquiry in 2012.
The range of integrity violations included allegations of fraudulent practice which formed the majority of investigations at 60%. Corrupt, collusive, and coercive practices contributed in roughly equal portions at 37% total, with “others,” including sanctions violations and conflicts of interest, comprising the remaining 3%.
Misrepresentation constituted 52% of allegations pertaining to fraudulent practice, with submission of false documents (including bank guarantees, bid securities, or curricula vitae) at 27%. False or inflated financial claims represent 18% of the investigations.
By sector, the transport and information and communication sector had the most representation at 26%, while the water, education, agriculture and natural resources, and energy sectors were roughly equally represented.
At least two of the cases involved manufactured airline documents.
In one case, after external auditors of project accounts identified the red flags, the OAI found that the consultancy joint venture group had manufactured airline tickets to support claims for travel costs incurred, and misrepresented project claim documentation by having individuals sign papers attesting that reimbursable expenses were incurred as claimed—which were not.
In another case, it was found that the consultancy firm, as lead joint venture partner, (i) manufactured airline travel documents to support related expenditure, (ii) misrepresented signatures and/or initials on receipts for training-related expenses as genuine, (iii) manufactured documents to support claims for rental equipment, and (iv) fraudulently claimed consultancy fees for an identified expert.
The report says that OAI’s investigative activities in 2011 resulted in the debarring of 34 individuals and 31 firms from participating in ADB-financed, administered, or supported activities. In accordance with an agreement with other multilateral development banks, ADB also cross debarred 37 firms and 12 individuals in 2011, and presented 7 firms and 6 individuals for cross debarment by participating MDBs.
This also has led to an increase in the number of subscribers to ADB’s password-secured debarment database, the report says. As of 31 December 2011, more than 45 developing member country agencies and 13 development institutions have been given access to the database. Access increases these agencies’ abilities to conduct due diligence before contracts on ADB projects are awarded and to prevent contracts from inadvertently being awarded to debarred entities.
The report notes that the investigations and allegations also involve internal staff. In one case, a staff member was found to have “misrepresented his authority to conduct commercial bank transfers, and stole funds from another’s bank account.”
Another was involved in bid rigging and bribery over a number of years. A third member forged documents to enable the transfer of funds from another person’s account to other accounts. The staff was the ultimate beneficiary of the stolen funds.
A fourth staffer was found to have, over a prolonged period, included ineligible items in his educational assistance claims.
The report says that OAI has “emerged from the shadows of a low-profile support department to work, alongside and in partnership, with ADB’s operations departments to maximize the development impacts of ADB projects.” These efforts “are ultimately realized at the macro level in the delivery of desired results and streamlined services that benefit the poor of Asia and the Pacific.”
It says that no matter how much progress is made, new challenges are always emerging. “It is the nature of fraudsters to deceive, and OAI has noted that ADB’s increased successes in identifying and addressing integrity violations have raised the bar, resulting in new and more complex fraud schemes.”
“OAI anticipates complaints to continue to increase in number, complexity, and sensitivity, requiring increasingly sophisticated investigative techniques and approaches,” the report says. “OAI will formally include under its 2012 mandate due diligence responsibilities, assisting operations and other departments for ADB’s nonsovereign operations, including conducting due diligence checks.”
In 2011, OAI continued conducting mandatory briefings — “Say No to Corruption” — to empower every individual involved in ADB’s activities with the awareness and tools to identify, prevent, and mitigate corruption. By the close of 2011, 97% of all ADB staff had attended said briefings, the report says.
In addition to the use of the ADB website as “a powerful tool for OAI”, more training is to be conducted as well as intensified collaboration with operations departments and supreme audit institutions.
Examples of Case Studies
Submission of Near-Identical Bid Proposals Leads to Debarment
In support of their bids for a consultancy services contract for an irrigation project, five firms submitted bid proposals that bore striking similarities, including wording, font, format, and layout of the curriculum vitae of proposed experts. The bid prices of the five proposals differed by only $110. The address of experts proposed by one firm belonged to a second firm; two firms used the same fax number although they were located in different towns; and personnel schedules submitted by two firms contained the name of a third firm. OAI’s retainers confirmed that two of the firms had common shareholders.
Case—Obstructive Practice Detected in a Fraud Investigation
In its technical proposal for a contract to supply gas pipeline fittings for a large energy project, a bidder submitted manufacturer and supplier documents that contained red flags for fraud, including addresses on the manufacturer’s websites that differed from those on manufacturer documents, and identical e-mail addresses on the manufacturer documents and the bidder’s stationery. The executing agency declared the bidder nonresponsive on the suspicion of fraud and referred the matter to the resident mission, which in turn forwarded it to OAI.
During investigation, OAI requested verification of the authenticity of manufacturer and supplier documents submitted with the bid proposal. Documents included the manufacturer’s authorization certificates, certificate of compliance, supplier export records, and performance certificates. One manufacturer and one supplier denied issuing the documents. While the second manufacturer and second supplier confirmed that the documents were genuine, these responses were sent from the same e-mail address despite the two entities being based in different countries. An investigative firm retained by OAI visited the office of the second manufacturer, who denied having any business with the bidder and issuing the certificates. In addition, internet research revealed that the second supplier stocked domestic gas fittings and appliances but not the industrial gas fittings required for the project.
The IOC determined that the bidder and its key officers engaged in fraudulent practice when it used falsified documents in its bid proposal, and engaged in obstructive practice when it sent the two e-mails to OAI, fraudulently authenticating the forged documents during the investigation. The bidder was debarred for a minimum of 5 years, as were two of its principals and a related entity.
OAI commended the executing agency for its vigilance and presents this case study as an illustration of how basic desktop due diligence can prevent fraud and corruption in ADB-financed projects.
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