An investigation by the Office of the Inspector General has found evidence of non-competitive tenders and other improper procurement practices by a sub-recipient of an HIV grant to Timor-Leste totaling $152,626, a portion of which the OIG attributed to fraud, overpricing and non-delivery of items. A report on the investigation was released on 9 October.
The SR, Fundasaun Timor Hari’i (FTH), was sub-contracted $2.7 million under a grant (TLS-H-MOH), of which $0.7 million was for Phase 1 and $2.0 million for Phase 2. As of 25 August, FTH received $0.7 million in Phase 2 disbursements. The principal recipient is the Ministry of Heath.
The OIG investigation confirmed that FTH conducted non-competitive tenders and pre-determined that contracts would be awarded to Williah, a stationery shop owned by FTH employees. The tenders were conducted by FTH’s executive director (together with an FTH regional manager) who bought items in Indonesia for significantly less than the price charged to the Global Fund. The goods were shipped to Timor Leste and documents were fabricated to make it appear as if there had been a competitive tender process won by Williah. Prices were inflated from 22% to 400% more than the original purchase price in Indonesia.
The OIG said that the relationship between FTH and Williah contravenes the conflict of interest policies of the Global Fund, the Ministry of Health and FTH.
The OIG also found evidence of other irregularities in procurements conducted by FTH in 2012 and 2014, which included non-compliance with internal procurement procedures and falsified documents.
The OIG identified the following factors that contributed to the problem:
- financial controls at FTH were inadequate. They allowed the use of a cash-based practice that obscured the amounts paid and actual recipients of the payments;
- procurement controls were not enforced;
- there was inadequate oversight of the sub-recipient operations by the PR; and
- the Global Fund Secretariat had limited oversight over SRs because the portfolio was classified as “medium risk” and, as a result, there were no local fund agent reviews conducted at the SR level.
As a result of the investigation, the Secretariat has agreed that by January 2016, it will appoint an external fiscal agent to ensure appropriate fiscal oversight and control. The Secretariat has also agreed to require the PR to formulate a risk mitigation plan that systematically addresses risks and initiates the requisite controls to improve (a) financial management and procurement of non-health related products and (b) fiscal and management oversight at the SR level. The fiscal agent’s will monitor the implementation of this plan.