15 Aug 2012
Alleges that $1.9 million was misappropriated
SR disagrees with the findings

In early July, the Office of the Inspector General (OIG) released its final report on an investigation into Padakhep Manabik Unnayan Kendra (PMUK), a sub-recipient (SR) and a sub-SR for several HIV grants in Bangladesh. The investigation was conducted between May 2011 and March 2012.

PMUK has been working in the fields of micro-credit, education, health, agriculture and environment for 25 years with funds from various international donors. According to the PMUK website, it has more than 20 projects currently underway.

The OIG found that substantial funds were misappropriated during the period from 2004 to 30 November 2009. During this period, PMUK received disbursements of $3,625,428 as an SR for two grants, one from Round 2 and one from Round 6, for which the PR was the Government of Bangladesh. During this period, Save the Children USA (SC) served as a management agent (MA), providing support to the PR in the implementation of the grants. In December 2009, SC became the PR for both grants.

The OIG said that it identified a fraud scheme that was executed by PMUK that resulted in the misappropriation of grant funds totalling at least $1.9 million (52% of the amount disbursed to PMUK). The OIG said that the nature, extent and longevity of the fraud, coupled with what the OIG said were continuous efforts on the part of PMUK to interfere with efforts to investigate the fraud, means that there is a significant risk that the full amount disbursed to PMUK was misappropriated.

Although the OIG said that this is the final report on PMUK, the investigation continues. The OIG is still reviewing expenditures involving other implementers and entities in Bangladesh.

Funds diverted

According to the OIG, the funds were diverted “from program purposes.” The OIG said that to conceal its diversion of grant funds, PMUK fabricated accounting books, bank statements, bids, invoices and cheques. The OIG said that PMUK concealed the genuine bank statements and replaced them with fictitious versions of these statements that it created. PMUK then provided the fictitious statements to SC as part of its regular reporting. The OIG said that the bank has attested to the fact that the statements PMUK provided SC were falsified. The OIG said that it identified numerous instances where payments for goods and services appeared on the falsified bank statements, but not on the genuine statements.

The OIG said that PMUK also created fictitious supporting documentation in order to give the appearance of consistency between the (false) bank statements and the supporting documentation.

The OIG said that when it presented samples of falsified procurement documents to the vendors involved, on several occasions the vendors were unable to verify their authenticity. For example, with respect to printing invoices totalling $76,413, “a representative of the vendor said that all of the documents bearing the company’s name were not authentic, that no such printing services were rendered, and that the vendor had never received payment.”

The OIG said that PMUK made withdrawals from the programme’s bank account that did not appear on the falsified bank statements. Because none of the documentation provided by PMUK related to these withdrawals, the OIG concluded (in Paragraph 74 of its report) that “the withdrawals were effectively made for unauthorized purposes, [which] are yet unknown.” In Paragraph 76, the OIG said that “it is highly likely that the funds were not used for program purposes.” In Paragraph 82, the OIG said that “no evidence has been identified that the funds were used for program purposes.”

Although the OIG maintained that the funds were diverted from programme purposes, it was not able to say where the funds were diverted to. Editor’s Note: As far as we know, the Global Fund has never indicated any substantive concerns about the programmatic performance of SC or its SRs.

The OIG recommended that all losses (i.e. $1.9 million and possibly more) be recovered from PMUK; that PMUK be banned from receiving any more Global Fund financing; and that the case be transferred to national authorities in Bangladesh for further criminal and civil action “as appropriate.”

The OIG noted that it has twice offered PMUK the opportunity to comment on its draft report, but PMUK declined to do so.

Alleged obstruction

The OIG devoted a section of its report to describing efforts by PMUK to obstruct the OIG investigation. The OIG said that it had witnessed systematic efforts by PMUK to prevent the OIG from obtaining the genuine bank statements. The OIG described a meeting on 4 June 2011 with senior PMUK officials at PMUK’s offices to obtain Global Fund records maintained on electronic media, as follows:

“Upon requesting and receiving the permission of a senior PMUK official to obtain the records, the investigators began to seek out the relevant staff, only to be told that they had gone to lunch and were not available in the building. A visit, however, to the administration office uncovered that the staff were in fact present, and appeared flustered and otherwise occupied. The OIG was initially denied access to this office, but upon insisting upon the right of entry, the OIG witnessed a relevant staff member running and locking himself in another room. Again, PMUK staff requested the OIG to leave the area, but the OIG refused.”

Response to the OIG findings

The OIG said that upon learning of the fraud, SC terminated its contract with PMUK (on 25 September 2011) and advised the Bangladesh Women’s Housing Cooperative (BWHC), an SC SR under which PMUK functioned as a sub-SR, to do likewise (on 9 October 2011).

According to the OIG, the Secretariat asked the CCM on two separate occasions to endorse SC’s decision to terminate its contract with PMUK. On 2 February 2012, the CCM passed a motion endorsing the termination.

The OIG said that PMUK aggressively opposed the termination. It said that on 27 October, 2011, PMUK management sent a letter to the Ministry of Health and Family Planning alleging that “Save the Children USA, most illegally, unprofessionally and in-transparently terminated subgrants… of PMUK without issuance of any reasons and not following due process.”

The OIG added that PMUK ultimately invoked an arbitration clause in its contract with SC. In its statement to the arbitration panel, PMUK alleged wrongful termination and made claims of the equivalent of US$14 million in damages. SC has made a counter claim for damages.

In an article on 29 July 2012 in The Daily Star, a Bangladeshi newspaper, PMUK Executive Director Iqbal Ahammed called the OIG report “one-sided,” and said that it contained many errors. Mr Ahammed also said that the OIG had failed to include comments from PMUK in its report.

Mr Ahammed said that if anything was amiss, the PR, SC, was equally responsible since it supervised, monitored and audited the project activities. “Padakhep (PMUK) is going to challenge the report. We have serious comments on the report, but will not give that since the matter is now before a tribunal,” he told The Daily Star.

In that same article, Michael McGrath, the Country Director of SC, was quoted as saying that “the evidence is overwhelming” that PMUK has misappropriated not less than $1.89 million of donor funds. “Padakhep has been provided with an opportunity to comment on the draft report. If the OIG did not incorporate the changes requested by Padakhep, I can only assume that it was because they were not convinced as to the accuracy or truthfulness of the information provided by Padakhep,” Mr McGrath said.

Mr McGrath termed Padakhep's claim that the PR shared equal culpability for the fraud as “outrageous.”

We first reported on this investigation, briefly, iin an article in GFO 189. When we prepared the article in this issue, we invited PMUK to comment, but we did not receive any reply.

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