Saturday, 24 October 2015

How Corrupt Officials Fraud Government


Ministry of Foreign Affairs

Internal Audit Investigative Report on IECI Japanese Grant Project
dated: August 11, 2015











Table of Contents
1.                 Executive Summary                                                                                                                                   2

2.                 Background                                                                                                                                                  3

3.                 Objectives                                                                                                                                                     3

4.                 Scope                                                                                                                                                             4

5.                 Methodology                                                                                                                                                4

6.                 Findings                                                                                                                                                         5

7.                 Conclusion                                                                                                12

8.                 Appendix                                                                                                              12


1.   Executive Summary
1.1  The Internal Audit Bureau has conducted a forensic audit of the International Economic Cooperation and Integration (IECI) Japanese Grant Project to ascertain the accuracy, completeness and reliability of the Project funds and of documents and activities undertaken for the period June 1, 2014 to July 31, 2015. The audit was conducted based on a request from the Minister of Foreign Affairs, His Excellency Hon. Augustine Kpehe Ngafuan as a result of allegation of suspected fraud in the management of the funds of the Project.
1.2  This report contains our findings and recommendations, based on the audit conducted of the project funds and evidence gathered.   Based on the audit of documents and records of the Project, we gathered the following findings:
1.2.1 The Department has no project accountant to periodically monitor, review and institute internal control over the Project funds;
1.2.2 No bank reconciliations of the two Project Accounts kept at Afriland Bank;
1.2.3 There was no segregation of duties of the financial activities of the Project; all the financial activities were conducted by a single individual, the Project Manager;
1.2.4 Signature specimen obtained from the bank indicates that the Project Manager and the former Deputy Minister for Economic Cooperation empowered themselves with exclusive rights to withdraw funds from the accounts with a single signature requirement; this action set the basis of a potential fraud.
1.2.5 Based on our audit and review of documents provided by the Department of IECI and Afriland Bank, we observed that transactions valued at LD$19,079,815.00, its equivalent in US$ 227,140.65 at the exchange rate of 84, represents net fraud amount during the period, as there were no supporting documents to validate the transactions.
1.2.6  Afriland First Bank did not exercise due diligence in protecting the Project Accounts kept with it.
1.3  It is our hope the above control weaknesses will be resolved as soon as possible to protect the funds of the IECI Project.

Sincerely yours,

Joseph Ballah
Director of Internal Audit




2.      Background
2.1  In June 2014, The Japanese Government provided a grant valued at US$ 731,422.00(Seven Hundred and Thirty one thousand, four hundred and twenty two United States Dollars), it equivalent in LD$ 61,439,448 to fund a project titled: “Institutional and Human Resource Support for Efficient Operation” of the Department of International Economic Cooperation and Integration (IECI) in response to the bilateral consultations between the Governments of Liberia and Japan in 2008. The Japanese Government provided the fund to build the capacity of staff of the Department of International Economic Cooperation and Integration (IECI). 
2.2  The Project was managed by a team comprising of the Deputy Minister for International Economic Cooperation and Integration and a Project Manager. The Project team had no monitoring and supervisory oversight body to periodically review its activities.
2.3  A 50% transfer valued at LR$ 33,316,422.00 (US$ 365,711.00) was approved and transferred from GOL consolidated account to the IECI Project’s account at the Afriland First Bank on 23rd June 2014. The project’s bank statement showed that as of December 31, 2014, LD$23, 128,587.00 with it equivalent in US$ 275,340.32, had been spent, while the account balance showed LD$ 10,345,510.00 (US$123,160.83). Further, as of May 2015, the account showed a balance of LD$1,644,771.00, it equivalent in US$ 19,580.61 and by early June 2015, the account was in overdraft of L$1,703.00
2.4  An account was established at the Afriland First Bank for the Monitoring and Evaluation (M & E) of the International Economic Cooperation and Integration Japanese project in the amount of LR$7,229,328.00, its equivalent in US$86,063.42 to help in the supervision of the project.

3.      Objectives
3.1  The objectives of the audit were to provide reasonable assurance and ascertain the following:
3.1.1        Obtain an understanding of the GOL-IECI  Project;
3.1.2        Ascertain the extent of the fraud and misappropriation of fund;
3.1.3        Assess and evaluate the effectiveness and efficiency of internal control over the project funds and of the information and records of the Project;
3.1.4        Ascertain the accuracy, completeness and reliability of documents and records of disbursements;
3.1.5        Ascertain whether all transactions were authorized and approved by the appropriate persons; and
3.1.6        Identify all individuals responsible, negligent and or associated with the fraud.



4.      Scope
4.1  This IECI audit covers the period June 2014 to July 2015 and applies to the management and disbursement of funds from the IECI project’s accounts at the Afriland First Bank (LIB.). The audit also covers all documents and records of the Project activities and of control weaknesses in the system leading to fraud and misapplication of Project fund.
4.2  We conducted the audit in accordance with the International Standards for the Professional Practice of Internal Auditing as issued by The Institute of Internal Auditors. These Standards require that we plan and perform our audit to obtain sufficient and appropriate evidence as a basis of our conclusion and recommendations.
4.3  We also applied such other audit procedures as we determine were necessary to gather sufficient and appropriate evidence for our conclusion and recommendations.

5.      Methodology
5.1  We designed and performed a number of procedures to achieve our audit objectives. These procedures included interviews with individuals who are signatories to the Project Account, some staff of the Department of International Economic Cooperation and Integration, and some key staff of the Afriland Bank. We performed the following procedures:
5.1.1        Developed and executed a detailed audit program;
5.1.2        Conducted interview with interested parties and discussed the objectives of the audit;
5.1.3        Examined various documents and records to ascertain the level of misappropriation of Project fund;
5.1.4        Tested compliance with applicable laws and regulations to determine compliance with internal control measures;
5.1.5         Reviewed  and recomputed all financial documents obtained from the auditees;
5.1.6        Performed  analytical review of supporting documents provided by both IECI Project and the Afriland First Bank;









6.      Findings
Condition 1
Only Single Signature was required to withdraw from the Project Account
The audit revealed that signature specimens prepared to effect withdrawal from the Project accounts at the Afriland First Bank indicates that two of the signatories, in persons of Deputy Minister Elias Shoniyin and Project Manager, Augustine Nyanplu had the exclusive power to singly approve cheques for encashment. Deputy Minister Elias Shoniyin informed the auditors that he was not aware of any of the signatories possessing exclusive rights to approve checks singly, as this was never the intent of the Project. However, documents in the position of the auditors showed that Minister Shoniyin was fully aware of the exclusive power of single signatory right to withdraw from the Project Account. 
First signatory arrangement
During the process of our investigation, we observed that the GOL-IECI project A/C # 0000108854-01-70 was initially opened with the three (3) signatories affixing their signature as evidence on the signature specimen. The three (3) signatories were Mr. Elias B. Shoniyin, with the power A+A, Mr. Augustine Nyanplu, B+B and Mrs. Elizabeth Johnson Sirleaf as C+A or C+B. See Appendix
This action indicated that the both signatories in persons of Mr. Elias B. Shoniyin and Mr. Augustine Nyanplu could withdraw from the project account without the knowledge of signatory C. Therefore, the absolute or overriding power granted to Mr. Elias B. Shoniyin and Mr. Augustine Nyanplu created the basis for a potential fraud. Also, this created doubt or suspicion about the management of the project fund as well as the account.
Second signatory arrangement
The second signatory specimen card arrangement came about as the result of the appointment of Mr. Thomas Kaydor as Deputy Minister for International Economic Cooperation & Integration and Dr. Wede Elliot Brownell as Deputy Minister for Administration, Ministry of Foreign Affairs. Mr. Thomas Kaydor replaced Mr. Elias B. Shoniyin and Dr. Brownell replaced Mrs. Elizabeth Johnson Sirleaf. The arrangement was structured as follow. See Appendix
·         Mr. Thomas Kaydor- A+B, B+C
·         Dr. Wede Elliot Brownell B+A, B+C
·         Mr. Augustine Nyanplu C+A, C+B,
Under this arrangement, no individual signatory could effect withdrawal without the involvement of another signatory to the account. Prior to the submission of the signatory specimen to the Afriland First Bank for effective action, Mr. Nyanplu who was serving as the project manager, with the powers C+A and C+B, altered the specimen card with C+C without the knowledge of other signatory to the account. See Appendix
This action on the part of Mr. Nyanplu served as a recipe for continuation of the fraud. Also, the Afriland First Bank did not perform due professional care by contacting the two other signatories to the account (Mr. Thomas Kaydor and Dr. Wede Elliot Brownell) to authenticate the additional option of C+C. 
Furthermore, documented evidence provided to us showed that miss Comfort Y. Mohn a staffer at the Afriland Bank deposited on two separate occasions on behalf of Mr. Augustine Nyanplu. It is yet to be established on whether or not it’s part of normal banking practice to deposit a certain amount in the name of a customer. According to the profolio manager, Mr. Steven Tokpa who indicated that issue of such situation occurs wherein customer will give money to the staffer to be deposited in the customer account bearing the name of the staffer as the depositor.
This action provides a potential risk for fraud.

 Criteria:
The COSO Integrated Internal Control Framework requires adequate segregation of duties such as multiple signature combination to bank accounts to ensure that no single individual has access to cash and bank without appropriate check and balances.

Cause:
The main reason for the lack of adequate segregation of duties and of the single authorising power was the poor structuring of the Project Management Team. The Project had no accountant to perform periodic reconciliation of the Project Account.

Consequence:
The use of single authorising and signing power of cheques of the Project funds has led to fraud and misappropriation of the Project fund in the amount of L$19,079,815.00, in USD equivalent $227,140,65 at the exchange rate of 84. Please see appendix. 

Corrective action:
The Project Manager, Mr Augustine Y. Nyanplu and the Deputy Minister for International Economic Cooperation and Integration, Hon. B. Elias Shoniyin should account for the funds misappropriated from the Project Account. This should be done within one month after the issuance of this report.





Condition 2:
Lack of due professional care on the part of Afriland Bank to ensure client moneys are adequately protected
We observed that Afriland Bank did not exercise due professional care in conducting the affairs of the Project accounts under its supervision by its deliberate failure to refer to authorities of the Foreign Ministry for clarity on critical issues relating to withdrawals and administration of the Project Accounts. On June 24, 2014, Afriland First Bank effected an overdraft in the amount of LD$1,631,500.00, in USD equivalent $19,422.62 at the exchange rate of 84, without documented authorisation from the Ministry of Foreign Affairs. The Bank, represented by its Chief Executive Officer (CEO), Mr. Amadu O. Bayo in response to auditors regarding the overdraft, explained that the transaction was not an overdraft, but a discount against the deposit made earlier. Table below shows detail of the transactions:
Date
Payee
CHK.NO.
Amt in LRD
Amt in USD
Signed by:
23/06/14
Augustine Nyanplu
0000083369
430,000.00
5,119.05
Augustine Nyanplu
24/06/14
Sold Cur. In A/C No. 417530

184,000.00
2,190.48
Augustine Nyanplu
24/06/14
Augustine Nyanplu
0000083371
1,017,500.00
12,113.10
Augustine Nyanplu

Total

1,631,500.00
19,422.62


Secondly, in the establishment of the second signatory specimen, it was noticed that Mr. Augustine Nyanplu made alterations on his portion of the card with a C+C power, giving him exclusive right to singly withdraw from the project account. The bank however did not apply any effort in contacting other signatories of the account to ascertain the reliability of the document. The fact that the lowest signatory to the account, Mr. Nyanplu had been given the single right to withdraw unilaterally and neither signatories A or B had such right, should have raised eyebrows. Nevertheless, the bank ignored such and continued to do business with a single individual. 
Criteria:
Basel Bank Supervision Procedure and CBL regulation require banks to ensure proper protection of depositors funds by ensuring adequate internal controls in a process called “know your client” and such other measures that will ensure that depositor funds are safe and protected against fraud.

Cause:
The reason for the execution of the above transactions is the Bank’s deliberate failure to exercise due professional care regarding the Project Account. The Bank did not also exercise due professional care by accepting single authorising signature on a major entity’s account kept with it.


Consequence:
Due to the Bank’s failure to exercise due professional care, the Project Manager fraudulently withdrew funds from the Project Account that would not have been paid had the Bank taken due care.

Corrective action:
The Bank should account for all funds fraudulently withdrawn as a result of its failure to exercise due professional care. This should be done within one week after the issuance of this report.

Condition 3:
Breach of the PFM Act and Regulations by the Project Management Team
We observed that the Project Management Team of the IECI Japanese Project breached the Public Finance Management Law by authorising disbursements and paying cheques during the period June 2014- June 2015 without Internal Audit Bureau involvement to perform compliance review of all such disbursements.
Criteria:
Section 38 Subsection 1C) of the  Public Finance Management Act  requires that Internal Audit Unit evaluate the adequacy of management checks and balances and controls in the financial management practices within the institution. Accordingly, Internal Audit Bureau performs compliance reviews of all disbursements of the Ministry of Foreign Affairs.
Cause:
The lack of compliance review was due to deliberate attempt by the Project Manager to circumvent the PFM Laws; it was also due to the poor set up of the Project financial management systems and lack of appropriate oversight by the responsible authorities.

Consequence:
As a result of the lack of compliance review, most of the fraudulent payments that could have been flagged and or prevented by the Internal Audit Bureau intervention could not be prevented.  

Corrective action:
The Project Management Team should be properly structured and appropriate Project financial management systems should be set up to ensure that all disbursements are properly reviewed, authorised and approved by the responsible authorities. This should be done immediately after the issuance of this report. 

Condition 4:
Misappropriation of Project Funds
Based on our audit and review of documents provided by the Department of IECI and Afriland Bank, we observed that transactions valued at L$19,079,815.00, its equivalent in US$ 227,140.65 represent questionable transactions during the period as there were no supporting documents to validate the transactions. The audit also revealed that IECI Project Manager, Mr. Augustine Nyanplu, who was  primarily in control of all the Project financial activities, on numerous occasions, singly signed cheques to himself and withdrew funds from the Project Account without the involvement of other signatories.


Criteria:
The Project fund was intended for institutional and human resource support for efficient operation of the Department of International Economic Cooperation and Integration. All disbursements other than those for the earmarked purpose are questionable.

Cause:
The Project Manager was able to sign cheques and withdraw funds from the Project Account due to the lack of appropriate controls and oversight by responsible authorities; it is also due to the poor financial management systems over the Project fund. In addition, the Bank did not exercise due professional care to verify with the Ministry of Foreign Affairs those cheques that were continually signed by and paid to the same individuals.  

Consequence:
This represents huge financial loss to the Government of Liberia of funds that are critically needed for institutional and human resource development. Please see appendix.

Corrective action
The Project Manager should primarily account for the amount of L$19,079,815.00, its equivalent in US$ 227,140.65 which represents questionable transactions executed by him alone. This should be done immediately after the issuance of this report.

Condition 5:
Contact numbers presented to the Bank were those of only two signatories
We observed that the only mobile numbers provided the Bank to make calls and confirm all payment requests were those of Deputy Minister Elias Shoniyin (0886521604) and Mr. Augustine Y. Nyanplu (0886589332). Other signatories to the Account were left out of the loop.


Criteria:
A major internal control by banks is to call account holders or otherwise signatories to an account to confirm cheques written on such account. This will authenticate and or validate any cheque written on the account.

Cause:
The Project Manager deliberately submitted numbers that he felt could confirm cheques fraudulently drawn on the Project Account.

Consequence:
The lack of the contact number of other signatories to the Project Account at the Bank contributed to the fraud perpetrated by the Project Manager.

Corrective action:
The contact numbers of all signatories to the Project Account should be submitted to the Bank, whether Afriland or any other commercial banks. This should be done immediately after the issuance of this report.

Condition 6:
Deputy Minister singly signed cheques
The audit team visited the offices of Minister Elias Shoniyin on 5th August 2015 to conduct an interview regarding the activities of the GOL-Japasese Project Accounts. The Minister was asked as to whether he could recollect at any point in time, affixing his signature, singly to any cheque belonging to the Project. The Minister responded, indicating that all cheques signed by him were co-signed by Assistant Minister Elizabeth Johnson Sirleaf. However, processed cheques obtained from Afriland First Bank indicate that the Minister Shoniyin singly signed cheques bearing the name of Mr. Monie Hooke Momolu and other individuals as shown in the table below:

Date
Payee
Chk.no.
Amt in LD
Amt in USD
Signed by:
22/08/14
Monie Hooke Momolu
00127916
260,000.00
3,095.24
Elias Shoniyin
20/01/15
Bees Affordable Car Rental/ Marcus Juah
00168708
76,500.00
   910.71
Elias Shoniyin
11/11/14
Augustine Nyanplu
00163886
43,500.00
   517.86
Elias Shoniyin
14/01/15
Sky Tech, Int’l
00168705
52,615.00
   626.37
Elias Shoniyin
20/03/15
Mattar Trading Co.
00173999
42,000.00
   500.00
Elias Shoniyin
13/01/15
J. mart
00168703
121,800.00
1,450.00
Elias Shoniyin
12/03/15
Mattar Trading Co.
00173998
12,600.00
   150.00
Elias Shoniyin
22/08/14
Monie Hooke Momolu
00127914
80,910.00
   963.21
Elias Shoniyin
22/08/14
Monie Hooke Momolu
00127915
18,600.00
   221.43
Elias Shoniyin
19/01/15
Monie Hooke Momolu
00168707
15,725.00
   187.20
Elias Shoniyin
23/02/15
CHK. Remit No. 00173986
00173966
11,200.00
  133.33

Elias Shoniyin
23/02/15
Chk. Remit No. 00173985
00173985
50,040.00
  595.71
Elias Shoniyin
16/12/15
CHK. R emit. No.00165284
00165284
22,600.00
  269.05
Elias Shoniyin

Total

808,090.00
9,620.12


Criteria:
The COSO Integrated Internal Control Framework requires adequate segregation of duties such as multiple signature combination to bank accounts to ensure that no single individual has access to cash and bank without appropriate check and balances.

Cause:
The main reason for the lack of adequate segregation of duties and of the single authorising power was the poor structuring of the Project Management Team. The Project had no accountant to perform periodic reconciliation of the Project Account.

Consequence:
The use of single authorising and signing power of cheques of the Project funds could lead to fraud as it has led to fraud and misappropriation of the Project fund in the amount L$19,079,815.00, its equivalent in US$ 227,140.65  . Please see appendix. 

Corrective action:
The Project Management Team should ensure that there are signatory combinations to authorise and approve cheques on the Project Account. This should be done immediately after the issuance of this report.

Condition 7:
Cheque in the cheque stub marked voided was cashed by Mr Monie H. Momolu
During our analytical review of cheque stub received from Afriland Bank, we observed that cheque stub marked voided was cashed by Mr Monie H. Momolu. The value of the cheque was L$170,000.00. When contacted by Internal Auditors, Mr Momolu denied that he had any knowledge of the transaction. Internal Audit obtained documents bearing the passport and signature of Mr Momolu as a proof that he cashed the cheque. Mr Momolu further issued a memo to Internal Audit stating that he is not aware of this transaction. See Appendix
Criteria:
Best practice is that cheques marked voided should not be cashed or honored by banks. Such cheques should be safeguarded from an unauthorised access.

Cause:
This was a deliberate act by the issuer, Mr Augustine Nyanplu to defraud the Ministry of Foreign Affairs.

Consequence:
The act of cashing cheques whose stub is marked voided is a breach of internal control and fraudulent done purposefully to commit fraud.
Corrective action:
Mr Monie H. Momolu should account for L$170,000.00 which was an amount in cheque issued in his name and cashed. This should be done immediately after the issuance of this report. 

7.      Conclusion and Recommendations
7.1  The objective of this audit was to ascertain the accuracy, completeness and reliability of the Project funds and of documents and activities undertaken for the period June 1, 2014 to July 31, 2015. The audit was also intended to quantify the amount of funds misappropriated by the Project Management Team as a result of breach of internal controls.
7.2  Based on our audit and review of documents and records, the Project Manager, Mr. Augustine Nyanplu, who was primarily in control of all the Project financial activities, on numerous occasions, singly signed cheques to himself and withdrew funds from the Project account in the amount of L$19,079,815.00, its equivalent in US$ 227,140.65 without the involvement of other signatories. These transactions had no supporting documents to substantiate and validate his claims to the disbursements to himself.
7.3  We recommend that going forward; Internal Audit continues to perform compliance review of all disbursements from the Project Account as was initiated since July 2015.





8.      Appendix:
Cheques Signed by Mr. Augustine Nyanplu and paid to himself without any supporting documents and records to substantiate the disbursements
Date
Payee
CHK. NO.
Amt in LRD
Amt in USD
Signed by:
14/07/14
Augustine Nyanplu
00127909
 950,000.00
11,309.52
Augustine Nyanplu
19/09/14
Augustine Nyanplu
00155648
 560,000.00
  6,666.67
Augustine Nyanplu
25/09/14
Augustine Nyanplu
00155630
4,550,000.00
54,166.67
Augustine Nyanplu
01/11/14
Augustine Nyanplu
00155643
   860,000.00
10,238.10
Augustine Nyanplu
17/11/14
Augustine Nyanplu
00155644
4,450,000.00
52,976.19
Augustine Nyanplu
16/12/14
Augustine Nyanplu
00155646
  810,000.00
  9,642.86
Augustine Nyanplu
08/09/14
Augustine Nyanplu
00155649
  900,000.00
10,714.29
Augustine Nyanplu
12/01/15
Augustine Nyanplu
00165324
  620,000.00
   7,380.95
Augustine Nyanplu
18/05/15
Augustine Nyanplu
00130982
  300,000.00
  3,571.43
Augustine Nyanplu
15/06/15
Augustine Nyanplu
00130993
  45,000.00
     535.71
Augustine Nyanplu
21/07/14
Augustine Nyanplu
00127715
960,000.00
 11,428.57
Augustine Nyanplu
07/05/15
Augustine Nyanplu
00165301
125,000.00
  1,488.10
Augustine Nyanplu
13/03/15
Augustine Nyanplu
00117090
600,000.00
  7,142.86
Augustine Nyanplu
24/04/15
Augustine Nyanplu
00130978
125,000.00
  1,488.10
Augustine Nyanplu
30/04/15
Augustine Nyanplu
00165298
125,000.00
  1,488.10
Augustine Nyanplu
06/04/15
Augustine Nyanplu
00117094
250,000.00
  2,976.19
Augustine Nyanplu
23/06/14
Augustine Nyanplu
000083369
430,000.00
   5,119.05
Augustine Nyanplu
24/06/14
Augustine Nyanplu
Sell cur.
184,000.00
   2,190.48
Augustine Nyanplu
24/06/14
Augustine Nyanplu
0000083371
1,017,500.00
 12,113.10
Augustine Nyanplu
25/08/14
CHK. Remit No. 00127913
00127913
950,000.00
11,309.52
Augustine Nyanplu
26/06/15
Augustine Nyanplu
00130927
175,000.00
  2,083.33
Augustine Nyanplu
04/08/14
Augustine Nyanplu
00127911
585,000.00
  6,964.29
Augustine Nyanplu
25/08/14
Augustine Nyanplu
00127913
950,000.00
11,309.52
Augustine Nyanplu
04/03/15
Augustine Nyanplu
00060197
420,000.00
  5,000.00
Augustine Nyanplu
04/08/15
Augustine Nyanplu
00127701
585,000.00
 6,964.29
Augustine Nyanplu








Total
21,526,500.00
256,267.86



Personal deposit effected by Mr. Nyanplu to increase the account balance.
Date
Depositor
CHK. NO.
Amt in LRD
Amt in USD
16/12/14
Comfort Y. Mohn

   157,775.00
    1,878.27
29/05/15
Comfort Y. Mohn

   440,070.00
    5,238.93
29/05/15
Pur. Curr. No. 602972

1,170,120.00
  13,930.00
8/06/15
Imm. Trf. Same No. 00005969

     10,000.00
       119.05
23/06/15
Pur. Curr No. 616473
616473
   142,800.00
    1,700.00
29/07/15
Rev.Chq. from clear No. 00178667
00178667
   325,920.00
    3,880.00
01/06/15
IMM. TRF Same cu No. 00005911 O/GOL

   200,000.00
    2,380.95

Total

2,446,685.00
  29,127.20

Summary of Net fraud amount 

No.
Description
Amount in LRD
Amount in US
1
Withdrawal made by Augustine Nyanplu
     21,526,500.00
         256,267.86
2
Deposit made by Augustine Nyanplu
       2,446,685.00
           29,127.20

Net Fraudulent amount

     19,079,815.00
          227,140.65

1 comment:

  1. Joseph Ballah, Augustine Ngafuan, Augustine Nyanplu = Band of Dogs!!!!!!!

    ReplyDelete