CONFIDENTIAL

OAI investigation into LOTFA - Update for Donors - October 2012

This interim update on the OAI investigation into irregularities in the LOTFA project is providedfollowing briefings to donors on 10 and 11 October, 2012. The paper incorporates points made by OAIand takes account of comments from donors.BackgroundOAI commenced an assessment of allegations relating to the LOTFA project in December 2011 andhas been investigating these allegations since March 2012. The information initially provided waslimited and quite general. OAI’s investigators undertook confidential inquiries with a view todetermining the scope of alleged irregularities and whether the initial reports were credible.First investigation missionIn March 2012, based on additional information received, OAI determined that a full investigation wasnecessary. An investigation mission was conducted over the period 16 May to 12 June 2012 in Kabul.4 investigators participated in this mission. OAI investigators secured relevant evidence, interviewedwitnesses, conducted vendor verification visits and reviewed a large number of procurement files.The focus of this investigation work was on Phase VI of LOTFA (January 2011 – present) because thepreliminary information related to alleged irregularities during this period.On the basis of evidence gathered by OAI, the following action was taken by UNDP:•The Country Office immediately terminated the contracts of three personnel on servicecontracts; and•Two senior staff members in Afghanistan were placed on administrative leave, pending theoutcome of the investigation.Second investigation missionOAI deployed a team of investigators for a second mission to Afghanistan on 7 September 2012 toconduct follow-up inquiries. The primary objective of this mission, which concluded on 10 October2012, was to complete investigation inquiries on LOTFA.The investigation work on this mission was undertaken by 5 OAI investigators. The‘on the ground’investigation work relating to LOTFA Phases I-VI is now complete.The investigation has included: interviews with almost 80 witnesses; approximately 35 separatemeetings with UNDP Country Office senior management and project personnel; the review ofprocurement committee and evaluation minutes, project documentation, personnel files, auditreports and UNDP financial records (Atlas); the review of approximately 1,500 procurement files; thescanning of documents relating to irregular procurement (invoices, receipts, contracts, paymentvouchers, etc.); verification of certain training courses & DSA payments; field work associated with

vendor verification visits; an extensive review of emails and data obtained from seizedcomputers; and a review and analysis of financial expenditures for all Phases (I to VI).Although the focus of the current investigation mission has been to finalise inquiries relating to thealleged irregularities in LOTFA, OAI has also undertaken investigations into other projects todetermine whether similar problems exist in those projects. Some of these inquiries have beeninitiated on the basis of information from witnesses spoken to during the LOTFA investigation. In thecase of one project, UNDP’s Regional Bureau for Asia and the Pacific requested OAI to proactivelyreview files and conduct interviews. OAI is also investigating an allegation that one of the currentsubjects may have inflated some reporting statistics relating to the number of Afghanistan Police. It isnot known at this stage whether the allegation is factually based or not. OAI is advised that thestatistical manipulation does not have a financial implication, but as part of the process of establishingthe facts OAI will be investigating this along with other possibilities (for example, that the subject wasattempting to show higher results than actual). At this time it is too early to provide additional detailson these inquiries. Investigators are in the process of narrowing down the areas requiring furtherinvestigation.The extent of irregularitiesInvestigations have identified the start of irregularities in LOTFA as being late in Phase III (2005).However, the level of irregularities in Phases III and IV appear to have affected only a small proportionof procurement during those phases. Approximately 90% of the irregularities identified were inPhases V and VI. Examples include: (i) vendors associated with, or colluding with, former contractpersonnel working in LOTFA; (ii) collusion between vendors; and (iii) bid-rigging (ensuring that certainvendors would win or using fake bids from non-existent companies).At this stage, we are not able to provide reliable figures on the amount of the loss. Analysis conductedby the investigators so far indicates that over-pricing is likely to have been in the order of 10-20% oncontracts valued at a total of $7m to $8m (i.e. a ‘ball park’ figure for the loss, on the basis of estimatesthat can be made at this stage, is $0.7m to $1.6m).Follow-up actionThe field-based investigation stage has now been completed for all phases of LOTFA. While we nowhave quite a good understanding of the nature and extent of irregularities in LOTFA, significant workremains to be done after the return of the investigation team. This involves compiling all evidence forvendor sanctions, disciplinary procedures and/or other action as appropriate. OAI has been reviewingthousands of documents and literally millions of pieces of IT data. Tasks remaining include thefinalization of all witness statements, finalization and transcribing of subject interviews, analysis ofcomplex financial information, and writing reports, incorporating this evidence, for appropriate action.

Vendor sanctions action has already been initiated in respect to a number ofcompanies, and evidence is being compiled on other companies identified in collusive or corruptpractices.The ‘lessons learned’ from this investigation will be provided, at the end of the investigation, to seniormanagement in the Bureau and Country Office for remedial action as appropriate. This may includerecommendations for additional training, monitoring, and changes to policy or enforcement ofexisting policies.Although follow-up action will continue beyond the end of 2012, OAI aims at providing donors with asummary report on the LOTFA investigation results by mid-December 2012.