Auditors recommend civil and criminal litigation against the construction firms to recover the money
An investigation by South Africa’s Nexus Forensic Services Proprietary Limited has revealed how six local construction companies allegedly fleeced government of over M14 million between 2010 and 2014.
According to the audit, Trencon, Building World Belela Joint Venture (TBWB JV), Aurecon-Lesotho, Carrick CC, Moosa Group of Companies, Independent Plumbing Suppliers and KPM Solar Energy allegedly “misrepresented” contractual information relating to the construction of healthcare infrastructure resulting in government losing M14 110 508. 92.
The construction project was courtesy of the Millennium Challenge Account (MCA)-Lesotho’s $362.5 million (about M4 billion) funding. The MCA is a product of the Millennium Challenge Corporation (MCC)—a bilateral American foreign aid agency established in 2004.
According to the Nexus audit report issued on 1 September 2014 and addressed to Lesotho Millennium Development Agency (LMDA) Chief Executive Officer Sophia Mohapi, civil and criminal lawsuits are recommended against the six companies to recover the money.
LMDA replaced MCA-Lesotho after the latter’s compact ended in September 2013.
Ms Mohapi yesterday confirmed receiving Nexus’ damning report and further told the Lesotho Times the issue had since been referred to the police and Directorate on Corruption and Economic Offences (DCEO) for further action, while there was no immediate comment from the companies fingered in the alleged scam.
Ms Mohapi said: “The LMDA received the final forensic investigation report on 1 September 2014, and we have since noted it contains allegations of criminal activity leveled against certain companies.
“We have copied the report to the police fraud department and DCEO (Directorate on Corruption and Economic Offences) for further action. We also submitted a copy of the report to the LMDA Board of Directors. That was all we could do as an organisation because we are not a law-enforcement agency.”
According to the report, MCA-Lesotho awarded TBWB JV a contract to design, renovate and construct 102 health-centres throughout the country on 30 September 2010.
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Material was to be sourced from independent suppliers, and kept at “mutually agreed” depots and then distributed as and when required, the audit noted.
“Payment by MCA-Lesotho to TBWB JV was to be based upon the submission of an Interim Payment Certificate certified by the Engineer (Aurecon).
“However, on 31 May 2013, the High Court provisionally sequestrated TBWB JV as a result of an application brought by Anju Civils (Pty) Ltd,” the audit notes.
Following the provisional sequestration order, the Nexus report shows how IPS—a supplier to plumbing firm Carrick that had been contracted by TBWB JV in the project—repossessed material the company claimed had not been paid for.
“TBWB JV appointed Carrick to assist with the plumbing, and the latter bought stock from IPS to the value of M20 393 537. 27. On 23 April 2013, a stock-take by Carrick and Aurecon indicated stock to the value of M6 002 055. 91 was still available at the Maseru depot.
“IPS statements revealed that Carrick still owed IPS M2 579 835. 62 for the stock and as a result IPS “quarantined” M4 575 578. 05 worth of the stock. This was much more than the amount owed but IPS indicated that it was the only way to ensure payment of the outstanding debt.
“In order not to delay the construction of the health centres any further and get IPS to release the quarantined stock, MCA-Lesotho on 28 November 2013 paid M2 544 716. 79 to IPS. All the quarantined material was then returned to Aurecon on 10 December 2013.”
It was further noted by Nexus that IPS “continuously inquired from TBWB JV about the payment to Carrick” as the plumbing firm owed it a substantial amount of money.
Meanwhile, the report also noted that on 7 May 2013, Carrick informed TBWB JV through a letter, that all sub-contractors had been paid in full.
“Based on this letter, Aurecon certified the Interim Payment Certificate. The Interim Payment Certificate was then presented to MCA-Lesotho’s Fiscal Agent who processed the payment to TBWB JV,” noted Nexus.
But the auditors found out Carrick’s statement had been “factually incorrect”, and presented to TBWB JV “under false pretense”. TBWB JV, in turn, had also presented its fact “under false pretense” to Aurecon.
“Based on this letter and other supporting documentation, Aurecon certified the Interim Payment Certificate in favour of TBWB JV. This was presented to MCA-Lesotho’s Fiscal Agent who processed the payment to TBWB JV,” Nexus noted.
Nexus, therefore, recommends that civil action be instituted against TBWB JV, “its JV partners and Carrick for the recovery of M2 544 716. 79 paid to IPS for the release of quarantined stock since MCA-Lesotho had already paid for it.”
The auditors further recommend that “criminal action be considered against TBWB JV and Carrick for the presentation of a false/fraudulent letter to Aurecon. This misrepresentation resulted in the MCA-Lesotho payment”.
Nexus also observed that after a mutual agreement between MCA-Lesotho and TBWB JV, the contract of TBWB JV was “de-scoped” and 20 health centers again put out to public tender. Lesotho Steel Products (LSP) subsequently won the bid.
The auditors noted: “A timeline of events indicated that a stock-take was done on 25 April 2013, TBWB JV was provisionally liquidated on 31 May 2013 and Provisional Trustees appointed on 4 June 2013 and stock handed to various new contractors on 30 October 2013.
“A reconciliation of material paid up to 25 April 2013 by MCA-L revealed it to be worth M8 816 644.12 for Lot 1 and M12 473 259.69 for Lot 3 and 4. On 31 May 2013, TBWB JV was provisionally sequestrated and the respondents in this matter (TBWB JV, Trencon Construction, Building World Belela Construction) and all other persons were interdicted from removing any contractors’ equipment and material and plant from all sites and depots. The High Court directed that the business of the Joint Venture should be completed and appointed provisional Trustees for the task.
The auditors add: “However, when MCA-Lesotho entered into a consultancy agreement with Aurecon on 22 September 2009, one of the obligations of the consultant was to always act as faithful advisor to the MCA entity.
“No stock-take was performed after provisional sequestration of TBWB JV on 31 May 2013. Provisional trustees were also appointed by the High Court of Lesotho. There were various stages where custody and control over stock changed without a stock-taking being done. On 30 October 2013, the Provisional Trustees and Aurecon started to hand out materials to the newly appointed contractors in order to complete the works. At this stage, once again, no stock-taking was done.”
Nexus, therefore, recommends that LMDA considers instituting a claim for M8 484 106.45 against Aurecon for the unaccounted stock.
Alternatively, Nexus recommends that “LMDA institutes a claim in the amount of M8 484 106.45 against the estate of TBWB JV for damages suffered by MCA-Lesotho as a result of the JV’s shortfall in performance, breach of contract and subsequent sequestration.”
Nexus further recommends LMDA recovers 112 of the 130 solar panels “which were located at the Moosa Group of Companies in order to recover the costs for the unaccounted items.”
A further M2 620 150. 36 is recommended for claim by LMDA against Aurecon for “805 of the unaccounted stock as well as a claim in the same amount against KPM Solar Energy. We recommend that the LMDA consider instituting a claim of M320 758. 08 for the unaccounted solar components against Aurecon as they failed to “support and safeguard the MCA-L Entity’s legitimate interests in any dealings with sub-contractors or third parties, and always act, in respect of any matter relating to this contract or to the services, as faithful advisor to the MCA Entity.”
The auditors continued: “We recommend that LMDA also considers instituting a claim of M160 030. 08 for unaccounted batteries against Aurecon. We further recommend that LMDA considers claiming M78 223. 22 for the unaccounted units from Aurecon since they failed to carry out their obligations under this contract with all due diligence, efficiency and economy, in accordance with generally accepted professional standards and practices, and always act as faithful advisor to the MCA Entity.
“We also recommend that the LMDA considers claiming M2 266 016. 56 from Aurecon for unaccounted plumbing materials, and M181 234. 17 from IPS for unaccounted plumbing materials.”