Kingdom of Cambodia

Ketsana Emergency Reconstruction and Rehabilitation Project

                                    Redacted Report




                                                  March 2018
                            Statement of Use and Limitations

This Report was prepared by the World Bank Group (the WBG) Integrity Vice Presidency
(INT). It provides the findings of an INT administrative inquiry (the Investigation) into
allegations of corrupt, fraudulent, collusive, and/or coercive practices, as defined by the
WBG for purposes of its own policies, rules and procedures (the WBG’s Framework
regarding Anti-corruption), in relation to the WBG-supported activities. The purpose of
the Investigation was to allow the WBG to determine if the WBG’s Framework regarding
Anti-corruption has been violated.

This Report is being shared to ensure that its recipients are aware of the results of the INT
Investigation. However, in view of the specific and limited purpose of the Investigation
underlying this Report, this Report should not be used as the sole basis for initiating any
administrative, criminal, or civil proceedings. Moreover, this Report should not be cited
or otherwise referred to in the course of any investigation, in any investigation reports, or
in any administrative, civil, or criminal proceedings.

This Report is provided without prejudice to the privileges and immunities conferred on
the institutions comprising the WBG and their officers and employees by their respective
constituent documents and any other applicable sources of law. The WBG reserves the
right to invoke its privileges and immunities, including at any time during the course of an
investigation or a subsequent judicial, administrative or other proceeding pursued in
connection with this matter. The WBG’s privileges and immunities cannot be waived
without the prior express written authorization of the WBG.




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Background

The International Development Association (IDA)1 and the Kingdom of Cambodia signed
the Financing Agreement for the Ketsana Emergency Reconstruction and Rehabilitation
Project (the Project). The Project, which became effective in December 2010, and closed
in July 2014, aimed to restore the service levels of transport and water and sanitation to the
affected people in the Project Provinces and to strengthen the capacity of the Kingdom of
Cambodia in disaster preparedness and management.

In 2012, the Independent Procurement Agent (IPA) for and on behalf of the Kingdom of
Cambodia published the Invitation for Bids (IFB) for a contract under the Project (the
Contract). After the publication of the IFB and the International Competitive Bidding
Documents (ICB Documents), several bidders submitted their bid documents.

The ICB Documents required all bidders to submit audited financial statements for certain
years in order to demonstrate their financial soundness. The ICB Documents also required
all bidders submit documentary evidence of general and specific experience as contractor,
subcontractor, or management contractor. The ICB Documents further required all bidders
to demonstrate “access to, or availability of, financial resources” amounting to a monetary
value.

Allegations

The World Bank requested that IPA conduct due diligence on the relevant entities before
concluding bid evaluation and submitting the results to the Bank for its no objection. Based
on its due diligence, IPA concluded that five bidders had submitted false documents with
their bids. This information was referred to the World Bank Group Integrity Vice
Presidency (INT).

Methodology

INT’s investigation consisted of, among other steps, a review of Project documents, and
documents and statements obtained from the relevant companies.

Findings

    1. Evidence indicates that Company A submitted a bid which included false
       financial statements.

In its bid for the Contract, Company A submitted audited financial statements as evidence
of its financial soundness. The financial statements were purported to have been audited
and certified by Auditor A. Following the submission of the bid, IPA contacted Auditor A
to verify the validity of the audited financial statements. In response to IPA’s inquiry,
Auditor A denied auditing those financial statements. In response to INT’s subsequent
inquiry, Auditor A stated that Company A had requested Auditor A to revise the financial


1
  IDA is one of the five institutions comprising the World Bank Group. The International Bank for
Reconstruction and Development (IBRD) and IDA constitute the World Bank. IDA and the World Bank are
used interchangeably throughout this Report.

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statement to make it consistent with what Company A had submitted to IPA. Auditor A
further stated that Auditor A declined Company A’s request.

In response to INT’s inquiry, Company A admitted that the audited financial statements
submitted with its bid were, in fact, false. In addition, Company A admitted that the
revenues declared in the audited financial statements were falsified in order to meet the
minimum required financial threshold. Company A claimed that this was committed by
its employee, who was authorized to prepare the bid documents and to collect the necessary
supporting documentation. According to Company A, this employee has since absconded
with the company funds that were supposed to have been paid to Auditor A to revise and
audit the financial statements.

   2. Evidence indicates that Company B submitted a bid which contained false
      financial statements.

In its bid for the Contract, Company B submitted financial statements, which were
purportedly audited and certified by Auditor B. Following the submission of the bid, IPA
contacted Auditor B to verify the validity of the audited financial statements. Auditor B
responded that it had audited Company B’s financial statements for Year 1 and Year 2, but
the information contained in the financial statements submitted by Company B in its bid
for the Contract differed from those actually prepared by Auditor B. Furthermore, Auditor
B informed IPA that it had not audited the financial statements for Year 3.

INT’s review of the relevant Bid Evaluation Report and supporting documents from
Auditor B indicates that Company B falsified the information contained within the audited
financial statements for Year 1 and Year 2 and fabricated the audited financial statements
for Year 3 in order to meet the minimum financial requirements.

In response to INT’s inquiry, Company B denied that it had submitted false documents
with its bid. Company B told INT that its financial statements reflect true and fair business
transactions. Specifically, it argued that after reviewing the audited financial statements
for Year 1 and Year 2, it realized that some transactions were not disclosed to Auditor B at
the time of the audit. As a result, Company B’s internal accountant revised the financial
statements and unsuccessfully attempted to have Auditor B amend the audited financial
statements. Company B claimed that Auditor B was not available to make the amendments
prior to the bid submission deadline, so it submitted the financial statements revised by its
accountant with its bid. In addition, Company B claimed that the Year 3 audited financial
statement submitted with its bid was a draft prepared by its accountant and was submitted
as such because of Auditor B’s unavailability prior to the bid submission deadline.

However, there is no indication that the audited financial statement for Year 3 included in
Company B’s bid is a draft prepared by its accountant because it was printed on Auditor
B’s letterhead and was purportedly signed by Auditor B. Similarly, both of the Year 1 and
Year 2 audited financial statements submitted with its bid, which Company B claimed had
been revised by its internal accountant, were also printed on Auditor B’s letterhead and
were both purportedly signed by Auditor B.

Furthermore, a review of Company B’s financial statements actually audited by Auditor B
and submitted to INT indicates major discrepancies between the information found in the
financial statements submitted with the bid.

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   3. INT did not find sufficient evidence to prove that Company C knowingly
      submitted false financial statements in its bid for the Contract.

In its bid for the Contract, Company C submitted financial statements for certain years that
were purportedly audited by Auditor C. Following the submission of the bid, IPA attempted
to contact Auditor C to verify the validity of the audited financial statements. However,
evidence indicates that the email address and phone numbers found on Auditor C’s
letterhead were not valid, and IPA could not obtain the verification. IPA then contacted
Company C and requested that it provide valid contact information for Auditor C, but
Company C did not respond. Numerous unsuccessful attempts were also made by INT to
locate Auditor C.

In response to INT’s inquiry, Company C claimed that it was not aware of the requirement
in the ICB Documents that the financial statements be either audited or certified. Company
C further claimed that Auditor C was not a registered business, and that “defects” in its
audited financial statements occurred due to its not knowing the accounting skills of
Auditor C. According to Company C, it discovered that the financial statements
purportedly audited by Auditor C were not done properly, which prompted Company C to
retain another accounting firm (Accounting Firm A) to revise the financial statements.
Company C claimed that it then learned that Accounting Firm A was also not a registered
business, and then retained the services of yet another accounting firm (Accounting Firm
B) to audit the financial statements.

Company C submitted to INT copies of financial statements that were purportedly audited
by Accounting Firm A and Accounting Firm B. These financial statements contained
different information on Company C’s net income for certain years.

Although INT found evidence indicating that Company C may have submitted false
financial statements, INT was unable to prove that Company C knowingly submitted those
statements with an improper intent.

   4. Evidence indicates that Company D submitted a bid that contained false
      representations of its past experience.

In its bid for the Contract, Company D claimed to have executed two contracts with a
government agency (the Government Agency) and a contract with Company F. Following
the submission of the bid, IPA contacted the Government Agency and Company F to verify
the validity of the three contracts claimed by Company D. Both the Government Agency
and Company F informed IPA that Company D was not involved in those contracts. The
Government Agency also confirmed to INT that the signatures on the contracts claimed by
Company D were fake.

In response to INT’s inquiry, Company D stated that the employee in charge of organizing
the Company Profile had falsified the documents. Company D’s Director explained that,
due to health problems, s/he had failed to properly check the work of the employees and
assured INT that the employee who was authorized to prepare the bidding documents had
been discharged. Furthermore, Company D’s Director assured INT that s/he did not sign
the forged documents.


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   5. Evidence indicates that Company E submitted a bid that included a false Bank
      Confirmation Letter.

In its bid for the Contract, Company E submitted a Bank Confirmation Letter, purportedly
issued by Bank A (First Bank Confirmation Letter). Following the submission of the bid,
IPA contacted Bank A to verify the validity of the First Bank Confirmation Letter. Bank A
informed IPA that it had not issued the First Bank Confirmation Letter. IPA then requested
clarification from Company E. In response, IPA received another Bank Confirmation
Letter that was purportedly issued by Bank A (Second Bank Confirmation Letter), with no
further explanation.

INT contacted Bank A to verify the validity of both Bank Confirmation Letters. In
response, Bank A informed INT that Bank A issued the Second Bank Confirmation Letter,
but not the First Bank Confirmation Letter.

In response to INT’s inquiry, Company E admitted that the First Bank Confirmation Letter
was falsified. It stated that Company E authorized its employee to prepare the bid and that
the employee falsified the First Bank Confirmation Letter. It further stated that Company
E became aware of the falsification upon receiving the clarification request from IPA, at
which point, it submitted the Second Bank Confirmation Letter. Finally, Company E stated
that the employee who falsified the First Bank Confirmation Letter was terminated.

Follow-Up Action by the World Bank

The World Bank imposed the sanction of debarment with conditional release on Company
A, Company B, Company D, and Company E, which extends to any legal entity that is
directly or indirectly controlled by Company A, Company B, Company D, or Company E.

INT did not seek sanctions against Company C because INT was unable to obtain sufficient
evidence to prove that Company C knowingly submitted false documents in its bid for the
Contract.




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