Guatemala

Guatemala Second Rural and Main Roads Project

                            Redacted Report




                                      July 2019
                                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

In October 2004, the International Bank for Reconstruction and Development (“IBRD” or the
“World Bank”) signed a loan agreement for the Second Rural and Main Roads Project in
Guatemala (the “Project”). The Project closed in September 2013.

The Project sought to contribute to reducing rural poverty and building social cohesion by
improving and maintaining access in rural areas to markets, schools, health centers, and other
social and economic infrastructure through broadened community participation. The Project
emphasized beneficiary involvement to assure that local development decisions reflected the needs
and priorities of rural communities.

Company A, as part of a joint venture (“JV”) with two other companies, bid for eight lots of a
Project contract (the “Contract”).

Allegations & Methodology

INT received a complaint alleging misconduct in the Contract award. INT examined documents
relating to Contract procurement and interviewed multiple individuals.

Findings

       Evidence indicates that, in the JV’s Contract bid, Company A submitted falsified
       financial statements.

Joint venture bidders for the Contract were required to submit three years of financial statements
for each joint venture member. Each JV member, including Company A, provided income
statements and balance sheets for Year 1 and Year 2. Each company provided their sales volume
for each year in both the income statements and another bid section. In the case of Company A,
the sale volume numbers in its income statements were not consistent with its sale volume numbers
as provided in other parts of the bid.

When interviewed by INT and asked to explain the discrepancies, Company A’s owner variously
attributed responsibility to his/her accountant, his/her bank, or a government agency. S/he told
INT that s/he had asked the other two members of the JV to participate in the JV with the intention
of shoring up total sales figures. S/he said that s/he had asked them to “do [him/her] a favor, give
[him/her] a hand” so that Company A would qualify to win the Contract. According to Company
A’s owner, the JV members agreed that, if the JV won, only Company A would implement the
contract. The contract was not awarded to the JV.




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       a. INT found inconsistences in Company A’s income statements as submitted in the JV’s
          bid.

Evidence indicates that the figure provided for cost of goods sold in Company A’s income
statements decreased in the years 200X and 200X+1 without any apparent commercial
justification. In 200X-1 the cost of goods sold was 51% of total sales, but 16% in 200X and 8% in
200X+1.

Evidence indicates that, while reported sales dropped from approximately Guatemalan Quetzal
(“GTQ”) 3,000,000 in 200X Q2 to GTQ2,300,000 in 200X+1 Q2 and, in the same period, salaries
dropped from approximately GTQ500,000 to GTQ150,000 and total expenses dropped from
GTQ2,100,000 to GTQ1,350,000, the net profit entry increased from approximately GTQ100,000
to GTQ800,000. When interviewed by INT, Company A’s owner was unable to explain the basis
for these differences.

Further, while Company A’s 200X+1 income statement shows a net profit, evidence indicates that
the Accountant’s Notes to this Income Statement refers to a net loss for the same year. When asked
about this difference, Company A’s owner said it was a mistake.

       b. INT found evidence of inconsistences in Company A’s balance sheets as submitted in
          JV’s bid.

Evidence indicates that, contrary to the methodology used under general accounting principles,
fixed assets were not depreciated in Company A’s 200X and 200X+1 balance sheets. When asked
for clarification, Company A’s owner told INT that there was no need for Company A to show
depreciation because the company was constantly buying new equipment and vehicles.

When asked to explain why capital expenditures and accounts receivables were the same in
Company A’s 200X and 200X+1 balance sheets, Company A’s owner attributed responsibility for
the accounts receivables to his/her bank’s handling of his/her personal and business accounts.
When asked if the balance sheets were manipulated for the benefit of the company, Company A’s
owner answered “…maybe, if you want to look at it like that….”

       c. Evidence indicates that the certification of Company A’s financial statements was
          falsified.

Company A’s income statements and balance sheets (collectively, the “Financial Statements”)
were purportedly certified by an accountant, whose name and signature appeared on the
Statements. Evidence indicates that the accountant neither prepared nor signed the Financial
Statements.

Corrective Action

The World Bank imposed a sanction of debarment with conditional release on Company A and
Company A’s owner, extending to any legal entity they directly or indirectly control.


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