A reconstruction contract in Indonesia has ended with a ban from the World Bank.
Engineering firm GHD has been barred from World Bank projects for a year in the wake of a report that found the Sydney-based company committed fraud during a post-tsunami Indonesian reconstruction project. The bank funded the $US18 million contract GHD won.
Details of the $400,000-plus fraud, which included a “marketing fee” GHD’s Indonesian subsidiary paid to a sub-consultant, its inflated housing reimbursement requests and vehicle leasing claims, as well as attempts to falsify documents and destroy evidence, are revealed in the decision published on Monday by the global financing body’s sanctions board.
A new policy the World Bank established last year to publish decisions by its independent sanctions board raises the pressure on companies to explain how they respond to fraud and corruption and how they manage wrongdoing when it is uncovered. This is crucial for a company such as GHD, which works in five continents and last year had revenue of $1.12 billion, as reputation is a key part in winning new work.
‘Not reflective of who we are’
“This one incident is not reflective of who we are as a company,” GHD said in a statement to BRW on Thursday.
In 2007, privately owned GHD won a contract to supply professional and technical staff to the Indonesian government agency managing the country’s post-2004 tsunami reconstruction. Official documents show it did not contest allegations brought against it by the World Bank’s investigating arm that revealed several distinct types of fraud on different matters over nearly two years.
The company removed the person identified most clearly with the fraud – its most senior staff member in Indonesia – from its registered Indonesian affiliate and operational unit in mid-2008. In early 2009 he left the company. GHD subsequently withdrew from Indonesia. The board credits GHD’s “timely cessation” of misconduct after the investigating body drew the company’s attention to it.
The company did, however, seek to play down the misconduct, an argument the sanctions board rejected.
“The record . . . does not support [GHD’s] suggestion that the misconduct was limited to a brief initial period of several months,” the board says. “The sanctions board also rejects [GHD’s] assertion that the misconduct was limited to an ‘isolated incident of lack of oversight’.”
The company, which employs about 6500 people globally, didn’t help its own case, however, by not explaining why it kept the manager in question as head of its reconstruction project even after removing him from his operational positions. In addition, GHD failed to make clear whether it had taken action against any employees other than the manager identified.
The record . . . does not support (GHD’s) suggestion that the misconduct was limited to a brief initial period of several months.
The board also rejected arguments GHD made for a mitigation of the penalties imposed on it, noting the company had chosen not to contest the accusations against it, rather than admitting any guilt or responsibility. In addition, the company’s subsequent challenging of some of the points raised by the investigating body led to some uncertainty over its stance, the board says.
“The sanctions board found it necessary at the final hearing [in September last year] to clarify whether each of the respondents [GHD and its Indonesian subsidiaries] still agreed not to contest that it had engaged in fraudulent practices,” the report says.
The company took, the board concludes, “an inconsistent and limited ‘no-contest’ position”.
GHD says it was entitled to challenge the evidence brought against it.
“The World Bank processes provide for respondents to invoke a review process of any recommended sanction,” it says. “GHD engaged with the World Bank and has done so over the period, and into early 2013.”
Clear ability to stop corruption crucial
Having the clear ability to show that they can deal with corruption is crucial for any company when it comes to ensuring that the stain of one incident does not tar it in the eyes of future potential clients, says Mick Humphreys, the Australia-Pacific managing director for consultancy Control Risks.
“Where companies have been able to show that they have processes in place and they deal with this to try and stamp it out, they’ve been better off,” Humphreys told BRW on Thursday.
GHD did not say whether it would seek to enter Indonesia again after the ban on World Bank projects expired in June next year.
“We will continue to perform a range of projects in developing countries around the world,” it said. “As an ethical, values-based organisation, our people are driven to make a positive contribution to the communities in which we live and work.”