Investigation of Global Fund Grants to Papua New Guinea Rotarians Against Malaria – Procurement and Supply of LLINs & Contracting of a Human Resource Services Provider

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    Report by the Global Fund Office of the Inspector General

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  • Investigation of Global Fund Grants to Papua New Guinea
    Rotarians Against Malaria – Procurement and Supply of LLINs
    & Contracting of a Human Resource Services Provider

    GF-OIG-13-022
    31 August 2013

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  • A. Table of Contents

    A. Table of Contents ………………………………………………………………………………………. 1
    B. Executive Summary …………………………………………………………………………………… 3
    C. Message from the Executive Director of the Global Fund ……………………………….6
    D. Background …………………………………………………………………………………………… 8
    D.1. Global Fund grants to the Rotary Club of Port Moresby…………………………. 8
    D.1.1. Specific Program Activities …………………………………………………………….9
    E. Methodology ……………………………………………………………………………………………. 10
    E.1. Scope of Investigation ……………………………………………………………………….. 10
    E.1.1. Exchange Rate ……………………………………………………………………………. 10
    E.1.2. Due Process ……………………………………………………………………………….. 11
    F. Investigation Findings ……………………………………………………………………………… 12
    F.1. Overview ………………………………………………………………………………………….. 12
    F.1.1. Conflict of Interest ……………………………………………………………………… 12
    F.1.2. Management Fees ………………………………………………………………………. 12
    F.1.3. LLIN Procurement ……………………………………………………………………… 13
    F.2. Conflict of Interest …………………………………………………………………………….. 14
    F.2.1. A senior executive of RAM participated in the award or administration
    of a contract in which members of his immediate family had a financial interest .
    …………………………………………………………………………………………………. 14
    F.2.2. The Contract was not awarded on a transparent and competitive basis.
    …………………………………………………………………………………………………. 16
    F.3. HR Service Provider’s Management Costs are Excessive ………………………. 18
    F.4. Procurement and Distribution of LLINs by RAM …………………………………. 19
    G. Questionable or ineligible expenditures ………………………………………………………23
    G.1. The Global Fund’s Right to Reimbursement …………………………………………23
    G.2. Value of the winning bidder’s contract …………………………………………………23
    H. Conclusion ……………………………………………………………………………………………24
    H.1. Conflict of Interest ……………………………………………………………………………..24
    H.2. Management Fees ………………………………………………………………………………24
    H.3. Procurement of LLINs ……………………………………………………………………….. 25
    I. Recommendations ……………………………………………………………………………………26
    J. Acronyms ………………………………………………………………………………………………… 27
    K. Global Fund Secretariat’s Response to Recommendations ………………………….. 28
    L. Annex 1: Rotary Against Malaria (RAM) responses to OIG Report and OIG’s
    comments. ………………………………………………………………………………………………………29
    M. Annex 2: Expression of Interest …………………………………………………………………36
    N. Annex 3: RAM Selection Committee Minutes …………………………………………….. 37
    O. Annex 4: Current Extract For The Winning Bidder…………………………………….. 40
    P. Annex 5: Winning Bidder’s Expression Of Interest ……………………………………… 45

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    Q. Annex 6: Losing Bidder’s Expression of Interest ………………………………………… 46
    R. Annex 7: Winning Bidder – Contract Extension …………………………………………. 61

    2

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    B. Executive Summary

    Investigation into R8 1. This report presents the results of an investigation by the Investigations Unit
    Malaria grant of the Office of the Inspector General (OIG) of a Round 8 Malaria grant
    disbursed to Rotary
    Club of Port Moresby disbursed to a Principal Recipient (PR), the Rotary Club of Port Moresby
    Incorporated (Rotary).
    R8 grant was 2. In October 2011, the OIG undertook an audit of all Global Fund grants in the
    implemented by Independent State of Papua New Guinea (PNG) including the Round 8 grant
    Rotary Against
    Malaria (RAM) awarded to The Rotary Club of Port Moresby1 and implemented by Rotarians
    Against Malaria (RAM), a project of Rotary Australia World Community
    Service with projects in Australia, PNG, the Solomon Islands and Timor
    Leste.2
    RAM procures and 3. RAM is the implementer of Rotary’s Global Fund grant to procure and
    distributed LLINs distribute long-lasting insecticide treated nets (LLINs) to every household in
    throughout PNG
    PNG and to train health staff in new diagnostic and treatment protocols.3
    4. The OIG audit made six recommendations concerning RAM’s procurement
    of a human resources company to manage its human resource requirements
    and RAM’s procurement of LLINs.4
    OIGs investigated 5. This investigation specifically looked at:
    RAMs selection of
    HR service provider  Possible conflicts of interest in RAM’s selection of a company to provide
    and RAMs human resource services;
    procurement of
    LLINs  The appropriateness of the winning bidder’s charge for providing HR
    services to RAM; and
     RAM’s procurement of LLINs.
    OIGs investigation 6. As set forth herein, the investigation concluded that substantive and credible
    found that RAM evidence exists that two senior executives of RAM engaged in anti-
    steered a contract to
    a HR company competitive practice to direct a US$1.4m contract5 to a company controlled
    linked to RAMs by the family of one of RAM’s senior executives, to provide RAM’s human
    senior executive #1 resources services.6 The OIG concludes that RAM’s appointment of a
    and that the contract company to provide human resource services was not done in a competitive
    was not awarded on
    a transparent and
    and transparent manner, and did not provide a reasonable price for certain
    competitive basis services provided. Furthermore, a conflict of interest situation between a
    senior executive of RAM and his family member was not adequately
    managed in the award and management of the contract. These issues should
    be considered in light of Article 18 (procurement practices) and Article 21
    (conflict of interest) of the Global Fund Program Grant Agreement.
    The Chairman of 7. The investigation also found that the chairman of the RAM selection
    RAMs committee committee, senior executive #2 had a conflict of interest when he
    that awarded the HR
    contract had a participated in the assessment of the bids for this human resources contract:
    conflict of interest
     The business address of the human resources company (the winning bidder),
    recorded in a current company extract, is a law firm of which one of RAM’s
    senior executives (executive #2) who also the chairman of RAM’s selection

    1 Global Fund grant PNG-809-G06-M ‘Malaria Control in Papua New Guinea: Scaling up for impact’
    2 http://www.ramaustralia.org/
    3 Further details about RAM can be found at: http://www.rotary9600.org/ram/aboutusa.html
    4 OIG Audit Report No: GF-OIG-10-004 ‘Audit of Global Fund Grants to the Independent State of

    Papua New Guinea’ – 5 July 2012 Recommendations 27-32.
    5 Actual cost was US$ 1,227,046 (PGK 3,257,570)
    6 Human Resource Service Agreement between Rotarians Against Malaria and the winning bidder,

    dated 1/10/2009.

    3

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    committee that awarded the HR contract, was a principal at the time of this
    procurement.
     It was also discovered that two senior partners of the law firm were
    shareholders of the winning bidder at the time of this procurement.
     Further, minutes of the selection committee regarding the selection of the
    human resources provider were false, in that the minutes stated “the only
    expression of interest that met with the complete range of services that RAM
    was seeking was that from XXX (the winning bidder),” but the chairman of
    RAM’s selection committee (and senior executive #2 of RAM), when
    interviewed, admitted that another bidder’s tender clearly met RAM’s
    requirements.
    The management 8. The OIG investigation found that out of the total contract payment to the HR
    fees charged by the service provider of US$ 1,227,046 (PGK 3,257,5707), the total salary cost was
    winning bidder were
    substantially more US$ 760,935 (PGK 2,007,745). This leaves US$ 473,684 (PGK 1,249,825) for
    than the losing overheads i.e., 62.3% of total salary cost.
    bidder
    9. OIG’s review of a rival bid, that met RAM’s advertised Expression of Interest
    (EOI) requirements, revealed a total contract price of US$771,890 (PGK
    2,036,650) comprising of US$ 671,209 (PGK 1,771,000) for total salary costs
    and US$100,681 (PGK 265,650) for overheads i.e., 15% of total salary cost.
    RAM’s appointment 10. On review of the evidence, RAMs decision to appoint the particular HR
    of the winning service provider resulted in additional costs of US$359,543 (PGK 948,663)
    bidder cost the grant
    US$359,543 in to the grant.
    additional 11. The investigation also found that RAM’s procurement of LLINs complied
    management fees
    with the requirements of its Grant Agreement with the Global Fund (Article
    OIGs investigation
    into RAMs
    18 & Article 19). RAM invited bids from the five manufacturers of LLINs
    procurement of recommended by the World Health Organization Pesticide Evaluation
    LLINs found that Scheme (“WHOPES-recommended”) and chose a WHOPES approved
    RAM complied with polyester LLIN in order to make substantial savings on shipping costs.
    Grant Agreement RAM’s procurement was transparent and obtained a very competitive price
    requirements
    from the chosen supplier, Vestergaard Frandsen.
    12. As a result of its investigation, the OIG made a recommendation in August
    2011 to the Global Fund Secretariat, that the Secretariat:
    OIG recommends  At the expiration of RAM’s contract with the current human resources
    that PR re-tender the
    HR services contract
    provider, which has been extended to 31 December, 2011 (Annex 6), in line
    upon its expiry with the extension of phase 1 of the Global Fund Grant, require RAM to re-
    tender the contract for human resource services for phase 2.8
    OIG recommends  Seek recoveries from RAM in relation to the contract with the current human
    the Global Fund seek
    recovery from the PR
    resources provider, notably taking into account the difference between the
    management fee charged by the human resources provider and the
    management fee contained in the budget estimates in the bid submitted by a
    rival bidder.
    OIG recommends an  Require that no person within Rotary or RAM with any connection to the
    impartial selection
    panel
    current human resources provider be involved in the selection process to any
    degree, including receiving or opening the tenders and that the process be via
    sealed tender, opened by the RAM selection committee.

    7 Forex conversion rate used (1 US$ = 0.379 PGK) is as indicated by RAM which is the rate of exchange
    when fund (USD) was converted to Kina
    8 Telephone call and email between OIG and PNG Fund Portfolio Manager dated 26 Aug 2011.

    4

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    PR to engage in fair,  Require that RAM engages in fair, transparent, ethical and proper
    transparent and
    ethical procurement
    procurement practice in all procurement, as per RAM’s Procurement and
    practice Supply Management Plan and RAM’s Procurement Manual.
    13. The Secretariat via a management letter to the PR dated 2 April, 2012, began
    the implementation of a number of the OIG’s recommendations including:
    the LFA to conduct an annual review of the HR fees each year, and that the
    PR re-tender the HR service provider contract during 2012. The Secretariat
    also ensured that no conflict of interest existed during the 2012 selection
    process by closely monitoring the process and ensuring the LFA sat on the
    selection panel as an observer.

    5

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    C. Message from the Executive Director of the Global Fund

    6

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    E. Methodology

    E.1. Scope of Investigation
    OIG investigates 18. The OIG Investigations Unit is responsible for conducting investigations of
    misappropriation misappropriation and mismanagement of Global Fund grant funds by PRs,
    and mismanagement
    of grant funds SRs, (collectively, “grant implementers”) Country Coordinating Mechanisms
    (CCMs), Local Fund Agents (LFAs), as well as third party vendors.

    Investigation focused 19. This investigation focused on a Round 8 Global Fund Malaria grant to PNG.
    on R8 Malaria Grant Pursuant to this grant, a total of US$54,730,77511 was awarded to Rotary, as
    implemented by the PR, in order to fund the procurement and distribution of LLINs
    Rotarians Against throughout PNG and to train health staff in new diagnostic and treatment
    Malaria (RAM)
    protocols.12 Rotary implemented the grant through one of its project
    committees RAM, activity program formed with the goal of the “prevention
    of mortality and a reduction in morbidity and social and economic loss
    caused by malaria through a progressive improvement and strengthening of
    local and national capabilities in malaria control.”13 RAM is governed by a
    National Committee comprised of a senior executives and PNG and Solomon
    Island liaison positions, all held by Rotary Club Past District Governors and a
    Scientific Advisory Committee liaison position.14
    Investigation focused 20. This investigation focused on RAM’s selection of a particular company to
    on RAM’s selection provide human resource services, the amount charged by the selected
    of a HR service
    provider associated company to RAM for these services, and RAM’s procurement and
    with RAM’s senior distribution of LLINs in association with its Round 8 Global Fund Grant.
    executive #1
    21. The OIG investigation included, but was not limited to, an in-country
    investigation mission from 30 May to 17 June 2011, during which relevant
    documents were obtained and reviewed and key witnesses interviewed. The
    purpose of the investigation was to identify: (a) the process undertaken by
    RAM to select the winning bidder to provide its HR services; (b) the amount
    and nature of costs charged to RAM by the winning bidder for providing HR
    services; (c) the procurement process undertaken by RAM regarding the
    purchase of LLINs; and (d) whether the LLIN procurement represented best
    value for money.

    E.1.1. Exchange Rate
    22. This report describes amounts in United States Dollars (US$), with the
    corresponding amount in PNG Kina (PGK) being noted where appropriate,
    for ease of reading. The following two calculations are used in this report:
     With regard to RAM’s LLIN procurement the exchange rate from PGK to
    USD has been set as the average of the exchange rate on the first day of each
    month from the period of 1 November 2009 to 1 November 2011 (Phase 1 of
    the Global Fund grant): PGK 2.11 to US$1.
     With regard to RAM’s contracting of a HR services provider, the exchange
    rate from PGK to USD has been calculated as PGK 0.379 to US$1. This is
    based on the ‘rate from ANZ when fund (USD) converted to Kina’ provided
    by RAM to the Global Fund.

    11 US$23,112,615 in phase 1 (1 Nov 2009 – 31 Oct 2011) and US$31,618,160 in phase 2 (1 Nov 2011-31

    Oct 2014)
    12 Global Fund Grant: PNG-809-G06-M
    13 http://www.rotary9600.org/ram/index.html
    14 http://www.rotary9600.org/ram/aboutusa.html

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    E.1.2. Due Process
    Global Fund 23. Prior to this report’s publication on the OIG’s website, a copy of this report
    Secretariat, LFA, was made available to the relevant entities for comment, including RAM, the
    CCM and PR had
    opportunity to PNG CCM and the Global Fund Secretariat, consistent with the procedures of
    review and comment the Global Fund and the due process requirements of the OIG.
    on OIG’s findings
    24. Comments received in response to the draft report are reflected in a Table,
    appended to the report as an Annex (Annex 1), along with the OIG’s reply to
    the comments.

    11

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    F. Investigation Findings

    F.1. Overview
    F.1.1.Conflict of Interest
    Investigation found 25. As set forth herein, the investigation found that substantive and credible
    that RAM’s senior evidence exists that a senior official of RAM participated in procurement
    executive #1
    participated in a process that resulted in the award of a US$1.4 m15 contract to a company to
    procurement process “provide a complete Human Resource service.”16 Between 1999 and 2007, the
    that awarded a US$ same senior official was the majority shareholder of the company awarded
    1.4 m contract to a the contract and at the time of this procurement the senior official’s wife and
    company whose
    directors included
    two sons were directors of the company.17 At the time of this procurement the
    his wife and two sons principal place of business and registered office of that company, recorded in
    a then current company extract, was a legal office of which the chairman of
    the selection committee that awarded the contract was a principal.
    Investigation found 26. The OIG concludes that RAM’s appointment of the HR service provider was
    that the selection of not competitive and transparent, and did not provide a reasonable price for
    the winning bidder
    was not transparent certain services provided. Furthermore, a conflict of interest situation
    between a senior executive of RAM and his family member was not
    adequately managed in the award and management of the contract, as
    mandated by Article 18 (procurement practices) and Article 21 (conflicts of
    interest) of the Global Fund’s Program Grant Agreement with Rotary. RAM’s
    senior executive #1, although excluding himself from the selection
    committee, participated in part of the process in which his immediate family
    had a financial interest. After the contract was awarded, RAM’s senior
    executive #1 signed the contract with the winning bidder on behalf of RAM,
    and his son signed the contract on behalf of the winning bidder.
    27. Despite the investigative findings of serious issues regarding the selection
    process involving the particular HR service provider, the investigation did
    not find any issues regarding the company’s provision of HR services to
    RAM. The HR service provider was found to be delivering an effective and
    professional human resource service to deliver RAM’s LLIN survey and
    distribution program as per their contract.

    F.1.2.Management Fees
    28. The investigation also examined the cost of RAM’s contract with the HR
    service provider. The investigation found that the cost of the provider’s HR
    service to RAM was US$ 1,227,046 (including GST of US$ 57,267). Review of
    the program revealed that an additional two positions were recruited for in
    May 2011, and filled in June 2011. These additional positions were financed
    under the original contract amount.

    15 Actual cost of contract to RAM was US$ 1,227,046
    16 Human Resource Service Agreement between Rotarians Against Malaria and the winning bidder,
    dated 1/10/2009.
    17 Company Extract for the winning bidder as at 25 February, 2011.

    12

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    The HR service 29. This investigation found that out of the total contract payment to the HR
    provider selected by service provider of US$ 1,227,046 (PGK 3,257,57018), the total salary cost
    RAM was
    significantly more was US$ 760,935 (PGK 2,007,745). This leaves US$ 473,684 (PGK
    expensive than the 1,249,825) for overheads – 62.3% of total salary cost. OIG’s review of a rival
    losing bidder bid that met RAMS advertised EOI requirements revealed a total contract
    price of US$771,890 (PGK 2,036,650) with a total salary cost of US$ 671,209
    (PGK 1,771,000), leaving US$100,681 (PGK 265,650) for overheads – 15% of
    total salary cost. RAM’s decision to award the HR contract to the winning
    bidder unnecessarily cost the grant US$ 359,543 in management fees.
    30. On the evidence reviewed by the OIG, RAM’s decision to appoint the more
    expensive provider resulted in management fees of US$359,54319 (PGK
    948,663) more being paid over the two year period of the contract than
    would have been paid had the cheaper bid been accepted.

    F.1.3.LLIN Procurement
    OIGs investigation 31. The investigation into RAM’s procurement of LLINs found that although
    into RAM’s RAM did not employ normal practice for such a major procurement (seeking
    procurement of
    LLINs found that ‘sealed bids’ against deadlines, with public opening of the bids) the process
    RAM’s procurement undertaken by RAM followed the procurement practices articulated in the
    complied with its relevant Grant Agreement.20 RAM, via its senior executive #1, requested ‘best
    Grant Agreement prices’ from five WHOPES approved suppliers21 via a series of emails.22 This
    with the Global Fund
    process was undertaken prior to RAM drafting and submitting to the Global
    Fund, as required under Article 18 (a)(i) of the Program Grant Agreement,
    ‘written procurement policies and practices’.23 RAM’s senior executive #1
    stated that he engaged in this practice with the best of intentions, as he
    considered it to be normal business practice in the private sector.
    RAM paid a very 32. The investigation found that RAM obtained a very competitive price from the
    competitive price for successful bidder, Vestergaard Frandsen, and paid “No more than a
    LLINs
    reasonable price” as obligated under Article 18 (a) (vi) of the Program Grant
    Agreement. OIG bases this conclusion on the comparison of data provided in
    USAID’s “LLIN Market and Data Analysis” of the average unit price on an ex-
    works basis per material of LLINs procured, along with publicly available
    data in the Global Fund’s Price Quarterly Reporting (“PQR”) Mechanism, a
    web-based price and quality reporting tool used by the Global Fund to collect
    transaction level procurement information from PRs on key health products
    (including LLINs).24

    18 Forex conversion rate used (1 US$ = 0.379 PGK) is as indicated by RAM which is the rate of exchange
    when fund (USD) was converted to Kina
    19 Applying the same percentage (15%) for management fees on the winning HR provider’s salary cost,
    20 Article 18 ‘Contracts for Goods and Services’ and Article 19 ‘Pharmaceutical and Other Health

    Products’ of Global Fund Grant Agreement PNG-809-G06-M
    21 WHO approved suppliers: Vestergaard; Sumitomo; BASF; Bestnet and Clarke, as detailed in the

    document ‘President’s Malaria Initiative – Technical Guidance On The Prevention And Control Of
    Malaria
    22 Series of emails from senior executive #1 (RAM) to: Sumitomo Chemical Co Ltd; Clarke Mosquito;

    Bestnet (INTECTION) and Vestergaard-Frandsen, between April and August 2009.
    23 Procurement Manual For Rotarians Against Malaria Global Fund Round 8 Malaria (p.7) – 1 Sept

    2009.
    24 USAID Deliver Project ‘Long-lasting Insecticide-Treated Net Market and Data Analysis – 2011

    Addendum’ available at
    http://deliver.jsi.com/dlvr content/resources/allpubs/guidelines/LLIN StudyAddend.pdf; PQR
    FAQ’s available at: http://www.google.com.au/#hl=en&output=search&sclient=psy-
    ab&q=what+is+the+global+fund+pqr&oq=what+is+the+global+fund+pqr&gs_l=hp.12..0i22.1306.529
    9.0.6888.27.14.0.0.0.0.595.4518.4-4j5.9.0…0.0…1c.ENH3v9x-
    ydk&pbx=1&bav=on.2,or.r gc.r pw.r qf.,cf.osb&fp=2da9510a5f9e2392&biw=1264&bih=904

    13

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    33. Analysis of the publicly available Global Fund PQR data revealed that RAM,
    under its R8 Grant Agreement, purchased a total of 3,182,950 LLINs
    between December 2009 and March 2012. RAM’s average unit cost of the
    LLINs purchased between December 2009 and January 2011 (2,172,850
    LLINs) was US$3.67. This is almost US$1.00 less than the USAID reported
    average unit cost between 2009 and 2011 of US$4.60.
    RAM saved grant 34. The investigation also found that in addition to the competitive price
    funds by keeping obtained for the supply of the LLINs, RAM saved grant funds by ensuring
    shipping costs to a
    minimum that shipping costs were kept to a minimum by purchasing polyester rather
    than polyethylene LLINs, and by arranging their own shipping rather than
    having Vestergaard-Frandsen provide this service.

    F.2. Conflict of Interest
    F.2.1.A senior executive of RAM participated in the award or
    administration of a contract in which members of his
    immediate family had a financial interest
    35. According to RAM’s “Terms of Reference for External HR Company” that
    were drafted after the OIG audit:25
    Under the Round 8 Malaria Programme RAM had a requirement to recruit
    some 25 to 30 additional staff. RAM had no capacity to do this so a decision
    was made during the preparation of the proposal to outsource the total HR
    requirements of the programme and for RAM to have nothing to do with HR
    other than to instruct the chosen supplier in RAM’s needs, both initial and
    ongoing, and to pay for the service on a monthly basis. This meant that the
    chosen HR supplier would recruit and manage all of the staff needed by RAM
    to carry out its contractual obligations to the Global Fund. The selection of a
    HR company was done by an initial advertising of an “Expression of Interest”
    (EOI) over several days and in both national daily newspapers. A committee of
    Rotarians worked through the EOI’s received and came up with a shortlist of
    three. The current HR Supplier was selected by the committee to provide the
    services in Phase 1 of the Round 8 Malaria Programme for RAM.
    RAM’s chairman was 36. The OIG found that a senior executive of RAM (senior executive #1) was
    involved in a involved in the procurement process that resulted in the award of a two-year
    procurement process
    that awarded a US$1.4m contract to a company with connections to his own family, to
    family company a provide HR services. Although the senior executive recused himself, during a
    US$ 1.4 m contract committee meeting of RAM held on 30 March 2009, from the evaluation of
    to provide HR the expressions of interest received for the provision of accounting services
    services
    and human resource services, OIG found that the senior executive was the
    addressee for the expressions of interest (Annex 1) and opened the EOIs
    received prior to the meeting, as indicated in the minutes of the meeting
    (Annex 2):26
    The senior executive passed around a photocopy of each of the applications
    together with a blank cover page for all members to note their comments on
    after reading the particular expressions of interest received. The senior
    executive also commented that with respect to the HR companies one of the
    companies that had tendered XXX was owned by his son. Accordingly he would
    have a conflict of interest and therefore he would not be involved in deciding on
    the HR company. The members agreed to this approach.

    25 RAM’s “Terms of Reference for External HR Company.”
    26 Excerpt from Minutes of RAM Committee held on 30 March 2009.

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    received an approximate gross fortnightly salary of PGK 1,698.46 (US$805)
    billed to RAM under the HR contract.30
    Article 21. CONFLICTS OF INTEREST; ANTI-CORRUPTION
    (a) Standards of Conduct. The Principal Recipient shall maintain and enforce
    standards of conduct to govern the performance of persons affiliated with the
    Principal Recipient or any Sub-recipient (for example, directors, officers,
    employees or agents) engaged in the award and administration of contracts,
    grants, or other benefits using Grant funds to ensure that such persons do not
    engage in any practice set forth in paragraph (b) below.
    (b) No corruption. The Principal Recipient shall not, and shall ensure that no
    Sub-recipient or person affiliated with the Principal Recipient or any Sub-
    recipient:
    1. Participate(s) in the selection, award or administration of a contact, grant or
    other benefit or transaction funded by the Grant, in which the person, members
    of the person’s immediate family or his or her business partners, or
    organizations controlled by or substantially involving such person, has or have a
    financial interest;

    F.2.2.The Contract was not awarded on a transparent and
    competitive basis.
    The chairman of 42. At the time of the contract award, RAM’s senior executive #2 was chairman
    RAM’s selection of RAM’s selection committee and he was a senior partner of a law firm listed
    committee had a
    conflict of interest as the principal place of business and business address of the winning
    that was not declared bidder. The chairman of RAM’s selection committee did not declare this
    conflict of interest during the committee meeting. Although having no
    financial interest in the matter, the chairman of RAM’s selection committee
    had a business relationship with the winning bidder and two partners of the
    law firm were shareholders of the company that won the bid. Given these
    facts, the RAM’s senior executive #2 should not have been on the selection
    committee.
    The selection 43. The committee minutes also state that “the only expression of interest that
    committee’s minutes met with the complete range of services that RAM was seeking was that from
    were false
    XXX (the winning bidder).” The OIG investigation found this statement to be
    false. Investigators obtained and reviewed the five expressions of interest
    received. It is clear from the 20 page document submitted by one of the rival
    bidders (Annex 5), that this firm did in fact meet with the complete range of
    services that RAM was seeking. When interviewed concerning the rival
    bidder that met RAM’s requirements, the chairman of RAM’s selection
    committee stated that “XXX (the rival bidder) did provide a good submission
    that fulfilled the EOI requirements.”31 The investigation found that RAM had
    no valid reason to reject the EOI submitted by one of the rival bidders at the
    committee meeting on 30 March 2009 and that they should have remained
    in contention.
    44. On 15 June, 2011, OIG investigators interviewed the chairman of RAM’s
    selection committee member and at that time RAM’s senior executive #2
    regarding the procurement process used to select and appoint the winning
    bidder to provide RAM’s HR services.32 He stated that:33

    30 XXX (the winning bidder) Payroll Summary Reports
    31 OIG interview of senior executive #2 at Port Moresby on 15 June, 2011.
    32 Senior executive #2 was appointed to his position at RAM on 7 November 2011.

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     Rotary and RAM are service organizations that do not engage employees
    directly.
     RAM was conceived in 1997 and with a grant from AusAID, initially acting as
    a procurement agent, purchasing LLINs and then selling them at cost to
    various organizations such as mining companies, plantations, oil and gas
    companies, provincial governments and the health department. These buyers
    took responsibility for distribution of the LLINs. RAM’s proceeds were used
    to purchase more LLINs.
     In Round 3, the NDoH was the PR for LLIN distribution. Due to insufficient
    logistic capacity, NDoH was unable to distribute the LLINs at the village
    level. The NDoH suggested that RAM submit a proposal to the Global Fund,
    to be the PR for LLIN procurement and distribution for Round 8. The
    process took about 12 months before the grant was signed. RAM’s chairman
    was heavily involved in this process, spending many hours of his own time.
    RAM’s contact within the NDoH was XXXX.
     RAM recognized that distribution of LLINs throughout PNG under Round 8
    would have to be outsourced.
     An EOI was drafted by himself and RAM’s senior executive #1 for accounting
    and human resource services. The EOI was initially advertised in 2008, but
    due to the length of the Global Fund grant process (Round 8), was re-
    advertised in a PNG national newspaper on 9 February, 2009. The contact
    officer for the EOI was RAM’s Chairman.
     They were told by the Global Fund that they needed to be careful to minute
    meetings and decisions related to the process of selection.
     Five EOIs to provide RAM’s human resource requirements were received.
     He personally knows the manager of one of the bidders, who is the son of
    RAM’s senior executive #1.
     A RAM committee reviewed the EOIs received for both the accounting and
    human resource services. The committee was comprised of RAM’s senior
    executive #1, RAM’s senior executive #2, and three others.
     RAM’s senior executive #1 provided the committee with a binder of all the
    EOIs received and also provided each committee member with copies of all
    the EOIs.
     The committee first reviewed the EOIs for the provision of accounting
    services. which had submitted an EOI for both accounting and
    human resource services, was considered the most suitable applicant for
    accounting services and was therefore not eligible for consideration of
    provision of human resource services.
     Prior to the committee reviewing the EOIs received for the provision of
    human resource services, RAM’s senior executive #1, disqualified himself
    from the process as his son ran one of the companies that submitted an EOI,
    and he (RAM’s senior executive #2) assumed the position of committee
    chairman.
     Only the EOI submitted by the winning bidder satisfied what the committee
    was looking for regarding human resource services.
     One of the selection committee stated to the committee that the winning
    bidder had done some work for the NDoH in a similar role and that he was
    very satisfied with its services.
     The committee decided to request the winning bidder to submit a cost
    proposal.
     He (RAM’s senior executive #2) prepared the meeting minutes.

    33 OIG interview of senior executive #2 at Port Moresby on 15 June, 2011.

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    45. The chairman of RAM’s selection committee was provided with a copy of the
    selection committee minutes and also a copy of the EOI submitted by the
    rival bidder that OIG considered met RAM’s EOI requirements. After he
    reviewed these documents, he further stated that:34
     The rival bidder identified by OIG did provide a good submission that
    fulfilled the EOI requirements.
     The comment in the minutes that the winning bidder was the only company
    that could provide the services required by RAM was not technically correct.
     He strongly recommended to the committee not to engage the rival bidder
    that also met RAM’s EOI requirements, based on his professional knowledge
    of the bidder’s proposed consultants. He made this recommendation in order
    to ensure the best outcome for the Global Fund.
     The discussion regarding the rival bidder was not included in the minutes as
    what he said could possibly be construed as defamatory.
    46. The failure of the RAM committee to invite the rival bidder that met RAM’s
    EOI requirements to submit a cost proposal meant that the winning bidder
    was awarded the HR contract on a non-competitive basis. The failure of RAM
    to undertake a rigid “sealed bid” process, with a public opening of the bids,
    coupled with the composition of the selection panel and the false statement
    in the minutes, meant that the contract was not awarded on a transparent
    basis. Article 18 (a) (i) of the program grant agreement between Rotary and
    the Global Fund states:
    Article 18. CONTRACTS FOR GOODS AND SERVICES
    (a) Procurement Practices. The Principal Recipient shall keep the Global Fund
    continuously informed about the policies and practices that it shall use to
    contract for goods and services under this Agreement. At a minimum, the
    policies and practices governing all procurement under the Program shall
    conform to the requirements (i) through (viii) listed below and, where Health
    Products are being procured, those in Article 19 of this Agreement. The Principal
    Recipient shall ensure that such policies and practices are followed at all times.
    i. Contracts shall be awarded on a transparent and, subject only to established
    exemptions included in written procurement policies and practices provided to
    the Global Fund, on a competitive basis.

    F.3. HR Service Provider’s Management Costs are Excessive
    47. The OIG audit reported stated:35
    The PR had outsourced its payroll function to a third party vendor, XXX (the
    winning bidder). The OIG audit noted significant variations in the
    management fees charged by XXX in relation to the actual costs (salary cost
    and recruitment expenses) incurred. This management fee was more than 60%
    of the employee cost in a sample of cases reviewed by the OIG.
    48. The audit report recommended that:36
    RAM should revisit its existing payroll arrangement with XXX to ensure that
    the amounts charged by XXX are a reasonable representation of the actual
    costs and effort involved in managing the HR engagement.

    34 OIG interview of senior executive #2 at Port Moresby on 15 June, 2011.
    35 OIG Audit Report No: GF-OIG-10-004 p.34
    36 Ibid

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    49. The OIG investigation reviewed the winning bidder’s “RAM HR Program
    Summary – May 2011” and the tax invoice, pay slips, timesheets and other
    documents for that period, submitted to RAM along with the invoice for
    payment and other supporting documents. The investigation also reviewed
    the budget estimates contained in the bid submitted by First Things First.
    The winning bidder 50. The review revealed that of the winning bidder’s total contract payment of
    for the HR contract US$ 1,227,046 (PGK 3,257,57037), the total salary cost for staffs was US$
    was US$ 359,543
    more expensive per 760,935 (PGK 2,007,745). This leaves a balance of US$ 473,684 (PGK
    annum than the 1,249,825) for overheads (62.3% of total salary cost). OIG’s review of the bid
    losing bid submitted by the rival bidder revealed a total contract price of US$771,890
    (PGK 2,036,650) for 18 staff including US$100,681 (PGK 265,650) for
    overheads (15% of total salary cost). The overall contract payment for the
    winning bidder was US$462,729 (PGK 1,220,920) more expensive than the
    bid submitted by the rival bidder that met RAM’s EOI requirements, with
    overheads being US$373,022 (PGK 984,174) more expensive.
    51. Applying the same percentage of management fee proposed by the rival
    bidder on the total actual salary cost of the winning bidder (15% of salary cost
    of US$760,935), RAM’s decision to appoint the more expensive provider cost
    the grant an additional US$359,543 (PGK 948,663).

    F.4. Procurement and Distribution of LLINs by RAM
    52. The investigation reviewed RAM’s procurement of LLINs for Phase 1 of the
    Round 8 Grant. RAM budgeted US$5,694,728 for the purchase of LLINs
    during Phase 1 and US$5,987,245 for the purchase of LLINs during Phase 2
    of the grant, for a total of US$11,681,973.
    RAM paid an 53. Publicly available data obtained from the Global Fund’s PQR system, show
    average price of US$ that under Round 8, up to and including March 2012, RAM purchased a total
    3.67 per LLIN,
    almost US$ 1.00 less of 3,182,950 LLINs.38 The USAID LLIN Market and Data Analysis showed an
    than the average average LLIN price of US$4.60 between 2009 and 2011. During this period,
    price quoted by RAM paid an average price of US$3.67, almost US$1.00 less.
    USAID

    37 Forex conversion rate used (1 US$ = 0.379 PGK) is as indicated by RAM which is the rate of exchange
    when fund (USD) was converted to Kina
    38 Global Fund Price & Quality Reporting (PQR) data: www.theglobalfund.org/en/procurement/pqr

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    G. Questionable or ineligible expenditures

    G.1. The Global Fund’s Right to Reimbursement
    62. Article 27 of the Global Fund’s Grant Agreement with RAM establishes the
    Global Fund’s right to demand repayment from RAM in certain
    circumstances:
    Notwithstanding the availability or exercise of any other remedies under this
    Agreement, the Global Fund may require the Principal Recipient to
    immediately refund to the Global Fund any disbursement of the Grant funds in
    the currency in which it was disbursed in any of the following circumstances:
    (i) this Agreement has been terminated or suspended; (ii) there has been a
    breach by the Principal Recipient of any provision of this
    agreement; (iii) the Global Fund has disbursed an amount to the Principal
    Recipient in error; or (iv) the Principal Recipient has made a material
    misrepresentation with respect to any matter related to this agreement. 54
    63. Thus, the Global Fund has a contractual right to seek reimbursement from
    RAM for breaches of the Grant agreement.
    64. Article 18 (a) (i) of the Grant Agreement between the Global Fund and RAM
    states that:
    Contracts shall be awarded on a transparent and, subject only to established
    exemptions included in the written procurement policies and practices provided
    to the Global Fund, on a competitive basis. 55
    65. This investigation found that RAM did not award the human resource
    contract on a transparent and competitive basis, in accordance with the
    terms of Article 18 of its Grant Agreement with the Global Fund.

    G.2. Value of the winning bidder’s contract
    Investigation finds 66. As noted above, the OIG has identified that RAM’s selection and subsequent
    that RAM’s decision contracting of a company to serve as its human resource service provider cost
    to appoint a HR
    company associated the grant a total of US$359,543 (PGK 948,663) in additional management
    with RAMs director fees. OIG notes the difference between winning bidder’s management fee of
    unnecessarily cost US$ 473,684 (PGK 1,249,825) – 62.3% of total salary cost of US$ 760,935
    the grant (PGK 2,007,745), compared the rival bidder’s management fee of US$
    US$150,678 in
    excessive
    100,681 (PGK 265,650) – 15% of total salary cost of US$ 671,209 (PGK
    management fees. 1,771,000).
    Winning bidder’s 67. RAM’s decision to eliminate the rival bidder via a non-transparent and non-
    contract did not competitive bid process in order to appoint a particular company, resulted in
    provide reasonable
    price for services RAM paying for overheads at more than a reasonable price, which is the
    requirements stated in Article 18 (a) (vi) of its Grant Agreement with the
    Global Fund.

    54 Article 27 of the Standard Terms and Conditions of the Grant Agreement between the Global Fund

    and RAM, PNG-809-G06-M.
    55 Article 18 (a) (i) of the Standard Terms and Conditions of the Grant Agreement between the Global

    Fund and RAM, PNG-809-G06-M.

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    H. Conclusion

    H.1. Conflict of Interest
    RAM’s senior 68. RAM’s senior executive #1, although not participating in the selection
    executive #1 committee process per se, was the addressee for the EOIs and he was also the
    administered a
    contract of which RAM signatory on the contract with the winning bidder, which his son also
    family members signed as the winning bidder’s signatory. This constitutes ‘administration’ of
    were a party. the contract.
    69. Although there was a conflict of interest, the investigation determined that
    the winning bidder provided an effective and professional HR service.
    70. RAM improperly awarded a HR contract to a company with family links to its
    senior executive #1
    71. RAM’s contract for human resource services was improperly awarded to a
    company with family links to the individual who was RAM senior executive
    #1 at the time.
    72. The investigation found that a rival expression of interest that met with the
    requirements of the expression of interest was rejected by the committee
    based on the committee chairman’s recommendation and that the selection
    committee meetings contained a false statement that “the only expression of
    interest that met with the complete range of services that RAM was seeking
    was that from XXX (the winning bidder).”
    The Chairman of 73. The investigation also found that the chairman of the RAM selection
    RAM’s selection committee had business links to the winning bidder that were never
    committee had
    business links to the declared. The winning bidder’s principal place of business and business
    HR company that address was a law firm of which the chairman of the RAM selection
    were never declared. committee was a senior partner. Two partners of the law firm according to a
    current company extract of the winning bidder, both were current
    shareholders of the winning bidder.

    H.2. Management Fees
    74. OIG’s review revealed that out of the total contract payment to the HR
    service provider of US$ 1,227,046 (PGK 3,257,57056), the total salary cost
    was US$ 760,935 (PGK 2,007,745) leaving US$ 473,684 (PGK 1,249,825) for
    overheads – 62.3% of total salary cost.
    75. OIG’s review of a rival bid, that met RAM’s advertised EOI requirements,
    revealed a total contract price of US$771,890 (PGK 2,036,650), comprising
    of total salary costs of US$ 671,209 (PGK 1,771,000) leaving US$ 100,681
    (PGK 265,650) for overheads – 15% of total salary cost.
    RAM’s appointment 76. On the evidence reviewed by the OIG, RAMs decision to appoint the
    of the winning particular HR service provider resulted in additional costs to the grant.
    bidder cost the grant
    US$359,543 in Applying the same percentage of management fee proposed by the rival
    additional bidder on the total actual salary cost of the winning bidder (15% of salary cost
    management fees US$760,935), RAM’s decision to appoint the more expensive provider cost
    the grant an additional US$359,543 (PGK 948,663) in overheads.

    56 Forex conversion rate used (1 US$ = 0.379 PGK) is as indicated by RAM which is the rate of exchange

    when fund (USD) was converted to Kina

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    H.3. Procurement of LLINs
    RAM’s procurement 77. The investigation determined that with regard to the procurement of LLINs,
    of LLINs was RAM, despite not engaging in a ‘sealed bid process’, acted in a transparent
    transparent and
    prudent and resulted manner in the best interests of the grant. RAM obtained the LLIN’s at a very
    in substantial reasonable price, lower than USAID reported average LLIN prices for the
    savings same period and within Global Fund ‘expected range’ recorded in the Global
    Fund’s PQR system. Substantial savings of approximately US$571,956 (PGK
    1,206,827) were also made in reduced shipping costs by selecting polyester
    rather than polyethylene LLINs. The investigation also noted that RAM
    wrote to the PNG Internal Revenue Commission regarding each delivery to
    ensure Goods and Services Tax (GST) and import duty exemption. RAM also
    wrote to PNG Ports Corporation Limited to request exemption of wharfage
    and handling charges, but no exemption from these charges was granted.

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    I. Recommendations

    OIG recommended 78. As a result of its investigation, the OIG made a recommendation in August
    to the Global Fund 2011 to the Global Fund Secretariat, immediately:
    Secretariat that
    RAM’s contract with  At the expiration of RAM’s contract with the current HR service provider,
    the winning bidder
    should be re-
    which has been extended to 31 December, 2011 (Annex 6), in line with the
    tendered upon its extension of phase 1 of the Global Fund Grant, require RAM to re-tender the
    expiry and that contract for human resource services for phase 2.57 OIG recommended that
    refunds should be the Global Fund seek recovery from RAM
    made by RAM
     Seek recoveries from RAM in relation to the HR services contract, notably
    taking into account the difference between the management fee charged by
    current HR service provider and the management fee contained in the
    budget estimates in the bid submitted by a rival bidder that met RAM’s
    advertised EOI requirements, totaling US$359,543 (PGK 948,663).
    OIG recommended  Require that no person within Rotary or RAM with any connection to XXX
    that persons with
    any connection to
    (the current HR service provider) be involved in the selection process to any
    the current HR degree, including receiving or opening the tenders and that the process be via
    service provider be sealed tender, opened by the RAM selection committee.
    involved in selection  Require that RAM engages in fair, transparent, ethical and proper
    process
    procurement practice in all procurement, as per RAM’s Procurement and
    Supply Management Plan and RAM’s Procurement Manual.

    57 Telephone call and email between OIG and PNG Fund Portfolio Manager dated 26 Aug 2011.

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    J. Acronyms

    ACT Artemisinin-based Combination Therapy
    CCM Country Coordinating Mechanism
    EOI expression of interest
    HR human resources
    LFA Local Fund Agent
    LLIN Long-lasting insecticide treated net
    NDOH National Department of Health
    OIG Office of the Inspector General
    PGK Papua New Guinea Kina
    PNG Independent State of Papua New Guinea
    PR Principal Recipient
    RAM Rotarians Against Malaria
    RDT Rapid diagnostic test kit
    SR Sub-recipient
    UNHCR United Nations High Commission for Refugees
    US$ United States Dollar
    USAID United States Agency for International Development
    WHO World Health Organization
    WHOPES World Health Organization Pesticide Evaluation Scheme

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    K. Global Fund Secretariat’s Response to
    Recommendations

    In response to OIG’s 79. In a management letter58 dated 2 April, 2012, the Global Fund Secretariat
    recommendations informed RAM that:
    the Global Fund
    Secretariat sent a  The LFA is to conduct an annual review of the HR fees in November of each
    management letter
    to RAM stating that
    year, and
    the LFA is to  RAM is to retender for the HR service provider within 2012 with the least
    undertake an annual disruption to HR support possible. The new HR company can then start their
    review of HR fees work in 2013. The winning bidder (the original HR provider) will not be
    and that RAM is to
    re-tender the HR
    barred from re-tendering.
    services contract
    80. In 2012, the LFA was requested by the Secretariat to provide their opinion on
    the HR service fees charged by the winning bidder (the original HR provider)
    and confirmed that the fees were reasonable for PNG settings. The
    Secretariat will continue monitoring this management on an annual basis.59
    81. The OIG’s recommendation on the need for re-tendering of the PR’s human
    resource services contract was implemented in 2012 and resulted in the
    confirmation of the original HR provider as the PR’s HR service provider.
    82. The Secretariat concluded, based on extensive communication with the PR,
    LFA and CCM, that the 2012 selection process was conducted in line with
    OIG’s recommendations on the independence of the selection committee and
    application of proper procurement practice.
    Secretariat took 83. The Secretariat took extra steps to clarify the process with the PR and CCM
    steps to ensure that representatives on the selection panel and the LFA, before drawing the above
    the tender process
    for the new HR conclusion. The extra clarifications were required due to the way the
    services contract was selection panel presented their conclusions – there was not “tangible”
    transparent and fair difference between the two eligible candidates and yet the original HR
    provider was chosen based on considerations of saving money on the process
    of changing the service provider and of avoiding unnecessary interruption in
    services. The LFA confirmed that if a new HR service provider was chosen,
    the expatriate staff members of the PR would have to leave PNG and reapply
    for a work visa with the new company.
    84. The Secretariat conveyed to the PR OIG’s recommendation that no person
    within Rotary or RAM with any connection to the original HR services
    provider be involved in the selection process. The implementation of this
    recommendation was closely monitored by both the Secretariat and the LFA.
    The LFA served as an observer on the selection panel and the OIG was
    informed of the composition of the panel.

    58 Global Fund Management Letter dated 2 April 2012, Ref: OPC/EAP/PNG/1512/EB
    59 Not necessarily in November of each year.

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    L. Annex 1: Rotary Against Malaria (RAM) responses to OIG
    Report and OIG’s comments.

    Para Page PRs comments OIG’s response
    No.
    N/A N/A HR Tender Award  OIG maintains that substantive and credible evidence exists to
    support the investigation findings detailed in OIG’s
    It has been communicated by the OIG audit team to
    investigation report.
    RAM that the management fees of the year 2009 HR
    firm award was improperly awarded, excessive in
    remuneration and improper pricing. RAM disagrees
    with the OIG.

    N/A N/A Basis And Scope of HR Tender Award  OIG does not agree with RAM’s view that the review was
    based on the bid price as the sole criteria. OIG’s review
    The RAM HR tender in 2009 did not contain a formal
    considered the bid price of both companies considered by
    award scoring criteria to determine the basis of
    RAM’s selection committee and also the actual costs of the HR
    appointment of the winning bid. It is in our opinion
    services provided to RAM by the winning bidder.
    that the OIG audit team limited their review of this
     OIG does not agree with RAM’S view that the quantification
    award on the bid price as being the sole criteria for
    used was inaccurate and incomplete. OIG’s quantification is
    the contract award of professional services. The OIG
    based on the data supplied by RAM regarding actual costs of
    team further erred in their review by comparing the
    the HR contract to RAM.
    prices of two different types of service offerings in
    order to obtain an opinion on the tender award.
    Furthermore, the quantification used by the OIG audit
    team in obtaining their opinion on the HR bid pricing
    was inaccurate and incomplete.

    N/A N/A Award Criteria  OIG does not agree with RAM’s view that the OIG limited their
    analysis of the 2009 HR award to two firms. OIG analysed all
    RAM is of the opinion that during the review, the OIG
    the bids submitted leading to the discovery that beside the
    audit team limited their analysis of the 2009 HR award
    winning bidder, one other bidder met the Expression of
    to two firms, namely XXX (The winning bidder) and
    Interest (EOI) criteria advertised by RAM, contrary to RAM’s
    XXX (the losing bidder) .It should be noted that the
    statement that only one bidder (the winning bidder) fully met
    losing bidder as part of their bid submission
    RAM’s EOI requirements.
    communicated to having in place 18 national
     OIG does not agree with RAM’S view that ‘The winning firm
    ‘qualified staff’ (names and qualifications provided as
    bid was for the competitive recruitment of 18 national staff
    part of their bid) in their database whom were able to
    and 2 international staff as per the advertisement’. OIG refers
    implement the entire RAM program as sub‐
    RAM to the ‘Call for Expressions of Interest’ (Annex 1 of the
    contractors. It was assumed that the entire 18 staff
    Investigation Report). The EOI only states ‘Recruitment of
    listed had the required skill and experience to
    Staff for Logistical duties, Accounting Staff, Admin Staff,
    implement the entire RAM project (Only one of these
    Drivers and Keyboard Operators. Recruited staff will be the
    personnel had developmental or aid agency
    responsibility of the Human Resource company offering the
    experience nor did the losing bidder provide the staff
    services, this will include salaries, Leave, payment of taxes
    list as per the job descriptions defined in the RAM HR
    Workers Compensation Insurance and Nasfund contributions.
    Advertisement).The firm was not within its submitted
    Rotary Against Malaria will pay once a month to the supplier
    terms of reference going to undergo any competitive
    of these services.’
    staff recruitments on behalf of RAM as part of their
     OIG does not agree with RAM’s statement that ‘XXX (the
    future engagement. The winning firm bid was for the
    losing bidder) did not provide the staff list as per the job
    competitive recruitment of 18 national staff and 2
    descriptions defined in the RAM HR Advertisement’. OIG
    international staff as per the advertisement. The
    refers RAM to the ‘Call for Expressions of Interest’ (Annex 1 of
    detailed annexes provided by the winning bidder and
    the Investigation Report’). The EOI states ‘Recruitment of
    the losing bidder on their service propositions to the
    Staff for Logistical duties, Accounting Staff, Admin Staff,
    advertisement clearly communicate that these two
    Drivers and Keyboard Operators’. The 15 page bid submitted
    firms’ bids were for the provision of different HR
    by the losing bidder (as distinct from the one page bid
    services to RAM. Despite this, the OIG audit team
    submitted by the winning bidder) clearly shows positions
    assumed that a logical conclusion could be derived
    matching the positions of: ‘Logistical duties’; ‘Accounting
    from a price comparison exercise restricted to the
    Staff’; ‘Admin Staff’; ‘Drivers’; and ‘Keyboard Operators’. OIG
    above two bids.
    refers RAM to the EOI submitted by the losing bidder (Annex 5
    The RAM award committee used the ability of the of the Investigation Report).
    contract firm to meet the RAM requirements and  Additionally, OIG refers RAM to the winning bidders one page

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    fulfill its obligations as the important determining bid submission (Annex 4 of the Investigation Report). This bid
    factor in the award. did not include a ‘staff list as per the job descriptions defined
    in the RAM HR Advertisement’.
    RAM concludes that the scope of comparisons
     OIG does not agree with RAM’s statement: ‘The detailed
    employed by the OIG audit team and Investigator in
    annexes provided by XXX (The winning bidder) and XXXX on
    their review did not embrace all the factual data
    their service propositions to the advertisement clearly
    available in forming an opinion on the validity of the
    communicate that these two firms’ bids were for the
    award.
    provision of different HR services to RAM.’ OIG refers RAM to
    the winning bidders one page bid submission (Annex 4 of the
    Investigation Report). The winning bidder did not submit a
    ‘detailed annex’ in response to RAM’s EOI.
     OIG does not agree with RAM’s statement that OIG did not
    embrace all the factual data available in forming an opinion on
    the validity of the award. OIG reviewed all the data available
    to RAM’s selection committee on which the selection
    committee based there decision to improperly exclude the
    losing bidder from the process.
    HR Management Service Providers Costs Are  Paragraph 46‐50 of the Investigation Report do not state that
    Excessive the management service costs are excessive. Paragraph 46 and
    47 directly quote parts of the OIG Audit Report. Paragraphs
    It is communicated in the OIG investigation report
    46 16 48‐50 of OIGs Investigation Report indicate the different
    (paragraph 46‐ 50) that the 2009 HR award
    pricing structures of the two bids considered by RAM’s
    management service costs are excessive.
    50 17 selection committee (based on the bid amount of the
    The OIG audit team as a result of only comparing two unsuccessful bidder and the actual costs of the successful
    submitted quotes for the provision of different HR bidder as provided by RAM.)
    services concluded that RAM awarded a HR provider  OIG recognises that RAM has improved the structuring and
    excessive remuneration for the services offered. It documentation of its requirements in future tenders. This
    should be noted that the OIG audit review team did however, has no relevance to the tender covered in the
    not carry out an in country survey in order to Investigation Report.
    determine the reasonableness of the cost plan of the  OIG recognises that the year 2009 HR award contractor was
    HR winning bid charges. RAM maintains that the awarded the contract by the PNG CCM (Overseen by the LFA)
    payout rates for the provision of professional services in subsequent periods. This however, has no relevance to the
    can only be deemed excessive if well above the tender covered in the Investigation report.
    industry rate. For purposes of providing guidance on  OIG recognises that the LFA may well have communicated that
    the industry average, It should be noted that one of the round 2 retender quotes were in line with the industry
    the ‘capable firms‐ XXX’ that was disqualified from rates in PNG for the period. This however, has no relevance to
    participating in the HR tender bid for 25% of the total the tender covered in the Investigation Report.
    remuneration package per position with further  OIG does not agree with RAM’s statement that the GF audit
    reimbursement for all recruitment related costs team and its investigators did not ensure reasonable
    professional duty of care was undertaken in the year 2009
    RAM management improved the structuring and
    audit review informing an opinion on the excessiveness of the
    documentation of its requirements in future tenders.
    charges. OIG has made a comparison between two bids that
    It is on this basis that the year 2009 HR award
    met with RAM’s EOI. One of the bids was unfairly excluded and
    contractor was awarded the contract by the PNG CCM
    the winning bid was more expensive.
    (Overseen by the LFA) in subsequent periods. It was

    explicitly communicated by the LFA that the round 2

    retender quotes were in line with the industry rates in

    PNG for the period.

    RAM concludes that the GF audit team and its
    investigators did not ensure reasonable professional
    duty of care was undertaken in the year 2009 audit
    review in forming an opinion on the excessiveness of
    charges.

    Determination of Pricing For The Year 2009 HR  OIG again disputes RAM’s statement that bidder number two‘s
    Tender Award job descriptions did not match RAM’s advertisement and that
    the skill sets were inappropriate for the RAM project. OIG
    The losing bidder as a part of the 2009 HR bid priced
    again refers RAM to the advertised EOI (Annex 1 of the
    their submission on the basis of having in place
    Investigation Report) and again refers RAM to the winning
    available implementation project staff (The staff job
    bidder’s one page submission (Annex 4 of the Investigation
    descriptions not matching the RAM advertisement
    Report) that does not contain any staff job descriptions or skill
    and skill set inappropriate for the RAM project) at
    sets.
    fixed rates plus an additional management fee to
     OIG disputes RAM’s claim that XXX (the winning bidder) as part
    manage their own staff. The winning bidder as a part

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    of their submission tender availed forecasts of the of their submission tender availed forecasts of the expected
    expected costs (They explicitly communicated that costs. OIG again refers RAM to the winning bidder’s one page
    they had to recruit the staff as per direction given in submission (Annex 4 of the Investigation Report).
    RAM advertisement) and the percentage charged for  OIG’s response to RAMs claim that ‘The total costs of the
    providing their service. At the time of bid award, it winning bidder’s staff costs and the management costs as per
    was not known the exact expenditure that RAM was the submitted bid was in excess of the RAM HR Global fund
    to incur in staff remuneration. The total costs of the budget line’ is that as detailed in the report, the winning
    losing bidder’s staff costs and the management costs bidder’s submitted staff costs and management costs were
    as per the submitted bid was in excess of the RAM HR US$ 359,543 less than the actual cost of the winning bidders
    Global Fund budget line (Details provided as an annex provision of HR services to RAM.
    to their bid).  OIG’s response is that RAM is unable to determine beyond the
    costs submitted in the losing bidders EOI what the costs would
    The OIG audit team selected only the management
    be. Similarly, RAM was unable to know what the costs of the
    cost of the losing bidder as a basis for the comparison
    winning bidder would be at the time of the Selection
    of projected staff recruitment cost by XXX (the
    Committee meeting, as the winning bidder did not submit
    winning bidder) to form an opinion on the adequacy
    costs in their EOI. OIG refers RAM to Annex 4 and Annex 5 of
    of pricing for the tender.
    the investigation report.
    An email was sent to the OIG investigator in month of
    May 2013 detailing the RAM interpretations of the
    pricing of the tenderers. This e‐mail communicates to
    the investigator that the actual staff costs of
    implementing the losing bidder would have been
    significantly higher than XXX (the winning bidder) and
    result in overspending of the PR HR budget by
    approximately 150%.
    A comparison of the implementation of the quoted
    K1,018,000 per year losing bidders bid with
    adjustments included for the additional actual staff
    required to implement the program amounted to
    US$1,946,918.70 against the actual winning bidders
    costs of US$1,227,048.00 (US$1,022,538 being the
    core RAM staff costs with $204,507.66 being charged
    by the winning bidder for administration) is provided
    in the mail message to the OIG investigator.
    As a result of review of the above information, RAM
    concludes that the opinion expressed by the Global
    Fund audit team on the HR award committee’s pricing
    and review is inaccurate and misleading.

    Conflict of Interest  OIG’s response is that it is reasonable to conclude that the
    senior executive of RAM knew that the company connected
    2009 RAM Internal Definition Of Conflict Of Interest
    with his family would submit an expression of interest and
    The RAM definition and understanding of conflict of therefore he should not have nominated himself as the
    1 3 addressee for the EOI’s.
    interest is identical to that of the Global Fund.

     OIG’s investigation found that the senior executive of RAM
    2 3
    RAM requires all staff and board members to declare who was the addressee for the EOIs, opened the EOI’s received

    if a current or potential conflict of interest exists and prior to the selection committee meeting.
    25 10
    ensure that no undue influence materializes in its  OIG maintains that the senior executive of RAM breached

    operations as a result of this. The Institute Of Article 21 of its grant agreement with the Global Fund in that
    26 10
    Chartered Secretaries guide was embraced within the senior executive participated in the administration of a

    RAM’s policies during the period. The contract in which his immediate family had a financial interest.
    67 22
    protocol/procedures within RAM was however not The OIG report does not state that the RAM senior executive
    identical to the Global fund at this point of time. ‘participated in the award process’ as claimed by RAM.
     RAM’s procurement manual was not issued until 1 September
    RAM Management Of Conflict Of Interest in Year 2009 thus it post‐dates both the expression of interest and the
    2009 date the RAM Selection Committee met (30 March 2009).

    RAM had a total staff size of 28 staff in the year 2009.
    Of these staff, only two served as management staff
    (The Chair and the Project manager whom is field
    based). Given the size and structure of the
    organization, the RAM board had in place policy
    guidelines to manage the potential conflict of interest

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    that may occur in implementation.
    The board and management of RAM acknowledge
    that conflicts of interest existed in the HR tender
    award. RAM managed the conflict of interest by
    ensuring that the chair did not directly influence the
    determining of the contract award. The chair at the
    earliest possible occasion declared his connection to
    the firm and disqualified him from directly
    participating in the award. The chair further ensured
    that he did not influence the independence or
    decision making abilities of the award decision. An
    independent committee determined the award
    beneficiary of the contract.
    Paragraph 1 point 6, paragraph 2 point 7, paragraph
    25, paragraph 67, paragraph 26 of the OIG audit
    report communicates that RAM chair signed the
    contract of the winning bidder on behalf of RAM, this
    action thereby interpreted by the OIG audit team as

    participating in the award process. This technical non‐
    compliance of the Global Fund articles on segregation
    of functions was in effect as a result of the application
    of the internal RAM chart of authority and the
    procurement manuals that required the chairperson
    approves and signs off for all contracts for amounts
    above USD 2,500(Kina 5000). This implied that the
    organization obligated the chairperson to sign off on
    this payment provided that all necessary
    documentation supporting the Committee
    recommendation/Approval (Where the chair did not
    participate) was in place.
    36 12 RAM concludes that the OIG audit and investigator  OIG’s response is that compliance with Global Fund Articles is
    during the year 2009 audit review did not examine as not optional. RAM’s emotive claim of ‘personal targeting of the
    37 12 to whether it was possible to ensure that the required chair person’ lacks credibility and is untrue.
    full technical compliance of the Global Fund Articles  OIG confines its comments to the Investigation Report.
    within the RAM policy framework, staffing and  OIG maintains that it is reasonable to conclude that RAMs
    organizational structure as the PR in the year 2009. Senior Executive would have known that XXX (the winning
    The deviation from the expected objective critique of bidder) would submit a bid in response to the EOI. OIG
    the RAM organization policies and systems during the concedes that the last sentence of paragraph 26.
    year GF OIG 2009 audit review to the personal ‘Furthermore, although there is no suggestion that all EOIs
    targeting of the chair person is interpreted by RAM as received were not delivered to the RAM selection committee,
    professionally unsound. there is the appearance of impropriety’ should be removed
    from the report. With regard to paragraph 37, this paragraph
    Furthermore, the OIG audit team during the exercise simply states a fact, evidenced by the minutes of the selection
    did not examine as to whether all possible avenues committee.
    available to ensure integrity of the program and
    maintain an adequate control framework on conflict
    of interest had been pursued by RAM, which would
    have acted as an invaluable guide for the
    improvement of the internal control systems and
    framework in the organization.

    RAM also provides feedback on the following
    paragraphs contained in the OIG report referencing
    the purported transgressions on ‘conflict of interest’.
    Paragraph 36 of the OIG report imply on the supposed
    impropriety as a result of insider knowledge of the
    RAM chairperson on the internal operations of the
    winning bidder. As this information is
    unsubstantiated, RAM interprets these paragraphs as
    targeted to be demeaning in nature with derisory
    intent. Paragraph 37 builds further and enforces the

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    same tone with non factual opinion used in official
    OIG audit reports.

    26 10 Interpretation Of The GF Round 8 Phase I Contract  OIG maintains that RAM breached Article 18 and 21 of its
    Conflict Of Interest grant agreement with the Global Fund.
    40 13  With regard to Paragraph 40, part of the paragraph is a
    In paragraph 26 of the audit report , the investigator
    reproduction of Article 21. OIG’s view is that the actions of
    has referenced the non management of the PR Article
    RAM’s senior executive were more a conflict of interest. Given
    18(procurement) and Article 21(Conflict of interest)
    that the actual article (Article 21) is referenced in the
    by RAM as a basis to conclude on none transparency
    paragraph, OIG will delete the actual wording of the article in
    or competitiveness of the HR tender award. The grant
    paragraph 21.
    appendix as Article 21 part c of the contract
     OIG strongly disagrees with RAM’s claims that the statement
    agreement states: Disclosure: If the PR has knowledge
    ‘Minutes for the selection committee regarding the selection
    or becomes aware of any actual, apparent or potential
    of the HR provider were false, in that the minutes stated that
    conflict of interest between the financial interests of
    the only expression of interest that met the complete range
    any persons affiliated with the PR, any SR, the CCM,
    of services that RAM was seeking was that from XXX (The
    the LFA or the Global Fund and the persons duties
    winning bidder) bur the chairman of RAMs selection
    with the respect to the implementation of the global
    committee (and senior executive #2 of RAM) admitted that
    fund and that persons duties with respect to the
    another bidder’s tender by RAM clearly met RAMs
    implementation of the program…then The PR shall
    requirements’ is non factual and erroneous. OIG refers RAM
    immediately disclose the actual, apparent or potential
    to the selection committee minutes (annex 2 of the
    conflict of interest directly to the Global Fund.
    Investigation Report) and also draws RAM’s attention to a
    The chair person of RAM ensured that the spirit of (recorded) interview between OIG and the chairman of RAM’s
    Article 21 was promoted at all times by not selection committee that took place on 15 June 2011 during
    influencing the award decision. However, the which he stated that contrary to what was recorded in the
    technical applications of the articles were not applied minutes a rival bidder did provide a good submission that
    at the particular point of time but with RAM ensuring fulfilled the EOI requirements.
    that future improvements made to demonstrate the
    application.

    On paragraph 40, reference is made to Article 21

    elaborating the Global Fund stance on corruption

    stating that the PR and persons affiliated with cannot
    participate in the administration of a contract in
    which the persons immediate family have a financial
    interest.
    The Global Fund definition of corruption is ‘Corruption
    includes bribery, unlawful gratuity, collusion,
    favoritism, theft of public funds, unlawful coercion,
    fraud through the deprivation of honest services
    (public officials or public money), intentional
    misappropriation of public funds‐It is not Conflict of
    Interest.( Definition obtained from Anti‐Corruption
    training program on Global Fund Website)

    7 4 Fraud is an effort of deception made with the
    intention to achieve personal financial or material
    gain; in other words, the use of deceit, trickery, or
    breach of confidence, perpetrated for profit or to gain
    some unfair or dishonest advantage.
    Article 21.b (i) on guidance on corruption states “ The
    PR shall not, and shall ensure that no SR or person
    affiliated with the PR or SR:
    (i) Participates in the selection, award or
    administration of a contract, grant or other benefit or
    transaction funded by the grant, in which the person,
    members of the persons immediate family or his or
    her business partners, or organizations controlled by
    or substantially involving such a person ,has or have a
    financial interest.
    Article 219(c) further provides that in event of a

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    conflict of interest; The PR shall immediately disclose
    the actual, apparent or potential conflict of interest
    directly to the Global Fund.
    RAM interprets that the OIG audit team of having
    employed the selective use of different appendixes of
    the Global Fund Grant Articles when making
    conclusions contained in the audit report.
    RAM noted further discrepancy in the report
    contained in Page 4 point 7 that incorrectly states
    ‘Minutes of the selection committee regarding the
    selection of the HR provider were false, in that the
    minutes stated that the only expression of interest
    that met the complete range of services that RAM was
    seeking was that from XXX (The winning bidder, but
    the chairman of RAMS selection committee (And
    senior executive #2) of RAM admitted that another
    bidder’s tender by RAM clearly met RAMS’s
    requirements. RAM maintains that this ascertains that
    this representation in the audit report as non factual
    and erroneous.

    LLIN Procurement  It is clear from OIG’s Investigation Report that the
    investigation found that with regard to LLIN Procurement,
    The RAM institutional structure in the year 2009 was
    RAM ‘acted in a transparent manner in the best interests of
    inadequate to accommodate for the complete
    the grant’.
    segregation of duties internally. This was due to
    having in place systems that required the chair person
    being a mandatory authorizer of all contracts above
    $2500(Kina 5000). The LLIN award was executed by
    RAM in good faith and due care provided to ensure
    the maximum benefit to the project was obtained in
    the tender. The usage of these funds for the intended
    grant purpose and ensure maximum value was
    reviewed regularly at both management and board
    levels. It was noted that a breach of GF due process
    occurred in the year 2009 due to the structural
    organizational limitations that existed at that
    particular point of time. I.e. the staffing numbers,
    organizational structure and delegated financial
    authority was such that awards of this size required
    the direct input of the chairperson.
    It was noted that the RAM Chairperson during the
    period received the LLIN manufacturer bids in e‐mail
    submissions copied to Global fund instead of to sealed
    bids to a tender committee. On realization of the
    transgression from the defined Global Fund Articles,
    the chair person did immediately e‐mail all WHOPES
    approved manufacturers to resubmit their bids in
    sealed form addressed to the tender committee. The
    award was thereafter determined and awarded
    according to the information contained in the sealed
    bids.
    Continual remedial actions have been taken by RAM
    to ensure transparency and best practice in its
    subsequent tender awards.
    RAM concludes that the Global fund audit team was
    inconsistent in its interpretation of the Global Fund
    Articles Of Administration during the review. This is
    due to selectively interpreting technical non
    compliance by RAM in the LLIN tender where a clear
    financial savings was determined as transparent and

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    applying a different interpretation in the HR tender
    award where the OIG team perceived a loss.

    Shareholding Of XXX (the winning bidder)  OIG agrees that the extract of the company search shows that
    XXX (the winning bidder) had a total share capital of 100
    The HR Expression of interest by RAM was published
    shares as at 25 February 2011 and that Mr J.K.G. had 100
    in February 2009 and subsequent contract award in
    shares allocated to him on 24 February 2007.
    March 2009 award. The extract of the company
     OIG’s position is that the extract shows that Mr KKK and Mr
    search provided by the OIG investigator
    communicates that XXX (the winning bidder) had a
    KKP according to the extract still held one share each as at the
    6 3 date of the extract (25 Feb 2007) and both held these shares
    total share capital of 100 shares as at 24/2/2007. The
    at the time of the EOI.
    documents provide communicate that the sole
    7 3  OIG points out that the extract shows as at 25 February 2007,
    shareholder was J.K.G.
    Mrs M.S, Mr G.M.S, Mr M.L.A.S and Mr J.K.G were directors of
    25 10 Page 3 Paragraph 6, Paragraph 7, Paragraph 25, the company and were directors of the company at the time
    Paragraph 26, Paragraph 38, Paragraph 41, of the expression of interest. The extract also shows that as at
    26 10 Paragraphs 67‐72 incorrectly state otherwise. 25 February 2007, Mr. G.M.S was also secretary of the
    company and was also secretary of the company at the time
    The OIG audit erred in the interpretation of the
    38 13 of the expression of interest.
    shareholding by assuming that everyone listed as XXX
     Paragraph 6 (page 3) makes no mention of company shares, it
    (the winning bidder’s) shareholders in prior periods
    41 14 states ‘a company controlled by the family of one of RAM’s
    were still shareholders at the expression of interest
    senior executives’. The fact that three of the senior executive’s
    advertisement and subsequent of contract award.
    67‐72 22 family were directors with one also being the company
    A simple check with the registrar of companies would secretary is evidence of this fact, despite the transfer of shares
    have provided the required information on the XXX on 5 March 2001.
    (the winning bidder) shareholding. RAM interprets the  Paragraph 7 states that two of the senior partners of the law
    intent of screening of pre award and incorporation firm were shareholders of the winning bidder at the time of
    XXX (the winning bidder) shareholding was for the this procurement. The extract shows that this is the case as
    manipulation of the presentation of the true state of the shares are still (according to the extract) held by Mr KKK
    company affairs to users of the audit document. and Mr KKP.
     Paragraph 7 makes no mention of any other share holdings.

     Paragraph 25 is correct in that it states that the senior official

    of RAM was a shareholder between 199 and 2007 and that at
    the time of the procurement the senior official’s wife and two
    sons were directors OF the company. The paragraph does not
    state that they were shareholders as alleged.
     Paragraph 26 is correct in that it states that the immediate
    family of RAM’s senior executive had a financial interest in the
    company. The paragraph does not state that they were
    shareholders.
     OIG concedes that paragraph 38 incorrectly states that the
    wife and two sons of RAM’s senior executive are current
    shareholders. The paragraph will be amended to read that the
    wife and two sons of RAM’s senior executive are current
    directors of the company and one of his sons is also the
    company secretary.
     Paragraph 41 is correct in that it states that two partners of a
    law firm were shareholders of the company that won the bid.
    The business extract shows that as at 25 February 2011, Mr
    KKK and Mr KKP still held one share each.
     Paragraph 67‐72 does not contain any incorrect information.
    The paragraphs indicate that: the company had family links to
    RAM’s senior executive; the chairman of RAM’s selection
    committee had business links to the winning bidder that were
    never declared; the winning bidder’s principal place of
    business and business address was a law firm of which the
    chairman of the RAM selection committee was a senior
    partner; and two partners of the law firm were current
    shareholders of the winning bidder according to a current
    company extract.

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