Flashback to March 1: Cambodia's Minister of Foreign Affairs Hor Namhong (left) and WFP director Rebecca Hansen receive a gift of 15,712 tons of rice on behalf of the Japanese Government, from the Japanese Ambassador, Fumiaki Takahashi, at WFP's Phnom Penh warehouse. Hansen kept quiet about the discovery two days before of a massive rice theft racket throughout the WFP's network. She advised donors on March 5 when investigators arrived from the Rome head office for a three month probe.

THE United Nations World Food Program (WFP), Cambodia's biggest food donor, has been the target of a $2 million rice fraud involving government ministries, trucking companies, rice traders, village communes, and local government officers working in collusion with WFP distribution staff.

Special investigators called in by the WFP found that an estimated 4,000 metric tons of mainly rice worth around $2 million, destined for poor villagers under the WFP's Food For Work scheme, was stolen in a systematic diversion and cover-up and sold for cash, over a 15-month period between January 2003 and April 2004.

Prime Minister Hun Sen has promised to compensate the WFP either in cash or rice, based on estimates of losses dating back to January 2003. The exact amount is still under negotiation.

WFP staff involved have been sacked and more may follow as inquiries continue, the WFP's country director, Rebecca Hansen, told the Post.

The government is involved in its own investigation to find evidence of criminal activity by government employees. Reports are going to a special committee headed by Deputy Prime Minister Sok An. The Anti-Corruption Unit has been assigned to the investigation.

Hansen said if the government had not agreed to co-operate, the WFP would have been reviewing its future role in Cambodia.

She said the WFP has suspended all new food aid projects till its compensation conditions are met.

The conditions agreed to by the WFP and the government are that the government will accept full responsibility for the loss and will compensate WFP for food lost between January 2003 and April 2004, that the government will hold accountable those primarily responsible for the fraud through either judicial or administrative procedures, and that the government and WFP will put in place controls to prevent the recurrence of food theft in the future.

Hansen described the elaborate, well-hidden racket as "a Pandora's Box that will continue to produce evidence as the lid is opened further. The lid stays on very tightly for a long time and gradually it starts to come open, and more information comes out. WFP will keep looking and taking action until such time we are convinced that we are clean."

She said she believes the thefts could have been going on for longer, "but we'll probably never know".

The WFP is a key player in the government's poverty reduction strategy. In the past three years it has put $70 million worth of donor-sourced rice, oil, salt, sugar and canned fish into Cambodia. Sixty-five percent of the rice (116,000 tons) was from Japan. The WFP's standard rice valuation is $315 a ton, which includes shipping, and external and internal transport costs.

In 2003, 64 percent of the food was distributed through a Food-For-Work (FFW) scheme which pays poor rural people for approved work.

In typical year the WFP supports 1,300 FFW sites spread throughout 12 provinces.

The rice stealing occurred within the FFW scheme. It was discovered on February 28 when a Saturday rice distribution was scheduled at Prey Mich, Kampong Speu.

"It was unusual for distribution to happen on a Saturday, so we carried out a spot check and found that a significant number of trucks that should have arrived did not. That gave us concrete evidence and on that basis we called in the WFP inspectors from our Rome headquarters," Hansen said. She would not give details of the tonnages involved.

An inspection team from Rome arrived on March 5 and the WFP's donors were told what was happening. A monitoring task force comprising a water resources technican and two engineers began work in mid-April.

She said database records and paperwork were flawless. To find evidence of fraud, the inspectors had to visit village work sites and physically measure the work carried out on roads and canals, estimate the amount of rice this qualified for, and compare that figure with what was actually requested and supplied from WFP warehouses. The difference over the period audited averaged 44 percent. Villagers mostly received their full food entitlements for work done.

Hansen said the principal means used was to undervalue the existing work and claim for fake worker beneficiaries. For instance, on a road or canal job the estimate would claim for all new work, when in fact a basic road or shallow ditch may already have existed. The amount of work required was thus overstated and qualified for additional rice. Fake or "ghost" beneficiaries were added to the center of food recipient lists where they were less likely to be detected by spot checks.

Truckloads were diverted to secret destinations after leaving the warehouses.

The period subjected to comprehensive audit and remeasuring of 70 project work sites was November 2003 to April 2004.

Hansen said to go beyond the previous rainy season meant dealing with changes to the weather-induced work sites that made accurate measurement impossible. The WFP had therefore applied 44 percent inflation to the period going back to January 2003, and this was being subjected to evaluation by the government team.

Hansen said reports of irregularities in the FFW had come from WFP staff and a Khmer newspaper in late 2003. Spot checks were carried out but failed to detect the fraud "because a few provincial sub-office staff were on the take and had a vested interest in maintaining the diversions and cover-up".

"We do not know how the fraud was initiated or how many people were involved. But there were many stakeholders and it was very well hidden. It involved the Ministry of Rural Development and the Ministry of Water Resources, technical implementing partners, transport companies, rice traders, WFP staff, some communes, and probably district and provincial government officers as well."

She declined to name the transporters. "We deal with a number of different companies and I would rather not name them. Certainly it involved drivers and those making the delivery arrangements.

"I don't know how the payments and kickbacks were made to those on the take. The government is investigating that part, but one can suppose that the rice was sold for cash.

"We have not found a key person to whom the rice was being sold. I think there were a lot of little cells linked together, but no evidence of a mastermind.

"A cell of two or three people involved in the diversion, supported by a few others helping to cover it up for a kickback, would be a possible scenario.

"I think there probably were a group of individuals connected with the different projects who took on the leadership role, but I couldn't say who or how many."

Post: Would as many as 100 people overall have been involved in the racket?

Hansen: "That would be difficult to substantiate. You'd be on thin ice; it's conjecture."

Post: How many WFP people are likely to be fired?

Hansen: "Seven so far have either been fired or resigned. We have ninety staff nationally and about half of them are in the field."

Post: Has anyone confessed?

Hansen: "The WFP gets signed statements; we don't call them confessions. We have admissions that they did not manage the program as well as they should have but it's difficult to get someone to admit they accepted kickbacks."

Post: WFP has experienced similar scale food fraud in its operations in several other developing countries, including Afghanistan and Serbia (where the government repaid $3 million). If it's so common, how did it happen here?

Hansen: "This office has always been aware of the possibility for diversion. We have taken many steps to prevent this. We had an audit in October 2003. We have done program audits. We are constantly trying to ensure that food is used for its intended purpose. If you have a large number of people in collusion who stand to gain they have a vested interest in maintaining that system and it's incredibly difficult to get to the bottom of it.

"On the basis of what we have now found out we will do things better but at the time we had no reason to believe there was a problem. We are confident we can put in a system in which it will be easier to spot diversions."

Post: What level of person in government was involved?

Hansen: "I could not say how high up it goes. The government investigation will determine that."

Post: How do you feel about the relationship of WFP with Cambodia now?

Hansen: "I don't think you can let the actions of a few individuals poison the relationship that has had so much benefit for the Cambodia people.

"We don't see it as a setback. Our donors have been kept fully informed and they remain committed to the program."

Hansen said that if the government had denied the problem, "if they did not accept anything, then we would have had to seriously look at our future in Cambodia. But we have never made that threat and we are getting a lot of co-operation. The government has accepted responsibility at the highest level.

"It's up to our executive board to see that the government delivers on those three points of agreement."

The WFP's summary report, findings, and recommendations were presented on July 8 to Prime Minister Hun Sen, Deputy Prime Minister Sok An, and the Ministers of Interior, Foreign Affairs, Rural Development, Water Resources, Agriculture, and Education. The WFP side was represented by the Asia bureau regional director Tony Banbury, and the Inspector General, Adnan Khan and Hansen.

A statement issued from this meeting and given to the Post states: "The Prime Minister expressed his concern and regret over the FFW losses and agreed to the three points raised by the WFP."

Hansen said Hun Sen was adamant that if someone in government was proven to be implicated they would seize assets. "He gave an example that if someone had used the money to buy a house they would seize the house and use that to help pay back the WFP."

Post: Are you confident the government will deliver?

Hansen: "There is no compensation deadline. We are prepared to be paid in cash or food, by installment. We are open to settlement by negotiation. We have made it clear that we will not start any new FFW programs until this is resolved."

"What I hope happens out of this affair is that instead of it coming across as dumping on the government or the WFP, people can see that the government does have a responsibility, has made a commitment. If the country does want to move against corruption there has to be more of these cases come to light."

In 2003 under the FFW scheme, the following work was done: 1,100 km of tertiary road built or rehabilitated, 52 community structures constructed (schools, wooden bridges, etc); 50 km of dikes and dams built, 183 km of canals, two reservoirs, and more than 1,400 ponds and wells; more than 143,000 trees planted and 2,430 latrines built.

The WFP's principal donors are Japan, Australia, USA, Germany, Canada, Sweden, the Netherlands and Britain.

Hansen has been replaced by Thomas Keusters. She leaves Cambodia today (August 27) for a position at WFP's Rome headquarters as human resource director. She said this was unconnected with the rice scandal, that she had completed her three-year assignment.

Government disputes figures

The government has assigned

three investigating teams to the WFP rice diversion racket and Sean Visoth, a Council of Ministers spokesman, says their inquiries are showing up some discrepancies in the WFP's figures that may result in the final agreed compensation being less than $2 million.

"The government is committed to dealing with corruption under the adopted Rectangular Strategy and we are taking this case very seriously. We must set an example of accountability," he said.

"Our main objective, working together with the WFP, is to determine precisely how much rice was stolen or lost; to identify those responsible, and to punish them appropriately. After that, we can discuss the amount of compensation that we should pay.

"The rice diverted has been shared among many different stakeholders including government officials at provincial level, NGO sub-contractors, WFP staff and commune chiefs.

"Our investigators have gone to some of the work sites to carry out their own measurements to compare with the WFP's and already we are seeing some differences which have been accepted by the WFP chief investigator. In Kampot where the discrepancy was estimated at 41 percent by WFP, we have found it to be only 29 percent. The government would not be willing to compensate for the activities of WFP staff.

Visoth said he thought there would have been "less than 100" people benefiting from the fraud at all levels among government stakeholders.