Corruption at the American University of Beirut, Part I: Irregularities and anomalies

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A student walks past posters calling on AUB students to occupy College Hall as part of ongoing protests against proposed tuition hikes. (Photo: Marwan Bou Haidar)

By: Hussein Mahdi

Published Monday, May 5, 2014

Protests by American University of Beirut (AUB) students this year did not target only tuition fee hikes, but also voiced demands related to transparency, participation in running the university, and tackling corruption. Al-Akhbar is publishing a two-part report summarizing the contents of documents and reports that AUB students were able to obtain, backing their claim about rampant misappropriation of funds – to say the least – in the budget of the AUB Medical Center (AUBMC).

Student activists at AUB have been on a quest to uncover irregularities in AUB’s budget, following a decision by the university’s administration to raise tuition fees, supposedly to cover the rise in expenditures. The students were able to find many anomalies in AUBMC’s expenditures. The documents supplied to Al-Akhbar corroborate the students’ allegations, showing that millions of dollars from tuition fees and funds from the National Social Security Fund (NSSF) and the Ministry of Health have been misspent on contracts, purchase orders, tenders, drugs bills, and even foodstuffs.

This much is clear in a report prepared by former Board of Trustees member Nabil Shartouni, in addition to reports by U.S. auditing company KPMG, and the Ad Hoc Review Committee.

The AUBMC 2020 project

The affair begins with the controversy that broke out inside the Board of Trustees regarding a number of irregularities at AUBMC. This played out in the period between 2009-2011, on the back of the assessment of the AUBMC 2020 project which aimed to expand the medical center. There were wide-spread reports about misappropriation of funds and fraud involving AUBMC’s management.

Nabil Shartouni was one of the most outspoken members of AUB’s Board of Trustees. At the time, he sent out several letters to AUB officials, and spoke repeatedly during the board meetings about corruption, fraud, and even the misappropriation of funds. However, Shartouni’s objections sparked a personal feud, and as a result, his membership of the board was not renewed.

According to sources familiar with the issue, the process by which Shartouni was excluded from the board involved overt violations. A number of board members did not recognize the results of the vote, and according to the minutes of that session, no legal quorum was actually present.

During that period, the controversy surrounding the AUBMC 2020 project intensified. A spat ensued between the vice president for facilities, Samer Maamari, who put the cost of the project at $400 million, and the Chairman of the Board Philip Khoury, who claimed that the project needed an additional $200 million. Maamari flatly rejected this, and was subsequently sacked by AUB President Peter Dorman, without notice or compensation, forcing Maamari to take AUB to court.

This incident prompted Clifford Mumm, who represented Bechtel on the Board of Trustees, to resign in protest. To date, Bechtel has refused to name a new replacement.

Afterwards, Shartouni and Maamari said they were forced out of AUB after they accused a number of trustees and administrators of seeking to add $200 million to the project cost to facilitate fraud.

Shartouni’s Report: The scandal comes out in the open

Shartouni sent his 316-page report to the board addressing in detail corruption, wastage, and misappropriation of funds and assets at AUB and AUBMC. However, several board members and AUBMC officials judged that the report was “groundless and meaningless.”

With mounting pressure from some members of the board, Shartouni subsequently sent a copy of his report to the New York Attorney General, seeing that AUB’s headquarters is located in New York. Parts of the report were leaked to the press, and published by Al-Akhbar in November 2011 and May 2012 (in Arabic).

To avoid an official investigation, AUB’s management contacted the New York Attorney General, promising to carry out an independent and transparent internal investigation. Two independent probes were conducted: one by KPMG, and another by the AHRC, which was established by the Board of Trustees, headed by board member Ayman Asfari. The committee hired Hogan Lovells, a New York City law firm, and Mark Cliff, a British auditor to conduct the probe.

KPMG’s report: $32 Million wasted

KPMG completed its report in 2012. The report investigated the mechanisms in place for purchases, payments, and internal audits covering the period between October 2008 and October 2011, when Mohammed Sayegh, vice president for medical affairs, was overseeing AUBMC.

According to the report, AUBMC purchased medical supplies worth $17 million, or 66 percent of the total amount of medical supplies audited by KPMG auditors, from the same source without conducting a single tender to obtain competitive quotes from a number of suppliers, as AUB’s bylaws require. Over the past ten years, AUBMC also purchased medical supplies without organizing tenders from a U.S. based company, using the prices listed in AUB’s budget rather than the best price in the market.

The hospital also used International School Services (ISS) – a U.S. school supplies company – for ten years, to purchase medical supplies while also bypassing tenders. The KPMG report cited a testimony made ​​by Stephen Kenney, vice president for finance, who said in 2007 that the way AUB purchases from this company was inefficient.

Despite this, the university, based on the recommendations of the head of procurement Hanan Itani Ramadan, according to the report, continued its purchases from ISS until June 2012. As a result, AUB squandered millions of dollars over the years (the report could not provide an exact figure).

KPMG’s report noted that procurement staff manipulated contracts with suppliers, mentioning several cases where some companies were given preferential treatment at the expense of others. For instance, some companies were given the chance to resubmit their bids at prices lower than those submitted by non-favored companies to secure contracts. Similarly, bids by some companies were rejected without any justification, in favor of other companies.

One example provided by the report relates to the purchase of supplies and equipment at a price that is 25 percent higher than the basic price agreed with the same company. For instance, the hospital purchased medical gloves at a price of $3.90 per unit although the contract with the same company in question lists the price at $3.19 per glove. The report also mentioned the role intermediaries played in brokering deals between the hospital and some companies. Even though AUBMC’s purchases were separated from those of the university after 2010, the report indicates that Itani, who was put in charge of AUB procurement, continued to handle the relationship with ISS.

According to the same report, no vendor master database is maintained in the procurement department. There is also a near complete absence of auditing at AUBMC or a proper system for information management. The audit department does not provide adequate coverage for all AUBMC operations, the report continues, pointing out that no auditing had been conducted for bills or purchases in 2011, and that the auditing conducted in 2009 and 2010 was inadequate. In November 2011, an official at AUBMC was sacked after an attempted bribe.

The free of charge drugs scandal

The KPMG report indicates that corruption at AUBMC also affects drugs purchases. Free of charge (FOC) drugs are not included in contracts signed with suppliers. Yet sometimes they were ordered and paid for but were not delivered by suppliers. The report states that $15.2 million (or 27 percent of the total amount of medicines procured by the hospital) has been spent in this manner.

Discounts worth a total of $249,666 have been given to 47 patients (i.e. $5300 per patient) without following proper administrative procedures in place at AUBMC, or obtaining the required approvals. KPMG found 14 cases where treatment costs were unjustifiably reduced, causing a loss of $703 thousand.

Similar discounts on treatment costs were given to 5,284 patients without any documented justification. Furthermore, a number of patients were upgraded from second and third class to first class without paying the difference, and also without any documented justifications or obtaining the required approvals.

Meanwhile, a number of patients paid for medicines they did not receive. In other cases, some medicines had their codes modified in order to sell them at a higher price. In audits of medical supplies, medicines, and patients’ bill, there were irregularities in no fewer than 42 percent of the figures checked by KPMG auditors.

AUBMC refused to return excess funds obtained from patients covered by the NSSF or the Ministry of Health. Walid Othman, chief financial officer at the hospital, is quoted in the report as justifying this by saying that AUBMC suffers a loss on NSSF patients, and that the decision not to refund the excess amount was therefore taken with the aim of maximizing AUBMC revenue.

It is worth noting that the KPMG report indicates that Adnan Tahir, AUBMC director at the time, disavowed violations by Othman and other administrators related to patients, denying any responsibility in what happened, while stressing that the only two people who could approve those operations were himself and Mohammed Sayegh. So does this mean that Sayegh had given his tacit approval to these practices without Tahir’s knowledge? The report did not address this question.

Huge debts

AUB has huge debts, which, according to financial reports submitted by the university to the U.S. government, exceeded $224 million at the end of 2012, compared to $129 million in 2007. This was partly the result of university spending on AUBMC buildings and staff, and new projects implemented by AUB, specifically the AUBMC 2020 project.

These projects directly place a financial burden on the students, who fund the bulk of AUB's expenditures through their tuition fees. Students’ tuition fees also go to financing debt servicing, but in the presence of corruption and the absence of transparency at the university and its medical center, the students do not know exactly how and where their money is being spent.

In the course of their protests, AUB students have raised their voices over and over again to demand more transparency and freeze tuition fee hikes, curb the misappropriation of funds, and put an end to corruption within the university. They want to stop the administrators at AUB and AUBMC who are profiting at the expense of students, faculty, and patients without being monitored or held accountable.

The AHRC report

The AHRC report indicated that since Sayegh took office, annual losses at AUBMC decreased from $7 million in 2009 to $1.6 million in 2010. The report, published in March 2012, mentioned that 2011 profits were poised to reach $2.2 million. However, official financial reports for 2011-2012 showed an actual loss amounting to $2.5 million.

According to previous financial reports, AUB profits declined from $46 million in 2007 to $22 million in 2012, despite an increase of $127 million in total revenues over the same period.

It is also worth noting that between 2011 and 2012, AUB lost $16 million in investment revenues and other revenues. In 2012, AUB lost $27 million on its stock market investments. And in 2012, AUB lost more than $42 million from the value of its endowments compared to 2008.

This article is an edited translation from the Arabic Edition.


already consumed subject... very cheap!!

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