Corruption at the American University of Beirut, Part II: The BMH report

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Al-Akhbar Management

Students walk through the main gate of the American University of Beirut. (Photo: AFP-Joseph Barrack )

By: Hussein Mahdi

Published Tuesday, May 6, 2014

A detailed report by Blue Mark Holdings (BMH) on purchasing and supply chain processes within the American University of Beirut Medical Center (AUBMC) highlighted stunning cases of funds being mismanaged and that AUBMC could save $12 million annually if it put an end to corruption within its institutions. Interestingly enough, BMH, which was paid $300,000, revealed in a message to Mark Cliff, who oversaw the work of the Ad Hoc Review Committee (AHRC), that Mohammed Sayegh, vice president for medical affairs at AUB, had requested the results of the report to be kept secret from the university, even though he had told the company, “I want everything looked at,” and that if necessary, he would “hang people.”

On May 5, Al-Akhbar published the first part of an investigation into irregularities at AUBMC, referencing reports that showed widespread misappropriation of funds and corruption at the institution. Yet, officials at AUBMC have yet to be held accountable.

Today, Al-Akhbar publishes the second part of the investigation, relying on another set of leaked documents pertaining to inquiries conducted over the past few years, including a report by Blue Mark Holdings (BMH). The report documents cases of fraud related to purchases, storage, and other issues, complementing what the other reports had previously mentioned.

Along with the BMH report, Al-Akhbar obtained the text of a correspondence between BMH and Mark Cliff, an accounting and investment expert, explaining how the vice president for medical affairs who oversaw AUBMC, Mohammed Sayegh, had asked BMH to not reveal its findings, especially in relation to fraud. Sayegh was able to conceal the report for the better part of a year.

But why exactly did Sayegh make this request, and what did the report find?

A poor history

“There is a poor history of implementing efficient policies within AUBMC,” according to one observation stated by BMH’s report. The report states that the purchasing and supply chain processes within AUBMC were “poorly developed, [and] lacking appropriate staff, processes and technology.” Procurement is not competitive, the report continues, and on many occasions, items procured are over priced. According to the report, purchasing procedures in similar facilities elsewhere are not implemented within AUBMC. The report then judged that significant change is needed to “bring spending to an acceptable and efficient level, with a potential year-on-year savings of $12 million.”

It is possible to achieve change, according to the report, but what is worrying is the lack of “tolerance and ability of staff within AUBMC to implement change.” “Broadly speaking, there is a general lack of appetite for change” at AUBMC, the report continues.

During talks conducted by BMH experts with staff, patients, and suppliers, and others, there were complaints about corruption and bribery at the medical center, supported by the staff’s philosophy of: “I did not see anything, [I] did not say anything.”

According to the report, the purchasing officers had no formal negotiation training, and “little or no commodity knowledge or experience of their end-users primary business,” though they are “often in negotiations with suppliers, who have excellent negotiation skills and who are intimately knowledgeable about the AUBMC businesses.” There are very rare cases, the report continues, where purchasing officers were able to secure the best deal for AUBMC, while “some decisions…[were] taken at the detriment of the overall business goals and objectives [of AUBMC].”

Furthermore, BMH found that there was no active management of suppliers, and that, in many cases, AUBMC was driven by the wishes of certain suppliers. The report recommended an implementation of a supplier management program as soon as possible.

Risks and expired drugs

The report explained the supply chain and procurement processes at AUBMC, which currently rely on two in-house developed programs operating on an AS-400 platform, and an Oracle based purchasing system.

Through the interviews conducted by BMH and its efforts to obtain data, BMH found that the full functionality of the Oracle purchasing system had either not been purchased or implemented. The report states, “The availability of data is critical to driving down prices” and therefore, avoiding the manipulation of prices. BMH’s report recommended an immediate plan to improve communication between platforms, and to ensure appropriate data is collated and made available to support the buying and budget process. The report states in this regard, “These efforts should be linked to the current initiative to re-launch and upgrade Oracle to version 12.”

Perhaps the most serious discoveries made by BMH experts, however, were those related to the Material Management Department (medical warehouses), where they expressed significant and deep concerns that required immediate action by AUBMC management. In particular, BMH highlighted the presence of $2 million of old stock items, including expired items, which need to be replaced or sold. BMH stated that there was no inventory record or records of items sold, and that “barcodes were not available and records were only on paper – significantly increasing the risk of fraud or theft.”

The Material Management Department (MMD) director confirmed ordering stock that he felt was needed to meet hospital needs – because he could not rely on the Purchasing Department, according to BMH’s reports. BMH also found that there was limited security on the medical supply storage facilities, and that the facility themselves were antiquated and had few of the controls or practices associated with modern storage. Nor did BMH find any executive management oversight or involvement evident to improve conditions, and noted that the risk of environmental damage or contamination of medical supplies due to poor storage was high.

BMH was told that inventory checks were stopped on the instruction of the Audit Department (at the time managed by Andrew Cartwright). According to BMH, random samples of stock were pulled and found to be held on the order of doctors who had ceased to work at the hospital for a number of years. BMH also found cases of significant over-ordering of goods, with no apparent correlation to actual usage, including orders of medicines.

Ignoring concerns

Despite repeated attempts by BMH’s team to examine the electronic purchasing and payment systems, they were unable to get any meaningful data. Technically, according to BMH, this ought to be impossible, as data had been entered and was stored within both systems. Thus, BMH concluded the only reason data was not being retrieved was due to deliberate intervention upon management’s instructions, something that “could only have happened with the knowledge and approval” of Mohammed Sayegh and Ziad Ghazal.

The significance of some of the report’s contents is that they raise the possibility of mistakes or medical errors occurring, in light of the chaos at AUBMC. For instance, expired medicines or foods could be taken out of storage and given to patients, which might put their lives at risk.

BMH experts noted their concerns in a message to Mark Cliff, stating, “Our concerns were met with the same degree of disengagement by Mohammed Sayegh and Ziad Ghazal. This was of great concern to us as staff had spoken openly about concerns they had that the director of the MMD was taking inducements or kick-backs.”

According to Al-Akhbar’s sources, the director was transferred to another department at the university instead of being held accountable. The sources said he is “politically connected.”

These were the findings of the report, which said that the mismanagement of funds was costing AUBMC millions of dollars each year, something that could be easily stopped, according to BMH. So instead of raising tuition fees by as much as 6 percent annually, AUB’s administration can implement the necessary steps to address the problems highlighted by the report, and implement its many recommendations. In effect, this would allow AUB not only to freeze tuition fees at their current levels, but also to reduce them, or to increase the salaries of its faculty and staff, without any cuts in its budget.

Unchanged practices

The three reports published by Al-Akhbar are not the only documents addressing corruption and mismanagement at the university. For more than 13 years, AUB hired many consultants and auditing companies to investigate corruption, theft, and the wastage of millions of dollars in expenditure. However, it is clear that the recommendations made by the consultants and auditors were for the most part ignored. Most of the reports end up re-stating the need to implement previous recommendations, to curb corruption at AUB and AUBMC, yet little has changed there, and millions of dollars continue to be squandered each year.

Some of these reports include one by Ernst & Young in 2006. Not all its recommendations were implemented because of the “lack of human resources.” At the same time, the report by the AHRC recommended abandoning previous recommendations, and focusing on those by KPMG (which had not yet been published), even though KPMG analyzed different issues than those tackled by Ernst & Young.

Ernst & Young is one of the world’s leading accounting and auditing firms and audited all procure-to-pay processes. Its experts spent many months in Beirut to examine all stages of purchases, identify suppliers and tenders, as well as purchase orders, and examine storage of material, equipment, and drugs.

Meanwhile, according to BMH’s report, AUB retained the services of a number of consultants to carry out certain works, only to sack them before they could issue their final report.

BMH’s email to Mark Cliff

According to an e-mail from BMH to Mark Cliff, “Mohammed Sayegh did not want auditors involved, did not any competitive tenders, and did not want people within AUB to know what was being done.” This was reiterated on several occasions.

Sayegh, with the help and knowledge of his aide Ziad Ghazal, wanted to conceal the work related to investigating fraud, and did want to “attract attention to the work” carried out by BMH. Instead, he wanted two reports, one concealed showing the work carried out by BMH, and a general, superficial report that can be circulated to trustees and administrators at the university without any leading to any real reaction or accountability. In addition, Sayegh asked the company to report orally and not in writing (in relation to fraud).

Sayegh asked BMH to split its invoices into small payments not exceeding $40,000 each, so that Sayegh could avoid having to obtain approval from his superiors. Sayegh paid BMH’s fees, which were in excess of $300,000 (more than Sayegh and Ghazal’s jurisdictions allowed) from the budget of the Faculty of Medicine at the university. This has been the norm since Sayegh was appointed to AUBMC, to charge the university the largest proportion possible of AUBMC’s expenditures, in order to show good performance. BMH proposed many solutions to Sayegh and Ghazal, but they ignored their recommendations, according to the e-mail.

The tuition fees controversy

On May 5, students and faculty members left a meeting with AUB’s administration empty-handed, after failing to receive any answers regarding their demands. The hike on tuition fees was not cancelled, but was reduced instead. The demands of the students were not taken seriously, especially since AUB did not supply any breakdown of its budget, and did not discuss any of the faculty’s demands either.

Though Vice President for Medical Affairs Mohammed Sayegh, Hassan Diab, and AUB President Peter Dorman were present along with Dean Ahmed Dalal, no results were reached.

The financial committee, which was formed to draft a new budget for the university, presented its results orally, reducing the hike on tuitions to 3 percent for current students, and 5 percent for new students. At the same time, the university froze increases on the costs of housing and technology.

Dorman announced that academic activities and research will not been affected, and that no spending cuts were made in related items to reduce the hike on tuition fees. He sent the draft budget to the Board of Trustees, which will meet on May 25. Dorman will then make his final decision and approve the budget by May 30.

AUB faculty members met on Monday to discuss a number of issues related to the university, most notably the issue of work contracts and IT at the university. For their part, a number of student activists told Al-Akhbar that they were going to call for further action and for a “final confrontation with the university’s administration.”

This article is an edited translation from the Arabic Edition.


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