Zenith Carex International in alleged $3 million fraud scandal

Zenith Carex International Limited has been blacklisted by Global Fund for an alleged $3 million fraud.

According to Premium Times, Zenix Carex was accused of systematically inflating invoices for the distribution of health commodities to warehouses and health facilities throughout Nigeria.

In its latest report published March 9, the Office of the Inspector General (OIG) of the Global Fund said Zenith Carex committed the fraud within a period of two years between 2017 and 2019.

The revelation builds on previous yearly reports by the OIG accusing Nigerian companies and government agencies of abusing millions of dollars of the Global Fund aid.

Nigeria responded to some of the allegations over the years by ordering probes by the antigraft agencies, EFCC and ICPC. Nigerian authorities in some instances faulted the findings of the OIG, noting the need for the setting up of an independent committee to review its reports.

These allegations, however, could result in an indefinite termination of such donations to Nigeria if left unchecked, anti-corruption campaigners said.

Global Fund is a funding mechanism that pools the world’s largest financial donations for the prevention, treatment and care of AIDS, Tuberculosis, and malaria.

Giving that Nigeria has the highest malaria burden in the world (one in four cases globally), the world’s fourth-largest tuberculosis burden, and about two million people living with HIV, funding programmes to stem the tide of these grim indices became a central focus for Global Fund.

Since 2003, the Global Fund has disbursed over $2 billion in Nigeria but the country is still dogged by disturbing health statistics partly because corrupt and incompetent officials undercut progress in health management, health experts say.

To understand why its investments are not translating to equivalent and much-expected results, the Global Fund set up the Office of the Inspector General (OIG).

The OIG safeguards the Global Fund’s assets, investments, reputation and sustainability through its audits, investigations and advisory work.

Its latest report detailed how Zenith, a sub-contractor of Chemonics International (Chemonics), who managed an integrated supply chain for Global Fund Principal Recipients in Nigeria and the United States Agency for International Development (USAID), allegedly inflated distribution invoices up to ten-fold and misrepresented the services executed, resulting in a $3 million overcharge.

Chemonics, a global development firm based in Washington, has worked with the Global Fund on technical assistance and logistics projects in 12 countries.

In Nigeria, via third parties such as Zenith Carex, Chemonics manages central and regional warehouses, Long-Haul distribution between warehouses, and Last Mile Distribution to 16,000 health facilities, for both pharmaceutical and cold chain commodities.

According to the OIG report, Chemonics approved and paid “Zenith’s fraudulent invoices for over two years. Combined with Chemonics’ percentage-based contract management fees, the fraud resulted in over $3.4 million in non-compliant expenditures charged to the Global Fund.”

“Chemonics’ controls were poorly implemented by negligent staff who missed key red flags when reviewing Zenith’s invoices. Inadequate financial monitoring in the local office and US-based Headquarters, combined with potential collusion between Chemonics and Zenith staff, allowed the fraud to remain undetected, despite significant budget overruns in the Global Fund contract, as well as a 75% contract ceiling increase for Zenith,” the report said.

The Genesis
In April 2019, the Global Fund Nigeria Country Team alerted the OIG after Chemonics made a retroactive request for additional funds and forecast multi-million-dollar budget overruns on their fixed-price Global Fund contracts.

The Country Team engaged the Local Fund Agent (LFA) to examine potential causes of the overspend, which led to the identification of numerous unsupported sub-contractor expenditures.

“As neither the outcome of the LFA work nor statements from Chemonics fully explained the root cause or extent of the budget overruns, the OIG opened a proactive investigation into potential fraud in the supply chain,” the report stated.

The OIG said it reviewed over $20 million in third-party logistics provider charges to the Global Fund from 2017 to 2019, reviewing documentation for six key logistics providers including Zenith. It said it analysed invoices and proofs of delivery.

The OIG said it conducted two field missions to Chemonics’ Abuja office and interviewed various logistics providers and visited warehouses in Abuja and Calabar.

Zenith, the primary vendor of cold chain commodities – specialized, low volume items such as HIV testing reagents – to 400 health facilities across Nigeria was at the centre of the fraudulent overruns, preliminary findings by the OIG revealed.

“Zenith assisted investigators by attending interviews but provided limited documentation in support of their statements,” the report said.

About US$3,429,253 of distribution costs invoiced by Zenith, inclusive of Chemonics’ associated management fees, were fraudulent and non-compliant, the OIG investigation found.

“This investigation uncovered a systemic invoice fraud which drove up the cost of distributing specialist HIV cold chain commodities between and from warehouses in Abuja, Lagos and Jos to 400 health facilities nationwide,” the report stated.

“The fraud was a significant factor in Chemonics’ subsequent requests for additional funding from the Global Fund. Unsustainable costs affected the financial viability of the supply chain in supporting the fight against the three diseases in Nigeria.

“Chemonics has now ceased working with Zenith, taken administrative action against certain employees, and improved controls and oversight over key Field Office processes. The OIG and the Secretariat have agreed management actions to improve the monitoring of projects and risk in strategic, high-value, crossportfolio suppliers such as Chemonics.

“The OIG recommends the Secretariat recovers US$3,155,514, and will evaluate the referral of the investigation findings to Nigerian law enforcement authorities. Due to the findings of this report, the Secretariat has ensured Zenith is no longer providing any service to Global Fund supported programs in Nigeria.”

The invoice scheme, according to the OIG, started from the first invoice Zenith submitted to Chemonics in August 2017, which charged $33,953 for transporting 60,000 kilogrammes of materials from Abuja to Jos.

“Zenith inflated the charges tenfold: supporting documentation revealed that only 6,009 kg of packaged commodities had been transported, which should have cost US$3,400,” the report stated.

“Zenith defrauded the Global Fund by US$712,588, or 93% of the total charges, by invoicing for truck tonnage (the gross weight of the trucks used to transport goods).”

According to the report, Zenith confirmed invoicing Long Haul based on truck tonnage, saying this reflected the vehicle volumes required to transport the commodities.

“Zenith claimed they received verbal approval to charge by truck tonnage in a 2017 meeting with a former Chemonics procurement specialist, but could provide no records, or contract amendment, to support this.”

Zenith continued with the truck tonnage invoicing scheme until June 2019. Following the LFA’s review, the company changed its invoicing practice and began invoicing in commodity weight rather than truck tonnage.

“The commodity weight charged, however, continued to be fraudulently inflated by up to ten times,” the report stated.

Zenith also misrepresented the capacity of the vehicles deployed, increasing the overcharging, the report stated. Several charges were beyond the capacity of the vehicles in Zenith’s fleet, according to the OIG.

In a review of a separate throve of inflated invoices, Zenith from May 2017 allegedly misrepresented its delivery practices and inflated invoices for a period of over two years, overcharging the Global Fund by $2,284,518, or 91 per cent of $2.6 million Last Mile Delivery (LMD) fees.

Contacted, a representative of Zenith said the company is aware of the OIG report. He told our reporter to visit the company’s Abuja office on Monday for its own side of the story.