Letter to the Chairman of the Committee
from Permanent Under Secretary, Foreign and Commonwealth Office,
29 August 2006
FOREIGN AND COMMONWEALTH OFFICE: FRAUD IN
THE BRITISH EMBASSY IN SANTO DOMINGO
1. I am sorry to have to inform the Committee
of a significant fraud which we have identified at the Embassy
in the Dominican Republic. At this stage of the investigation,
the loss looks to be around £200,000. I enclose an initial
report for your information. We believe the fraud was perpetrated
by the locally employed Accountant.
2. The internal investigation into all aspects
of this most unsatisfactory case is still in progress. We are
pursuing with the relevant authorities both criminal charges and
civil action to recover as much public money as possible. I will
provide a fuller report once our work has been concluded.
3. While this loss will not require a separate
note on the FCO account, I judge that its scale and nature make
it sufficiently significant to draw to your attention at this
stage.
Sir Peter Ricketts KCMG
Permanent Under Secretary of State
Foreign and Commonwealth Office
FRAUD IN SANTO DOMINGO
SUMMARY
1. A fraud has taken place at the Embassy
in Santo Domingo. The loss is believed to be about £200,000
and took place over the period July 2004 to May 2006. The internal
investigation to determine the exact loss continues but the loss
is not expected to increase significantly. We believe that the
fraud was perpetrated by the Locally Engaged Accountant. No other
staff are believed to have been involved. The fraudster has been
dismissed and the matter is being taken forward with the criminal
authorities. No arrest has been made as original documentation
is needed and this is still awaited from the banks.
2. We believe the fraud was carried out in two
ways. Firstly duplicate cheques were cashed by the Accountant
who simply kept the cash; and failing to pay all the Visa fees
into the bank. Accounting records were amended to hide the fact
that this fraudulent activity had taken place and bank statements
forged to match the accounting records. We further believe the
fraud was allowed to take place because the prescribed control
regime was not followed rather than weaknesses in the control
regime.
DETAIL
3. In July 2006 the Banco De Las Americas alerted
the Embassy in Santo Domingo to the fact that they were US$17,000
overdrawn and asked Post to rectify this position. This was surprising
to staff at Post as they banked with Banco Popular and not Banco
De Las Americas.
4. Initial investigation identified that the
account at Banco De Las Americas in the name of the British Embassy
had been set up by the Accountant, without authorisation, as a
means of cashing cheques. The fraud involving this bank was that
required payments would be correctly made to suppliers but the
Accountant would then get staff at Post to authorise additional,
unrequired, payments to that supplier. The cheques arising from
these additional transactions would be cashed through the unofficial
bank account, by the Accountant, who would keep the cash. These
additional payments were not entered on the account and bank statements
were forged, by the Accountant, to hide the transactions missing
from the account ie artificially overstating the amount of money
in the bank.
5. In addition the Accountant only paid in part
of the Visa Fees into the bank and then amended the bank receipt
to show all the money had been paid in. For example if Visa fees
for the day were Pesos 51,000, Pesos 1,000 were paid into the
bank and a "5" added before the 1,000 on the bank receipt.
The full Pesos 51,000 was then entered on the account and the
bank statement forged to reflect the accounting records. Again
this overstated the amount of money in the bank.
6. To date we have found that the Accountant
stole about £200,000 since the fraud started in mid 2004.
This earliest fraudulent transaction so far identified is July
2004. This loss is currently an approximate figure as it is believed
that the Accountant was also involved in other smaller frauds
on the account but the accounts have not yet been fully examined.
However, comparison of fundings and local receipts against local
spend indicates that the amount stolen will not increase significantly
over that already identified.
7. The matter has been reported to the District
Attorney (DA) in Santo Domingo. They have not yet arrested the
Accountant. We have three months ie to 10 October to fully document
the case to the police. We will ensure that this is done.
8. At this time we believe the fraud was allowed
to take place because of non application of prescribed procedures
rather than gaps in the control framework. Specifically bank statements
were not obtained independently by the surprise checking officer
(had this been done the fraud would have been deterred or stopped
in the first month it took place); and apparently high cash balances
were not investigated. Had this been done it would have been discovered
that the amounts stated on the bank statements were incorrect.
Other required checks that would have helped stop or detect the
fraud that were also inadequately carried out included control
over duplicate payments, not investigating why bank statements
were not original, lack of control over Letters of Instruction
and the Accountant was the only person to prepare the end of month
Accountant.
9. The internal investigation will be completed
as soon as possible but will inevitably take some time because
of the volume of transactions to analyse.
Financial Compliance Unit
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