Extra MVR 355m spent on Police flats, illicitly benefited parties: Audit

Police Welfare Company (PolCo) has spent MVR one billion to develop apartment buildings in Hulhumalé which would benefit certain parties, the Auditor General's Office (AGO) revealed, adding that the project was carried out at a MVR 355 million loss.

The audit of the police housing project carried out in collaboration with Blue Housing and began on June 23, 2013, revealed MVR 1.06 billion was spent on the project. While MVR 1,851 was spent per square foot of the project, this is twice the initial cost of the project, the audit said.

The audit said the average cost of such a project based on information obtained from the Tender Evaluation Board of the Finance Ministry and the prices of private construction works was between MVR 1,300 and MVR 1,500 per square foot.

At that rate, the audit found the project should cost MVR 745.3 million, with the maximum being MVR 859.9 million, the audit said.

“Based on these estimated values, the office believes that MVR 354.7 million or at the very least MVR 240.1 million was spent extra on the project,” the audit report said.

The audit also detailed that the cost of the project so far was MVR 481 million more compared to the initial contract price of MVR 580 million.

According to the report, the nearly double expenditure on the project shows PolCO does not have the technical capacity to run such large projects. The audit also found that contracts had been altered in favour of contractors and suspected fraud and corruption practices had been committed during the project as well.

The report claimed that PolCo tried to carry out the project for the benefit of a particular party.

It detailed that the companies PolCo made contracts worth MVR 628.7 million with are considered to be directly and indirectly associated to a specific party. The party is believed to have family ties to the representative of Noomadi, the managing director of Island Expert and the managing director of Dhe Koamas.

"In addition, 'Mr. X' is the co-owner of Global Express and Funaki Import and Export Co., which are subcontracted by Island Expert," the audit states.

According to the audit, this person received all benefits directly and indirectly from the financial concessions, price increases and contract extensions allowed by the agreements made by PolCo with it is contractors.

Direct and indirect payments made to Mr. X

- Noomadi - MVR 96,324,299

- Island Expert - MVR 441,944,785

- Global Express - MVR 70,024,572

- Funaki Import and Export - MVR 36,223,214

- DKM Worldwide - MVR 24,013,521

- Dhe Koamas - 14,225,777

The report recommended those involved to be prosecuted including PolCo's board members at the time this transpired, and to have the matter investigated by the Anti Corruption Commission (ACC).

Other recommendations include:

- Products carried out with large expenses from state budget should be done in accordance with the tender policies of the Public Financing Act.

- POLCO should recover the additional amount paid to Island Expert as soon as possible when the contract with the company was terminated. Since the agreements made between PolCo and Island Experts, Ensis and Thanburumaa to recover the funds were damaging to the government, the matter should be investigation, hold those responsible accountable, and escalate the matter to court if the funds are not recovered.

- Ensure adherence to the state's Public Finance regulations when handling advance payments, subcontractor payments, and contract terminations related to work under agreements.

- Calculate and claim damages caused by companies from court due to not carrying out the work in accordance with the agreements made with PolCo.

- Ministry of Finance is advised to take action against the companies whose contracts had to be cancelled to work delays.

- If construction projects carried out by the state includes a decision to exempt import duty on the goods imported for the project, it should be clearly stated in the project announcement.

- Major projects such as housing projects should be carried out by a relevant ministry instead of a cooperative society like PolCo.

- The Ministry of Finance should publish the rates commonly used in construction projects carried out by the state.

The construction of the three 13-storey towers in Hulhumalé Phase One was first awarded on June 19, 2013 for MVR 580.2 million. The project was awarded to Noomadi with a completion date of 24 months.

The project was initially commissioned to build 300 housing units. However, the number of housing units changed several times and it was decided on 361 housing units.

However, the work was later handed over to Island Expert due to delays, but the contract with the company also had to be canceled due to further delays.

The project was most recently awarded to Amin Construction in 2021.