What happened to AED? Let's read the Justice Department Settlement and find out

Last December, USAID suspended AED from any new contracts, and by this March the gig was up - AED went up for sale, and now we have FHI360. All along, I wondered why USAID would invoke the nuclear option on AED.



There were many rumors and much innuendo, but now thanks to AED Watch we can read the full Justice Department settlement to learn the official reason. I'll spare you the legalese and just give the highlights.

The Justice Department claims that under the Federally Administered Tribal Area Livelihood Development Program (FATA-LDP) in Pakistan, and the Higher Education Project (HEP) in Afghanistan, during the period from 2008 through 2010:

  1. AED failed to consistently maintain appropriate systems of internal controls, which lead to fraud and kickbacks in procurements
  2. When it found problems, AED failed to fully disclose the issues to it's own auditors and USAID

The second allegation of a cover up are pretty amazing (full details) but bear in mind that AED doesn't admit to any wrongdoing in the settlement. Still, AED agreed to:

  1. Pay the United States $5,294,000 when the settlement was signed
  2. Pay the United States $341,000 on August 1, 2011
  3. Pay to the United States ninety percent (90%) of the gross insurance benefits paid to AED from it's FATA-LDP and HEP insurance claims
  4. Pay the United States all of AED's excess funds on December 31, 2012 and 2013, and all cash on hand on AED’s final cessation of corporate existence

From what I can tell (and I'm no lawyer) this settlement ends the Justice Department action and will not effect FHI360 - the new combined AED-FHI firm.

My only lasting question: what should the international development community learn from this episode?


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Submitted by Wayan Vota on Fri, 07/15/2011 - 07:04
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Wayan Vota

Inveneo

Wayan Vota is a technology expert focused on appropriate information and communication technologies (ICT) for rural and underserved areas of the developing world. He is a Senior Director at Inveneo and is the editor of ICTworks

What happened to AED? Let's

Submitted by Sabina (not verified) on Sat, 07/16/2011 - 05:49

I only read your highlights, but I don't think this justifies USAID's action.

1. AED failed to consistently maintain appropriate systems of internal controls, which lead to fraud and kickbacks in procurements.

-- Seems to me this was the responsibility of the project managers in the field and in the home office. AED did have good systems of internal controls that monthly checked and re-checked every expense from the field. Every single procurement had to be documented, complete with written bids, government forms, etc. I don't know the specifics of the Pakistan and Afghanistan projects, but someone had to specifically set out to defraud the system and then count on several accomplices, otherwise it wouldn't work. I find it hard to believe that the corruption went all the way up to the home office project manager and above.

2. When it found problems, AED failed to fully disclose the issues to it's own auditors and USAID.

-- Yeah, this is bad. But again, having been a part of AED for many years, I find it difficult to believe that fraud in the field was followed by a deliberate cover-up all the way to the top. I still don't think the entire organization should have suffered over this.

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