PARAGUAY: INVESTIGATIVE TEAM UNCOVERS LARGE FRAUD

C O N F I D E N T I A L ASUNCION 000431

SIPDIS

SIPDIS

USAID A/AA/LAC MARK SILVERMAN

E.O. 12958: DECL: 05/07/2027
TAGS: PGOV PREL ECON KCRM KDEM PA
SUBJECT: PARAGUAY: INVESTIGATIVE TEAM UNCOVERS LARGE FRAUD
IN SCHOOL FOOD PROGRAM


Classified By: DCM MICHAEL J. FITZPATRICK; Reasons 1.4(b),(d)


1. (U) SUMMARY: The Controller General's investigative
support unit, established with support from USAID/Paraguay,
uncovered a scheme in the Education and Culture Ministry that
involved the misuse and misappropriation of funds. Funds
intended to provide basic food supplies for poor elementary
school students were diverted into private coffers. The case
could impact the standing of the Education Minister Blanca
Ovelar, whom President Duarte has tapped as his preferred
candidate to succeed him. END SUMMARY.

MAKING THE CASE


2. (SBU) Roy Rodgers Canas, Director of the support
investigative unit in the Controller General's Office,
briefed USAID February 21 on investigations being carried out
by the unit utilizing new investigative procedures. USAID
helped establish the unit to significantly facilitate the
identification and preparation of corruption cases for action
by the Attorney General. In particular, Rodgers described an
in-depth investigation into a case involving the Ministry of
Education and Culture (MEC) and its misappropriation of funds
from the national nutritional complements program. The CG's
report regarding the program covered 2005 and 2006 and
included a total executed budget of approximately USD 3.5
million. This program was aimed at improving students
performance and fighting drop out rates, by assuring the
provision of basic food supplies (milk, flavored milk, beans,
rice, and bread),to elementary school students of poor rural
areas.


3. (U) Under this program, each of the beneficiary parents'
school associations, similar to PTAs in the U.S., were
supposed to assume substantial responsibility for
implementation and oversight. MEC was in charge of selecting
schools and controlling the execution of payments. Once a
school was selected, and the parent's school association was
registered at MEC, the Ministry was to provide funds to the
associations based on the number of school students. The
associations were supposed to directly purchase supplies and
were obliged to provide vouchers within 60 days.


4. (U) In the course of its investigation of this program,
investigators made many field trips to the countryside and
interviewed parents and local school authorities to determine
the modus operandi of MEC employees allegedly involved in
criminal offenses. This process included the revision of
forged documents, analyses of highly complicated internal
procedures at the Ministry of Education, laboratory analysis
to determine food quality, and unsuccessfully trying to
obtain documents from Customs regarding imported food
supplies.

SKIMMING CHECKS - AND THE MILK


5. (U) Based on auditing findings and the investigation,
personnel from the investigative support unit determined that
of 160 randomly selected endorsed checks, 106 where forged
and never reached the parents, associations. Checks were
directly deposited in bank accounts of four private business
providers (Alimentos del Paraguay S.A.; Masily S.R.L.;
Nutripan; and Cooperativas Colonias Unidas Ltda.),completely
bypassing the associations, or they were cashed by unknown
persons who forged signatures of representatives of these
associations. In addition, findings reveal that other
documents were also forged, among them, contracts and
receipts.


6. (U) At the request of the CG's office, food supply kits
provided under this program were analyzed for nutritional
value by the Technological Center of the National University
of Asuncion. This center found that the analyzed products
were inferior to the quality standards established in
Paraguayan legislation, as they contained lower protein and
fat than the required minimum. The Center also concluded
that the products provided were not adequate for elementary
school children.


7. (U) Based on strong evidence collected and a sound
presumption that crimes were committed, the CG's office
presented an extensive report April 17 to the Attorney
General and the press (a common technique in these kinds of
cases),requesting a criminal investigation on the matter.
According to this report, the MEC violated Paraguayan law by
failing to allow parents' associations to purchase food
supplies and by approving suspicious payments. Furthermore,
there are strong allegations of criminal behavior regarding
the misuse and misappropriation of public funds and forgeries
of documents. The public contracting law was not followed
since the MEC selected providers of food supplies directly,

without competition. (NOTE: The total value of the program is
approximately USD 3,460,000. It is unclear, at this point,
the total amount that was misappropriated. END NOTE.)

OVELAR UNDER PRESSURE


8. (U) Only after widespread public opinion condemning the
MEC, did MEC Minister Blanca Ovelar order an internal
investigation of all personnel involved in two key MEC
departments responsible for the national nutritional
complements program. In addition, the Ministry decided to
change the vulnerable contracting system in place for the
purchasing of food supplies and replace it with a more
transparent public bidding process required by law. The
Ministry also started the process of defining standards and
specifications for food supplies to be provided to school
children and has promised to install oversight mechanisms to
assure proper quality and quantity of the products.


9. (C) Carlos Arregui, the Deputy Attorney General and
Director of the Economic Crimes Unit, told PolCouns that the
case had been assigned to prosecutor Rocio Vallejos of the
Economic Crimes Unit for investigation. When the case first
came to his attention, Arregui had been concerned that the
Attorney General would look to bury the case given the fact
that Education Minister Blanca Ovelar is President Duarte's
preferred choice as his successor in 2008. More recently,
however, Arregui indicated that while it appears a
senior-level official responsible for the program is
implicated in the scheme, he remarked no evidence presently
implicates Ovelar in any way.


10. (C) COMMENT: Impunity remains a serious problem in
Paraguay. (Yes, we know - shocking news though that may be.)
Many of the cases presented by the Controller General's
investigative support unit to the Attorney General have not
yet resulted in prosecutions or convictions. This case is a
clear violation of several laws but politics (again) could
influence the on-going investigation. Inasmuch as Education
Minister Ovelar is President Duarte's choice for President,
the Attorney General will want to proceed carefully into the
investigation of this case. The excellent investigation
undertaken by the Controller General's Investigation Unit
funded by USAID speaks to the concrete return on our
investment. At the end of the day though, turning the page
on corruption ultimately relies on the political will of all
players in Paraguay's justice system. It is far from
apparent that all are yet on board. END COMMENT.
CASON