Sunday, 18 March 2012

How the scam works

Fraudulent DNSSD accounts for the financial year ending March 2006
signed off by the chartered accountant and Gali Arulraj

How could Gali Arulraj get away with scamming Enable and other agencies for so many years? Didn't Enable monitor the projects? Didn't Enable view his society's accounts?

In fact, Enable was more conscientious about monitoring the projects in India than most comparable international agencies.  Two of Enable's trustees visited the projects in India in 1995, 1997, and 1998.  Thereafter, at least two  trustees (and usually more) visited each January between 2001 and 2006, each visit lasting two weeks. During those January visits Enable's trustees closely monitored how well the projects were functioning,  discussed possible developments, and went carefully through the accounts statements with Gali Arulraj and Vatakili Paulinraj.  We examined the formal accounts we had received for the financial year (ending in March), which were signed off by the chartered account, Mr Parchuri Venkata Ranganadham (whom I met). We also examined an informal set of accounts for the calendar year (January to December) and based subsequent funding decisions on (what we reasonably believed to be) accurate and reliable information.

As has been described in the first post on this blog, the chartered accountant signed off statements of the accounts knowing them to be entirely false.  They were tailor-made to deceive Enable.  There is nothing that an overseas aid agency can do in the face of systematic corruption by people who are willing not only to violate their professional code of ethics but to break the law. It was only by chance that Enable uncovered Arulraj's scam with the DNSSD after discovering that Mr Ranganadham had falsely certified the accounts of another charity.

The formal sets of DNNSD accounts were also signed off by Arulraj (as shown in the picture above). The informal accounts, which were equally false, were signed off by both Arulraj and Paulinraj (below).

Fraudulent informal DNSSD accounts for the calendar year Jan- Dec 2005, signed by Paulinraj and Arulraj, presented to  Enable's trustees in January 2006 in order to raise funds by deception.
(This is my copy and the scribbling on the right hand side is mine, converting the figures given in Indian rupees into pounds. This is the summary page and further details were provided on attached pages.) 

How the scams in countries like India work:

Scam Level 1:  At this level scams are simple.  The scammer provides no service whatsoever, but provides potential donors with plans, e.g., to provide a community water pump.  If the scammer gets funding, he merely obtains old photos from other service providers and sends them to the donors showing them how well their money was used.  (Their donation, of course, has helped nobody but the scammer).  Of course, even scams like this require an investment from the scammer - there are costs involved in getting letters and photos printed and mailed overseas. If the investment is £300, but results in funds of £5,000 then the investment is well worth it.

Scam Level 2.   Scams at this level require a little more investment if there is a chance that there may at some point be monitoring of the projects for which funding is sought. If the scammer is obtaining funds for a school for 100 poor children, he might rent a small property and village children might be invited occasionally for something like a cultural programme or medical check-up. He might give a cash incentive to the children's family to encourage the participation of the children. If someone from an international agency were to visit, the scammer would make sure that the children were in attendance during the few hours that the visit would take place. It would be unlikely that the visitor spoke the children's language and so he or she could not directly question the children. Compared with Level 1 scams, the scammer might have to make a larger investment, say £5,000 but it would be well worth it if the returns were, say, £20,000.

Scam Level 3.  At this level the scammer has to work much harder and actually provide a real service that has real beneficiaries. Arulraj's scam during the years 1995 - 2006 worked at this level, and the harder he worked the more lucrative it became. The fact that he could verifiably demonstrate significant benefits to those in need - by providing surgery, educating very disabled children, building more residential centres, etc. - made it easier to gain the confidence of donors. A Level 3 scammer would, for example, seek £5,000 from a donor  for surgery for 25 children and then show the donor  photos of the children after they had it.  Two or three other donors would make the same donation (believing they were funding the surgery) and receive the same photos. With this scam, 25 children would have benefited from surgery, but this would effectively be an 'investment' by the scammer, who would be keeping for himself the 'duplicate' donations for the same service. At this level, the scam requires fraudulent accounting. Arulraj's scam worked thanks to the complicity of his chartered accountant Mr P.V. Ranganadham.  Yes, Arulraj did provide an actual service for a large number of disabled children. Enable's intensive monitoring over several years required this. During the financial year 2005-2006 Arulraj's 'investment' (i.e., the amount he spent from donations to DNSSD on providing a concrete service for disabled children) was about £185,000.  However, he ciphoned off for himself a similar sized amount from donations not declared in the DNSSD accounts.

Ironically, it was Arulraj who explained to me (when we were on good terms before 2006) how scams work in India, though he spoke only of Level 1 and Level 2 scams, of which he was contemptuous. He spoke about the scams as a contrast to the 'genuine' service that he was providing! He didn't speak of Level 3 scams (which is not surprising!), yet these are, in my view, even more contemptible.  Arulraj knew the serious needs of disabled children in his region.  He knew that although many were being helped, so many others desperately lacked the care and support - medical, personal, social and educational - that would have made an enormous difference to their lives and the lives of the families. He stole from those who have needs greater than anything he will ever experience. His theft demonstrates that he was not concerned about caring for disabled children. For him they were merely a business: the bigger the 'investment,' the greater his financial reward.

Having been a Level 3 scammer until 2006, Arulraj Raj is now an occasional Level 2 scammer, but generally operates now at Level 1.