ICT KSCA: past corruption and misuse
Auditors continue to find evidence of misuse at the Department of Information and Communication Technologies (ICT) of the Kyiv City State Administration and three utility companies (KP) under it – Informatics, GIOTs, and Kievteleservice. From 2018 to 2020, these entities committed financial irregularities totaling UAH 274.86 million, causing a UAH 61.33 million budget loss. They bought unused equipment, overpaid for services, conducted inflated tenders, and neglected to implement digital services. The audit provided 100 recommendations to address the issues, but only two were fully addressed. The department ignored the need to change management and hold accountable those responsible for the violations.c.
It has been recently revealed that KVThe Department of Internal Financial Control and Audit of the Kyiv City State Administration (KSCA) conducted an unscheduled audit of the performance of the ICT Department of the Kyiv City State Administration and its subordinate utilities “Informatika”, “Kyivteleservice” and “Main Information Object”, and published the results.
Related audit report No. 070-2-1-04/17 is dated November 29, 2022 and was published at the end of January this year. The report details which comments from the auditors were disregarded by the heads of the mentioned structures.
As stated in the report, the KSCA department checked the compliance of the officials of the Department of ICT of the KSCA and its subsidiary CPs with Ukrainian legislation regarding procurement procedures, contract conclusion, and execution from January 1, 2018 to December 31, 2020. The audit took place from July 2, 2020 to August 13, 2021.
What did the auditors discover?
During the audit, it was revealed that the ICT Department of the Kyiv City State Administration received UAH 2.4 billion from the city budget of Kyiv from 2018 to 2020 for implementing city targeted programs, with 95% allocated to KP “Informatika”, KP “GIOTs”, and the utility company “Kyivteleservice”.
The audit found that from 2018 to 2020, financial violations and deficiencies amounting to UAH 274.86 million were committed by these three CPs, with UAH 61.33 million leading to losses, including UAH 38.82 million due to inefficient operations, UAH 51.08 million involving risk of loss, and UAH 162.45 million without the risk of losses.
KP "GIOTs" has been identified as a "leader" with total violations and shortcomings amounting to UAH 187.8 million. This includes UAH 16.28 million in direct losses, UAH 10.46 million in violations with the risk of losses, and UAH 161.07 million without the risk of loss. On the other hand, KP "Informatika" had defects totaling 75.01 million hryvnia, with direct losses amounting to 39.09 million hryvnia. Violations were also found with a risk of loss in the amount of UAH 35.5 million and without the risk of loss in the amount of UAH 0.4 million. As for SKP "Kyivteleservice", auditors found financial violations and shortcomings amounting to 12.04 million hryvnia, with 5.96 million hryvnia in direct losses, 5.11 million hryvnia with the risk of losses, and 0.97 million hryvnia without the risk of loss.
According to the auditors, KP Informatika made several shortcomings and miscalculations in implementing measures to create and implement the software and hardware complex of the Unified Dispatch Center for Monitoring the Operation of Transport and Collecting Information (UDC). The auditors at the Kyiv City State Administration concluded that these "mistakes" negatively impacted the functioning of individual components of the automated system EDC and led to risks regarding the inefficient and unnecessary use of budgetary funds.
For instance, during the audit period, KP Informatika did not use the equipment purchased in 2018-2019 for the intended purpose to ensure the operation of the EDC hardware and software complex, including 235 units of on-board computers of vehicles and 713 units of touchscreen driver terminals. The audit report suggests that all this equipment was stored in the CP's warehouse, which, according to the auditors, may indicate a lack of genuine need for these purchases. These actions by the management of KP Informatics led to the loss of warranty periods for servicing the equipment, and the diversion of budgetary funds, as well as the risk of inefficient spending by the capital’s treasury in the amount of UAH 20.7 million.
The auditors also found that the Department of ICT of the KSCA and KP “Informatika” did not ensure the effective and efficient use of budgetary funds in the amount of UAH 18.62 million allocated for the purchase and installation of information and reference terminals at tourist sites and routes in Kyiv.
According to auditors, 45 out of 105 information terminals purchased in 2016-2017 were not installed over the next four years and were stored at PJSC Promsvyaz, the equipment supplier. Additionally, the other 60 terminals did not function properly during the audit period, as they were turned off and in some cases not even connected to power and telecommunications networks. The audit report highlighted that such problems in the functioning of information terminals are systemic and long-term, as similar shortcomings were identified during preliminary audits in 2018.
According to the auditors, KP “GIOTs” did not fully complete the task of making an automatic fare collection system (ASOP) by buying terminals to sell tickets and add funds for travel at the stations of the KP “Kyiv Metro” and the premises of the KP” Kievpastrans “.
During the audit, it was found that only 90 of the terminals (15% of the total) allow payment with bank cards. None of the installed terminals gave change for payment. This might lead to additional costs for upgrading the equipment, as per the auditors of the Kyiv City State Administration.
The auditors also looked into how the self-service terminals were installed. For instance, MKM Service LTD installed them in the metro stations' lobbies without proper working projects. In addition, KP “GIOTs” made acts for these services arbitrarily. These actions created a risk of overstating the cost of installation work and inefficient use of funds.
As of 2020, the ICT Department of the KSCA and KP GIOTs did not put into operation any of the 25 software products developed with budgetary funds in 2015-2018. This shows that the expected result from using budgetary funds of UAH 150.79 million was not achieved.
The Video Content Ordering System software module, which allows individuals to receive recordings from street video surveillance cameras through the Kiev Personal Account information system, was not available to residents because the regulations did not specify who can order such content.
As of October 2020, the residents of the city could not pay for their children's meals in kindergartens, add money to their mobile phone account, and pay fines for traffic violations through the “Personal account of a Kiev citizen”, even though these services were officially introduced. The reason for this was that these electronic services were not connected to the payment system for processing the relevant payments.
The Department of Internal Financial Control and Audit of the KSCA discovered other problems in the operations of the KP GIOTs. Specifically, the auditors were interested in its partnership with FC Hertz LLC, a company in Kyiv that sells electronic tickets and accepts utility bills. The company has been actively involved in lawsuits over the past few years.
Thus, the auditors found that the SE “GIOTs” did not impose penalties on LLC “FC Hertz” for the late transfer of funds from the sale of electronic tickets to the accounts of the SE “Kyivpasstrans” and the SE “Kyiv Metro”, even though such penalties were specified in the agreement. This resulted in a loss of operating income in the amount of 933.2 thousand hryvnia for KP “GIOTs”, according to the auditors.
The auditors also found that KP “GIOTs” overcalculated the remuneration for financial services to the specified company by UAH 219.9 thousand. It was discovered that the said KP calculated this amount based on the formula “2% of the amount of payments received by OOO FC Hertz”, whereas the contract specified that these percentages should be “deducted” from the amount of payments transferred to the distribution account of the KP” GIOC.
The Department of Internal Financial Control and Audit of the Kyiv City State Administration identified multiple violations in the operations of the UPC “Kyivteleservice”. In particular, it was found that this enterprise did not provide transparent pricing and calculation of the cost of services for the creation of a local area network for health care institutions, amounting to a total of UAH 17.56 million, which posed a risk of unnecessary spending of budgetary funds. This project aimed to introduce electronic medical processes in communal medical institutions, transitioning from paper-based to electronic workflow.
Additionally, the auditors from the Kyiv City State Administration found that the SKP Kyivteleservice did not justify the expected cost of 12 tenders for the purchase of goods and services totaling UAH 313.2 million. As a result, “it is impossible to verify the correctness of the formation of such a value”, which increases the risk of overpricing, according to the auditors.
For instance, in just 4 contracts for the purchase of network and computer equipment, auditors uncovered overpricing totaling UAH 5.7 million, averaging from 20% to 51% of the transaction amount. The auditors also found instances of insufficient competition among bidders organized by the SCE “Kyivteleservice”, specifically due to lack of sufficient experience among some participants in executing similar contracts, which, in the inspectors’ view, raised the risk of overestimating the market value of the purchase.
Following these inspections, the Department of Internal Financial Control and Audit of the KSCA issued 100 recommendations to the ICT Department of the KSCA and the three aforementioned utilities to address the identified violations, only 2 of which were fully implemented and one partially implemented.
For instance, KP Informatika followed the advice to set up 17 communication terminals (emergency call buttons) bought in 2017 for integrated video surveillance systems in Kyiv, but ignored most of the auditors' important recommendations, such as considering changing management at its utilities as suggested by the ICT Department of the KSCA, and prosecuting those responsible for the identified violations.
IKT KSCA. Scandalous background
As KV previously reported, the actions of the ICT Department of the KSCA and the mentioned CPs were criticized by some Kyiv City Council members and caught the attention of law enforcement.
In October 2018, the Security Service of Ukraine started investigating possible financial irregularities at KP “GIOTs”. Law enforcement revealed that the enterprise lost about UAH 20.8 million in 2018 during the implementation of the “Operational and Dispatch Service of the Housing Stock and Management, Control and Security Systems for Elevator Equipment” complex, with several people including the former director Vitaly Kozubsky and head of the contractor Egor Burgomistrenko under scrutiny by law enforcement. Vitaly Kozubsky and head of the contractor Ukrainian Business Communications LLC Egor Burgomistrenko. Currently, the indictments against the defendants in the proceedings are under consideration by the High Anti-Corruption Court of Ukraine.
In October 2019, the SBU initiated criminal proceedings over possible misuse of budgetary funds during the implementation of the outdoor lighting networks management and control system in Kyiv by KP Informatika. It was found that the equipment costs were inflated, and some of the equipment could not be located, raising concerns about the project's purpose being to embezzle budget funds under the guise of an “intellectual component”.
It's worth mentioning that Veronika Malkova has been temporarily acting as the director of KP Informatika since September 6, 2021, succeeding the previous temporary head Nikolai Pykhtin. Nikolai Pykhtinserved as the acting director of KP Informatika from October 9, 2017, then Oksana Mysak took over as the first deputy head from July 12, 2020, until then, Vitaly Kozubsky was the director from July 13, 2016, to July 12, 2020.
Since July 12, 2020, Oksana Mysak has been the acting director of KP “GIOTs”, while Vitaly Kozubsky led the enterprise from July 13, 2016, to July 12, 2020.
Pavel Chernikov, Deputy Head of SKP “Kyivteleservice”, has been temporarily performing the director's duties since February 11, 2021. The management of this enterprise changed four times during 2018-2020, with Sergey Bondarenko serving as director for the longest period, from March 2008 to July 2019, followed by Oleg Bakaev, Andrey Pristupa, and Oleg Vashchenok.
The Department of ICT of the KSCA, to which the three above-mentioned CPs are subordinate, has been heading since August 27, 2021 Oleg Polovinko (in the collage on the left). From March 3, 2017 to April 29, 2020, this structure was led by the infamous Yuri Nazarov (on the collage on the right), who was “the face of digitalization in Kyiv” and who is associated with the person numerous violations in this area. After his dismissal and before the appointment of Polovinka by the Department of ICT of the KSCA on the rights of “t. and about. Director” led Anna Lisik.
The activities of the ICT Department of the KSCA from April 2, 2021 are controlled by the Deputy Chairman of the KSCA for the exercise of self-governing powers Petr Olenich. During 2018-2020, the work of this structure was alternately controlled by the deputy chairmen of the Kyiv City State Administration Dmitry Davtyan (dismissed from his post on November 29, 2019) and Alexander Gustelev (dismissed on December 1, 2021), First Deputy Chairman of the Kyiv City State Administration Mykola Povoroznik, as well as directly the Chairman of the Kyiv City State Administration Vitaliy Klitschko.
Ivan Kulik, translation Skeleton.Info
DOSSIER: Nikolai Povoroznik: Koreiko from the Kyiv City State Administration, or a modest operator of financial schemes. PART 1
