India promoter overcharged apple, pear groups $720,000, auditors say

Red Delicious apples are packed in a 40-pound box at McDougall & Sons packing plant, East Wenatchee, Wash., last April. Red Delicious are a prime export variety to India. Auditors have questioned the bills a contractor in India sent the Washington Apple Commission and The Pear Bureau Northwest.

WENATCHEE, Wash. — The Washington Apple Commission and The Pear Bureau Northwest have severed relations with a promoter in India after audits found they had apparently been overcharged more than $720,000.

The Apple Commission was overbilled $573,182 for services — including some that had not be performed, a state audit found, and the Pear Bureau is conducting an audit and has found discrepancies of about $150,000, spokeswoman Kathy Stephenson said Tuesday.

As a result of the audits, the Apple Commission, in Wenatchee, and The Pear Bureau, in Portland, broke ties with Keith Sunderlal, owner of SCS Group in New Delhi, India. Sunderlal said his team of over 20 professionals has represented the Apple Commission in India, Bangladesh and Sri Lanka since 2004 and helped build India into Washington’s third largest apple export market at 4.8 million boxes of apples annually, behind only Mexico and Canada.

“We categorically deny the initial conclusions presented in the state audit report. There are many complexities in operating a business in India in order to strike a balance between India’s complex regulatory and taxation laws and the fiduciary interests of our clients,” Sunderlal said in a prepared statement.

He said his accountants are reviewing the matter, that he hopes to demonstrate no loss of taxpayer or industry funds and that he’s confident his firm will be absolved.

The “potential overbilling” was made public by a special investigation by Washington State Auditor Pat McCarthy. Her spokeswoman, Kathleen Cooper, declined to call it fraud, saying that implies criminal conduct and that the auditor is not a criminal investigator. She used the term “questionable costs.”

The auditor’s report called it “significant discrepancies,” but Apple Commission President Todd Fryhover alleged that invoices were falsified and that he was very surprised. Discrepancies spanning five years were uncovered but may go back further, Fryhover said.

The commission withheld $505,138 in payments to SCS and notified the USDA, which plans to refer the case to the U.S. Office of Inspector General for further review, according to the auditor’s report.

“The Office of the Inspector General can analyze it from a criminal perspective, which we can’t,” Cooper said.

There’s no evidence the Apple Commission did anything wrong, Cooper said. It had controls in place to ensure accountability of public funds and has strengthened those controls at the auditor’s recommendation, she said.

“We will be doing more direct payments to vendors, especially large ones, to prevent this,” the Pear Bureau’s Stephenson said.

The Apple Commission spends $7.8 million annually to promote Washington apples in 30 foreign markets. The money includes $4.8 million from the federal Market Access Program and $3 million from a 3.5-cent per box grower assessment on the annual crop.

In March, an SCS subcontractor told the Apple Commission that its invoices did not match invoices for its work that SCS was submitting to the commission, Fryhover said.

The commission hired an outside accounting firm, which compared invoices SCS submitted to the commission with a subcontractor’s original invoices from July 1, 2015, to June 30, 2016, and found “many discrepancies, including formatting, letterheads, references to non-existent India service tax numbers, bill numbers and amounts,” the auditor’s report states.

The accounting firm found invoices for promotions not performed and overbilling for promotions that were performed, the report says. The commission reported the information to the USDA, which asked the commission to expand its review to the past five years.

In April, the commission asked the state auditor to perform an expanded review.

The auditor looked at invoices paid by the commission to the contractor from Aug. 3, 2011, to May 3, 2017. During that period, the contractor sent 1,336 invoices totaling $5 million from various subcontractors to the commission.

The state auditor looked at original invoices from two subcontractors who billed at high levels and found $573,182 in “potential” overbilling. A total of 470 invoices for $358,547 from one subcontractor were for services not provided and other bills to the commission contained information not in original subcontractor invoices that increased bills, the audit report states.

The contractor told the state auditor it was easier to submit one summary invoice to the commission and that off-the-books cash payments account for 25 percent of operations and is a partial reason for significant discrepancies, the audit report says.

One subcontractor told the state auditor it keeps two sets of invoices, one for direct billing and one for off-the-books cash payments.

There was no bank statement proof of off-the-books payments and no way to trace them, the audit report says.

“Our investigation indicated all of the subcontractor invoices that were submitted to the commission were not original invoices even though they were supposed to be,” Cooper said.

Fryhover said the commission thought it was receiving original invoices but realized it wasn’t only after being contacted by the subcontractor.

He said the $505,138 in payments to SCS that the commission has withheld is for all invoices from SCS for the second half of the 2016-2017 season.