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Adildik Joly helped to return 170 million tenge stolen from Kazakhstan state budget using redflags.ai solution
ABOUT THE CUSTOMER
The non-profit public organization Adildik Joly was created by activists to fight corruption, promote the ideology of integrity and eliminate the causes and conditions conducive to the commission of corruption offenses. The organization operates on the territory of Kazakhstan and has 17 branches in all regions of the country.
The non-profit public organization Adildik Joly was created by activists to fight corruption, promote the ideology of integrity and eliminate the causes and conditions conducive to the commission of corruption offenses. The organization operates on the territory of Kazakhstan and has 17 branches in all regions of the country.
ABOUT THE SITUATION
Representatives of Adildik Joly take an active civic stand, monitor the efficiency of spending taxpayers' funds and introduce legislative initiatives to eliminate the possibility of theft of budget funds by unscrupulous officials.
In 2022, Adildik Joly thought about whether offenses are possible in the field of value added tax refund. VAT is one of the main taxes in the budget of Kazakhstan, the proceeds from it are in second place in terms of revenue. And where big money is circulating, the temptation to break the law is very great.
To test the idea, the activists first conducted selective monitoring, and immediately identified the first violations.
Representatives of Adildik Joly take an active civic stand, monitor the efficiency of spending taxpayers' funds and introduce legislative initiatives to eliminate the possibility of theft of budget funds by unscrupulous officials.
In 2022, Adildik Joly thought about whether offenses are possible in the field of value added tax refund. VAT is one of the main taxes in the budget of Kazakhstan, the proceeds from it are in second place in terms of revenue. And where big money is circulating, the temptation to break the law is very great.
To test the idea, the activists first conducted selective monitoring, and immediately identified the first violations.
“
“We at Adildik Joly periodically discuss how negligent officials can steal our money. And then an idea was born: what if government agencies, under the guise of VAT refunds, illegally withdraw money from the budget for their own benefit? That is, to a company that is not a VAT payer, it is returned as such. Having manually verified a couple of registers and public procurement contracts, after 15 minutes we found the first violation. But the problem was that the state enters into millions of contracts every year, and manually checking tens of thousands of suppliers with the register of VAT payers is unrealistic. We needed expert help.”
The management of Adildik Joly decided to turn to redflags.ai, because they knew our Procurement Red Flags Management system is actively used by many public services in Kazakhstan to detect and suppress violations in the field of public procurement.
Vitaliy Trenkenshu, CEO of redflags.ai, confirmed that it wouldn’t be difficult for our solution to reconcile and find out whether each company is a VAT payer and whether the government authorities are legally refunding the tax.
Vitaliy Trenkenshu, CEO of redflags.ai, confirmed that it wouldn’t be difficult for our solution to reconcile and find out whether each company is a VAT payer and whether the government authorities are legally refunding the tax.
ABOUT THE SOLUTION
Red Flags Management (RFM) is an analytical SaaS-solution based on Qlik. RFM helps to detect and evaluate risky purchases using data analytics, business intelligence and artificial intelligence (AI) tools. It automatically sets red flags in procurement processes: potential fraud, corruption, or process inefficiencies.
The solution offers dashboards, reports, and visualizations which allow auditors and procurement experts to quickly view and analyze identified risks, prioritize actions, and track progress.
RFM is available by SaaS model, so users always have access to a version with the most modern algorithms and methods for detecting signs of corruption. List of the methods are constantly evolving and expanding.
In just a couple of working days, redflags.ai team set up a new check algorithm in the RFM solution, and Adildik Joly got a ready-made tool for checking the legitimacy of VAT transfers. In a couple of clicks, thousands of matches were found: millions of tenge were transferred illegally. The company immediately initiated tax audits of these companies.
Red Flags Management (RFM) is an analytical SaaS-solution based on Qlik. RFM helps to detect and evaluate risky purchases using data analytics, business intelligence and artificial intelligence (AI) tools. It automatically sets red flags in procurement processes: potential fraud, corruption, or process inefficiencies.
The solution offers dashboards, reports, and visualizations which allow auditors and procurement experts to quickly view and analyze identified risks, prioritize actions, and track progress.
RFM is available by SaaS model, so users always have access to a version with the most modern algorithms and methods for detecting signs of corruption. List of the methods are constantly evolving and expanding.
In just a couple of working days, redflags.ai team set up a new check algorithm in the RFM solution, and Adildik Joly got a ready-made tool for checking the legitimacy of VAT transfers. In a couple of clicks, thousands of matches were found: millions of tenge were transferred illegally. The company immediately initiated tax audits of these companies.
RESULTS
The use of the Red Flags Management solution brought impressive financial results.
Here are some examples from different regions of Kazakhstan:
The use of the Red Flags Management solution brought impressive financial results.
Here are some examples from different regions of Kazakhstan:
1 - Almaty, the largest city of Kazakhstan
The branch of Adildik Joly in Almaty rechecked all contracts for all organizations procuring through the public procurement portal in the capital for the period from 2019 to 2022. Almost 40 factors of illegal accrual of VAT were identified, i.e., in fact, customers simply gave budget money to suppliers.
The Department of Education of Almaty concluded agreements on public procurement for 49,537,600 tenge where it illegally charged VAT in the amount of 5,307,600 tenge. As of December 2022, at the request of Adildik Joly, The Department of Education sent a notification to the supplier and returned this whole illegally paid money to the budget.
2 - Uralsk, a city in Western Kazakhstan, the administrative center of the Western Kazakhstan region
The Adildik Joly branch in Uralsk, with the help of Red Flags Management, conducted anti-corruption monitoring of the goszakup.gov.kz portal and identified, in particular, the following violations:
In 2021 republican state institution "Regional command "Batys" - military unit 5515" of the National Guard of the Republic of Kazakhstan signed an agreement with "KAZAKH POBEDONOSETS" LLP on the purchase of toothpaste in the amount of 33,264 pcs. The amount of the contract was 6,147,187 tenge, incl. VAT - 658 627 tenge. Meanwhile, from the website of the State Revenue Committee kgd.gov.kz it follows that in 2017 LLP was deregistered for VAT. The customer and the supplier violated Article 43 of the "On Public Procurement" Law (the contract must contain the conditions for paying VAT) and Article 84 of the Tax Code (certification of the fact that the taxpayer has been registered for VAT).
The branch of Adildik Joly in Almaty rechecked all contracts for all organizations procuring through the public procurement portal in the capital for the period from 2019 to 2022. Almost 40 factors of illegal accrual of VAT were identified, i.e., in fact, customers simply gave budget money to suppliers.
The Department of Education of Almaty concluded agreements on public procurement for 49,537,600 tenge where it illegally charged VAT in the amount of 5,307,600 tenge. As of December 2022, at the request of Adildik Joly, The Department of Education sent a notification to the supplier and returned this whole illegally paid money to the budget.
2 - Uralsk, a city in Western Kazakhstan, the administrative center of the Western Kazakhstan region
The Adildik Joly branch in Uralsk, with the help of Red Flags Management, conducted anti-corruption monitoring of the goszakup.gov.kz portal and identified, in particular, the following violations:
In 2021 republican state institution "Regional command "Batys" - military unit 5515" of the National Guard of the Republic of Kazakhstan signed an agreement with "KAZAKH POBEDONOSETS" LLP on the purchase of toothpaste in the amount of 33,264 pcs. The amount of the contract was 6,147,187 tenge, incl. VAT - 658 627 tenge. Meanwhile, from the website of the State Revenue Committee kgd.gov.kz it follows that in 2017 LLP was deregistered for VAT. The customer and the supplier violated Article 43 of the "On Public Procurement" Law (the contract must contain the conditions for paying VAT) and Article 84 of the Tax Code (certification of the fact that the taxpayer has been registered for VAT).
Similarly, customers, due to ignorance or gross disregard,
illegally transferred budget money to contractors:
illegally transferred budget money to contractors:
1
The Department of Education of the West Kazakhstan region (deputy head Gumarova Zaure Bazargalievna) transferred 5.4 million tenge, of which VAT 578,571 tenge, to “Education Test” LLP under an agreement dated February 17, 2021 on the acquisition of educational literature.
2
Zhangalinsky district department of housing and communal services transferred the amount of VAT 214,284 tenge to “Diamond Project LTD'' LLP under an agreement dated December 08, 2021 on the development of design estimates in the amount of 1.9 million.
3
The Department of Education of the Kaztalovsky District paid 128,571 tenge in the form of VAT out of 1.2 million under an agreement dated June 25, 2021 with Education Test LLP for the purchase of books.
It should be noted that these suppliers received the VAT amount illegally, fraudulently, but returned them on their own only after Adildik Joly applied. Prior to this, customers “did not know” or “forgot” that these partnerships were not entitled to VAT from the budget.
In total, 170 million tenge (about $400,000)
were returned to the country's budget
- Didar SmauglovExecutive Director of Adildik Joly“We submitted the list of violators to the Kazakhstan tax service. A proposal to prohibit such a banal withdrawal of funds using format and logistics control was automatically submitted to the Ministry of Finance. Therefore, we hope that this loophole is closed and one fraudulent scheme is eliminated.
We thank the redflags.ai team and personally Vitaliy Trenkenshu for their invaluable help. Without them, millions of taxpayer money would be irretrievably lost, and criminals would continue to steal from the treasury”
MORE INFO
The RFM solution is used in many Kazakhstan public services, such as the Ministry of Finance, the General Prosecutor's Office, the Internal State Audit Committee of the Ministry of Finance, the Financial Monitoring Agency of the Ministry of Finance and others. The system has received a number of prestigious international awards.
If you want to know how the RFM solution can help you quickly identify risks and stop illegal transactions, please contact us.
If you want to know how the RFM solution can help you quickly identify risks and stop illegal transactions, please contact us.
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