Scandal

The Compass Group is guilty of serious irregularities in the way it won food supply contracts for the United Nations (UN), it has admitted following an internally triggered probe undertaken by leading international law firm Freshfields, with support from Ernst & Young.

Freshfields’ investigation examined the relationships between Compass subsidiary, Eurest Support Services (ESS), the UN and another contractor IHC Services (IHC). The investigation was overseen by Steve Lucas, Chairman of Compass Group’s Audit Committee, and lasted three months.

It concluded that there were serious irregularities in connection with contracts awarded to ESS by the UN. It raised questions over the behaviour of some ESS staff. But the investigation also found that the problems within ESS were isolated to that subsidiary and did not extend to other parts of the Compass Group. Nor did Compass ever own any shares in IHC.

The matter is of great significance, not least because Compass is the world’s largest catering supplier and has many UK public sector contracts, including as part of PFI deals. Allegations over ESS’s contracts with the UN – relating to food supplies for peacekeeping troops – have led to investigations in the US by Congress and by the US Attorney for the Southern District Court of New York and also an inquiry by the UN. There has also been an investigation by the UK’s Serious Fraud Office.

Two chief executives have been dismissed – those running the ESS division and the UK region – as has a less senior official with responsibility for UN contracts. Compass said that as well as dismissing staff, it had restructured the senior management of ESS, who now report to the Group’s finance director. The Group has also, working with E&Y, reviewed its internal systems and controls, leading to a reduction of autonomy within subsidiary companies.

Lucas said: ‘This has been a highly regrettable episode for Compass Group. However, we have now concluded a very thorough investigation and taken appropriate and decisive action. We have no reason to believe that the issues identified extend to any other part of the Group. The Board is determined that Compass Group should meet the highest ethical and governance standards and is taking all necessary steps to ensure that this is the case.’

The probes into Compass coincide with several high profile instances of allegations of corrupt relationships with the UN and governments. The managing director of AWB, an Australian wheat supplier, has resigned following accusations that his company paid bribes to win contracts for food supplies to Iraq as part of the UN Oil for Food programme. An inquiry into the allegations, which AWB denies, has been established by Australian prime minister John Howard.

And in the US, an audit released by the Special Inspector-General for Iraq Reconstruction has concluded there was fraud, incompetence and confusion as the US-led Coalition Provisional Authority mis-spent money on training and rebuilding programmes in Iraq in 2003 and 2004. The report concluded that millions of dollars were kept by US officials in various insecure places, including half a million dollars in an unlocked locker and $2m in a bathroom safe. Much of the cash was spent without receipts of proof of expenditure. One US soldier gambled away the cash he was in charge of, which belonged to the Iraqi nation.