Social security agency grants millions to murky firms

By Olga Yudina

Это расследование доступно на русском.

Editor’s Note: This investigation was conducted by the Objective investigative reporting project in Ukraine, Belarus and Moldova. The program is supported by the Ministry of Foreign Affairs of Denmark, and implemented by a joint venture between NIRAS and BBC Media Action. The story can be freely republished with proper credits.

Headquarters of Ukraine’s Social Insurance Fund for Temporary Disability in Kyiv, Ukraine.

In recent public procurement tenders, state officials involved in Ukraine’s Social Insurance Fund for Temporary Disability gave millions of hryvnias meant for children’s recreation to seemingly non-existent firms.

The wasted taxpayer money appears to be part of the bigger picture involving the state’s corrupt and non-transparent procurement procedures, which loses up to $18 billion each year through fraudulent schemes involving government contracts awarded for various goods and services, Oleksiy Shalaisky, an expert on state procurements, said.

It’s big money for a nation whose gross domestic product in 2014 may have only reached $150 billion. According to Shalaisky’s estimates, the government — when state-owned firms are included — spents up to $40 billion a year on public procurements, much of it done without transparency or competitive bidding.

Fund of billions

The funds of the Social Insurance Fund are a form of deposits made by all working Ukrainians. Every month, up to 49 percent of an employee’s salary or entrepreneur’s income goes to the fund.

In 2013, the fund’s budget was Hr 11.5 billion, or roughly $719 million. For comparison, the whole budget of the Health Ministry is nine billion.

The fund uses the money to compensate sick leaves, maternity leaves, pay for funerals and more.

Among other spending, it compensates part of the prices of the vacation sanatoriums and resorts for adults and children, often buying the trips from the recreation facilities and providing them at half-price.

Generous tender

In the spring of 2014, the executive department of the Dnipropetrovsk department of the fund purchased 1,540 camp vouchers through two tenders for nearly Hr 7 million.

It would be logical to assume that a tender for such an expensive order would attract dozens of the children camps to participate. Not at all.

According to the regional department’s website, the tenders had four winning camps – Dorozhnik (Dnipropetrovsk Oblast), seaside camp Morskoy, Severyanin and Smena (all Zaporizhya Oblast).

But this turns out not be entirely true.

The official tender documents found at the public procurement website don’t mention the camps at all. Instead, the winner of both tenders listed on the documents is Kyiv-based firm Kleonika.

The first violation can be seen right here. The tender included three orders. The procedure allows for one camp to apply for one order. Had the procedure been followed, there couldn’t be four winners in a three-order tender.

But the real mystery is Kleonika.

The company has no camps of its own and turned out to be a mediator. Once it won the tender, Kleonika began to purchase the vouchers from various real camps – including the camps listed as the winners at the fund’s website.

“Kleonika approached us after the tender,” confirmed Leonid Borysenko, director of Severyanin camp. “They wanted to put in 620 kids, but we had only 300 spots left. I recommended Smena to place the rest of the order. I gave them our ordinary price – Hr 175 per day. And we signed the deal.”

Smena’s director Yuriy Belokurov said the deal with Kleonika “wasn’t very profitable,” but he accepted the offer because the spots were available anyway.

Both camps said that Kleonika promised to take care of the children’s delivery to the camps.

Only the representatives of the third camp, Morskoy, said that Kleonika has actually represented it in the fund’s tender.

“They prepared the documents and participated in the tender on our behalf. We supplied the vouchers for Hr 3,360. The price didn’t include the services of Kleonika,” said Denys Vasylenko, director of Morskoy camp.

In the fourth of the winning camps, Dorozhnyk, we were told that the camp itself prepared the documents for the tender.

So why did Kleonika participate instead of the camp itself?

“I don’t want to play guesses. Address the higher supervisors,” said Anatoliy Kvashenko, director of Dorozhnyk, with a notable nervousness in his voice.

Leonid Kopytko, head of the state-owned public transport company Dnepravtodor, which owns the Dorozhnyk camp, told a different story. He said that Kleonika had simply purchased the vouchers from Dorozhnyk, and the camp itself didn’t participate in the tender.

At the second call, director Kvashenko admitted that the camp sold the vouchers to Kleonika at Hr 3,350.

“Nice prices,” he says with satisfaction.

Yet it is not the price that the Social Insurance Fund got the vouchers for. Kleonika resold the vouchers to the fund at Hr 3,885.

All the vouchers for recreation in Dorozhnyk camp cost the fund Hr 1.165 million. The camp received Hr 1.005 million, and the difference of Hr 160,500 stayed at Kleonika’s accounts.

The company made even more on the rest of the deals. Reselling the vouchers to Morskoy brought it Hr 807,240. The deals for Smena and Severyanin won Kleonika Hr 318,720 and Hr 321,300 respectively.

Alltogether, only those two tenders from the spring of 2014 brought Kleonika Hr 1.6 million, which means that every voucher cost the fund 25 percent above the real price.

Without Kleonika taking its cut, the fund could buy more vouchers — and send 479 more kids to the Dorozhnyk camp, for instance.

Mysterious mediators

The fund’s camp tender featured two participants – Kleonika and Sanatorium and Resort Center, another Kyiv-registered firm. Neither made it clear that they were the representatives of the camps.

Kleonika was registered on Oct. 10, 2013, and Sanatorium and Resort Center on Sept. 10, 2012. Both are registered in Kyiv’s Holosiyivskiy District. We tried to find them in their places of registration.

Kleonika is registered in the office No. 75 in the residential building at 33 Lva Tolstoho St. The address turned out to have only 73 apartments. Neither the attic no basement had any offices. Employees in the office found on the first floor of the building said they never heard of Kleonika.

_5_Найти офис №75 в 73-квартирном жилом доме где по документам обитает Клеоника не удалось

The official address of Kleonika turned out to be a residential building that had no office of such firm.

The Sanatorium and Resort Center address is 28A Yamska St. It is an old, shabby building with a single office and does not belong to the center.

_7_В этом здании как выяснилось не работают 'многочисленные специалисты' Санаторно-курортного центра

Sanatorium and Resort Center wasn’t found at its official address.

The phone numbers of both companies, found in their tender offers, didn’t respond or were turned off.

The director and founder of Kleonika is Andrey Minko, born in Russia in 1982. The Sanatorium and Resort Center was founded by Kostyantyn Flis and Yuriy Yanko. The director is Veronika Zarubytska. The people with the same names as Minko and Zarubytska can be found online listed as the lawyers and legal consultants of several firms.

The charter capitals of the companies that win the public tenders worth of millions are Hr 1,000 each.

Moreover, the forming of the charter capital of Kleonika was finalized on Oct. 8, 2014, after it won the tender.

Both companies list “operation of hotels and similar facilities” as their main activity. Of course, there are no children camps in the companies’ possession. So how were such participants even allowed to take part in the public tender?

Legal basis

According to the public procurement legislation, the buying institution must put the qualifying demands for the participants, such as owning proper equipment and documents verifying conducting similar services before.

To bypass this obligation in their questionable tender, the Dnipropetrovsk department of the Social Insurance Fund changed the wording of the order. In the graph “demand,” the fund said that the winner must not “own” but “provide” the needed equipment.

It seems that the wording was changed specifically for the sake of a certain participant.

When putting out the order, the fund has to establish a scale to evaluate the offers.

In the spring tender, 80 percent of the points were devoted to the price of the service, while only 20 percent – to the quality of the camp.

For comparison, in a similar tender in Zaporizhya the local department of the fund gave 50 percent to the quality, taking in account the details like hot water supply and the frequency of the bed sheets being changed.

Since Kleonika has made deals with the camps after it won the tender, there was hardly a way for the firm to offer the documents confirming the quality of its services, as demanded by law.

Obviously, the company couldn’t provide the tender committee the obligatory document confirming that it has been providing recreational services for the past three years. Kleonika was registered six months before the tender. Neither could it provide its financial documents for the last fiscal year – which is another demand.

Another demand is to provide a detailed calculation behind the camp’s services price. Not knowing with which camps and for what price it will be making deals later, Kleonika couldn’t provide such calculation.

Who is responsible?

So where in the prices calculation the Hr 1.5 million that the intermediary received have ended up? Could it be that Kleonika spent it to deliver the children to the camps, as it promised?


Director of Smena camp says the transfer was handled terribly. His camp is 350 kilometers away from Dnipropetrovsk. It took the old buses hired by Kleonika 10 hours to cover the distance.

“On the way back one bus broke down, and another one was in an accident,” the director says. “Since Kleonika doesn’t have staff, a couple of my employees went with the kids. And they ended up being attacked by the furious parents who stood waiting for their kids too long. If I knew that it would turn out this way, I would never sign that contract with that firm.”

The traffic police of Zaporizhya Oblast confirmed that a bus with the kids got into a traffic accident on Aug. 28. According to them, the bus driver crashed into a Skoda, which hit another bus carrying children.

By law, the traffic police must be informed about a planned transfer of children and escort it. However, nobody ordered a police escort for this transfer.

“I don’t understand why the (Dnipropetrovsk department of the) fund didn’t watch this company closely. And I can’t understand how they won the tender not having any camps,” says Anatoliy Cherepikhin, head of travel vouchers department of the Trade Unions Council in Zaporizhya.

Transferring 1,240 children from Dnipropetrovsk to the Smena camp in Kirillovka couldn’t cost anything close to the Hr 1.5 million that Kleonika received from the deal.

Ordering one Mercedes-Benz bus from a transportation firm in Dnipropetrovsk to go to Kirillovka is just Hr 7,400. So the transfer of all of the kids couldn’t cost more than Hr 200,000.

So where is the rest of the money?

Big question

In three months of the investigation we found out that most of the Dnipropetrovsk children camps didn’t even know that the tender was held, but would have liked to participate.

When asked why the camps themselves didn’t participate in the tender, the head of the fund’s central direction’s department Taras Antonenko shows a thick pile of papers. All of it is just one tender offer.

“To prepare the papers right you would need an expensive professional. Some firms make money on it,” he says.

He claims that preparing the documents was the job of Kleonika.

But three out of four camps told us that they prepared the papers themselves. Besides, even if Kleonika had given the camps such a service, it couldn’t have been included in the cost of their offer anyway. The tender rules forbade to include any costs spent on preparing the offer.

_9_Тарас Антоненко начальник отдела центральной исполнительной дирекции Фонда засекретил список санаториев в которых оздоравливались украинцы

Taras Antonenko, head of the central direction’s department of the Social Security Fund for Temporal Disability


A look back

The spring tender wasn’t the first murky deal of the Dnipropetrovsk department of the fund.

On Oct. 21, 2013, it bought 500 recreation trips for children. The tender was won by Druzhba, a children recreation complex in Yevpatoriya, Crimea.

According to the tender papers, the representative of Druzhba was Viktoriya Zarubitskaya. A person with the same name is the head of Sanatorium and Resort Center, another Kyiv-based company that, just like Kleonika, participated in the 2014 tender while not owning any camps.

The coincidences don’t end here. At the same 2013 tender Druzhba’s competitor, clinical sanatorium Iskra that belongs to the Health Ministry, was represented by Andrey Minko, the director of Kleonika. His firm was registered one week before the tender.

According to Artur Slyusarenko, head doctor of Iskra, Kleonika was recommended to the directors of the sanatoriums at a meeting in the Ministry of Resorts and Tourism of Crimea as a firm that will help the facilities prepare the papers for the tenders. According to Sluusarenko, Iskra has used the services of Kleonika “about seven times,” but didn’t pay for it.

“Kleonika was supposed to be receiving something from the fund,” Slyusarenko said.

He said that Igor Strembitskiy, the head of the Ministry of Resorts of Crimea, may tell more.

But Strembitskiy declined to comment on the topic.

The tender’s winner, Druzhba, that was represented by SRC, said the cost of the firm’s services were included in their tender offer in the “other services” section of the calculation.

At the tender, Druzhba received Hr 2,666 million from the Dnipropetrovsk department of the fund. It is unknown how much of it was the fee of Sanatorium and Resort Center.

It is easier to count the extra fee in the tender offer of the Druzhba’s competitor Iskra. At the 2013 tender it requested Hr 2.94 million for 500 travel vouchers. According to the head doctor of the sanatorium, the trips are normally sold at Hr 2,100. Which leads us to the price of Hr 1.05 million – almost three times less than the price Iskra offered at the tender.

It is not clear why Iskra was even allowed to participate since this sanatorium specializes in neuropsychiatric diseases, not children recreation.

Lack of control

The executive management department of the fund is supposed to be controlled by the fund’s directorial board. The 13 board members are elected among the representatives of the government, the employers and the Trade Unions.

We asked 13 members of the board in Dnipropetrovsk whether they were surprised by the results of the spring tender. None of them even remembered Kleonika and none said they looked at the tender results.

Head of the board Vitaliy Dubel said he doesn’t have staff to study the tender papers.

During about one month we tried to pose the questions about the tender to Vitaliy Zheleznyak, director of the executive management department of the fund in Dnipropetrovsk Oblast, but he refused to talk.

His deputy Volodymyr Yarykhovych couldn’t explain how the fund managed to choose the tender winner among two companies that had no camps.

He also said he wasn’t aware of the difference in the real price of the camps and the prices given by Kleonika. He refused to show the tender offer of Kleonika even though the documents fell

(Editor’s Note: Olga Yudina, the author of the story, has sued the Dnipropetrovsk department of the Social Insurance Fund because of the refusal to give public information.)

Kyiv’s firms

The employees of the Dnipropetrovsk department of the fund say that the tenders were implemented on demand of Kyiv. Antonenko, the fund’s executive in Kyiv, confirms it.

“We insist that the regional departments hold tenders,” says Antonenko.

It was in Kyiv where the intermediary firms Kleonika and Sanatorium and Resort Center first showed up.

Sanatorium and Resort Center had it debut in a tender purchase of the sanatorium services held by the central executive department of the fund on July 13, 2013. The company won 54 of 1,105 lots. It sold 6,900 sanatorium vouchers for Hr 46.7 million.

Both Kleonika and Sanatorium and Resort Center were among the winners of the next sanatorium tender held on Nov. 25, 2013. The companies received orders worth Hr 83.5 and 42.3 million.

Once again, the tender documentation doesn’t say which sanatoriums were represented by the companies. Antonenko refused to provide such information, saying it would be “an intrusion in the commercial activity of the companies.”

Which means that Hr 120 million of the people’s obligatory insurance payments were paid to the unknown facilities.

The head of the tender committee Vladyslav Kulik was more talkative. Kulik remembered that the companies represented sanatoriums Krym, Borysfen, Khmelnyk and Pushcha-Vodytsya.

According to Kulik, Kleonika and Sanatorium and Resort Center printed the vouchers themselves and delivered them. The companies names were on the vouchers.

“They are fully responsible. If a person gets bad service in a sanatorium, he can call me, and I will call a mobile number of the management of these companies, even if it’s 3 a.m.,” brags Kulik.

Kulik refused to share the said mobile numbers. He also said there was nothing strange that the companies founded last year are so successful in winning million-worth public tenders.

“You can’t say that somebody overprices something and benefits from the difference,” he said.

According to Kulik, both mystery companies live off some kickbacks from sanatoriums. Let’s check it.

In Crimea, we were told that the sanatorium was allowed to participate in a public tender only through Sanatorium and Resort Center.

“As I understood it’s a firm associated with the (Social Insurance) fund. We prepared the documents and they paid us for the vouchers. We didn’t pay them anything for their services,” said Valentyn Anatoliyevych, chief doctor of Krym.

Pushcha-Vodytsya also didn’t pay for the services of Sanatorium and Resort Center.

“Intermediaries are not banned by the law,” says Yuriy Viktorovych, medical head of Pushcha Vodytsya. “We gave (the Sanatorium and Resort Center) calculation of our service. I don’t know how they cooperate with the fund. We sold the vouchers at Hr 264 per night.”

The price of Hr 267 is not seen anywhere in the Sanatorium and Resort Center tender offers. The firm sold the vouchers to the fund at much higher prices.

Olga Yudina is a Dnipropetrovsk journalist who wrote this story for the Objective investigative reporting project, which is joint venture of NIRAS/BBC and is funded by the Danish Ministry of Foreign Affairs.



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