KARACHI, Jan 23: The drawing of two prize bonds with consecutive serial numbers as the winners of the first and second prizes in the prize bond scheme managed by the State Bank has led to serious questions being asked regarding the transparency of the entire programme, Dawn has found.

Moreover, when questioned, the State Bank has refused to discuss specific issues and loopholes that allow for fraud.

Prize bonds were introduced in 1960, with the Central Directorate of National Savings acting as the owner of the scheme and the State Bank of Pakistan (SBP) as its manager, according to SBP officials.

Qasim Nawaz, the managing director of the SBP’s Banking Services Corporation, and Riaz Nazarali Chunara, the SBP’s accounts director, said prize bonds are currently being sold in six denominations — from Rs200 to Rs40,000 — with prizes ranging Rs750,000 to Rs75 million. Draws are organised four times a year for each denomination, making 24 draws annually, one held every 15 days.

So far, Rs250 billion have been invested by people in the bonds, with the State Bank distributing approximately Rs20 billion in prizes annually.

The winning numbers were drawn by handicapped children at a ceremony attended by the public, and the process was also filmed to maintain transparency, the two SBP officials insisted.

They said that earlier, numbers were picked by the children by picking up numbered cubes to form the winning combination, but the system has now been updated to use a machine.

The machine in question has been manufactured by the Heavy Mechanical Complex (which is owned by the federal government), and allows the children to use a handle to cause rings to rotate until they stop at certain digits. The combination of the digits displayed on the rings forms the winning number.

The lists of numbers of winning bonds are printed in the media and also put on the bank’s website. A person with a winning bond has up to six years to claim his or her prize, after which no claims would be entertained, they said.

Further, prize bonds may also be sold back to the government through the bank. If a government-owned bond wins a prize, the prize money is deposited into the government’s account. The officials said this often happens.

Responding to a question, they said that sometimes bonds that the records said were government-owned won prizes, but people would come and claim the prizes. They said that in these cases, it was often found that rather than fraud, the mistake had taken place on the bank’s side, with incorrect bond numbers being recorded as being government-owned.

In these cases, in-house inquiries are instituted, and the staffers found to have made the mistake are usually fined the face value of the bond.

The officials did not comment when asked why staffers did not face stiffer penalties (such as the value of the prize money), or why inquiries were not handled by independent investigating agencies.

Under the current system, staffers can expect fines only as high as the most expensive bond (Rs40,000), while prizes can be as high as Rs75 million. As a result, the opportunity for fraud by co-opting a bank employee is considerable.

The bank officials also said that sometimes the bonds being sold back to the government were found in a dilapidated condition. In such cases, the bonds were destroyed after their numbers were recorded, they added.

While Dawn asked several questions, including those specific to the case of winning numbers drawn by handicapped children, at a briefing arranged by the SBP public relations department, the bank officials said they would respond to the queries later. A write-up did arrive from the bank the following day, but it was general in nature and did not explain any of the specific questions.

The questionnaire was sent again to the bank, but SBP spokesperson Syed Wasomuddin refused to respond to the queries, saying: “We will not give any answer to these questions. In the briefing, the entire process has been explained,” he added.

The questions were: i) what is the probability that two numbers in a sequence win the first and second prizes in the same draw? ii) how many times have such instances occurred in the past? iii) roughly, how many prizes have been won by government-owned bonds? iv) what is the procedure to return bonds to the government treasury? v) what is the penalty if government-owned bonds are presented by a person to claim a prize? vi) how many such instances have occurred in the past when people have turned up with a winning bond that has been recorded as being government-owned and in bank’s possession? vii) how many bank staffers have been prosecuted so far in such instances? viii) who does prosecute these staffers (the bank, the Federal Investigative Agency, etc)? ix) what is the total value of uncollected prizes? x) under what law does the SBP prosecute its staffers for wrongdoing when bonds are incorrectly recorded as being in bank custody? xi) why are the staffers found at fault merely fined and not handed over to the FIA for an independent investigation and prosecution for what is a banking crime? xii) how many times have the bonds, which have been destroyed, won the prizes? xiii) how many times have people turned up with a prize bond that according to the bank record has been destroyed by the bank, what action had been taken against the people bringing in the these bonds? xiv) have any bank staffer been caught involved in this kind of activity replacing the bond recorded as destroyed that have won the prizes and what action has been taken against these staffers? xv) who have conducted the inquiry (the SBP, FIA, or any other independent agency)?

FIA A senior FIA official in the department dealing with the SBP-related issues told Dawn that the bank rarely referred cases to the FIA, as the country’s premier financial institution usually dealt with these matters on its own perhaps to avoid attracting bad publicity. Besides, if independent inquiries were instituted, the bank officials would have no control over it that might result in unearthing the involvement of high officials in such scams, he said.

It was probably in the mid 1990s that the FIA handled two prize bond fraud cases where claimants turned up after the bank had destroyed the winning bonds, the official recalled.

He said the cases had been referred to the FIA which after investigations found the involvement of many bank staffers up to the level of chief manager in one of the cases. All of them were later booked in the case, he added.