Safaricom Corruption Scandal has work cut out for Kenya’s EACC and British SFO
Recent reports into allegations of fraud and endemic corruption on various contractual undertakings by Safaricom Ltd indicts top management with serious improprieties stemming from insider trading, conflict of interests and single sourcing and other scandals.
The KPMG forensic report uncovers embarrassing strategic governance failures not expected at a blue-chip company like Safaricom. The report further exposes staff incompetence, insufficient risk mitigation and serious fiduciary responsibility shortcomings all of which may have cost the firm billions in revenue loses.
It has emerged that individuals within the management of Safaricom Limited, set up several shell companies that together with firms incorporated with Safaricom ex-employees as directors were singled sourced and enjoyed preferred supplier status that resulted to their irregular award procurement deals worth billions of shillings. In the process of most of these opaque deals, that were neither competitive nor accountable, Safaricom shareholders lost the opportunity to get the best in terms of quality, price and service.
The shocking revelations are contained in a leaked forensic investigative report by global audit firm KPMG which probed various concerns within Safaricom related to activations, procurement and contract compliance. The report exposes a litany of humongous scandals involving shell companies, proxy directors and single sourced preferred suppliers which result to the interests of shareholders being compromised.
In the high value activation contracts, investigations by KPMG established that Safaricom issued Purchase Orders worth Kshs.1,205,971,373.90 to seven activation vendors. For an investment of more than Ksh1.2 billion, KPMG established that what Safaricom CEO Bobby Collimore proudly and ironically called “ a robust procurement process” was in fact an ordinary supplier selection arrived at by individual employees who may have had a freehand to select suppliers on basis of preference, performance on previous engagements and strengths. No competitive tendering process was employed at all meaning the Safaricom shareholder was seriously exposed in an unregulated procurement process.
KPMG was provided with an activation spend analysis for the Financial Year 2013/2014 which indicated that Safaricom spent Kshs. 278,931,482.44 on activations. Safaricom could not locate the spend analysis for the Financial Year 2014/2015 while that for the FY 2015/2016 was yet to be prepared. KPMG also requested for the activation spend for the period under review but Safaricom could not provide the information at the time they were preparing their report. KPMG observed that Safaricom has multiple contracts with the activation vendors for provision of similar services and that these contracts have different rates and therefore impossible to link purchase orders to contracts.
On their analysis of vendor selection, KPMG noted that they were not provided with the documentation for the 2011 tender undertaken for generic promotional materials and point of sale materials. This in itself point to irregular procurement as documents are supposed to archived for future reference and for audit purposes as a matter of routine.
An internal sourcing report states that Safaricom sent out an RFP to potential bidders on 19 Dec 2013 and closed on 23 Jan 2014. KPMG noted that selective tendering was the mode used. A list of potential agencies had been drawn after an extensive market research and suppliers were later shortlisted.
The table below shows the results of the RFP (check page 105 of the KPMG report)
KPMG noted that although Transcend Media, one of the bidders, was ranked first during the technical and commercial analysis, they were NOT selected. The tender was subsequently awarded irregularly to ScanAd Kenya Limited with a monthly retainer of Kshs 18,600,000. Where is proof that Safaricom shareholders are getting real value for money in these illegal and single sourced deals?
As if that was not enough, and against all expectation of fairness and equity of suppliers, ScanAd was then awarded a one year contract that has since expired but KPMG notes that they are still operating after contract expiry with no tender. Safaricom’s flamboyant CEO now enjoys a celebrity status in Kenya and it is noteworthy that during his lavish invitation-only wedding, among the high-flying guests was Bharat Thakrar who is the CEO of Scangroup which owns ScanAd. Clearly, this was in breach of ethical business practices in the supply chain which demand that actors should not accept excessive hospitality which may be intended as influencing their judgement or impartiality on contracts in any way.
Another company, Squad Digital, was contracted by Safaricom to provide digital marketing services. It was established that prior to April 2014, Squad Digital had been previously single sourced. KPMG observed that Squad Limited was an affiliate of ScanGroup. To the consternation of many, Safaricom did not monitor the delivery of ScanAd and Squad Digitial to confirm availability of the minimum staffing requirements set out in their agreements with the sister companies.
Tech Mahindra which was engaged by Safaricom to develop products to be offered to Safaricom’s customers on a revenue share basis completely failed to develop the expected products. This was mostly because Safaricom failed to provide specific measures for monitoring vendor performance as they were open to continue generating ideas until one of the ideas succeeded.
The decision to select Huawei to upgrade its systems on Mpesa Second Generation (G2) was single-sourced and made without the direct input of the technical team who were project implementers. Project costs were also not assessed against market pricing. According to the current management team, the decision to go with Huawei was mae by the previous management headed by Michael Joseph. One wonders why CEO Bob Collymore decided to proceed with a project worth more than USD12 million (approximately Ksh 12 billion) without a full evaluation of alternatives and without checking the risk factors, and if indeed Safaricom shareholders were getting value for their money. Although the project has since been rolled out, KPMG further probe into the project were stopped by Bob Collymore who claimed other reviews were being done.
Kaon Media, a company contracted by Safaricom to provide set-top boxes that would allow Safaricom to break into the digital TV broadcasting platform was also awarded a tender although it was not amongst the highest ranked from a technical perspective. Kaon delivered 20,000 units of set boxes and subsequently raised 2 invoices valued at USD 1,665,421.53 which were both paid by Safaricom.
Media reports later indicated that Safaricom was compelled to suspend marketing the set-up boxes supplied by Kaon Media Safaricom due to technical deficiencies. It is unclear if Kaon replaced the equipment or refunded the money paid since the project has since been abandoned by Safaricom. It will be distressing to Safaricom shareholders that Kaon Media were ranked fifth out of six vendors were contracted to deliver a highly technical product at substantial cost only for the implementation to abort due to supplier and equipment incompetence.
Fibre Space Ltd, was also single sourced by Safaricom to roll out a system for electronic payments in the transport sector. This is the project known as the cashless payment system for matatus in Nairobi. KPMG established that there was no request for proposal (RFP) issued nor vendor selection (tendering process) done for this partnership. During this same period, KPMG also established that Fibre Space were actually having discussions with the head of the business unit Sylvia Mulinge. To the schocking surprise of the auditors, accountability documents related to this contract seem to have disappeared into thin air after payments were made to Fibre Space for a total of USD 6.46 million living Safaricom with dead stock of unusable cards.
Huawei was also single sourced to design and implement a Convergent Billing System at Safaricom and were paid a total of USD10,612,700.97 and Kshs 839,069,853.73. In the final analysis, a summary of the work done as provided by Safaricom showed that CBS customization services by Huwaie appeared inadequate. Safaricom do not state what corrective measures are taken thereafter to either compel the vendor to do a complete job or refund money already paid.
Despite missing a lot of critical information like meeting minutes and some contracts, the KPMG report nonetheless lists report list numerous other instances where vendors are single sourced for deals worth billions of shillings for contracts reviewed for a period of two years only.
Market analyst say that corruption within Safaricom is likely to undermine its brand and risk creating a disconnect between the firm and its millions of subscribers. The presumption of unethical activity in the firm compromises the market confidence needed to compete effectively and remain a market leader.
Safaricom will also have to deal with increasing suspicion that its network is being used by the government of the day to suppress access to information and to hunt down critics who use social media to report on negative goings on in government which mainstream media cannot dare to report.
It remains to be seen if Safaricom CEO Bob Collymore will be placed under criminal investigation by Kenyan and British authorities as probe into the firm’s procurement systems exposes more corruption.
Every Safaricom subscriber and shareholder out there should be concerned that Safaricom’s apparent rotten core may have permanently stained the much admired brand that took so many years and effort to build.