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Safaricom Scandal: Conflict of interest, insider trading, overpriced purchases and flagrant abuse of the law

Safaricom Scandal: Conflict of interest, insider trading, overpriced purchases and flagrant abuse of the law

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By the Kenyan Weekly Team

Kenya’s leading blue-chip telecommunication firm Safaricom Limited has just announced its financial statements showing a staggering Sh.38bn in profits. The company is also smarting from highly incriminating allegations of corruption contained in a KPMG Audit report touching on the integrity of its senior executives and its CEO Bob Collymore who was last week allegedly barred from travelling to the UK for a global anti-corruption summit.

The audit report delved into various concerns worth billions of shillings mainly relating to activations, procurement and contract compliance.

According to the findings, Safaricom is mired in multiple fraud and corrupt cases in what observers see as a serious threat to Safaricom’s brand as a corporate leader.

One Campus Project

The One Campus project was initiated by Safaricom to bring its staff together, create a world class workspace and an environment that enables and promotes quick decisions among others. Safaricom’s Facilities team undertook an ‘as is” assessment of its existing facilities and issued a report to the Executive Committee in September 2013 and it is from that assessment that it was found that there was need to move to new facilities that could accommodate employees centrally.

Mentor Management Limited was selected to be the primary agent for sourcing and purchasing the land. Five acres of land was to be purchased at Garden City from Ruaraka Diversified Investment Limited at a cost of Sh1.15 billion. Safaricom’s board approved this land purchase.

 

However, on this deal, the KPMG investigation revealed that there was advance correspondence between Safaricom Finance Director and Mentor Management Ltd in which they were discussing the possibility of Safaricom acquiring land at the Garden City site several months before the formal process commenced. Mentor Management had also not been prequalified within Safaricom at the time it was submitting its proposal for property search. The initial proposal by Mentor Management was submitted prior to a formal Request for Proposal being sent out. These findings point to Mentor Management Limited being a favoured supplier and the tender process was merely a matter of formality.

The damning KPMG report also notes that the proposal evaluation criteria for the Request for Proposal had not been done prior to the Request For Proposals being sent out and receipt of bids. This is contrary to the provisions of the firm’s own Supply Chain Policies and Procedures Manual.

It was also revealed that additional services were sourced from Mentor Management without competitive sourcing with no proper justification.

Mentor Management was awarded the job but there was no contract between Safaricom and Mentor. The absence of an executed contract meant that Mentor was not expressly restricted to acting for Safaricom alone, declaring conflicting relationships or restricted from receiving financial benefits from other parties in this transaction.

To date Mentor Ltd has received Sh23,052,000 as payment for their involvement in the One Campus project. This amount is ten times the amount quoted in their initial bid for property search.

In another proposal dated 3 June 2014, the favoured supplier Mentor Limited proposed to undertake on behalf of Safaricom the second stage of property acquisition process and this was approved without a competitive evaluation. On this Safaricom shareholders lost the benefit of competitive sourcing. Request for proposal documents were prepared by Mentor Ltd but were shared with Safaricom for review and approval prior to being issued to other bidders. Bidders submitted their proposals to Mentor Ltd where it was noted that the two late submissions were erroneously submitted and accepted by Mentor Management Ltd. One bidder sent their proposal four days late and it was accepted.

Safaricom eventually purchased two plots of land totaling five acres within Garden City at a price of Sh1.15 billion. KPMG noted that they were not provided with evidence of price negotiations nor commercial valuation reports analyzing the price of the land. KPMG also noted that this price paid by Safaricom was higher than the various indicative prices it was previously provided with. It was further established that the land sold to Safaricom had been purchased from East Africa Breweries Ltd at Sh1.2 billion for 32 acres. The fees paid to Mentor Ltd amounted to 1 per cent of the value of the land purchased by Safaricom despite the position put forward by Mentor at the beginning that their fees would be lower than commissions charged by agents which ranged between 1 per cent and 3 per cent.

KPMG later established that Mentor Ltd and the company that sold land to Safaricom are owned by one firm and therefore presenting a potential conflict of interest to the detriment of Safaricom. It was further observed that Garden City Retail Ltd, which is fully owned by the firm that sold land to Safaricom, has the same physical address as that of Mentor Ltd.

KPMG visited the One Campus Project and were able to access one portion of the land while the other portion was inaccessible as it had been completely fenced. They also noted that no works had been undertaken at the site and there was an unoccupied three bedroomed house at the site

The ongoing Safaricom corruption scandal is seen as symptoms of that larger corporate dysfunction and one likely to implicate top executives including CEO Bob Collymore and perhaps put dozens of other business people under investigation. In the end, shareholders will be happy to see assets acquired using corruption proceeds impounded and the culprits processed through Kenya’s robust but often slow criminal justice system.

 

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Written by Lucy Nyasuna

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