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The Safaricom Fraud Files : The Ellams and Sintel Scandal

Safaricom CEO, Bob Collymore

1. Introduction and Background

Ellams Products Limited has been the sole supplier of Prepaid Recharge Vouchers to Safaricom up until 11th September 2012 when Safaricom entered into a contract with a competitor, Sintel Security Print Solutions Limited (Refer Appendix 1-Contract with Sintel). The additional supplier was to enhance competition by driving down the cost of prepaid recharge vouchers and also be an alternative supplier (and reduce reliance on Ellams) as part of Safaricom’s business continuity plan.

There has been a previous case of conflict between Ellams and Sintel. The bone of contention then was a certain Mr. Devaraj Malarmesai Bagavan, a former production manager (2003 – 2007) at Ellams. Mr. Bagavan was deported from Kenya by the management of Ellams around June/July 2007 because he was alleged to have been looking for alternative employment, among other reasons. He was recalled back into the country by his current employer Sintel Security Print Solutions in late 2010. He became the production manager at Sintel Print Solutions which commenced operations in late 2011. In January 2012, the Immigration office is said to have cancelled his work permit without notice or reason and asked his current employer to buy him a ticket back to India within eight days. However, this order was never implemented and was challenged in court by Devaraj. Sintel Security Print Solutions was later enjoined in the suit (Refer Appendix 2Investigation Report).

Bipin Vohra, a director of Sintel Security Print Solutions Company Limited, reported several allegations alluding to preferential treatment that was being accorded by our Supply Chain departments to its sole competitor – Ellams Products Limited. These allegations are;

  1. That Ellams’ contract allows a variable price based on quantities ordered and is being used to their advantage unlike Sintel’s price which is fixed irrespective of quantities ordered.
  1. That an order to Ellams in Jan/Feb 2014 was cancelled and replaced with a similar one with higher prices.
  1. That Sintel was not invited for supply of sim packs yet 23 other firms including Ellams were invited.
  1. That Sintel was being denied access to certain members of EXCO including Peter Arina and as result are not able to air their grievances.
  1. Objectives

We launched an investigation into these allegations. Our objectives were to determine the merits or demerits of these allegations.

  1. Detailed findings
  1. Pricing in contracts
  1. 1 October 2012 to 30 September 2013

Sintel’s contract price is quoted in US dollars. For the purposes of comparison, we have used an average exchange rate of USD 1 = KES 85. The comparative prices charged by Ellams and Sintel between 1 October 2012 to 30 September 2013 are illustrated in table 1 below:

 Recharge Voucher denomination per batchPrice (Shs)
SintelEllams
Bamba 5200350
Bamba 10200350
Bamba 20500875
Bamba 50380450
Bamba 100152180
RV 2503845
RV 50042.550
RV 100043.7567.5
  1. From October 2013

Sintel’s contract price is quoted in US dollars. For the purposes of comparison, we have used an average exchange rate of USD 1 = KES 87. As per the respective contracts with Safaricom, the comparative unit prices (in KES) for both Sintel and Ellams as from October 2013 for recharge vouchers are illustrated in table 2 below:

 

 

 

Recharge Voucher denomination per batch

 

Sintel

Ellams (graduated on quantity supplied per month)
60M100M120M140M
Bamba 5270350300280240
Bamba 10270350300280240
Bamba 20675875750700600
Bamba 50460450440440420
Bamba 100184180176176168
RV 2504645444442
RV 50051.550494947.5
RV 100052.7567.56562.557.5

 

Ellams agreed price is graduated to decrease as the order quantity (volumes of PINs per month) increases. The prices in the table marked in red indicate the price levels at which Ellams’ is more expensive than Sintel’s.

 

  1. Monthly effective prices

We carried out an analysis of the monthly order prices for the two suppliers for the last one year as detailed in table 3 below. The instances where Ellams’ price was lower are highlighted in green.

MonthDescriptionPrice (Shs)Difference (Shs)
EllamsSintel
May-13BAMBA 10 Batch 1000350204.71145.29
May-13BAMBA 20 (10-in-1) Batch 2500875511.78363.22
May-13BAMBA 50 Batch 1000450388.9861.02
May-13Recharge Voucher 250 Batch 1004538.906.10
May-13Recharge Voucher 500 Batch 505043.506.50
May-13Recharge Voucher 1000 Batch 2567.544.7822.72
July-13BAMBA 10 Batch 1000350204.71145.29
July-13BAMBA 20 (10-in-1) Batch 2500875511.78363.22
July-13BAMBA 50 Batch 1000450388.9861.02
July-13BAMBA 100 Batch 400180155.5924.41
July-13Recharge Voucher 250 Batch 1004538.906.10
July-13Recharge Voucher 500 Batch 505043.506.50
July-13Recharge Voucher 1000 Batch 2567.544.7822.72
August-13BAMBA 10 Batch 1000350204.71145.29
August-13BAMBA 20 (10-in-1) Batch 2500875511.78363.22
August-13BAMBA 50 Batch 1000450388.9861.02
August-13BAMBA 100 Batch 400180155.5924.41
August-13Recharge Voucher 250 Batch 1004538.906.10
August-13Recharge Voucher 500 Batch 505043.506.50
August-13Recharge Voucher 1000 Batch 2567.544.7822.72
October-13BAMBA 5 Batch 100030027030
October-13BAMBA 10 Batch 1000300269.7030.30
October-13BAMBA 20 (10-in-1) Batch 2500750674.2575.75
October-13BAMBA 50 Batch 1000439.45461.10-21.65
October-13BAMBA 100 Batch 400175.8184.44-8.64
October-13Recharge Voucher 250 Batch 1004446.11-2.11
October-13Recharge Voucher 500 Batch 504951.33-2.33
October-13Recharge Voucher 1000 Batch 256552.8512.15
November-13BAMBA 5 Batch 1000300165.42134.58
November-13BAMBA 10 Batch 1000300221.2478.76
November-13BAMBA 20 (10-in-1) Batch 2500750522.75227.25
November-13BAMBA 50 Batch 1000440404.6135.39
November-13BAMBA 100 Batch 400176150.7725.23
November-13Recharge Voucher 250 Batch 1004439.214.79
November-13Recharge Voucher 500 Batch 504942.476.53
November-13Recharge Voucher 1000 Batch 25657.9857.02
January-14BAMBA 5 Batch 1000350269.7080.3
January-14BAMBA 10 Batch 1000300269.7030.30
January-14BAMBA 20 (10-in-1) Batch 2500750674.2575.75
January-14BAMBA 50 Batch 1000440461.10-21.10
January-14BAMBA 100 Batch 400176184.44-8.44
January-14Recharge Voucher 250 Batch 1004446.11-2.11
January-14Recharge Voucher 500 Batch 504951.33-2.33
January-14Recharge Voucher 1000 Batch 256552.7512.25
April-14BAMBA 10 Batch 1000280269.7010.30
April-14BAMBA 20 (10-in-1) Batch 2500700674.2525.75
April-14BAMBA 50 Batch 1000440461.10-21.1
April-14BAMBA 100 Batch 400176184.44-8.44
April-14Recharge Voucher 250 Batch 1004446.11-2.11
April-14Recharge Voucher 500 Batch 504951.33-2.33
April-14Recharge Voucher 1000 Batch 2562.552.859.65

 

Generally, Ellams has been charging a higher price than Sintel upto August 2013. For instance for the RV 1000, Sintel price is lower than that that of Ellams at whatever quantities ordered.

  1. Potential Savings

We computed the potential savings to Safaricom if the orders to Ellam were instead given out to Sintel at the average prices for the respective months. From our computation, Safaricom could have saved Shs 26,318,867.45 since October 2013. The details are contained in the table 4 below:

MonthRecharge VoucherDifference in Price (Shs)Qty ordered from Ellams (Shs)Potential savings 

(Shs)

October-13BAMBA 5 Batch 100030.301,20036,360.00
October-13BAMBA 10 Batch 100030.3070,7002,142,210.00
October-13BAMBA 20 (10-in-1) Batch 250075.7531,2402,366,430.00
October-13BAMBA 50 Batch 1000-21.6554,100(1,171,510.00)
October-13BAMBA 100 Batch 400-8.6450,000(432,000.00)
October-13Recharge Voucher 250 Batch 100-2.113,210(6,773.10)
October-13Recharge Voucher 500 Batch 50-2.334,700(10,951.00)
October-13Recharge Voucher 1000 Batch 2512.155,20063,167.00
 Total  2,986,932.90
November-13BAMBA 5 Batch 1000134.5828037,682.12
November-13BAMBA 10 Batch 100078.7667,5005,316,036.98
November-13BAMBA 20 (10-in-1) Batch 2500227.2543,6409,917,336.54
November-13BAMBA 50 Batch 100035.3941,4001,465,166.22
November-13BAMBA 100 Batch 40025.2333,750851,485.85
November-13Recharge Voucher 250 Batch 1004.794,20520,125.10
November-13Recharge Voucher 500 Batch 506.534,70030,687.38
November-13Recharge Voucher 1000 Batch 2557.025,930338,149.36
Total  17,976,669.55
January-14BAMBA 5 Batch 1000
January-14BAMBA 10 Batch 100030.3064,0001,939,200.00
January-14BAMBA 20 (10-in-1) Batch 250075.7536,8002,787,600.00
January-14BAMBA 50 Batch 1000-21.1022,500(474,750.00)
January-14BAMBA 100 Batch 400-8.4412,500(105,500.00)
January-14Recharge Voucher 250 Batch 100-2.112,000(4,220.00)
January-14Recharge Voucher 500 Batch 50-2.334,000(9,320.00)
January-14Recharge Voucher 1000 Batch 2512.154,00048,600.00
Total  4,181,610.00
April-14BAMBA 10 Batch 100010.30128,0001,318,400.00
April-14BAMBA 20 (10-in-1) Batch 250025.7567,2001,730,400.00
April-14BAMBA 50 Batch 1000-21.1072,500(1,529,750.00)
April-14BAMBA 100 Batch 400-8.4450,000(422,000.00)
April-14Recharge Voucher 250 Batch 100-2.115,000(10,550.00)
April-14Recharge Voucher 500 Batch 50-2.334,000(9,320.00)
April-14Recharge Voucher 1000 Batch 259.6510,00096,475.00
Total1,173,655.00
Grand Total26,318,867.45

 

  1. Incorrect price applied on Ellams’ orders.

As per the contract, Ellams’ agreed price is graduated to decrease as the order quantities (volumes of PINs per month) increase. We noted instances where the price applied was either above or below and as a result, Safaricom paid an extra Kshs 12M. The details are illustrated in table 5 below:

MonthAirtime denominationQuantity ordered(batches)Price used for Order (Shs)Contract price (Shs)Amoununder/overpaid (Shs)
Nov-13

PO 164911 and  164912

BAMBA 5 Batch 1000280300350(14,000)
BAMBA 20 (10-in-1) Batch 250043,6407507002,182,000
BAMBA 50 Batch 100041,400440450(414,000)
BAMBA 100 Batch 40033,750176180(135,000)
Recharge Voucher 250 Batch 1004,2054445(4,205)
Recharge Voucher 500 Batch 504,7004950(4,700)
Recharge Voucher 1000 Batch 255,9306567.5(14,825)
Jan-14

PO 167733

BAMBA 50 Batch 100022,500440450(225,000)
BAMBA 100 Batch 40012,500176180(50,000)
Recharge Voucher 250 Batch 1002,0004445(2,000)
Recharge Voucher 500 Batch 504,0004950(4,000)
Recharge Voucher 1000 Batch 254,0006567.5(10,000)
April-14

PO 172818 and 172845

BAMBA 10 Batch 1000128,0002802405,120,000
BAMBA 20 (10-in-1) Batch 250067,2007006006,720,000
BAMBA 100 Batch 40050,000176180(200,000)
Recharge Voucher 250 Batch 1005,0004445(5,000)
Recharge Voucher 500 Batch 504,0004950(4,000)
Recharge Voucher 1000 Batch 2510,00062.567.5(50,000)
Total12,885,270

 

  1. Orders ratio

In the Contract Renewal for the supply of Secure Pre-paid Vouchers and other Material signed 5 Dec 2012 (Refer to Appendix 3), it was argued that Sintel did not have capacity to deliver all Safaricom’s requirements. It further stated that Sintel were importing 2 more machines to make a total of 5 to have a capacity of 7-8 million PINs per day……therefore Safaricom could  drastically reduce reliance on Ellams to optimize cost. It was proposed that the following order ratio in Table 6 should be applied.

We analysed the monthly quantities ordered from the two suppliers as shown in the table 7 below:

SintelEllamsSintelEllamsSign off
May-13177,970,00094,210,00065%35%Approved ratio was  65%-35%
Jul-13154,060,000107,340,00059%41%Approved ratio was 61%-39%
Aug-13211,950,00088,560,00071%29%Approved ratio was 60%-40%
Oct-13222,286,000224,786,00050%50%Approved ratio was 50%-50%
Nov-13314,116,500232,583,75057%43%Approved ratio was 50%-50%
Jan-14184,315,000184,000,00050%50%Approved ratio was 50%-50%
Apr-14260,407,500389,450,00040%60%Approved ratio was 40%-60%

Sintel’s April 2014 order was done in March 2014

We noted that the quantities were as per the sign off, except for August 2013 and November 2013. In August this is as a result of Ellam’s order of 147,560,000 PINs was partly cancelled while in November 2013, there is a PO number 164301 which was issued to Sintel at prices 6 times lower. This particular PO was conspicuously missing from the list of PO presented by Sintel in their protest documents. This order was also over and above the quantity that was approved for the month of November 2013 in the sign offs.

We also analysed the ratio of total orders placed for the last one year (May 2013 to Apr 2014) and the monthly average order per denomination as detailed in the table 8 below:

Recharge Voucher Denomination Monthly AverageQuantity%ge
BAMBA 5 Batch 1000354,2862,480,0000%
BAMBA 10 Batch 1000130,528,571913,700,00032%
BAMBA 20 (10-in-1) Batch 2500184,285,7141,290,000,00045%
BAMBA 50 Batch 100071,650,000501,550,00018%
BAMBA 100 Batch 40018,494,286129,460,0005%
Recharge Voucher 250 Batch 100640,2144,481,5000%
Recharge Voucher 500 Batch 50418,2142,927,5000%
Recharge Voucher 1000 Batch 25362,2502,535,7500%
Total406,733,5362,847,134,750100%

Bamba 10, 20 and 50 are the highly ordered denominations accounting for 95% of the quantities ordered.

  1. Delivery

We compared the quantities ordered vis-à-vis quantities delivered as contained in table 9 below:

MonthQty OrderedQty DeliveredQty undelivered
EllamsSintelEllamsSintelEllamsSintel
May-1394,210,000177,970,00094,210,000177,970,00000
Jul-13107,340,000154,060,000107,340,000154,060,00000
13-Aug88,560,000211,950,00088,560,000211,950,00000
13-Oct224,786,000222,286,000224,786,000222,286,00000
13-Nov232,583,750314,116,500232,443,750313,891,500140,000225,000
Jan-14184,000,000184,315,000183,940,000181,540,00060,0002,775,000
Apr-14389,450,000260,407,500166,175,000141,447,500223,275,000118,960,000

 

  1. Alleged cancelled order in January 2014

We found only one Ellams order (PO 167733) in January 2014 and it was not cancelled.

We noted two cancelled orders done on 2nd April 2014(PO 172301 & 172303) which were re-done again on 9th April 2014(PO 172818 & 172845). The additional orders were done at an additional cost of Kshs 13,756,000 as contained in table 10 below:

Airtime DenominationInitial Value          PO 172301 & 172303 (Shs)Revised Value      PO 172818 & 172845 (Shs)Additional  cost (Shs)
Bamba 1030,720,00035,840,0005,120,000
Bamba 2040,320,00047,040,0006,720,000
Bamba 5030,450,00031,900,0001,450,000
Bamba 1008,400,0008,800,000400,000
RV 250210,000220,00010,000
RV 500190,000196,0006,000
RV 1000575,000625,00050,000
Total110,865,000124,621,00013,756,000

 

  1. Sintel not invited to tender for supply of simpacks

Sintel alleges that it was not invited to tender for the supply of SIM Card packaging. Sintel were not prequalified for supply of SIM packs.

  1. Sintel was finding it difficult to air these allegations to members of EXCO

The fact that these allegations have finally been received and are now being investigated waters down this allegation.

Draft Report – Sintel_210514 by Cyprian Nyakundi on Scribd



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