Senior Safaricom executives named in billion shillings procurement scam

Top Safaricom managers have been named in alleged multibillion shilling tendering irregularities at the telecoms giant which last week announced a record Sh38 billion profit for the year ended March 31.

The damning dossier by accounting firm KPMG — which is now the subject of a parliamentary investigation — details a review of 23 questionable tenders at Safaricom that were awarded between September 2013 and August 2015.

READ: Safaricom net profit rises 20pc to Sh38.1 billion

Safaricom hired KPMG to conduct an indepth audit of the two dozen tenders over a two-year period, following concerns over their integrity and value to shareholders.

Safaricom chief financial officer John Tombleson alongside four other senior executives are named in the report as having influenced the purchase of a Sh1.15 billion five-acre piece of land at Garden City where the telecoms giant plans to build its headquarters.

KPMG auditors have also questioned payments worth Sh1.2 billion to seven firms for marketing activations that promote the Safaricom brand and its products.

The audit report also questions Safaricom’s procurement of corporate promotional merchandise worth Sh201 million from Vajas Manufacturers Ltd, Chinese technology firm Huawei’s $12.5 million contract to upgrade the M-Pesa platform, and payments of Sh1.2 billion to media services company Scanad, which is a subsidiary of WPP Scangroup.

The list of doubtful deals at Safaricom includes contracting of South Korean firm Kaon Media to supply set-top boxes ($1.6 million), My 1963 commuter card project with Fibre Space (Sh15 million), the purchase of network spares management from GSM Systems ($2 million) and a billing system from Huawei at a price of Sh839 million.

Swift action

Safaricom chief executive Bob Collymore has promised to act on the findings of the report having called in KPMG to conduct the audit.

“Action will be taken and uncompromisingly so. We are not shy of addressing integrity questions,” he said at a press conference on May 7, adding that he would not commission such a report and then sweep it under the carpet.

Monday, the Safaricom chief executive said the report was being finalised and promised to make all the recommended improvements to ensure the telecom firm’s governance systems are enhanced even as he insisted that there was no evidence of any individuals benefiting inappropriately from the company’s commercial agreements.

“For the avoidance of doubt, the KPMG’s draft report makes it clear that — while there are internal process improvements required — there is absolutely no evidence that any individuals benefited inappropriately from any of Safaricom’s commercial agreements. Allegations to the contrary are completely untrue,” Mr Collymore said.

Championing integrity

National Assembly speaker Justin Muturi on May 5 directed the departmental committee on finance, planning and trade to investigate the tender dealings at Safaricom and report back to the House within 60 days.

The alleged tendering irregularities are troubling for Safaricom which has more recently styled itself as Kenya’s top homegrown brand with adverts that capture picturesque scenes around the country and its use of green and white colours of the national flag.

Mr Collymore, who made public his wealth last year, has been championing integrity at the workplace and was a key player in drafting the anti-Bribery Bill that Parliament recently passed into law.

The Safaricom CEO is a member of United Nations Global Compact, a group of global corporations that are committed to fighting graft and promoting respect for workers’ rights.

Land acquisition

KPMG auditors found that Mr Tombleson had begun talks with private equity firm Actis to buy land at Garden City eight months before Safaricom’s board of directors considered a plan to build an office complex dubbed ‘One City’ project.

“We found correspondence between the finance director, John Tombleson, and Mentor Management CEO James Hoddel in which they were discussing the possibility of Safaricom acquiring land at the Garden City site several months before the formal process commenced,” says the KPMG report, referring to an email dated August 14, 2013.

Safaricom’s board of directors was first informed of the need to consolidate the company’s operations under one roof on May 12, 2014 and the land finally bought from Actis in July 2015.

KPMG’s forensic auditors also poked holes into the valuation of the land and the integrity of bid, and questioned Actis’ cross ownership of Ruaraka Diversified Investments Ltd, the entity behind Garden City, and Mentor Management, the realtor that Safaricom picked to help search for a suitable property.

The upshot of this cross ownership is that Safaricom essentially appointed Actis to help it search for land, and the PE firm went ahead and sold its own land to the telecoms company.

Mentor Management raked in Sh11.7 million in agency fees from Safaricom, which is about one per cent of the value of land purchased. “It is not clear why other reputable property firms were not approached,” the KPMG report says, noting that Mentor Management was picked through a restricted tender.

Safaricom paid Sh230 million per acre for the Garden City land, which is more than double the Sh100 million per acre market price for land around the Kasarani district, says the audit report.

This translated to mind-boggling returns for Actis given the PE firm bought the entire 32-acre Garden City land for Sh1.2 billion or Sh37.5 million per acre, according to KPMG’s findings.

The auditors also found that Garden City as well as another bidder named Nesbitt had submitted their proposals for the Kasarani land after the submission deadline had passed.

Other shortlisted bidders were Centum’s Two Rivers, Fox City, Intex Construction, Nebange, Newbury and Northlands, owned by the Kenyatta family.

“We did not find any evidence of these late submissions being declared to Safaricom,” KPMG said.

Meanwhile, costs for the ‘One City’ project doubled to $160 million before being adjusted to $123.5 million from the initial estimate of $84.5 million, KPMG found.

The KPMG report says that Mr Tombleson and the other senior managers knowingly exposed Safaricom to financial loss and failed to declare the conflict of interest between Actis (Ruaraka Diversified Investments Ltd) and Mentor Management.

The other top Safaricom executives named in the forensic report are Roy Masamba (director of resources), David Kinuu (head of human resource - shared services), Vodafone’s group property strategy manager Richard Muraszko and former Vodafone executive Billy Davidson.

Safaricom is 40 per cent owned by British telecoms company Vodafone.

“Tombleson, Masamba, Davidson, Muraszko and Kinuu were aware of a conflict of interest between Mentor Management and Actis,” the KPMG report says.

“They failed to put in place sufficient measures to provide safeguards or procedures that would safeguard the interests of Safaricom. Further, they did not declare this conflict to the executive committee and the board.”

Interestingly, Safaricom has further awarded the Actis-owned Ruaraka Diversified Investments — the seller of the land — to undertake construction of its office complex project at a cost of $70.05 million.

Safaricom then engaged ArchBill Consultants to audit the cost plan and established that the project cost was “above market rates” and recommended a review of the planned spending. 

Actis has engaged a consortium involving construction firm Profica as the project managers, Boogertman & Partners (architects), Turner & Townsend (quantity surveyors), YMR (quantity surveyor), and Sutherland (engineering services).

KPMG says Mr Collymore in September 2015 suspended any further spending on the ‘One City’ project.

On market activations, KPMG found that payments to the seven contracted firms could not be determined and that the choice of the marketing firms was “subjective.”

KPMG reckons that MoSound Events, EXP Momentum, Jayden Ltd, Impulse Promotions, Neo Marketing Ltd, Roundtrip Ltd, and Alfones Communications were awarded lucrative roadshow marketing tenders “on the basis of preference.”

“Safaricom did not have a mechanism of recording delivery of services by the activation agents thus leaving no audit trail for review,” said KPMG.

Kaon Media, which supplied set-top boxes to Safaricom, is said to have delivered products which had “technical deficiencies”.