Economy

Tender fraud passes bribery on Kenya’s economic crimes list

pwc

PricewaterhouseCoopers forensics leader Muniu Thoithi (left) and Alphan Njeru, the firm’s advisory leader in charge of government and public sector, during the release of an economic crime survey report at PWC Tower in Nairobi on Tuesday. Photo/ SALATON NJAU

Tendering fraud has overtaken bribery and corruption to become Kenya’s fastest growing economic crime, a national survey has found.

Consulting group PriceWaterhouseCoopers (PwC) says in a newly published report that one in every three Kenyan business leaders reported procurement-related fraud in the past two years, making it the most common type of economic crime in the country.

Four out of every 10 Kenyan CEOs or 36 per cent said they had been asked to pay bribes to win a tender or get business – signalling that the recent fierce procurement battles are likely to intensify in the coming months.

“Results for procurement fraud are worrying. It is perpetrated earlier in the procurement cycle making its detection difficult,” said Muniu Thoithi, the forensic services leader at PwC.

“Those who commit procurement fraud strategically position themselves early in the procurement cycle – mostly during vendor selection process,” he said at the launch of the 2014 Global Economic Crime Survey report.

President Uhuru Kenyatta’s government was last month hit by strong tendering headwinds linked to the award of the Mombasa-Malaba standard gauge railway contract to a Chinese firm and the Ministry of Education’s decision to pick an Indian firm to supply laptops for schools.

Mr Kenyatta has personally admitted to the existence of powerful cartels in government that are helping shadowy investors to clinch State tenders.

The PwC report, however, shows that asset misappropriation remains the most common economic crime in Kenya, having affected 77 per cent of businesses.

Accounting fraud affecting 38 per cent of firms, procurement fraud (31 per cent) bribery and corruption (27 per cent) and cybercrime at 22 per cent complete Kenya’s list of top economic crimes respectively.

More than half or 54 per cent of the crimes are committed by young, savvy mid-level managers armed with information on a company’s operations and have access to its systems and processes.

PwC says typical fraudsters who perpetuate bidding fraud are found within the ranks of senior managers aged between 31 and 40 years and have three to five years’ experience in a company or government department. Most are male.

Mr Thoithi said that swaying tender processes to the advantage of a particular player is rampant in both the public and private sector, contrary to popular belief that State tenders were more vulnerable to corruption than the private sector.

“It takes two to tango. The biggest beneficiaries of government tenders are private sector companies,” he said.

The race for a piece of Kenya’s big ticket contracts in education, railway, road, ports and real estate has in recent months sparked vicious procurement battles that have sucked in key government departments and senior public officials.

The report faults Kenya’s procurement processes as not being robust enough to guarantee integrity at all levels, including invitation of quotes, shortlisting, selection criteria, payment process and quality review.

PwC’s findings come barely a week after US computer maker Hewlett Packard (HP) lodged an appeal with the procurement watchdog claiming that senior government officials inflated prices for the Standard One laptop project by as much as Sh1.4 billion.

HP said that Olive Telecommunications — the Indian company that won the tender to supply 1.3 million laptops — had on December 13 quoted a price of Sh23.1 billion ($268,899, 669) as its final offer, but was increased the amount to Sh24.5 billion ($284,814,957) without an explanation.

The controversial laptops project risks stalling if the Public Procurement Administrative Review Board (PPARB) detects any tendering malpractices. Hearing of the appeal begins next Wednesday.

The Kenyatta government has also been hit by claims of irregularities in the award of the Sh447 billion Mombasa-Nairobi standard gauge railway that critics say has been overpriced by more than Sh120 billion.

Parliament’s Public Investments Committee (PIC) is currently probing the tender awarded to China Roads and Bridges Corporation (CRBC) – the firm that conducted the feasibility study, designed the railway and determined its cost.

The probe team has also established that the World Bank had barred CRBC from participating in any works it is financing because of fraudulent activities in the Philippines.

The list of contested tenders also includes the fitting of a security system at the Central Bank of Kenya (CBK) at a cost of Sh1.2 billion awarded to Horsebridge Networks Systems East Africa Limited.

An audit by the Ethics and Anti-Corruption Commission (EACC) has recommended the arrest and trial of CBK governor Njuguna Ndung’u saying taxpayers were likely to lose Sh400 million in the deal.

Prof Ndung’u is temporarily off the hook after the High Court on February 14 blocked the anti-corruption agency from arresting him pending the hearing and determination of his application on March 12.

Labour secretary Kazungu Kambi was last month forced to suspend a Sh5.03 billion project by the National Social Security Fund (NSSF) to build infrastructure works in Nairobi’s Tassia Estate.

Chinese firm Jiangxi was awarded the tender – allegedly approved by NSSF board members via e-mail – to construct access roads, sewer lines, street lighting, culverts and rain water drainage.

It is not clear why the provident fund decided to spend such a colossal amount of money servicing plots it previously sold as ‘serviced plots.’

Last year, intense bidding and inflation of prices forced the government to cancel the controversial Sh9 billion police communication tender.

The procurement watchdog established that Chinese tech firm ZTE – which had won the contract – had tripled prices and that the deal would have cost taxpayers Sh1 billion annually in maintenance costs.