Fraud Investigations Section

Risk Management Division

May 2014

Sintel allegations

May 2014

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 Fraud Investigations Section
Risk Management Division
May 2014

1 Introduction

1.1 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 Safaricoms 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 2-Investigation 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;

a) That Ellams contract allows a variable price based on quantities ordered and is being
used to their advantage unlike Sintels price which is fixed irrespective of quantities
ordered.
b) That an order to Ellams in Jan/Feb 2014 was cancelled and replaced with a similar
one with higher prices.

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 Fraud Investigations Section
Risk Management Division
May 2014

c) That Sintel was not invited for supply of sim packs yet 23 other firms including
Ellams were invited.
d) That Sintel was being denied access to certain members of EXCO including Peter
Arina and as result are not able to air their grievances.

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

2 Detailed findings

2.1 Pricing in contracts

a. 1 October 2012 to 30 September 2013

Sintels 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 Price (Shs)

denomination per batch Sintel Ellams
Bamba 5 200 350
Bamba 10 200 350
Bamba 20 500 875
Bamba 50 380 450
Bamba 100 152 180
RV 250 38 45
RV 500 42.5 50
RV 1000 43.75 67.5

b. From October 2013

Sintels 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:

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 Fraud Investigations Section
Risk Management Division
May 2014

Ellams (graduated on quantity supplied per month)

Recharge Voucher Sintel 60M 100M 120M 140M
denomination per batch
Bamba 5 270 350 300 280 240
Bamba 10 270 350 300 280 240
Bamba 20 675 875 750 700 600
Bamba 50 460 450 440 440 420
Bamba 100 184 180 176 176 168
RV 250 46 45 44 44 42
RV 500 51.5 50 49 49 47.5
RV 1000 52.75 67.5 65 62.5 57.5

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 Sintels.

2.2 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.

Month Description Price (Shs) Difference

Ellams Sintel (Shs)
May-13 BAMBA 10 Batch 1000 350 204.71 145.29
May-13 BAMBA 20 (10-in-1) Batch 2500 875 511.78 363.22
May-13 BAMBA 50 Batch 1000 450 388.98 61.02
May-13 Recharge Voucher 250 Batch 100 45 38.90 6.10
May-13 Recharge Voucher 500 Batch 50 50 43.50 6.50
May-13 Recharge Voucher 1000 Batch 25 67.5 44.78 22.72
July-13 BAMBA 10 Batch 1000 350 204.71 145.29
July-13 BAMBA 20 (10-in-1) Batch 2500 875 511.78 363.22
July-13 BAMBA 50 Batch 1000 450 388.98 61.02
July-13 BAMBA 100 Batch 400 180 155.59 24.41
July-13 Recharge Voucher 250 Batch 100 45 38.90 6.10
July-13 Recharge Voucher 500 Batch 50 50 43.50 6.50
July-13 Recharge Voucher 1000 Batch 25 67.5 44.78 22.72
August-13 BAMBA 10 Batch 1000 350 204.71 145.29

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 Fraud Investigations Section
Risk Management Division
May 2014

Month Description Price (Shs) Difference

Ellams Sintel (Shs)
August-13 BAMBA 20 (10-in-1) Batch 2500 875 511.78 363.22
August-13 BAMBA 50 Batch 1000 450 388.98 61.02
August-13 BAMBA 100 Batch 400 180 155.59 24.41
August-13 Recharge Voucher 250 Batch 100 45 38.90 6.10
August-13 Recharge Voucher 500 Batch 50 50 43.50 6.50
August-13 Recharge Voucher 1000 Batch 25 67.5 44.78 22.72
October-13 BAMBA 5 Batch 1000 300 270 30
October-13 BAMBA 10 Batch 1000 300 269.70 30.30
October-13 BAMBA 20 (10-in-1) Batch 2500 750 674.25 75.75
October-13 BAMBA 50 Batch 1000 439.45 461.10 -21.65
October-13 BAMBA 100 Batch 400 175.8 184.44 -8.64
October-13 Recharge Voucher 250 Batch 100 44 46.11 -2.11
October-13 Recharge Voucher 500 Batch 50 49 51.33 -2.33
October-13 Recharge Voucher 1000 Batch 25 65 52.85 12.15
November-13 BAMBA 5 Batch 1000 300 165.42 134.58
November-13 BAMBA 10 Batch 1000 300 221.24 78.76
November-13 BAMBA 20 (10-in-1) Batch 2500 750 522.75 227.25
November-13 BAMBA 50 Batch 1000 440 404.61 35.39
November-13 BAMBA 100 Batch 400 176 150.77 25.23
November-13 Recharge Voucher 250 Batch 100 44 39.21 4.79
November-13 Recharge Voucher 500 Batch 50 49 42.47 6.53
November-13 Recharge Voucher 1000 Batch 25 65 7.98 57.02
January-14 BAMBA 5 Batch 1000 350 269.70 80.3
January-14 BAMBA 10 Batch 1000 300 269.70 30.30
January-14 BAMBA 20 (10-in-1) Batch 2500 750 674.25 75.75
January-14 BAMBA 50 Batch 1000 440 461.10 -21.10
January-14 BAMBA 100 Batch 400 176 184.44 -8.44
January-14 Recharge Voucher 250 Batch 100 44 46.11 -2.11
January-14 Recharge Voucher 500 Batch 50 49 51.33 -2.33
January-14 Recharge Voucher 1000 Batch 25 65 52.75 12.25
April-14 BAMBA 10 Batch 1000 280 269.70 10.30
April-14 BAMBA 20 (10-in-1) Batch 2500 700 674.25 25.75
April-14 BAMBA 50 Batch 1000 440 461.10 -21.1
April-14 BAMBA 100 Batch 400 176 184.44 -8.44
April-14 Recharge Voucher 250 Batch 100 44 46.11 -2.11
April-14 Recharge Voucher 500 Batch 50 49 51.33 -2.33
April-14 Recharge Voucher 1000 Batch 25 62.5 52.85 9.65

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 Fraud Investigations Section
Risk Management Division
May 2014

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.

a. 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:

Month Recharge Voucher Difference Qty ordered Potential

in Price from Ellams savings
(Shs) (Shs) (Shs)
October-13 BAMBA 5 Batch 1000 30.30 1,200 36,360.00
October-13 BAMBA 10 Batch 1000 30.30 70,700 2,142,210.00
October-13 BAMBA 20 (10-in-1) Batch 2500 75.75 31,240 2,366,430.00
October-13 BAMBA 50 Batch 1000 -21.65 54,100 (1,171,510.00)
October-13 BAMBA 100 Batch 400 -8.64 50,000 (432,000.00)
October-13 Recharge Voucher 250 Batch 100 -2.11 3,210 (6,773.10)
October-13 Recharge Voucher 500 Batch 50 -2.33 4,700 (10,951.00)
October-13 Recharge Voucher 1000 Batch 25 12.15 5,200 63,167.00
Total 2,986,932.90
November-13 BAMBA 5 Batch 1000 134.58 280 37,682.12
November-13 BAMBA 10 Batch 1000 78.76 67,500 5,316,036.98
November-13 BAMBA 20 (10-in-1) Batch 2500 227.25 43,640 9,917,336.54
November-13 BAMBA 50 Batch 1000 35.39 41,400 1,465,166.22
November-13 BAMBA 100 Batch 400 25.23 33,750 851,485.85
November-13 Recharge Voucher 250 Batch 100 4.79 4,205 20,125.10
November-13 Recharge Voucher 500 Batch 50 6.53 4,700 30,687.38
November-13 Recharge Voucher 1000 Batch 25 57.02 5,930 338,149.36
Total 17,976,669.55
January-14 BAMBA 5 Batch 1000
January-14 BAMBA 10 Batch 1000 30.30 64,000 1,939,200.00
January-14 BAMBA 20 (10-in-1) Batch 2500 75.75 36,800 2,787,600.00
January-14 BAMBA 50 Batch 1000 -21.10 22,500 (474,750.00)
January-14 BAMBA 100 Batch 400 -8.44 12,500 (105,500.00)
January-14 Recharge Voucher 250 Batch 100 -2.11 2,000 (4,220.00)
January-14 Recharge Voucher 500 Batch 50 -2.33 4,000 (9,320.00)
January-14 Recharge Voucher 1000 Batch 25 12.15 4,000 48,600.00

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 Fraud Investigations Section
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May 2014

Month Recharge Voucher Difference Qty ordered Potential

in Price from Ellams savings
(Shs) (Shs) (Shs)
Total 4,181,610.00
April-14 BAMBA 10 Batch 1000 10.30 128,000 1,318,400.00
April-14 BAMBA 20 (10-in-1) Batch 2500 25.75 67,200 1,730,400.00
April-14 BAMBA 50 Batch 1000 -21.10 72,500 (1,529,750.00)
April-14 BAMBA 100 Batch 400 -8.44 50,000 (422,000.00)
April-14 Recharge Voucher 250 Batch 100 -2.11 5,000 (10,550.00)
April-14 Recharge Voucher 500 Batch 50 -2.33 4,000 (9,320.00)
April-14 Recharge Voucher 1000 Batch 25 9.65 10,000 96,475.00
Total 1,173,655.00
Grand Total 26,318,867.45

2.3 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:

Month Airtime denomination Quantity Price Contract Amount

ordered(batches) used for price (Shs) under/overpaid
Order (Shs)
(Shs)
Nov-13 BAMBA 5 Batch 1000 280 300 350 (14,000)
PO BAMBA 20 (10-in-1) Batch 2500 43,640 750 700 2,182,000
164911
BAMBA 50 Batch 1000 41,400 440 450 (414,000)
and
164912 BAMBA 100 Batch 400 33,750 176 180 (135,000)
Recharge Voucher 250 Batch 100 4,205 44 45 (4,205)
Recharge Voucher 500 Batch 50 4,700 49 50 (4,700)
Recharge Voucher 1000 Batch 25 5,930 65 67.5 (14,825)
Jan-14 BAMBA 50 Batch 1000 22,500 440 450 (225,000)
PO BAMBA 100 Batch 400 12,500 176 180 (50,000)
167733
Recharge Voucher 250 Batch 100 2,000 44 45 (2,000)
Recharge Voucher 500 Batch 50 4,000 49 50 (4,000)
Recharge Voucher 1000 Batch 25 4,000 65 67.5 (10,000)
April-14 BAMBA 10 Batch 1000 128,000 280 240 5,120,000
PO BAMBA 20 (10-in-1) Batch 2500 67,200 700 600 6,720,000
172818
BAMBA 100 Batch 400 50,000 176 180 (200,000)

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 Fraud Investigations Section
Risk Management Division
May 2014

Month Airtime denomination Quantity Price Contract Amount

ordered(batches) used for price (Shs) under/overpaid
Order (Shs)
(Shs)
and Recharge Voucher 250 Batch 100 5,000 44 45 (5,000)
172845 Recharge Voucher 500 Batch 50 4,000 49 50 (4,000)
Recharge Voucher 1000 Batch 25 10,000 62.5 67.5 (50,000)
Total 12,885,270

2.4 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 Safaricoms 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 daytherefore
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:

Sintel Ellams Sintel Ellams Sign off

May-13 177,970,000 94,210,000 65% 35% Approved ratio was 65%-35%
Jul-13 154,060,000 107,340,000 59% 41% Approved ratio was 61%-39%
Aug-13 211,950,000 88,560,000 71% 29% Approved ratio was 60%-40%
Oct-13 222,286,000 224,786,000 50% 50% Approved ratio was 50%-50%
Nov-13 314,116,500 232,583,750 57% 43% Approved ratio was 50%-50%
Jan-14 184,315,000 184,000,000 50% 50% Approved ratio was 50%-50%
Apr-14 260,407,500 389,450,000 40% 60% Approved ratio was 40%-60%
Sintels 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 Ellams 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

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 Fraud Investigations Section
Risk Management Division
May 2014

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 Average Quantity %ge

BAMBA 5 Batch 1000 354,286 2,480,000 0%
BAMBA 10 Batch 1000 130,528,571 913,700,000 32%
BAMBA 20 (10-in-1) Batch 2500 184,285,714 1,290,000,000 45%
BAMBA 50 Batch 1000 71,650,000 501,550,000 18%
BAMBA 100 Batch 400 18,494,286 129,460,000 5%
Recharge Voucher 250 Batch 100 640,214 4,481,500 0%
Recharge Voucher 500 Batch 50 418,214 2,927,500 0%
Recharge Voucher 1000 Batch 25 362,250 2,535,750 0%
Total 406,733,536 2,847,134,750 100%
Bamba 10, 20 and 50 are the highly ordered denominations accounting for 95% of the
quantities ordered.

a. Delivery
We compared the quantities ordered vis--vis quantities delivered as contained in table 9
below:

Month Qty Ordered Qty Delivered Qty undelivered

Ellams Sintel Ellams Sintel Ellams Sintel
May-13 94,210,000 177,970,000 94,210,000 177,970,000 0 0
Jul-13 107,340,000 154,060,000 107,340,000 154,060,000 0 0
13-Aug 88,560,000 211,950,000 88,560,000 211,950,000 0 0
13-Oct 224,786,000 222,286,000 224,786,000 222,286,000 0 0
13-Nov 232,583,750 314,116,500 232,443,750 313,891,500 140,000 225,000
Jan-14 184,000,000 184,315,000 183,940,000 181,540,000 60,000 2,775,000
Apr-14 389,450,000 260,407,500 166,175,000 141,447,500 223,275,000 118,960,000

2.5 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:

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 Fraud Investigations Section
Risk Management Division
May 2014

Airtime Denomination Initial Value Revised Value Additional cost

PO 172301 & 172303 PO 172818 & 172845 (Shs)
(Shs) (Shs)
Bamba 10 30,720,000 35,840,000 5,120,000
Bamba 20 40,320,000 47,040,000 6,720,000
Bamba 50 30,450,000 31,900,000 1,450,000
Bamba 100 8,400,000 8,800,000 400,000
RV 250 210,000 220,000 10,000
RV 500 190,000 196,000 6,000
RV 1000 575,000 625,000 50,000
Total 110,865,000 124,621,000 13,756,000

2.6 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.

2.7 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.

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 Fraud Investigations Section
Risk Management Division
May 2014

3 Conclusion
We conclude that some of Sintels allegations are justified to an extent. As a result we made the
following observations:

1. Ellams volume-band pricing may give an implication that Ellams charges lower prices
than Sintels fixed price. Contrary to this, we noted that over the last one year, Ellams
has been charging Safaricom more than Sintel. For instance for the RV 1000, Sintel price
is lower than that that of Ellams at whatever quantities ordered.
2. Incorrect volume band price application has resulted in Safaricom overpaying by Kshs
12 Million to Ellams.
3. POs 172301 & 172303) which were cancelled and new POs 172818 & 172845 raised
incurring Safaricom additional cost of Kshs 13,756,000.

4 Recommendation
We recommend that:

a) Supply Chain should recover the Kshs 12 Million overpaid to Ellams and provide
evidence of recovery.
b) Skew order quantities based on cheapest pricing to take advantage of discounts offered.

4.1 On Pricing
c) To enhance competition and cost-savings, Safaricom should also allow volume-band
pricing for Sintel.
d) Use the same pricing currency (USD or Kshs)
e) Use of hard code pricing such that order prices are automatically loaded onto the POs
from the master price table on PO creation.

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 Fraud Investigations Section
Risk Management Division
May 2014

5 Appendices
Appendix 1-Contract between Sintel and Safaricom Ltd

Contract

Appendix 2-Investigation Report

Investigation Report

Appendix 3- Contract Renewal for the supply of Secure Pre-paid Vouchers and other Material
signed 5 Dec 2012

Renewal

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