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 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;

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 batch	Price (Shs)
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

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)
60M	100M	120M	140M
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 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.

Month	Description	Price (Shs)	Difference (Shs)
Ellams	Sintel
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
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

  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:

Month	Recharge Voucher	Difference in Price (Shs)	Qty ordered from Ellams (Shs)	Potential savings  (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
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

 

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:

Month	Airtime denomination	Quantity ordered(batches)	Price used for Order (Shs)	Contract price (Shs)	Amount under/overpaid (Shs)
Nov-13 PO 164911 and  164912	BAMBA 5 Batch 1000	280	300	350	(14,000)
BAMBA 20 (10-in-1) Batch 2500	43,640	750	700	2,182,000
BAMBA 50 Batch 1000	41,400	440	450	(414,000)
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 PO 167733	BAMBA 50 Batch 1000	22,500	440	450	(225,000)
BAMBA 100 Batch 400	12,500	176	180	(50,000)
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 PO 172818 and 172845	BAMBA 10 Batch 1000	128,000	280	240	5,120,000
BAMBA 20 (10-in-1) Batch 2500	67,200	700	600	6,720,000
BAMBA 100 Batch 400	50,000	176	180	(200,000)
Recharge Voucher 250 Batch 100	5,000	44	45	(5,000)
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

 

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:

	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%

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 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.

1. Delivery

We compared the quantities ordered vis-à-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

 

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 Denomination	Initial Value          PO 172301 & 172303 (Shs)	Revised Value      PO 172818 & 172845 (Shs)	Additional  cost (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

 

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