Safaricom Limited Cerrina cass R(D}2016/02/022/S100/bds/poPrivate and confidential Distributi n This draft report is intended only for the use of the addressee named herein and may contain legally privileged and confidential information. This document has been prepared solely for the purpose of reporting findings from our forensic investigation and should not be used for any other purpose; no part of the content m referred to or disclosed, in whole or in part, without our prior written consen 'y be quoted, Nee Bob Collymore Irene Mira KPMG:1.2 Private and confidential Objectives of our investigation Background Safaricom is the leading provider of tel services in Kenya. Safaricom approached KPMG to carry out a forensic investigation into various concerns relating mainly to activations, procurement and contract hone, broadband internet and mobile money si compliance. Terms of reference The primary objectives of our investigation and theapproach for each objective are as. detailed below: * Review the activations carried out for a two year period. Tha'specific consider were to: e basis upon which vations were planned and rolled out; Analyse the basis upon which the relationship with the previous a: was changed; ation agent - Analyse documentationmaintained in accounting for pron identify gaps in accounting for thes@ events; tions, so as to ~ Determine whether activation events were carried out at the sites claimed; and Analyse the’ Claimed effectiveness of the activation campaigns based on deviations from previous activation strategies. * Review contracts between Safaricom and third parties. This was to be carried out for 23 vendors/projects whose details were confirmed by Safaricom. Below is a list of vendors/projects considered: Huawei RFP (Network) Cisco Phase 2 Huawei CBS (Billing system! Cisco HCS Twiga AT Kearney One Campus jiesson RFP [avet Oracle ULA KPMGPrivate and confidentat ‘Sefarcam Limes Factual Fncings Orstronot 1@Febwery 2076 ig Box/Kaon Media Shimbe Technologies Cell Focus Tengazoletu ‘Squed Digital Vejes (Merchandising) Seanad Tech Mahindra Fibre Space (1963) card system Flytxt Nokia Siemens/ Nokia Solutions and | GSM Systems East Africa Limited Networks cem The specific considerations were to: — Analyse the basis of appointment of the vendors; = Review any revisions to the terms of contracts of these vendors, including changes to the initia! total contract value over.the life of the contract; = For work done wheFe there is no existing contract, determine the basis of the commencementicontinuance of such work and basis of payment of vendors involved and persons involved in payment; — Analyse the basis for subcontracting (where present) under these contracts, to determine whether it was authorised under contract and the capacity of the subcontractors; — Review the extent of amendments to the initial contracts, authorisations for these. amendments and the adherence to procurement guidelines for each amendment, — Assess the work done and related reports on the work done under specifi contracts/projects and validate these using technical assessors; and — Analyse the payment patterns under each contract to identify payments ter that are not consistent with the general business processes. + Carry out forensic data analysis on data relating to a two year period and from tren: observed in this date, select a sample of transactions for detailed review. The specifi considerations were be to: — Seek to identify any transactions where services were provided prior to LP being raised;13 Private and confdentst - Determine whether the terms of payment of vendors differs from other vendors in the same category, if any; and Perform data analysis tests to identify procurement transactions indicative of fraud or misconduct, ss and determine the level of ) the selection of a + Undertake a reviow of the procurement pr adherence to the procurement guidelines. This was throu: sample of transactions for review. The specific consideratior Determine whether there was adherence to existing policies and procedures relating to vendor operations; Assess the basis of prequalification and selection of ve Fs; Determine whether the terms of appointment were in line with the procurement and contracting guidelines; and ~ Analyse the effectiveness of Safaricom’s monitoting pri performance. + Review proof of concepts. The specific considerations were: Analyse the basis of categorisation of products as proof of concepts; and — Review the assessment and approval of three specific proof of details were confirmed by Safaricom ts, whose + Analyse the prices charged to) Safaricom by specific third party vendors whose details were confirmed by Safaricom. The specific considerations were: Determine the basis upon which Safaricom is charged for services by third parties, when compared to local telecom operators; and ~ Analyse the basis of the frequency of payments to third parties, compared to local telecom operators. + Carry out imaging of specific computers and analyse the contents of these computers so as to identify fraud indicators that point to fraud and/or misconduct by employees. The details of these employees were confirmed by Sefaricom prior to imaging and analysis. Period under review For the purposes of this report, the period under review Is September 2013 to August 2015. For the One Campus project our analyses required us to extend our review beyond is period. KPIAG1.4 15 Scope and nature of our investigation work was limit The scope of ou ed to an inspection and analysis of the documentati and information provided to us during the course of our investigation. We have not verified the validity or authenticity of the relevant records and documentation, other than the instances specifically indicated in the report. qT plicable to a forensic investigation of this nature. We have performed the procedures we considered appropriate in the o International Engagement Standards circumstances Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. Limitations and subsequent events We have at ‘© Include all information relevant to the. specific transactions. However, it is possible that documents and information exist which were not mad mpted t available to us, or which we were unable to locate. Any documents ar information brought to-our attention subsequent to the date of t report which would affect the findings listed’below, will require our findings to be adjusted and qualified accordingly. w vere not provided with the following documents for our consideration: + Minutes of the Executive Committee: + Minutes of the Special Projects Committee: + Minutes of the One Campus Steering Committee; + Executed sale agreement between Safaricom Limited and Ruaraka Diversified Investment Limited; + Executed deed variations between Safaricom Limited and Ruaraka Diversified Investment Limited © Contracts between RDIL and the con Campus project design; jortium of professionals und: king One d 01 May 2014, with * Actual payment pattern(s) under the § supporting payment documentation; ad Digital contract da + Technical details for the Purchase Orders (POs) provided for Huawei CBS contra dated 21 December 2012; KPMG1.6 and confidential + Technical details for the Purchase Orders (POs) provided for Shimba Technologies contract dated 01 February 2015; * Purchase Orders (POs}, and accompanying invoices for the NWRFP contract in relation to the following specific domains: SRAN, Core CS, EPC Domains, CSDB, CBS, FTTx, and Optics domains; * Project reports and progress updates for the NWRFP contract in relation to CSDB and C8S domains; and + In relation to the Fibre Space Partnership dated 10 April 2015, the following documents were not provided * Invoices and payments to card manufacturers in relation to Safaricom purch nd Purchase Orders (POs); cards * actual payment pattern(s) with supporting payment documentation; + a documented breakdown of the aggregate revenues to date Safaricom has earned from the Partnership; and + information on the distribution count and location of all the POSs an Safaricom in relation to the Partnership. ards by + A velocity report from:CMS indicating the time taken at each stage of contract drafting was not provided for review. + The CBS reconciliations done by Credit contro! together with the resulting payable refunds for the month of July 2015 provided for review was not approved by HOD credit control At the time of preparing this report we had not consulted Robert Spooner on the allegation of exploitation of Safaricom by Acts! Aspire. Restriction on distribution of report This report was prepared solely to report aur findings to you. This report should therefore not be utilised for any othar purpose without our written consent. No part may be quoted, referred to or disclosed in whole or in part, by any party, without our prior written consent. kping!17 Legal advice Although our report may contain references to rel ant laws and legislation, we do not provide legal opinion on the compliance with such laws and our findings in this report are not to be c | advice. Our discussion of the nstrued as providing | evant laws is intended solely to facilitate to the inte! he determination of applicable facts which may be relevant pretation dior appli uch laws. legal advice, we recommend that independent legal advic cation o' }ould such interpret quire obtained KPMGfailure KPMG Strategic Private ond confidential eee ee Cee cee nT ry ‘One Campus + The Supply Chein Management function wes avoided in the procurement of facilities during this project, in spite of the elevated risk due to the amount spent on site acquisition. SCM is the organisational function mandatad to optimise procurement within Safaricom, This responsibility lay with Tombleson. | + The formal SteerCo for this project did not heve a documented, structure or mandate for delivery. This impacted upan the ability to address concems in the project, including, conflicts of interest, escalation of concerns, pricing). project documentation and mitigation of time pressure on this project, This was the responsibility of Tombleson end Masamba. + The communicetion lines used within Safaricom and with extetnal parties did not promptly and effectively escalate documented concerns raised by personalities nvolvedin this project54 5.41 5.42 Private and conficontal Sefaricom Limited Factual Findings Draft repot 18 Feonsery 2018 From the system records, 19 employees selected Vajas for all of their requirements end 12 selected Ramco. ‘The top five units where allocations to Vajas were made are: ‘+ Enterprise Sales and Retention * Corporate Responsibility = Retail and Distribution = Consumer Products and Services + Enterprise Business Unit Kihara informed us that the selection of Vajas by the different units and employees within Sefaricom was out of Vajas’s perceived’ duality products and quick responsiveness. Safaricom had not effected a.means of improving the other vendors’ lower quality or responsiveness and thus did:not mitigate the concentration risk created by this preference. Scanad Key observations We observed that Scanad is requifed to contractually provide 76 resources to Sefaricom on a monthly basis, end that these are part of the justification for the retainer peid to Scanad, but they are not based at Safaricom and not directly monitored by Safaricom personnel. Vendor selection ‘The Sourcing report states that Safaricom sent out an RFP to potential bidders on 19 December 2013 and closed on 23 January 2014. We noted that selective tendering was, the mode used. A list of potential agencies had been drewn efter an extensive market research. The suppliers were later shortlisted based on the following criteria: line and Below the line}; ‘© Ability to deliver both ATL & BTL (Abov ‘+ Strong financial capability due to Safaricom’s huge spends; + Working relations with any of our competitors; + Strong worldwide partnership with international network; and kine) n085.43 © Clear strategy pro} able below summarizes the results 0! Table 43: Summary RFP results fed house gro 2 | Nurturn Bates Express DDBO pared by KPMG Although Trenscend Media was ranked first during technical and commercia that th w © not selected. Delivery ‘a, Senior Manager — nted to Scanad and once approved, then this ai for use. The number of resources available at any ‘and (Muhu proc the requirement for Scanad is that the requir KPMG5.44 Private and content! ‘Sefaicom Limited Factual Findings Draft repot 18 February 2016 Muhura informed us that an agency tracker" is used to monitor Scanad’s performance. We reviewed this performance record for the months of August 2015, September 2015 and October 2015 and observed that the trackers detailed: ‘+ An outline the tasks to be done for the month; + Deliverables; + Dates of commencement and delivery; and + Comments from Safaricom reviewer, together with Scanad’s response. We observed that most of Sefaricom’s staff comments related to the delayed delivery of projects and Scanad’s response would be about the’tircumstances of delay. In the three month period considered, Scanad delivered: late on 10 occasions but only accepted to be penalized on one accasion due to shGrtcomings on their part. In the other instances, the delay was for one day end their-tesponse made,reference to the 24 hour grace period outlined in their Service Level Agreement (SLA) which prevented penalization for late delivery. Payments made to vendor We observed from system transaction records that the value of work issued to Scanad and the corresponding payments within the'period of our review were as detailed in the table bolow: Table 44: Purchase orders, invoices and payments to Seanad Purhese orden | tant" |. 22814740260 incics | vay” | aaszonezeam | Pement aaze_| sion smiazio Proper by KPMG #8 Refer to Exhibit 197: Copies of agency trackers for August, September and October 20155.6 5.6.1 5.62 Private and confidential Sefericom Lited| actus Findings Draft rapot 18 February 2016 We were informed by Marta that no payments were made under the contract as no sales were made under the alliance. During our review, we did not find evidence of payment to Tech Mahindra M-Pesa Second Generation (G2) Key issues Safaricom partnered with Huawei to upgrade its M-Pesa mobile money payments system, a decision which we were informed was driven by Michael Joseph (Joseph) the previous Chief Executive Officer. We were informed by Donald Twesiga’™, former Head of IT Service Operations (Twesiga) that a procurement process had been initiated which included major international vendors, but Joseph singlehandedly settled on Huawei. We were further informed that although the cost of this project was borne largely by Safaricom, it does not retain exclusive use of intellectual property on the project and similar mobile money projects can be rolled out in other territories without any benefits 10 Safericom. We were also informed that there was no evidence. of negotiation of prices on this project between Safaricom and Huawei. Background We were informed during discussions and observed from the single source justification that the M-Pesa'system was initially developed and ran by Sagentia (IBM). This was the tial development launched at the inception of M-Pesa in 2007 up until Safaricom registered 6 million customers. The service had then been transitioned to be operationally run by IBM Global Services on behalf of Vodafone. The main objective of this project was to implement an improved platform with higher transaction handling capability, better availability, higher reliability as well as functional flexibility, without sacrificing scalability. The G2 platform was envisioned to grow with time to cater for future business needs 2! Refer to Exhibit 199: Consultation note for Twesiga,Private and confident! In May 2014, agreement was reached with the Vodafone Procurement Company (VPC) that Safaricom would locally manage the RFQ, negotiations and contracting for the platform upgrade (G2) scope with Huawei. Consequently a RFQ was sent to Huawei on 23 May 2014. After assessment of the proposed offer from Huawei, it was recommended that the M-Pesa G2 service be awarded to them at a cost of USD 12,558,376, Vendor selection and appointment We were informed by Twesiga that Huawei was single sourced for this project by Joseph, ‘Twesiga informed us that the change in the M-Pesa platform arose to improve capacity and security of the mobile money system, and that the Vodafone Procurement Company and Vodafone UK led the requisition and selection of vendors during the consideration, process. The M-Pesa G2 platform was apparently to be rolled out across Vodafone territories. Huawei was not one of the vendors initially considered during the procurement process. The support contract costing is on the basis of time spent (man hours) and is based on rates agreed with Huawei on other projects. Twesiga mentioned that the Safaricom t2am tried to challenge particular decisions such as the rate on purchases.done by the Vodafone Procurement Company The single source justification indicates that the purcha from Huawei who had been contracted by Vodafon Agreement |VAA) globally to deliver the M-Pesa G2 so jon ac A technical evaluation was carri in delivering Safaricom’s requirements with respect to platform, which we were informed that Huawei passed. out to ensure Huawei we! This project would be an addendum to the Mas which was under negotiation as part of the Sa m Network Wide RFP The M-Pesa G2 Services would cost an estimated USD 12,558,376 excluding VAT. Savings of 10% were to be realised - equal to total of USD 1,395,375 - fram negotiations. Twesiga informed us that based on the value of the other proposals (as presented to Vodafone during the assessment in London) the cost agreed with Huawei is relatively KPMG5.6.4 57 57.1 Private and confidential Sefsricom Lites Factual ircings Draft epot brary 2018 Project delivery ‘Tweisga informed us that several change requests were made due to the nature of the project as it was not an off-the-shelf product but had very specific user requirements. ‘Twesiga further informed us that several performance issues arose during the first three months following implementation, apparently arose due to factors such as capacity and architecture. The regression and strength testing were apparently not carried out thoroughly, and these were jointly the role of Vodafone Sataricom. He further informed us that the structure of the agreement and product is such that change requests are expensive to process as they heavily involve Huawei and Vodafone is keen on managing change requests. There are 10 resources from Huawei currently overseeing project delivery. From the M-Pesa G2 - HOD Go/No Go Meeting held on 12 April 2015, an overall recommendation for a “Go” was provided, with critical actions to be closed as agreed. We were informed by Emma Gichonge, Project Management Office Senior Manager (Gichonge) that this was more of a turnkey project and there was no discernible subcontracting on Huawei’s end. Okwero ‘separately informed us that Huawei rarely subcontract especially for such big and sensitive. projects. We also did not find any evidence of subcontracting for this project. Reports on the work done are captured in M-Pesa G2 governance meeting minutes. We were informed that this project was successfully concluded, evidenced by the system going live in April 2015 and that Huawei retained a team for technical support of the system, Kaon Media Key issues Kaon Media was contracted by Safericom to provide set-top boxes that would allow Safaricom to break into the digital TV broadcasting platform, with the added benefit of internet. 20,000 units were delivered but apparently could not be marketed or sold due to technical deficiencies.5.10 5.10.1 5.10.2 5.10.3 Privat confidential, Setaicom Umited Factual Findings Draft rept 8 Feonuary 2018 Huawei Convergent Billing System (CBS) Key issues Huawei was single sourced to design and implement a Convergent Billing System at Safaricom. Background We were informed during our discussions and observed in documentation that Safaricom had executed a long-running Master Service Agreement with Huawei Technologies (Huawei) in 2009. As part of this, the’Convergent Billing System (CBS) from Huawei was integrated into Safaricom’s ,network ‘in, October 2011, as a sub- agreement to the Master Service Agreement. In order to meet the demand for new offerings in the’market to realise new revenue streams, significant customisations needed to be.done by Huawei to deliver products and services. Post-pay services were integrated to what was the Online Charging ‘System (OCS) platform to provide a fully conivergent system. Vendor identification and selection Huawei wes single sourced for this project. The Single Source Justification Report **signed 26 September 2012 indicates that Huawei had previously successfully delivered the Open Charging System (OCS) which was a prepay only solution ahd precursor to the Convergent Billing System (CBS) that has both prepay and post-pay rating, charging and billing functions. Huawei also subsequently Successfully delivered changes requested by Safaricom business units after the implementation of the CBS. It is indicated that Huawei owned the CBS solution and were best placed to deliver customisations requested by Safaricom. A commercial enalysis was conducted for Huawei’s offer which detailed cost in man-days coupled with blend rate. It was therefore recommended that the contract be awarded to Huawei, > Refer to Exhibit 213: Copy of CBS Customization Single Source Justification Report signed 26 September 20125.10.4 Private and confidential Safaricom’s Head of Strategy Ken Okwero (Okwero) informed us** during a consultation meeting that in 2007, Safaricom changed its billing platform from Huawei Intelligent Network (IN) to Nokia Siemens (NS) IN. However, even before the platform went live, the change requests for this exceeded the budgeted costs. Furthermore, an Online Charging System (OCS) was missing at that time and there were issues with the radio network offered by Nokia Siemens. COkwero informed us that from a sourcing point of view, Huawei approached Safaricom and offered to change sites from NS to their own and also offered to provide the OCS (which was a business need at the time) for no cost. Michael Joseph, the Safaricom CEO at that time, decided to swap NS sites in order to get the OCS free from Huawei, We were not provided with this offer from Huawei for our consideration Okwero informed us that the CBS deal was negotiated as part of the OCS deal. At the time of the negotiations from OCS to CBS, Okwero was called upon to compare the Huawei’s CBS capabilities to Ericson’s capabilities. The team flew to China on 1 January 2010 and tests were done as from 2 January 2010."The team was led by Okwero and Okuthe. Okwero informed us that their.report showed that the CBS purpose. The first phase was only for prepaid services and it was agreed that post-paid would be considered following successful implémentation of prepaid. latform was fit for Contracting Ina contract dated 21 December 2012, Safaricom engaged Huawei to provide converged billing system customisation services for 36 months. Tombleson executed the contract on behalf of Safaricom with Rerolle serving as a witness. Wang Chao signed the contract on behalf of Huawei with Xiao Longfei executing es a witness. Although the contract stipulates a term of 36 months; the Single Source Ju: Report stated that the contract period for the commercial framework was 3 years subject 10 successful annual performance evaluation. In the Addendum number 1 to the initial agreement above, the Parties varied the Agreement primarily to reduce the duration 2° Refer to Exhibit 214: Consultation Minut Refer to Exhibit 215: Copy of th (CBS} customisation services dated 2 KPMG with Ken Okwero dated 05 Novembs agreement for the provision of conv December 20125.10.5 5.10.6 Private and eontidentist Satarcom Limited Facrul Findings Dra rept 8 February 2016 Subsequent to the Addendum, there was a conditional letter of extension of the Agreement for Converged Billing System (CBS) Customisation Services; the purpose of which was to propose an extension to the Agreement on a conditional basis to facilitate for a3 month window from 1 April 2014 (the transitional period) for the conclusion of negotiations between Safaricom’'s respective companies, under the Safaricom Network. wide Request for Proposal. Safaricom’s proposal for the extension was accepted by Huawei through a response letter of acceptance duly signed by Huawei. Delivery Annex B1 of the contract stipulates the detailed:cope of the CBS Customisetion Services, with Annex C1 stipulating the Customisation Delivery Process. The scope included the following customisations: + Ocs; + Billing; * AR/DC/Invoicing; and + Other features customisations on CBS. Okwero provided @ summary of the work done in relation to CBS customisation services by Huawei,” which he mentioned appeared adequate. This includes the period prior and post the Network wide RFP Framework Agreement Huawei signed with Sefericom in 2014, Payment made to this vendor This contract was on a man-hours rate basis. The fees and payment terms were as detailed below’ ‘Table 52: Summary of service fees for CBS services Soe) CTiCmec occ Teo gs Cru eee cares) Decor ey ee day) Cn) © Refer to Exhibit 216: Copy of CBS Customization Costs v2, * Refer to Exhibit 217: Copy of executive summary and service fees KPMGPrivate and contidentat 2,205 | 6205, 960,000 Year 1* 4,000 | Year 2** | 4,000 400 | 4,400 960,000 480,000 2,000 Annex Al- Exacutive Summary & Service Fee “If workload is more than 2,205 man day for buffer, the work done over and above is to be paid at the beginning of the second year. #*1f workload is more than 400 man day for buffer, the work done over and above is to be paid at the beginning of the second year. In an email communication dated 1 December 2015", Okwero informed us that the aggregate payments made in relation to the Huawei CBS support follows: rvices were as Table 53: Summary of payments made to Huawei GBS support services for the period 2011 to 2016 CC On) Nay 1017-2012 2,224,438.00 2012-2013 3,774,498.93 2013-2014 4,813,764.04 2014-2016 545.09 2015-2016 428,798,308.6: Total 10,612,700.87 839,069,253.73 pared by KPMG to Exhibit 215: Copy of Agreement for the Provision of Conve! nization Services dated 21 December 2012, cto Exhibit 218: Copy of email dated 1 December 2015 KPMG vysterm (CBS)5.11 5.11.1 5.112 5.113 Private and contidentist Sefaricam Limited Foetal Findings Ort wept 18 Feary 2016 Okwero explained that the switch in currency from USD to Kshs was as a result of the inclusion of the Huawei CBS customisation services under the contract into the Network-wide RFP Fremework Agreement that Huawei signed with Safaricom in 2074. We observed from system transaction records that Huawei, from its projects in Safaricom, had a total of more then 900 transactions worth more than Kshs 14 billion, and the amount relating directly to this project could not be distinguished. Key issues ‘Squad Digital was contracted to provide marketing services:based on a particular rate for the contracted number of its personnel but delivery was fot monitored to ensure that these personnel were available as contracted. Background Kui Kinyanjui (Kinyanjui), Head of Corporat Comminications, and Brian Mungei (Mungei) Principal Officer, Digital and Sox 1, informed us that prior to April 2014, Squad Digital (Squed) were! the appointed the digital agency of Safaricom.’* Mungei explained that the selection’of Squad Digital for its previous contract had been through single sourcing but in this instance, other vendors were considered. Kinyanjui indicated that the agency was required to maintain a high profile for Sataricom through in the digital aspect of communication and marketing. Vendor identification and sélection In January 2014, Safaricom initiated a tendering process to saek for a digital agency to take Safericom's digital communication brand to the next level. The tender opening date stipulated in the Tender Summary Report was 10 January 2014,” and the closing date was 4 February 2074. #8 Refer to Exhibit 219: Consultation Minutes for Meeting with Kui Kinysnjui and Brian Mungei ‘on 4 November, 2015. ®7 Refer to Exhibit 220: Copy of Digitel Marketing Communications Agency Tender Summary Report signed 26 March, 2014,Private nd confidential Safericom carried out a closed procurement to identify a suitable agency once the initial contract had expired and identified suitable vendors as: © Q Digital; © DDEO; * Squad; * Transcend; and + Smoke Signal, Smoke Signal did not respond to the RFP. Kinyanjui explained that at the initial time of Squad’s initial appointment, there were relatively few digital agencies Safaricom could have used. In the Tender Summary Report on Digital Marketing Communications Agency of March 2014, itis stipulated that Squad had been the appointed digital agency for the previous four years and that their contract was coming to an end, Following the tendering process, it was recommended to awatd digital marketing communication agency contract to the top overall agency, Squad, for a period of two years at a monthly cost of Kshs 9,934,143,00 before VAT. The services that were to be provided under the digital agency contract include: strategic digital marketing and.corporate communications strategy; + Full suite of services*under digital interactive advertising and communication for internal and external campaigns; + Full suite of services under social media including engagement and content moderation, monitoring and online reputation management: + end to end media buying and optimisation; digital assetsiweb development; and * Digital produetion services. The technical evaluation consisted of desk, presentation and site visit evaluation carried out by @ cross functional Safaricom team of Corporate Communications, Marketing, Internet and Content, Corporate Responsibility and Procurement. The desk evaluation, presentations and site visits were evaluated out of 40%, 20%, and 10% respectively. The results of the Desk Evaluation was as follows: Table 54: Summary of desk evaluation results era! Deemer cr of 100% KPMGPriva and confident! Factual Findings Dratt 18 Febery 2016 DEO 18.20 | 45.50% 2| Qube Digital | 13.43 33.57% 3 | Transcend | 1220 30.50% ‘| Tender Summary Report: Supplier Selection®"* All four were invited for the pitches based on an integrated marketing communications brief provided. Table 55: Summary of presentation evaluation results rea peer pee evaluation out of 20. evaluation out of sr Squad 1407 70.38% | _ | Qube Digital 12.75 | 63.75% 2 | | _ | | DEO 12.78 63.70% 3| al | Transcend 12.46 62.30% 4| Tender Summary Report: Supplier Selection®”* Safaricom thereafter made site visits to all the vendors to verify and validate their submissions in the RFP submission focusing in particular on: Archiving and Back-Up; Capacity; Personnel; end Digital oriented velue adds such as in house production capabilities. Table 56: Summary of site visits evaluation results ons as Serr meek ey Crier) Breas 91.6% 2 Refer to Exhibit 220: Copy of Digital Marketing Communications Agency Tender Summary Report signed 26 March, 2014. 3 Refer to Exhibit 220: Copy of Digitel Marketing Communications Agency Tender Sui Report signed 26 March, 2014 KPMG mary 196Private and confidential al Fincngs Dre 8 February 20 | Qube Digital 2 | bBo 5.33 53.3% 3| | Transcend 2.60 26.0% 4 Tender Summary Report: Supplier Selection’ The final combined technical evaluation was as follows: ‘Table 57: Summary of combined technical evaluation results Ce ee ce Se ee) ee Ca erie) 18.20 12.74 5.33 2 Qube Digital 5.44 3| | = | Transcend 2.60 38.93% 4 Tender Summary Report: Supplier Selection® According to the Tender Summary Report, only Squad scored over 70% and met the technical requirements thus proceeded to the Commercial evaluation phase. Following completion of the tender evaluation, the Evaluation Committee recommended that the Digital Agency contract be awarded to Squad for a period of 2 years effective 1 May 2014, This recommendation was approved and Squad was contracted. Safaricom issued an Award Letter dated 12 May 2014" to Squad which served as an offer to provide Safaricom with digital agency services. It is stipulated therein that ® Refer to Exhibit 220: Copy of Digital Marketing Communications Agency Tender Summary Report signed 26 March, 2014. Exhibit 220: Copy of Digital Marketing Communications Agency Tender Summary ort signed 26 March, 2014 ® Refer to Exhibit 221: Copy of Sefaricom Award Letter to Squad Digital dated 12 May, 2074. KPMG511.4 Private and confidentia! Setaricom Linites Facnsl Findings Draft epot 18 Fetnry 2016 ‘Squad had been awarded the tender and that the contract was going to be for a period of two years from 1 May 2014 to 30 April 2016. Squad responded to Safaricom’s award letter with an Acceptance of Offer Letter dated 13 May 2014, in which they acknowledged receipt of Safaricom's award letter and they accepted their offer. In our consultation meeting with Kinyanjui and Mungei,”** they confirmed the above selection process. Contracting Squad's contract was dated 1 May 2014 and they wereito provide digital marketing agency services for a period of two years ending 30’April 2016." According to the approved Tender Summary Report on Digital Marketing, Communications Agency of March 2014, the budget for this contract is under the Opex,Budget, with a retainer of Kshs 9,934,143.00 per month subject to 16% VAT. The Agreement was signed by Joseph Ogutu on.behalf of Safaricom and Manish Sandene on behalf of Squad. Under the contract, Squad was to provide the following services: * Strategic planning services; * client service management; * creative servi * development and maintenance services; + online media services; * social media; and ‘+ expenditure management. We observed that Squad is an affiliated agency of ScanGroup. % Refer to Exhibit 222: Copy of Squad Digital Acceptance of Offer Letter to Safaricom dated 13 May, 2014. ™ Refer to Exhibit 219: Consultation Minutes for Meeting with Kui Kinyanjui and Brian Mungei on 4 November, 2018. 8 Refer to Exhibit 223: Copy of Agreement for the Provision of Digital Marketing Agency Services dated 1 May, 2014 cr v05.11.5.2 5.11.6 Private and confidential Kinyanjui and Mungei informed us that video production was outsourced by Squad, and subcontracting was paid for as an additional cost to Safaricom. However, in the fee break down provided in Schedule 2 of the Agreement," there is a 15% cost charged by Squad as digital production commission (online videos and animation). It is not clearly stated what this 15% relates to, neither has a budget been attached to it to determine whether the costs charged to Safaricom was indeed covered Additionally, the contract stipulates in Schedule 2 that Squad has its own in house video production capability. However, we were not provided with evidence of the requirement for this outsourcing of video production (at an extra charge) when Squad was expected to have this capability. Work done outside the contract Kinyanjui confirmed that Squad was tasked to revamp the Safaricom Corporate Website, which was a task out of the contracted scope? She also provided the approval for this task, that is, “Approval for website go live- Nov 2015”. Subcontracting Clause 12,2 of the contractiproyides that Squad may sub-contract all or part of the agreement with prior consent fromm) Safaricom. Mungei informed us that Squad sub-contracted the video production aspect of the contract, for development; and with the Zindua project which was an innovation platform. Evidence of approval for. this subcontracting was yet to be provided for our consideration Payment The monthly rate for the provision of these services to Safaricom are as follows + Kshs 8,829,212.00 for year |; and * Kshs 9,270,672.60 for year I 10 Exhibit 223: Copy of Agreement for the Provision of Digital Marketing Agency Services red 1 May, 2014. 10 Exhibit 225: Copy of Approval for website go live- Nov 2015. KPMGPrivate and eontidentist Sefeicam Limtes Factual Findings Dretrepct 18 Febery 2006 Kinyanjui stated that Safaricom chose the retainer route because they view Squad as consultants to Safaricom Mungei explained that for the first year, the monthly retainer fee was as per the contract. However, in the second year is when the 5% flat rate increase wes done on the total retainer fees, which then increased the fees to Kshs 9.2 million. Kinyanjui and Mungei stated that payment to any subcontractor is done through Squad. In order to control Squad from having an inflated mark-up on subcontractor(s) fees, Kinyanjui stated that the contract specifically caps Squad's mark-up to 15%, considered the standard agency mark-up for these kinds of contracts.° We observed from system transaction records that the,value of work issued to Squad Digital Limited and the corresponding payments for'the periad 31 March 2014 to 31 August 2015 were as detailed in the table below: Table 58: Summary of payment rel to Squad Digital Limited 19 to Squad Dig te Purchase 2611939,586.20. cre | Payments 62 61 | 186,742,807.00 a 277.50 | adored Kinyanjui and Mungei confirmed to us that the work allocated to Squad would fluctuate ona monthly basis. Given'the fixed nature of the monthly retainer, itis arguable whether the retainer was appropriately earned for every month of delivery. 8° Refer to Exhibit 226: page Copy of Agreement for the Provision of Digital Marketing Agency Services dated 1 May 2014 ~ Page 27 puis