Case Study No 1.

Supply Chain (Audit Committee and Internal Control) / Corporate Governance

Saleh AM Contract supply Qs
Saleh AM Contract Supply
HQs
1 ABC has signed Frame Agreement(s) for the Supply of Cross Connection Cabinets (under Tender No.
PROC.1-1/2) with M/s Haziq International and M/s Asim and Company dated 01.10.2013 valid till 30.09.2016
with price validation till 29.09.2015.
2 Upon keeping in view last expiry of Price validity and as per directives of higher Management, in
order to ensure better/smooth supply chain and competitive products/pricing, M/s Zain was also
invited for price negotiation. Wherein, all Contractors were advised to provide maximum possible
price discount in line with the pricing of Principal Contract. In response, M/s Zain came up with
quite aggressive prices and submitted its offer with an overall decrease of 2~75% in Contractual Price
i.e. from 37~75% in Fiber Type, 5~9% in Iron Type and 2~7% in Iron Type CT Box respectively.
Afterwards P&SC approached M/s Haziq & Company and M/s Asim & Company for further
discount and after multiple round of negotiations both bidders agreed submitted/matched the same
(enclosed as F/B) as tabulated below:

*Contract Unit New Contractual Unit Price

ABC ITEM Rate DDP-PKR
S.No. Specificati DESCRIPTIO DDP-PKR (Incl. of 17% GST) Difference/Saving
ons N (Incl. of 17% Haziq Asim and
M/s Zain
GST) Intl. Company
Cabinet
1 138,500 34,375 34,375 34,375 104,125 75%
150 Pairs
LW77A Cabinet
2 Fiber Type 145,500 38,125 38,125 38,125 107,375 74%
(with 10 200 Pairs
Pair IDC Cabinet
3 Module)
148,500 50,625 50,625 50,625 97,875 66%
300 Pairs
Cabinet
4 159,000 80,000 80,000 80,000 79,000 50%
400 Pairs

Saleh AM Contract 3 Summarizing the above and as per Authority Matrix, approval of CPO is solicited to sign Frame
Supply HQs Agreement(s)/Amendment with aforementioned Contractors and award of work in favor of M/s Zain
 and Company (details of consolidated requirement of various Business Operations communicated via
M&L Store under PR #1472 (enclosed as F/C) are tabulated below). Frame Agreement(s) shall be
valid for a period of three (03) years effective from 20-12-2015, however prices shall be
reviewed/negotiated annually (Initial prices are valid from 20-12-2015 to 19-12-2016) if required as
per mutual consent of the parties.

Total
Qty Unit Rate
Material Item Description Price
(each) DDP-PKR
DDP-PKR

CC Cabinet Fiber 850 with 10 Pair 42,500,00

42006240 400 106,250
IDC Module 0
42,500,000
Net Total DDP - PKR (Inclusive of 17% GST)
/-

Aqsa Manager 4 Submitted for kind approval of CPO as per para No. 2 & 3 please.
Procurement

Rabia GM (Supply 5 Submitted for review/ vetting of GM-PF prior to accord with approval of CPO to sign Frame
Chain) Agreement(s with aforementioned Contractors and award of initial work/ PO in favor of M/s Zain
(details of consolidated requirement of various Business Operations communicated via M&L Store
under PR #1472 (enclosed as F/C) are tabulated below) owing to offering very aggressive/
competitive rates. Frame Agreement(s) shall be valid for a period of three (03) years, however prices
shall be reviewed/ negotiated annually if required as per mutual consent of the parties as detailed
hereto.

Maha General 6 Please check

Manager (Purchase
Finance)
Adam SM (Purchase 7 ABC signed Frame Agreement for Supply of Cross Connection Cabinets against PROC.1-
Finance) 1/2/130613/0818 with M/s Haziq International and M/s Asim International dated 01.10.2013 valid
upto 30.09.2016 with price validation till 29.09.2015. Copy of frame agreement with M/s Haziq
International is placed at Flag-A.

Adam SM (Purchase 8 As mentioned in Para 2/N, upon directives of higher Management, M/s Zain and Company was also
Finance) invited for price negotiation in order to have competitive products/ pricing. M/s Zain and Company
came up with quite aggressive prices and submitted its offer with an overall decrease of 2~75% in
Contractual Price. Afterwards, after multiple rounds of negotiations, M/s Haziq International and M/s
Asim International also matched their prices with Zain and Company (attached at F/B). New prices
are mentioned at Para 2/N whereas savings have been cross-checked with previous agreement.

Adam SM (Purchase 9 Apart from above, current requirement of 400 CC cabinet 850 pairs (LW77A Fiber Type with 10 pair
Finance) IDC module) will be awarded to M/S Zain and Company as per new price as follows:

Total Price as per Total Price as

%age
Item Description Qty (EA) Previous Rate per New Rate
Savings
DDP-PKR DDP-PKR
CC cabinet 850 pairs 400 90,000,000 42,500,000 53%
Net Total DDP – PKR (Inclusive of 17% GST) 42,500,000

Adam SM (Purchase 10 In view of above, the case may be forwarded for further processing pl.
Finance)

Maha General 11 The case may be further processes as per DOP.

Manager (Purchase
Finance)
Rabia

GM (Supply Chain) 12 Submitted for approval of CPO to sign Frame Agreement(s) with aforementioned contractors (valid for period
of three (03) years, however prices shall be reviewed / negotiated annually if required as per mutual consent
of the parties) and award of initial work/PO in favour of M/s Zain intl. worth DDP-PKR 42,500,000/- as
detailed hereto.

Anas EVP

(Procurement & Supply Chain) 13 your kind approval is hereby requested for the signing of Frame Agreement with M/s Zian intl., M/s
Haziq & Company and M/s Asim & Company for supply of Cross Connections Cabinets valid for a period of
three (03) years, however prices shall be reviewed / negotiated annually if required as mutual consent of the
parties) and award of initial work / PO in favor of M/s Zain Intl worth DDP-PKR 42,500,000/- for the supply
of 400cc Cabinets 850 pairs (Fiber Type).

SaadChief Procurement officer (CPO) 14 Approved

Anas

EVP Procurement & Supply Chain 15 Please proceeds further.

Rabia

GM (Supply Chain) 16 Please proceed.

Additional notes
Internal audit Findings ( CIA Usman, EVP Amnah )
Procurement Department
1. There should be open tender as per requirement of procurement manual.
2. Purchase order was issued in December 2015 before the approval of frame Agreement
3. It was a slow moving item and already available unit in inventory was 245. High risk of
impairment loss.
4. Demand for the purchase of Fiber Cabinet was not raised by end users.
5. It is suspected that there was collusion among Procurement and Finance Department personals.
6. The Vendor was facilitated out of way.

Finance Department
1. Inventory demand not checked
2. Inventory status / available inventory was not checked
3. Why recommended for additional purchase?
4. Commercial Evaluation sheet is not prepared
 The question that was not asked that how the payment was released.
Reply of Procurement Department

1. All manufacturers of Pakistan producing the types of material required was the part of the
process and subsequently all the vendors matched the discounted prices as offered by Zain
and Company.
2. To take the aggressive discounts, it was required to place the order before the end of year
and this is not for the first time in ABC. There are a number of cases where discounts are
availed which are time bound to take the benefit.
3. Slow moving is not for the reason of demand; it is because of budget constraint, as Iron
cabinet is a running item which is a direct substitute of Fiber Cabinet but of low quality and
shorter useful life. This massive discounts will bring the average prices of Fiber Cabinets
near to Iron cabinet and with the marginal increase in budget, a high quality and longer life
cabinet may be used which in turn will help to reduce the churn of customers. In the recent
way forward meeting President of ABC has also recommended the use of Fiber Cabinets.
4. As explained above, demand of Iron cabinet was there which is the direct substitute but of
low quality and shorter useful life.
5. This is simply an Internal Audit imagination. We saved for ABC an amount of PKR 47.5
million in this deal.
6. It was done to break the cartel and not done for the first time.
Reply of Finance Department.

1. This is not the duty of Finance department to check the demand, however it is clearly mentioned
in para 5 by Rabia GM (supply Chain) that PR is raised on demand of the regions/ zones.
2. Same as above. There is a Separate Inventory management section and performing their duties
as per Manual of Inventory Management. Purchase Manual and Inventory Management manual
clearly define the processes and the person responsible for these actions. However, when the
Purchase order is issued, Fund Availability Certificate (FAC) is required and position of stock is
checked by budget wing which is a separate department. In this case the payment is released
without asking for the Funds Availability Certificate (FAC).
3. It was done to take the massive discounts and the case was recommended subject to Delegation
of Power (DoP) which clearly states that no purchases can be made without provision of Budget.
4. Commercial evaluation is this case was very simple as we need to compare the prices of
different items that is done in the same case which are pasted at Para 2 as rest of the
requirements were already in order.