Court orders Reserve Bank to release forensic audit report

Judge Kenyatta Nyirenda has ordered the Reserve Bank of Malawi (RBM) to produce its forensic audit report within three days in an ongoing K1.8 billion ICT procurement case.

The ruling follows an application by Sparc Systems Limited, the first interested party, for an order compelling the Claimant (RBM) to produce and disclose the Forensic Audit Report dated May, 2021 prepared for it by Deloitte, a firm of auditors.

In the case, RBM is challenging the decision of Public Procurement and Disposal of Assets Authority (PPDA) which ordered it to retender the ICT procurements after finding irregularities in the procurement process.

RBM and Mitra Systems (the second interested party) had objected to the inclusion of the Audit report to the case.

The Central Bank had objected the availability of the Forensic Audit Report saying Sparcs Systems Limited had failed to make out a cogent case meriting the granting of the order being sought and only the Court should call for the report if deemed important to do so.

In a sworn affidavit, Sparc Systems managing director argued that the Forensic Report which was ordered by RBM for its own investigation is relevant and necessary to the Court proceedings as it will show that the Claimant (RBM), knew all along that there were serious irregularities with the procurement proceeding now under review, despite the position that it has adopted in these proceedings.

Sparc submitted that amongst others, the forensic audit found that their competitor did not qualify to be awarded the contract in issue as RBM had intended and RBM changed the evaluation matrix in the middle of the procurement process to favour Mitra Systems by amongst others removing the requirement of the experience of the firm to have 5 years minimum experience.

Sparc also argued that Mitra Systems lacked financial capacity to execute the contract as evidenced by its intention to ask for a 60 percent upfront payment in the event of being awarded the contract which was in clear and brazen breach of a requirement for financial capacity and also that it did not have proven track record of having executed a contract of that magnitude.

According to Sparc, the disclosure of this Report will give the Court full information on what transpired and which information has hitherto been hidden to all the parties to this litigation aside from the Claimant (RBM).

In his ruling, Judge Nyirenda rebuffed the Central Bank saying it was duty bound to disclose the Forensic Audit Report both under Order 15, rule 1, of the CPR and under the duty of condour.

He also added that he was more than convinced that the advantages of disclosure outweigh the disadvantages of disclosure in that the Sparcs Systems Limited would suffer a litigious disadvantage by not seeing or using the Forensic Audit Report and the Reserve Bank would enjoy an unfair litigious advantage by refusing to disclose the Forensic Audit Report which is its possession, custody or control.

“As already stated, it is the Claimant who instructed Deloitte to prepare the Forensic Audit Report. Furthermore, the party that is being required to make the disclosure, that is, the Claimant, has not raised any issue regarding its financial capacity to disclose the Forensic Audit Report. It is, accordingly, my finding that the Claimant has sufficient financial resources to do so,” said Judge Nyirenda

He added: “In view of foregoing and by reason thereof, I am inclined to exercising my discretion in favour of allowing the application.

“I, accordingly, order the claimant [RBM] to produce and disclose to the first Interested party [Sparc Systems] and the other parties to this case the forensic audit report.”

In May 2020, RBM invited bids for the supply and delivery of ICT hardware for flexcube upgrade and ICT hardware for Automated Transfer System and  on November 16 2020, RBM published an intention to award both contracts to Market Insights Tracking (Mitra) Systems, a foreign-owned firm that did not meet the Bank’s own set evaluation criteria during the bidding process.

The decision forced Sparc Systems Limited to lodge a complaint to the PPDA which then ordered the Central Bank to re-tender the bids which was awarded to Mitra Systems Limited.

This did not go well with the Central Bank which took the issue to the High Court suing Sparc Systems Limited in a bid to convince the Court to still go ahead to award the said ICT company the controversial contracts.

But this was rejected by Judge Nyirenda who faulted RBM for wrongly naming Sparc Systems Limited as defendant instead of PPDA which had ordered it to re-tender, saying Sparcs Systems Limited was an interested party in the whole saga.

Sparcs Systems Limited had faulted RBM for flouting its own set of rules, which among others, included a requirement of a 5-year experience in supply of ICT equipment.

The company which was awarded the contracts had a two-year experience, contrary to the set of rules that were placed in the bidding process. The Central Bank had defended the decision by claiming that Mitra Systems Limited met the requirements

RBM also argued that Sparcs Systems Limited failed to submit Manufacturer Authorization from Dell, an accusation which was turned down by the company which went ahead to show the review committee that it had matched the requirements to all the criteria including the Manufacturer Authorizations and technical details as requested in the bidding process.

Sparc also refuted RBM claim that the company had only one traceable reference in the bidding document which the Bank showed as a basis of disqualification. The company said it has more experience and references not only in Malawi but across Africa as shown in its bidding document and company profile submitted to RBM.

The Malawian ICT Service providers then went ahead to accuse the Bank of not following the procedure at bid opening by failing to go through the bid opening checklist to verify if the requested information was available in the bids, a normal trend that ensured the availability of Manufacturer’ Authorization, bid security and bid validity period are checked and verified in the presence of representatives.

And when Sparc Systems Limited brought these accusations against RBM to the PPDA review committee which then ordered the Central Bank to render, the Bank rushed to the Court to obtain a stay of the enforcement of the decision by PPDA, questioning the committee’s legal powers and also accusing the committee of not providing enough reasons for its decision and also adding that the equipment was needed urgently for the running of critical systems for the Bank.

The latest verdict from Judge Nyirenda is a blow to the Central Bank which has set its eyes on going ahead to award the controversial contracts to Mitra Systems Limited.

The Court has since postponed the next hearing of the substantive judicial review, which was scheduled for 20th July, 2021, to 27th July 2021 at 10 o’clock in the forenoon.

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