Probe reveals R1.2bn suspicious transactions at EOH

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 16 Jul 2019
EOH Group CEO Stephen van Coller.
EOH Group CEO Stephen van Coller.

Law firm ENSAfrica has found evidence of a number of governance failings and wrongdoing at EOH.

ENSAfrica was requested to conduct a proactive comprehensive investigation into EOH contracts to identify any wrongdoing or criminal conduct in the acquisition, award or execution of contracts.

According to EOH, ENSAfrica has had unfettered access to all information, financial records and other documentation required for the purposes of conducting this investigation.

EOH’s problems surfaced after software giant Microsoft in February terminated its contract with the IT services company after an anonymous whistle-blower reportedly filed a complaint with the United States Securities and Exchange Commission about alleged malfeasance to do with a R120 million contract with the SA Department of Defence.

Last night, the company announced the resignations of top executives Pumeza Bam; executive director and CEO of EOH subsidiary Nextec, Zunaid Mayet; and executive director and CEO of EOH's ICT business, Rob Godlonton.

Over the past year, the company's stock has plummeted 71.9% and its market cap is now sitting at around R3 billion.

Governance failings

It adds that suspicious transactions of R1.2 billion have been identified and are being investigated by ENSafrica.

The exact nature of each of these transactions has not as yet been verified and may relate to legitimate transactions, theft or bribery and corruption payments, the company says.

ENSafrica will provide the company with bi-monthly updates which will, in turn, inform areas for further investigation and remedial work. EOH will continue to assess the financial impact of the findings, the company says.

Accordingly, it notes, shareholders are advised to continue to exercise caution when dealing in the company’s securities until a further announcement is made.

EOH Group CEO Stephen van Coller held a press briefing to address the ENS findings this morning.

In an interim report, EOH says payments of R1.2 billion (including VAT) to approximately 78 supplier entities are being investigated to determine whether appropriate work was done for services rendered.

It is worth noting that 84% of the payments were made to 20 entities. These payments were largely related to contracts entered into during 2014 and 2017. The majority of these contracts have been completed, says EOH.

Employment terminations

The suspicious transactions arising from the investigation have been reported to the Financial Intelligence Centre in terms of Section 29 of the FIC Act, says EOH.

“EOH is committed to ensuring all perpetrators of wrongdoing are brought to justice. EOH has instructed ENS to initiate criminal charges and lodge civil claims to recover losses, as appropriate.

“The EOH board will act decisively in respect of any further wrongdoing that is identified during the ongoing investigation, in line with its zero tolerance on corruption policy,” the company notes.

On the remedial measures, EOH says in light of these findings, the group is documenting and developing a comprehensive remediation plan.

It notes that a number of remediation measures have already been implemented and others will follow in due course.

According to EOH, extensive work has already been conducted to revise the corporate structure, implement robust risk management and mitigation initiatives, appoint new leadership and increase transparency, accountability and reporting.

New appointments

It says the recent appointments of a new board chairman and three independent, non-executive directors are an important milestone for the EOH Group to enhance and complement leadership capability and governance oversight.

The EOH board is now aligned with King IV principles to support independence and governance, it notes.

Last month, the company announced the appointment of Dr Anushka Bogdanov, Andrew Mthembu and Michael Bosman as independent non-executive directors.

Earlier that month, the JSE-listed company appointed Dr Xolani Mkhwanazi as chairman.

The appointment of a new group financial director was announced in January. This appointment combined with a new head of treasury and investor relations have resulted in improved financial and fiscal discipline, says EOH.

It adds that the position of chief commercial officer has been created and filled to segregate duties between the finance function and the legal, risk and compliance functions.

With the assistance of the University of Stellenbosch Centre for Corporate Governance in Africa and PwC, the group has recently drafted and released a code of conduct and corporate governance framework, and implemented a policy framework.