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Damning report reveals EOH manipulation of R400m tender

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A damning forensic report, detailing how technology services company EOH seemingly manipulated government’s procurement system to score a R400 million Department of Home Affairs (DHA) biometrics tender, has been placed before Parliament.

The report by auditing firm Nexia SAB&T reveals how EOH and State Information Technology Agency (SITA) senior staffers orchestrated the scheme of making sure the JSE-listed company landed the lucrative contract.

According to the report, confidential DHA documents, including the proposed budget for the project, were provided to EOH beforehand.

The incriminating report recommends the department opens a criminal case with the Directorate for Priority Crime Investigation (the Hawks) so that “it can be established whether corruption, theft or fraud” was committed regarding the tender.

The DHA launched an investigation into the botched Automated Biometric Identification System (ABIS) tender after it was flagged by the auditor-general as irregular.

A forensic investigation by Nexia SAB&T then ensued, looking at the bid evaluation process and contract award as per SITA recommendation.

The contract was for EOH to migrate data on the current Home Affairs National Identification System, which only records photos and fingerprints of South African citizens, to the new ABIS.

The final implementation of the system would provide a single source of identification for citizens across state institutions and private sector entities.

Double-dealing

The investigation report, which was presented to the Home Affairs Portfolio Committee on Monday, says information regarding the ABIS tender was leaked to EOH, giving the company an unfair advantage.

The report notes EOH, and other bid finalists Accenture SA and Ernst & Young (E&Y) Advisory Services, should, in fact, have been disqualified as their “bids were unresponsive and did not comply with the procurement principles”.

“The available evidence indicates SITA’s principal IT manager communicated with EOH before the ABIS project commenced and during the drafting of the specifications. Confidential DHA documents, including the proposed budget for the project, were provided to EOH and should not have been made available to them. This information placed EOH in an advantageous position and rendered the process unfair and non-competitive.

“Applying the procurement legislation and policy prescript, all bidders except for NEC should have been disqualified during the accreditation phase. EOH, EY and Accenture should not have gone through to the second phase of this project, by virtue of the fact that they did not pass phase one, the accreditation phase.”

This, the report says: “Resulted in the tender process not being fair, equitable, competitive or transparent in terms of Section 217 of the Constitution of the Republic of South Africa, Act 108 of 1996.”

Nexia SAB&T says the investigation revealed possible criminal conduct by EOH employees, SITA (current and previous) employees and employees (current and previous) of the DHA, and as such, a detailed criminal investigation is recommended.

“Correspondence from strategic account executive – EOH to executive of EOH, refers to a ‘retainer’ to be paid to SITA principal IT manager. There is a possibility that the reference to a ‘retainer’ may be construed as ‘gratification’ as defined in the PRECCA Act, and same can be confirmed or refuted through a criminal investigation into this matter.”

Fleecing the department

Furthermore, the forensic report shows how EOH, in cahoots with DHA executives, fleeced the department through overcharging for services.

Analysis of the payments revealed that on 27 March 2018, DHA made an overpayment of R5 711 700 to EOH. This, the report says, occurred when the invoice amount was captured as R6 346 324.89 instead of R634 624.89.

“The CFO of the DHA confirmed that the DHA account from which the overpayment was made was an interest-bearing account. The overpayment was ultimately refunded by EOH to the DHA on 16 September 2019, which was approximately 18 months after the overpayment. This means the DHA lost interest on this amount and that EOH may have benefited due to the overpayment.”

The spectacle around the ABIS tender has been unravelling in the past few months.

Last month, SITA flagged the multimillion-rand biometrics contract after it was ceded to French multinational IDEMIA, for violating procurement laws.

SITA executive caretaker Luvuyo Keyise objected to the move, saying besides breaching procurement laws, the cessation was unconstitutional.

He said: “SITA and the minister were asked to concur with the cession of the contract, as supported by National Treasury. The SITA Act does not make provision for such a concurrence. The minister and SITA have not been informed of the reasons behind this cession of the contract, including all documentation provided to National Treasury for their support of this.

“The cession is anti-competitive as it does not comply with the Constitution, the Preferential Procurement Policy Framework Act and other procurement laws and regulations, as IDEMIA will be taking over the contract without any tender process. This cession would also create an unfortunate precedence, as EOH wishes to move away from overall eight contracts in government.”

On Monday, home affairs minister Aaron Motsoaledi told parliamentarians that ceding of the contract had been approved by Treasury.

Contradicting SITA, the minister said cessation had fulfilled government procurement requirements, saying: “The issue of ceding, it’s only Treasury through PFMA that can resolve these types of issues. Remember, the tender of EOH is to modernise, the public are waiting for this modernisation.

“The DG [director-general] has already outlined the benefits. The benefits that will accrue to South African Police Services, the benefits that will accrue to the economy, the benefits that accrue to individuals when they get their IDs, the benefit that accrue to the banks, all those people are waiting because they are going to be beneficiaries to this. It’s either we start from the beginning and take two more years, or Treasury has to evaluate rules and see which is a better one in terms of PFMA; I think in this ceding, that is how it happened.

“You go and ask Treasury; they are the ones empowered by the law to say look, if you do it this way there is value for money, or if you do it that way there is no compliance, don’t do it. We have followed all those steps and we are confident about them.”

EOH hadn’t responded to ITWeb’s request for comment by the time of publication.

However, the company is on record saying it has been completely transparent with authorities, including the Judicial Commission of Enquiry, while also laying criminal charges against the perpetrators of wrongdoing who are no longer employed by the group.

“As a group, we remain absolutely committed to good corporate citizenship and governance, while maintaining a zero-tolerance approach towards corruption,” said Stephen van Coller, EOH Group CEO.

“It is in line with this commitment that EOH provided input to the Judicial Commission of Enquiry regarding identified irregularities.

“It is also in line with this commitment that EOH reported concerns to the Directorate for Priority Crime Investigations Unit and the Financial Intelligence Centre, prior to the group being approached by the SIU [Special Investigating Unit], and further initiated action in order to recover losses caused by perpetrators of wrongdoing. EOH today is premised on transparent, ethical business practices.”

* To read the entire forensic report, click here.

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