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EOH’s governance issues laid bare at Zondo Commission

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At the State Capture Commission yesterday, EOH CEO Stephen van Coller laid bare the governance issues that engulfed the JSE-listed company, including how rogue employees and directors thrived on tender fraud.

Van Coller, who joined the ICT services group in 2018, testified that 10 000 jobs were placed at risk as a result of “suspicious transactions” and “a number of governance failings and wrongdoings”.

The commission, chaired by deputy chief justice Raymond Zondo, heard that individuals suspected of wrongdoing are no longer employed by the company, and several former employees, primarily from the public sector vertical team, have been reported to law enforcement agencies.

Van Coller told the commission that he appointed Africa's largest law firm ENSAfrica, to conduct a forensic investigation into suspicious dealing relating to tenders that included the SA National Defence Force and the Department of Water and Sanitation.

The investigation subsequently revealed over- and under-invoicing, over-charging and charging for more Microsoft licences than were delivered.

According to Van Coller, the investigation unearthed multiple points of failure in governance and oversight mechanisms, inadequate and ineffective controls and inadequate systems, thus creating an enabling environment for wrongdoing, including: “Opaque delegation of authority with significant responsibilities granted to a few executives; artificial/inflated software licence sales; potential tender irregularities; as well as use of politically connected middlemen that are suspected to have been used as introducers and sales agents.”

Furthermore, he said: “Payments were being made to subcontractors in circumstances where there is no evidence that work was done by the said subcontractors. At the time, these payments totalled R1.2 billion, including VAT, and on further investigation, it is currently suspected the potential irregular payments stand at approximately R865 million.”

The investigation also revealed suspected inappropriate gifting, sponsorships and donations.

“EOH, with support from ENS, has fully co-operated and continues to engage with authorities, including the DPCI [Directorate for Priority Crime Investigation], SARS [South African Revenue Service] and other law enforcement authorities.

“A number of Section 34 reports have been filed with the Directorate for Priority Crime Investigation under the Prevention and Combating of Corrupt Activities Act and suspected individuals have been reported to the DPCI, including a number of government employees.”

EOH’s problems surfaced after software giant Microsoft in February 2019 terminated its contract with the IT services company after an anonymous whistle-blower 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.

Van Coller told the commission that EOH continues to co-operate with the authorities and has improved its control framework in line with the board's zero tolerance stance on bribery and corruption.

“The new EOH leadership team will continue to ensure any malfeasance uncovered in the past or future will be dealt with appropriately.

“As a result of all the work done and breaking with the past, I am comfortable that the EOH of today is a fundamentally transformed business, committed to the highest standard of good governance, business integrity and ethics.”

Despite Van Coller’s clean-up efforts, the company is not yet out of the woods, as it is still squabbling with the Department of Home Affairs (DHA) over a biometrics tender.

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 multimillion-rand Automated Biometric Identification System (ABIS).

The ABIS system was supposed to be up and running after 12 months but it’s now two years late.

After months of wrangling and negotiations over the delays, the DHA fined EOH R44 million over the R400 million contract and has recommended it be ceded to a suitable subcontractor.

The matter is also under investigation. DHA political head, minister Aaron Motsoaledi, recently told ITWeb that: “The investigation is looking at the bid evaluation process and contract award as per SITA recommendation. The AG had raised an issue during their audit at SITA.”

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