The furore over corruption deals involving information technology contracts with EOH is more about the media’s lack of attention span than about the current state of play at the IT services company.
Over the past two years, the anti-corruption stance taken by EOH Group CEO Stephen van Coller has provided a case study in transparent leadership and commitment to root out corruption. In particular, after his appointment in 2018, he had initiated a forensic investigation into allegations of fraudulent Microsoft licence sales and dubious contracts with the City of Johannesburg, the National Prosecuting Authority, and the Department of Defence. Subsequently, he closed down entire divisions and fired employees and directors implicated.
On 23 November 2020 he gave the Zondo Commission on State Capture a chapter-and-verse account of the corruption that had been uncovered, and the failures in governance that had allowed these to happen. Most significantly, he had said, EOH had ensured that 85 enterprise development firms involved in the corruption would be blacklisted from government procurement.
Astonishingly, in the past two weeks, a media frenzy erupted after the Special Investigations Unit (SIU) released a media statement relating to the Microsoft licence sales – effectively confirming what Van Coller has already spelled out in detail. The furore intensified around a court attempt by “pressure group” Transform RSA to force FNB to withdraw EOH banking facilities and to charge it with money-laundering for “enabling graft”. The attempt appeared to be largely an effort to punish FNB for closing bank accounts operated by AYO Technology Solutions, with the participants in the case aligning themselves with AYO and its effective major shareholder Iqbal Survee. His Sekunjalo Investment Holdings owns 62% of African Equity, which in turn holds 49% of AYO, making it the largest shareholder.
The Public Investment Corporation invested R4,3-billion in AYO when it listed in 2017, for 29% of its shares, despite AYO having assets worth only R292-million at the time. The PIC is in a legal battle with AYO to get back its investment. Both FNB and Absa have advised AYO it will withdraw their banking facilities due to corruption allegations.
AYO this week lost a high court application to stop FNB from closing its accounts. The attempt by Transform RSA to charge FNB with corruption and have EOH bank facilities withdrawn came as the Gauteng South High Court was due to deliver its decision on the AYO accounts.
Most media appear to have missed the connection. The primary difference between the two cases, of course, is that EOH has gone to extraordinary lengths to deal with allegations of corruption, and has been fully transparent. AYO, on the other hand, has denied all allegations and refused to address the substance of any allegations.
Van Coller spelled out EOH’s position at length today: “The recent heightened media activity that EOH has encountered over the last few weeks, is largely as a result of EOH’s transformation strategy which has been systematically and regularly reported to all stakeholders. In our quest to become an ethically sound and sustainable business, EOH has had to review and re-evaluate certain historical contracts (Legacy Contracts). This process has resulted in EOH having to terminate and/or regularise certain contracts and business relationships.
“These decisions have not been taken lightly but have been necessary both in the context of our obligations as a listed entity and in balancing the interests of all stakeholders. As can be expected some stakeholders may be adversely affected by these decisions and the resulting actions. These steps have however been required in order to rectify and safeguard against the type of legacy irregularities that EOH previously experienced.
“Over the past two years, EOH’s new management team and new board of directors have worked tirelessly to enhance governance practices and root out corruption to successfully restore the Group’s reputation. EOH continues to deal with its customers, partners and banks transparently and ethically.”
Van Coller committed his 7000-employee organisation to maintain a zero-tolerance approach towards corruption.
“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 DPCI and the FIC, prior to the Group being approached by the SIU, and further initiated action in order to recover losses caused by perpetrators of wrongdoing. EOH today is premised on transparent, ethical business practices. Through our actions over the past two years, we have shown the strength of that commitment, and that we will continue to follow the highest standards of governance, risk and compliance.”
Go to the next page to read about the legacy contracts that are still attracting media scrutiny.
EOH provided the following details of “Legacy Contracts” that are currently attracting media scrutiny:
Department of Defence
The Special Investigations Unit (SIU) released a media statement on 21 April 2021 relating to 2016 and 2017 Microsoft licence sales.
EOH released a SENS announcement on 23rd April 2021 which provided clarity on the factual events that led up to the signature of the Acknowledgement of Debt (AoD) which was referenced in the SIU media statement.
Before being contacted by the SIU, regarding the specific irregularities at the Department of Defence (DoD), we had already reported our concerns regarding that matter to National Treasury, the Hawks through their Directorate for Priority Crime Investigations (DPCI) Unit and the Financial Intelligence Centre (FIC).
EOH entered into an AoD with the SIU at the end of September 2020. Since then EOH has already made multiple payments in terms of the AoD, beginning in October 2020.
City of Johannesburg
EOH received open letters addressed to the EOH board and leadership team (also published in the media), as sent by the employees who were employed to render services in relation to a 12-month fixed-term Support Services Agreement (SSA) concluded between EOH Mthombo (Pty) Ltd and the City that expires at the end of April 2021.
EOH has been rendering SAP support services to the City since 2012.
The original agreement was for three years’ worth of support services with the City. The initial contract came to an end in 2015. This work has been extended multiple times over the years, the latest of which (and the resultant conclusion of the Support Services Agreement) took place with effect from 1 May 2020, in accordance with Regulation 36 of the Municipal Finance Management Act (MFMA) Supply Chain Management Regulations.
When the service was renewed with a new contract in April 2020, EOH notified the City, at that same time, that they needed to re-tender the services in terms of the relevant MFMA regulations.
In February 2021, EOH, in an additional attempt to clarify the way forward, sent a written communication to the City, reminding them of the pending expiry of the contract.
EOH’s early notification to the City was also aimed at providing the affected employees with a fair opportunity to seek alternative employment if that was their preference. EOH has followed the stipulated section 189 process in accordance with the relevant legislation as part of the contract termination process. This process has now been completed and EOH has complied with all its statutory and other legal obligations relating to the employees.
It is important to note that the EOH employees involved in this matter are part of the initial contracted support project for the City. EOH has no ability to determine the City tender process, but in an effort to assist the employees EOH has engaged the City regarding the urgency required for timeous resolution of the matter. Furthermore, the City has initiated a closed tender process in which EOH is not a participant.
EOH has provided a written response to the employees’ open letter and, in the interests of absolute transparency, has also held regular meetings with representatives of the employees to ensure that they were consistently appraised of the status quo.
EOH deeply empathises with the employees’ current position and will continue to assist with the transition in compliance with all contractual and labour regulations.
In addition, EOH and the City had a contract for the implementation and upgrade of the City’s SAP ERP system (the ERP Agreement), which was terminated at the beginning of 2021. EOH is currently in the process of executing its post-termination obligations and the City and EOH are in the process of agreeing on an exit plan. In November 2020, EOH presented the City with various options – some of which are still being explored with the City to find a mutually agreeable solution.