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EOH says bribery, corruption limited to a few individuals, subsidiaries

EOH CEO Stephen van Coller

EOH CEO Stephen van Coller

16th July 2019

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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JSE-listed information technology services company EOH on Tuesday revealed the preliminary findings of a forensic investigation conducted by legal firm ENSafrica into suspected bribery and corruption at the R18-billion-a-year-turnover company.

EOH CEO Stephen van Coller said the scale of the bribery, corruption and inflated payments was found to have been about R1.2-billion and principally took place between 2014 and 2017. It mainly involved eight former EOH head office employees and public sector subsidiary EOH Mthombo.

About 84% of the suspicious payments were limited to 20 suppliers and a total of 78 supplier entities were being investigated to determine whether appropriate work was done for services rendered, he said.

“While R300-million a year over four years are big numbers, it was localised and most of the company’s 272 subsidiaries were not involved,” said Van Coller.

Some of the indicators of unethical and suspected criminal behaviour included single-director companies; that some of the supplier companies had shared directors; round-figure payments were made that should have included detailed time and materials bills; and whistle-blower information on enterprise development suppliers who did not perform the expected work or add value to the projects.

The contracts under investigation have been concluded, and EOH has already provided two Prevention and Combating of Corrupt Activities Act Section 34 reports to the Directorate for Priority Crimes Investigation (Hawks) and submitted a Financial Intelligence Centre (FIC) Act Section 24 report to the FIC.

The company will pursue criminal charges against the perpetrators and try to claw back money from inflated payments or for work not performed.

Further, the company has split its financial and legal, compliance and risk functions in its board and the new board meets King IV requirements.

EOH has also instituted various anti-bribery and -corruption policies and practices in line with International Standards Organisation ISO 37001 Anti Bribery Management Systems.

“This will prevent the situation where a person can be a game keeper and poacher, approving and authorising payments,” Van Coller said.

Praising the “enormous work” done by the teams and the largely new board since last year, he compared the governance changes to those undertaken by the banks in 2009 and 2010, noting that it had been painful, but that much had normalised since.

“We have four layers of defence against bribery and corruption. The anti-bribery and -corruption practices and policies that our staff must adhere to – including best-practice restrictions on gifts, donations, entertainment and travel – are the first line.

“All our staff have been trained in the new policies and, if a customer requests something outside these parameters when negotiating, our staff can explain to them what is permitted. If they do not comply, we will not do business with them,” added Van Coller.

The second line of defence is the risk and compliance processes; the third is the internal audit processes, which consulting and services multinational PwC is helping to put in place; and the fourth line of defence is the external audits.

“This is best-of-breed and is what is expected of us as a listed company.”

The next phase of the work to be done by ENSafrica and forensic investigators, led by ENSafrica forensic department head Steven Powell, is to determine the best way forward, including criminal prosecutions and civil claims to recoup money as far as possible.

Further, any additional issues and suspect transactions, either from the period under investigation or since, will also be investigated by ENSafrica.

“We will cooperate with the authorities and this is the instruction we have given ENSafrica, as well as to ensure that, if anything new comes up, we take appropriate action. It is disappointing that a few people can take so much from so many. And this is why we have a zero tolerance on corruption stance by the board, which is so important for EOH and for the country.”

RESIGNATIONS AND NEW STRUCTURE

EOH, in a statement on Monday evening, also announced the resignation of three long-serving leaders – nonexecutive director Pumeza Bam, Nextec executive director and CEO Zunaid Mayet and EOH ICT executive director and CEO Rob Godlonton.

Van Coller thanked them for their hard work and years of service and applauded their decisions to provide space for the new board and management.

“They have shown amazing leadership and I believe they set an example of good leadership.”

Van Coller detailed some of the restructuring work done to liberate EOH’s subsidiaries and business units to grow at their own pace.

He highlighted that the head office had been bloated trying to control 272 legal entities and was not creating value. Everything was a single-speed company, and had a lowest common denominator effect. This is why a banker was brought in to separate out these companies and create value, he stated.

“The structure was old fashioned, hierarchical and we aim to get back to our entrepreneurial roots. This resulted in the establishment of EOH as an investment holding company that will allow the different businesses to grow at their own speed within a multiple-speed business.

“We have also changed the head office to a head-office-as-a-service and profit-centre set-up where subsidiaries are at arm’s length and can make use of the services if they want to. If not, they have to fulfil these roles themselves according to the regulations and policies.”

Further, Van Coller highlighted that EOH had outsourced its property management, which had resulted in savings of R40-million.

“When I got here last year, I found a great, innovative company of 11 000 hard-working people. This is the reason we have to go through these processes to keep the good.”

He added that the company had found lucrative intellectual property (IP) businesses within the EOH stable, but which had not been given room to breathe and grow.

“We have found more of those [IP companies],” he added.

Van Coller highlighted the sale of construction software IP business CCS, which was recently sold to a listed German construction and building software company for 8.5 times its earnings before interest, taxes, depreciation and amortisation.

“This is a huge accolade for the people of EOH working in the heart of South Africa and other countries.”

Van Coller thanked the staff for their support, whom he addressed during the Tuesday briefing and held a closed question-and-answer session with after the briefing.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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