Corruption almost killed EOH

A number of rogue and corrupt former EOH Holdings employees and directors almost destroyed an entire group through tender fraud with state organisations such as the SA National Defence Force and the Department of Water and Sanitation.

EOH chief executive Stephen van Coller yesterday told the State Capture Commission chaired by Deputy Chief Justice Raymond Zondo that he was made aware through a call from a journalist about potential corruption involving the three State organisations after his appointment in 2018. Van Coller said he appointed legal firm ENSafrica to do a forensic investigation into the allegations and EOH contracts with the City of Johannesburg, and with the National Prosecuting Authority.

He said the investigations revealed over and under-invoicing, over-charging and charging for more Microsoft licences than were delivered. Van Coller said there were severe corporate governance and financial control and policy deficits in the group that comprised 272 individually operating businesses. He said there were no policies on anti-corruption and bribery at the time, no policy on share dealings, including for directors, there was no competition compliance policies, and there was no independent processes in place on procurement.

“This had made it possible for the corruption to go undetected within the group,” he said. “Since then, a range of new appointments and policies had been put in place to correct these problems in the group.” Van Coller said he realised that a R3.2 billion loan from banks was used as a financial recovery package, with cash from the loan being used to repay interest and debt, which was like using a credit card to pay off debt. “There were also no proper (financial) controls that I expected from a listed group,” he said.

There was no head of risk or risk policies, no internal audit committee, no proper delegation of authority, the group was being operated from head office by only “a few directors” with too much authority, the board was not structured in terms of governance norms, there were sub-contractors who were not part of the tenders that were being paid and, often, were being paid for not doing any work or their work was found to have been “dubious” in nature.

Van Coller said the ENSafrica investigation had come up with six key broad findings – there were severe governance failures at EOH, there were cases where there was collusion between the company employees, buyers and owners of the software EOH was selling, there were government tender irregularities, there was inappropriate promotions and gifting, there were suspect payments, and there were timing lapses, such as on work done and payments.

He said EOH had made the findings of investigations available to all the relevant authorities such as the SA Police Service, National Treasury, SA Revenue Services and State Investigations Unit, and an agreement had been reach for EOH to repay the SADF on the two Microsoft contracts concerned, while EOH also hoped to reach a similar agreement with the Department of Water and Sanitation.

On bogus subcontractor payments and companies, he said these were often “hidden in the accounts” and were passed off as enterprise development initiatives which government tenders specified had to be included in procurement tenders. He said these also often involved “middle-men” appointed to obtain political influence in the awarding of tenders, and these individuals were then paid through bogus invoices from the so-called enterprise development firms.

EOH had seen to it that some 85 of these enterprise development firms were blacklisted, to date, from future government procurement. He said that of about R1.2 billion of suspect payments found to have been made at EOH during the period of these contracts, about R700 million was for no work done, and about R160 million for “dubious” work done.